e10vk
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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(Mark One) |
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended December 31, 2006
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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, Ltd.
(Exact Name of Registrant as Specified in Its Charter)
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Bermuda
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98-0355628 |
(State or Other Jurisdiction of
Incorporation or Organization)
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(I.R.S. Employer
Identification Number) |
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600 Travis, Suite 5800, Houston, Texas
(Address of Principal Executive Offices)
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77002
(Zip Code) |
713/209-8400
(Registrants Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
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Name of Each Exchange |
Title of Each Class |
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on Which Registered |
Class A Common Shares, $0.01 par value
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The New York Stock Exchange |
Rights to Purchase Preferred Shares
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The New York Stock Exchange |
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Securities registered pursuant to Section 12(g) of the Act:
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None |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes þ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Exchange Act. Yes o No þ
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act.
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer 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
The aggregate value of the registrants voting and non-voting common equity held by
non-affiliates of the registrant as of June 30, 2006 was $8,485,636,152 based on the closing sale
price as reported on the New York Stock Exchange.
Number of registrants common shares outstanding as of January 31, 2007 91,244,066 publicly
traded Class A common shares, 13,046,201 Class A common shares held by the issuers subsidiaries,
and 54,810,129 Class B common shares held by the issuers subsidiaries.
DOCUMENTS INCORPORATED BY REFERENCE
Cooper Industries, Ltd. Proxy Statement to be filed for the Annual Meeting of Shareholders
to be held on April 24, 2007 (Part II Item 5, Part III Items 10, 11, 12, 13 and 14)
PART I
ITEM 1. BUSINESS
GENERAL
The term Cooper refers to the registrant, Cooper Industries, Ltd., which was incorporated
under the laws of Bermuda on May 22, 2001, and became the successor-registrant to Cooper
Industries, Inc. on May 22, 2002.
Cooper operates in two business segments: Electrical Products and Tools. Cooper
manufactures, markets and sells its products and provides services throughout the world. Cooper
has manufacturing facilities in 21 countries and currently employs approximately 31,000 people.
Operations in the United States are conducted by wholly-owned subsidiaries of Cooper, organized by
the two business segments. Activities outside the United States contribute significantly to the
revenues and operating earnings of both segments of Cooper. These activities are conducted in
major commercial countries by wholly-owned subsidiaries and jointly-owned companies, the management
of which is structured through Coopers two business segments. As a result of operations outside
the United States, sales and distribution networks are maintained throughout most of the
industrialized world. Cooper generally believes that there are no substantial differences in the
business risks associated with operations outside the United States compared with United States
activities, although Cooper is subject to certain political and economic uncertainties encountered
in activities outside the United States, including trade barriers and restrictions on the exchange
and fluctuations of currency. Cooper generates the most non-U.S. revenues in Canada, Germany,
France, Mexico and the United Kingdom. Cooper has operations in India, Malaysia and China and has
several joint ventures with operations in China. Investments in emerging markets such as India,
Malaysia and China are subject to greater risks related to economic and political uncertainties as
compared to most countries where Cooper has operations. Exhibit 21.0 contains a list of Coopers
subsidiaries.
Financial information with respect to Coopers industry segments and geographic areas is
contained in Note 15 of the Notes to the Consolidated Financial Statements. A discussion of
acquisitions and divestitures is included in Notes 3, 7 and 16 of the Notes to the Consolidated
Financial Statements.
With its two business segments, Cooper serves four major markets: the industrial, commercial
construction, residential and utility markets. Cooper also serves the electronics and
telecommunications markets. Markets for Coopers products and services are worldwide, though the
United States is the largest market. Within the United States, there is no material geographic
concentration by state or region. Cooper experiences substantial competition in both of its
business segments. The number and size of competitors vary considerably depending on the product
line. Cooper cannot specify with exactitude the number of competitors in each product category or
their relative market position. However, most operating units experience significant competition
from both larger and smaller companies with the key competitive factors being customer and end-user
service, price, quality, brand name and availability. Cooper considers its reputation as a
manufacturer of a broad line of quality products and premier brands to be an important factor in
its businesses. Cooper believes that it is among the leading manufacturers in the world of
electrical distribution equipment, wiring devices, support systems, hazardous duty electrical
equipment, lighting fixtures, emergency lighting, fuses, nonpower hand tools and industrial power
tools.
Coopers research and development activities are for purposes of improving existing products
and services and originating new products. During 2006, approximately $83.5 million was spent for
research and development activities as compared with approximately $71.5 million in 2005 and $70.6
million in 2004. Cooper obtains and holds patents on products and designs in the United States and
many other countries where operations are conducted or products are sold. Although in the
aggregate Coopers patents are important in the operation of its businesses, the loss by expiration
or otherwise of any one patent or license or group of patents or licenses would not materially
affect its business.
2
Cooper does not presently anticipate that compliance with currently applicable environmental
regulations and controls will significantly change its competitive position, capital spending or
earnings during 2007. Cooper has been a party to administrative and legal proceedings with
governmental agencies that have arisen under statutory provisions regulating the discharge or
potential discharge of material into the environment. Orders and decrees consented to by Cooper,
or currently under negotiation with state regulatory agencies, have contained agreed-upon
timetables for fulfilling reporting or remediation obligations or maintaining specified air and
water discharge levels in connection with permits for the operations of various plants. Cooper
believes it is in compliance with the orders and decrees, and such compliance is not material to
the business or financial condition of Cooper. For additional information concerning Coopers
accruals for environmental liabilities, see Note 7 of the Notes to the Consolidated Financial
Statements.
Approximately 62 percent of the United States hourly production work force of Cooper is
employed in 45 manufacturing facilities, distribution centers and warehouses not covered by labor
agreements. Numerous agreements covering approximately 38 percent of all hourly production
employees exist with 17 bargaining units at 20 operations in the United States and with various
unions at 32 operations in other countries. During 2006, new agreements were concluded covering
hourly production employees at 7 operations in the United States. Cooper considers its employee
relations to be excellent.
Sales backlog at December 31, 2006 was approximately $677.6 million, all of which is for
delivery during 2007, compared with backlog of approximately $479.9 million at December 31, 2005.
Coopers annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 are available, free of charge, at the Investor Center tab on
Coopers website (www.cooperindustries.com) as soon as reasonably practicable after such material
is electronically filed with or furnished to the Securities Exchange Commission.
The following describes the business conducted by each of Coopers business segments.
Additional information regarding the products, markets and distribution methods for each segment is
set forth in the table at the end of this Item. Information concerning market conditions, as well
as information concerning revenues and operating earnings for each segment, is included under Item
7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
Electrical Products
The Electrical Products segment manufactures, markets and sells electrical and circuit
protection products, including fittings, support systems, enclosures, wiring devices, plugs,
receptacles, lighting fixtures, hazardous duty electrical equipment, fuses, emergency lighting,
fire detection systems and security products for use in residential, commercial and industrial
construction, 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 and other related power systems
components.
The principal raw material requirements include: steel, copper, aluminum, aluminum ingots,
brass, tin, lead, plastics, electronic components and insulating materials including transformer
oil. These raw materials are available from and supplied by numerous sources located in the United
States and other countries, although there are limited sources of supply for electrical core steel
and transformer oil that Cooper uses in electrical power transmission and distribution products.
Demand for electrical products follows general economic conditions and is generally sensitive
to activity in the commercial and residential construction markets, industrial production levels,
electronic
3
component production and spending by utilities for replacements, expansions and efficiency
improvements. The segments product lines are marketed directly to original equipment
manufacturers and utilities and to a variety of end users through major distributor chains, retail
home centers, hardware outlets and thousands of independent distributors.
Tools
The Tools segment manufactures, markets and sells hand tools for industrial, construction and
consumer markets; automated assembly systems for industrial markets; and electric and pneumatic
industrial power tools for general industry, primarily automotive and aerospace manufacturers.
The principal raw material requirements include: flat and bar stock steel, brass, copper,
fiberglass, aluminum, metal castings and forgings, wood, plastic pellets and plastic sheet. These
materials are available from and supplied by numerous sources located in the United States and
other countries.
Demand for nonpowered hand tools, assembly systems and industrial power tools is driven by
employment levels and industrial activity in major industrial countries and by consumer spending.
In addition, demand for industrial power tools is influenced by automotive and aerospace
production. The segments products are sold by a company sales force, independent distributors and
retailers.
4
COOPER INDUSTRIES, LTD.
PRODUCTS, MARKETS AND DISTRIBUTION METHODS BY SEGMENT
Electrical Products - Major Products and Brands
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Access Cabinets, E2 Cabinets and Enviroshield electrical
enclosures. |
Arktite and eXLink plugs and receptacles. |
Ametrix, Corelite and Neo-Ray indirect lighting products. |
Aspire and Siena decorative wiring devices. |
Aspire RF radio frequency controls, switches and receptacles. |
AtLite commercial, exit and emergency lighting. |
B-Line support systems, enclosures, fasteners. |
Bussmann and Buss electrical and electronic fuses. |
Cam-Lok electrical connectors. |
Cannon Technologies and Cybectec software and automation
technologies. |
Capri cable accessories and flexible conduits. |
CEAG emergency lighting systems and explosion protected
electrical materials. |
Cent-R-Rail and Redi-Rail metal rack units and cable trays. |
Champ and Hazard-Gard HID and fluorescent lighting. |
Coiltronics inductors and transformers. |
Combined Technologies current-limiting fuses. |
Condulet fittings and outlet bodies. |
Cooper Fire, Fulleon and Nugelec fire detection systems. |
Cooper Power Systems distribution transformers, power capacitors,
voltage regulators, surge arresters and SCADA master stations. |
Cooper Wiring Devices circuit protective devices. |
Crompton lighting fixtures. |
Crouse-Hinds and CEAG electrical construction materials and
Crouse-Hinds aviation lighting products. |
CUBEFuse fuses, fuse holders and fuse boxes. |
DLS electrical wiring and control systems. |
Domex electrical construction materials. |
Dura-Cooper and Dura-Green epoxy coatings. |
Edison and Edison Pro relays and fusegear. |
Edison Series Metering residential and commercial meter bases. |
Eletromec DIN style fuses. |
Emerald consumer recessed and track lighting. |
EMSA power transformers. |
Envirotemp dielectric fluids. |
EX-Cell and NexT industrial enclosures. |
Fail-Safe high abuse, clean room and vandal-resistant lighting fixtures. |
Fusetron electric fuses and protectors. |
G&H specialty connectors. |
Halo recessed and track lighting fixtures. |
Hart-Lock electrical receptacles, caps, connectors and accessories. |
INVUE outdoor architectural lighting. |
IriS lighting systems. |
JSB, Luminox and Menvier emergency lighting and fire
detection systems. |
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Karp, Edison, Mercury and B&S electrical fuses. |
Kearney fuses, connectors, tools and switches. |
Kyle distribution switchgear. |
Limitron electric fuses. |
Low-Peak electric fuses. |
Lumière specification grade landscape lighting. |
Magnum terminal strips and disconnect blocks. |
McGraw-Edison and Lumark indoor and outdoor lighting. |
McGraw-Edison transformer components, cable
accessories and fuses. |
MEDC signals and alarms |
Media Sync multi-media wiring systems |
Metalux fluorescent lighting. |
Mobile X-Ray specialty plugs and receptacles. |
Mini-Line molded-to-cable miniature connectors. |
MWS modular wiring systems. |
Myers electrical hubs. |
Nortem electrical construction materials. |
NOVA reclosers, sectionalizers and switches. |
Novitas occupancy sensors and switch packs. |
Optima fuseholders. |
Portfolio architectural recessed lighting. |
Posi-Break electrical connectors. |
Posi-Lok electrical panel units. |
Power-Lock wiring devices, receptacles, caps and covers. |
PowerPlus panel boards. |
PowerStor carbon aerogel supercapacitors. |
Pretronica and Univel emergency lighting and power
systems. |
RCM+ cable management systems. |
Regalsafe signaling and life saving apparatus. |
Regent security lighting systems. |
Royer wiring devices, sockets and switches. |
Ruff-in prefabricated mounting and support systems. |
Scantronic and Menvier security systems. |
Shaper specification and commercial grade lighting fixtures. |
Shock Sentry sockets, connectors, and wall plates. |
Streetworks outdoor lighting. |
Sure-Lites exit and emergency lighting. |
SurgBloc electrical voltage receptacles and surge suppressors. |
TransX transient voltage protection devices. |
UltraSIL surge arresters. |
VariGap and VariStar surge arresters. |
Wheelock signals, alarms and communication systems. |
Willsher & Quick electrical enclosures. |
WPI connectors and cable assemblies. |
Tools Major Products and Brands
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Airetool, Automated Systems, Cleco, DGD, Dotco,Gardner-Denver*, and Rotor Tool industrial power tools and assembly
Equipment. |
Apex screwdriver bits, impact sockets and universal joints. |
Campbell chain products. |
Crescent pliers and wrenches. |
Diamond farrier tools and horseshoes. |
Erem precision cutters and tweezers. |
Kahnetics dispensing systems. |
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Lufkin measuring tapes. |
Master Power industrial air tools. |
Metronix servos and drive controls. |
Nicholson files and saws. |
Plumb hammers. |
Utica torque measuring and controls. |
Weller soldering equipment. |
Wire-Wrap solderless connection equipment. |
Wiss and H.K. Porter cutting products. |
Xcelite screwdrivers and nutdrivers. |
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* |
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Gardner-Denver is a registered trademark of Gardner Denver, Inc. and is used by Cooper
Industries under license. |
5
COOPER INDUSTRIES, LTD.
PRODUCTS, MARKETS AND DISTRIBUTION METHODS BY SEGMENT (Continued)
ELECTRICAL PRODUCTS
Major Markets
Fuses and circuit protection products are utilized in products for the construction,
industrial, transportation and consumer markets and to manufacturers in the electrical, electronic,
telecommunications and transportation industries. Lighting fixtures are utilized in residential
construction, industrial, institutional and commercial building complexes, shopping centers,
parking lots, roadways, and sports facilities. Electrical power products are used by utilities and
commercial and industrial power users. Electrical construction materials are used in commercial,
residential and industrial projects, by utilities, airports and wastewater treatment plants and in
the process and energy industries. Emergency lighting, fire detection and security systems are
installed in residential, commercial and industrial applications. Support systems and enclosures
are used in industrial, commercial and telecommunications complexes. Wiring devices are used in
the construction, renovation, maintenance and repair of residential, commercial, industrial and
institutional buildings.
Principal Distribution Methods
Products are sold through distributors for use in general construction, plant maintenance,
process and energy applications, shopping centers, parking lots, sports facilities, and data
processing and telecommunications systems; through distributors and direct to utilities and
manufacturers for use in electronic equipment for consumer, industrial, government and military
applications; through distributors and direct to retail home centers and hardware outlets; and
direct to original equipment manufacturers of appliances, tools, machinery and electronic
equipment.
TOOLS
Major Markets
Power tools and assembly systems are used by general industrial manufacturers, particularly
durable goods producers and original equipment manufacturers, such as those in the aerospace and
automobile industries. Hand tools are used in a variety of industrial, electronics, agricultural,
construction and consumer applications.
Principal Distribution Methods
Products are sold through distributors and agents to general industry, particularly automotive
and aircraft; through distributors and wholesalers to hardware stores, lumberyards and department
stores; and direct to original equipment manufacturers, home centers, specialty stores, department
stores, mass merchandisers and hardware outlets.
Our financial condition and performance are subject to various risks and uncertainties,
including the risk factors described below. We may amend or supplement the risk factors from time
to time by other reports that we file with the SEC in the future.
Our Businesses Are Subject to Competitive Pressures.
Our businesses operate in markets that are highly competitive, and we compete on the basis of
price, quality, service and/or brand name across the industries and markets served. Some of our
competitors for
6
certain products have greater sales, assets and financial resources than we do. Competitive
pressures could affect prices we charge our customers or demand for our products, which could
adversely affect our operating results.
Demand for Our Products Is Sensitive to the Economic Conditions in the Markets We Serve.
Demand for electrical products follows general economic conditions and is generally sensitive
to activity in the commercial and residential construction markets, industrial production levels,
electronic component production and spending by utilities for replacements, expansions and
efficiency improvements. Demand for non-powered hand tools, assembly systems and industrial power
tools is driven by employment levels, industrial activity and consumer spending. In addition,
demand for industrial power tools is influenced by automotive and aerospace production. Reduced
demand due to economic and market conditions could adversely affect our results of operations.
Price Increases or Significant Shortages of Raw Materials and Components Could Adversely Affect Our
Operating Costs and the Competitive Position of Our Products.
Our major requirements for raw materials include steel, copper, aluminum, electronic
components and plastics and, to a lesser degree brass, tin, lead, fiberglass, wood and insulating
materials including transformer oil. We have multiple sources of supply for each of our major
requirements, although there are limited sources of supply for electrical core steel and
transformer oil that Cooper uses in electrical power transmission and distribution products.
Significant shortages could disrupt the supply of raw materials or price increases could affect
prices we charge our customers, our product costs, and the competitive position of our products and
services, which could adversely affect our results of operations.
Operations and Supply Sources Located Outside the United States, Particularly Emerging Markets, Are
Subject to Increased Risks.
Our operating activities outside the United States contribute significantly to our revenues
and earnings. Serving a global customer base and remaining competitive in the global market place
requires that we place more production in countries other than the United States, including
emerging markets, to capitalize on market opportunities and maintain a cost-efficient structure.
In addition, we source a significant amount of raw materials and other components from third-party
suppliers or joint-venture operations in low-cost countries. Our operations outside the United
States could be disrupted by a natural disaster, labor strike, war, political unrest, terrorist
activity or public health concerns. Operations outside the United States are also subject to
certain regulatory and economic uncertainties including trade barriers and restrictions on the
exchange and fluctuations of currency. We believe that our operations in emerging markets such as
China, India and Malaysia are subject to greater risks related to these political and economic
uncertainties as compared to most countries where Cooper has operations.
Our Key Strategic Initiatives Affect Our Ability to Grow Revenues, Control Costs and Improve
Productivity.
Our operating model is built on a platform of key strategic initiatives that are designed to
grow revenues, control costs and improve productivity. Our ability to execute and realize the
expected benefits from our strategic initiatives affects our revenues and operating costs. Also,
our operations could be disrupted by manufacturing rationalizations and system conversions relating
to the implementation of the Enterprise Business System.
We Engage in Acquisitions and May Encounter Difficulties in Integrating These Businesses.
We are a company that, from time to time, seeks to grow through strategic acquisitions. The
success of these transactions depends on our ability to integrate the assets and personnel acquired
in these
7
transactions. We may encounter difficulties in integrating acquisitions with our operations
and may not realize the degree or timing of the benefits that we anticipated from an acquisition.
We Have Liability Exposure for Asbestos-Related Claims.
We have owned businesses that produced and sold products that contained asbestos. We,
therefore, have potential liability arising from individuals claiming illness from exposure to
asbestos. Insurance policies satisfy portions of claim settlements and related legal costs. We
have reached a proposed settlement agreement, subject to a vote of creditors and court approval,
that provides for us to resolve asbestos claims arising from our former Abex Friction Products
business by participating in a 524(g) trust that is part of Federal-Mogul Corporations bankruptcy
plan of reorganization. If our participation in the 524(g) trust is not approved, we will adjust
the estimates of our recorded liabilities and insurance recoveries related to the matter. Those
adjustments may be significant.
We Could Incur a Material Amount of Taxes if There Are Unfavorable Changes in the Tax Laws or Their
Interpretation.
Changes in tax laws, tax treaties or tax regulations or differing interpretation or
enforcement of applicable law by the U.S. Internal Revenue Service or other taxing jurisdiction
could have a material adverse impact on our financial statements. On May 22, 2002, we reorganized
Cooper and became a publicly traded Bermuda company. Among other benefits, the inversion
reorganization improved our worldwide effective tax rate and increased our cash flow. Recently,
and in prior years, there have been attachments to legislation in the Senate to eliminate the tax
benefit realized by certain inverted companies. Previous attempts to enact this legislation have
failed to pass both Houses of Congress. Depending on the terms, if enacted into law, such proposed
legislation could have a material impact on our financial statements.
Inability to Maintain Access to Capital Markets May Adversely Affect Our Business and Financial
Results.
Our ability to invest in our businesses, make strategic acquisitions and refinance maturing
debt obligations may require access to the capital markets and sufficient bank credit lines to
support short-term borrowings. If we are unable to access the capital markets, we could experience
a material adverse affect on our business and financial results.
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ITEM 1B. |
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UNRESOLVED STAFF COMMENTS |
Not applicable.
On December 31, 2006, the plants and other facilities used by Cooper throughout the world
contained an aggregate of approximately 19,269,617 square feet of space, of which approximately 80
percent was owned and 20 percent was leased. The charts on the next page show the number of
employees, square footage of facilities owned and leased and location of manufacturing facilities
for each industry segment. Certain equipment and production facilities have been financed by
industrial revenue bonds issued by local government authorities and are subject to security
arrangements customary in such financing.
8
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Square Footage of |
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Number and Nature of Facilities |
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Plants and Facilities |
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Number of |
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Segment |
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Employees |
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Manufacturing |
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Warehouse |
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Sales |
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Other |
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Owned |
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Leased |
Electrical Products |
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25,228 |
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82 |
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21 |
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79 |
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3 |
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11,425,716 |
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3,362,633 |
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Tools |
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5,035 |
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25 |
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4 |
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7 |
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3,996,390 |
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349,252 |
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Other |
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298 |
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2 |
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135,626 |
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Total |
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30,561 |
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107 |
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25 |
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86 |
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5 |
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15,422,106 |
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3,847,511 |
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* |
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Multi-purpose facilities at a single location are listed in each applicable column. |
Manufacturing Plant Locations
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Europe |
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United |
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(Other |
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United |
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South |
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Republic |
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Segment |
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States |
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Than UK) |
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Kingdom |
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Mexico |
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America |
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Australia |
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Canada |
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China |
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of China |
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India |
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Korea |
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Malaysia |
Electrical
Products |
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39 |
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10 |
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12 |
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10 |
|
|
|
2 |
|
|
|
1 |
|
|
|
|
|
|
|
4 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tools |
|
|
12 |
|
|
|
7 |
|
|
|
|
|
|
|
2 |
|
|
|
2 |
|
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
51 |
|
|
|
17 |
|
|
|
12 |
|
|
|
12 |
|
|
|
4 |
|
|
|
2 |
|
|
|
1 |
|
|
|
4 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
|
* |
|
Does not include joint venture operations. Some facilities are shared by Electrical
Products and Tools operations. |
9
|
|
|
ITEM 3. |
|
LEGAL PROCEEDINGS |
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 December 31, 2006, a total of 141,529 Abex Claims were filed, of which
110,229 claims have been resolved leaving 31,300 Abex Claims pending at December 31, 2006, that are
the responsibility of Federal-Mogul. During the year ended December 31, 2006, 3,806 claims were
filed and 10,941 claims were resolved. Since August 28, 1998, the average indemnity payment for
resolved Abex Claims was $1,960 before insurance. A total of $107.4 million was spent on defense
costs for the period August 28, 1998 through December 31, 2006. Historically, existing insurance
coverage has provided 50% to 80% of the total defense and indemnity payments for Abex Claims.
However, insurance recovery is currently at a lower percentage (approximately 30%) due to
exhaustion of primary layers of coverage and litigation with certain excess insurers.
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.
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 of Federal-Mogul, its bankruptcy committees and the future
claimants (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 would 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.
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 income tax benefit, in the fourth quarter of 2003.
In December 2005, Cooper announced that the Company and other parties involved in the
resolution of the Federal-Mogul bankruptcy proceeding had reached an agreement regarding Coopers
participation in Federal Moguls proposed 524(g) asbestos trust. By participating in this trust,
Cooper would resolve its
10
liability for asbestos claims arising from Coopers former Abex Friction Products business.
The proposed settlement agreement was subject to court approval, approval of 75 percent of the
current Abex asbestos claimants and certain other approvals. The settlement would resolve more
than 38,000 pending Abex Claims as of December 31, 2005. Future claims would be resolved through
the bankruptcy trust, and Cooper would be protected against future claims by an injunction to be
issued by the district court upon plan confirmation.
Key terms and aspects of the proposed settlement agreement included Cooper agreeing to pay
$130 million in cash into the trust, with $115 million payable upon Federal-Moguls emergence from
bankruptcy. The remainder would be due on January 15, 2007, or upon emergence from bankruptcy, if
later. Cooper would receive a total of $37.5 million during the funding period from other parties
associated with the Federal-Mogul bankruptcy. Cooper would further provide the trust 1.4 million
shares of Cooper common stock upon Federal-Moguls emergence from bankruptcy. The agreement
provided that the trust may, during the first year after issuance, sell these shares to Cooper at
market prices and, thereafter, in open market transactions.
The proposed settlement agreement also provided for further payments by Cooper subject to the
amount and timing of insurance proceeds. Cooper agreed to make 25 annual payments of up to $20
million each, reduced by certain insurance proceeds received by the trust. In years that the
insurance proceeds exceed $17 million, Cooper would be required to contribute $3 million with the
excess insurance proceeds carried over to the next year. The trust would retain 10 percent of the
insurance proceeds for indemnity claims paid by the trust until Coopers obligation is satisfied
and would retain 15 percent thereafter. The agreement also provided for Cooper to receive the
insurance proceeds related to indemnity and defense costs paid prior to the date a stay of current
claims is entered by the bankruptcy court. Cooper would also be required to forego certain claims
and objections in the Federal-Mogul bankruptcy proceedings. In addition, the parties involved had
agreed to petition the court for a stay on all current claims outstanding.
Although the payments related to the settlement could extend to 25 years and the collection of
insurance proceeds could extend beyond 25 years, the liability and insurance would be undiscounted
on Coopers balance sheet as the amount of the actual annual payments is not reasonably
predictable.
A critical term of the proposed settlement was the issuance of a preliminary injunction
staying all pending Abex asbestos claims. At a hearing on January 20, 2006, other parties to the
bankruptcy proceedings were unable to satisfy the courts requirements to grant the required
preliminary injunction. As a result, the proposed settlement agreement required renegotiation of
certain terms. The final determination of whether Cooper will participate in the Federal-Mogul
524(g) trust was unknown. However, Cooper 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 revised
settlement approximating the December 2005 proposed settlement. Accordingly, Cooper recorded a
$227.2 million after-tax discontinued operations charge, net of a $127.8 million income tax
benefit, in the fourth quarter of 2005.
The fourth quarter 2005 charge to discontinued operations included payments to a 524(g) trust
over 25 years that were undiscounted, and the insurance recoveries only included recoveries where
insurance in place agreements, settlements or policy recoveries were probable. If the negotiations
with the Representatives in early 2004 had resulted in an agreement, Cooper would have paid all the
consideration when Federal-Mogul emerged from bankruptcy and the 524(g) trust was formed and would
have relinquished all rights to insurance. The lack of discounting and the limited recognition of
insurance recoveries in the fourth quarter 2005 charge to discontinued operations are a significant
component of the increase in the accrual for discontinued operations. While it is not possible to
quantify, the accrual for discontinued operations also includes a premium for resolving the
inherent uncertainty associated with resolving Abex claims though the tort system. If Cooper is
unable to reach a settlement to participate in the Federal-Mogul 524(g) trust, the accrual for
discontinued operations potentially may have to be reduced to the estimated liability and related
insurance recoveries through the tort system. There are numerous assumptions that are required to
project the liability in the tort system and Cooper has not completed the analysis and determined
the liability that would be recorded under this scenario.
11
Cooper, through Pneumo-Abex LLC, has access to Abex insurance policies with remaining limits
on policies with solvent insurers in excess of $750 million. Cooper included insurance recoveries
of approximately $215 million pre-tax in the fourth quarter 2005 charge to discontinued operations
discussed above. Cooper believes that it is likely that additional insurance recoveries will be
recorded in the future as new insurance in place agreements are consummated and settlements with
insurance carriers are completed. However, extensive litigation with the insurance carriers may be
required to receive those additional recoveries.
On July 7, 2006, Cooper announced a revised agreement had been reached regarding Coopers
participation in Federal-Moguls 524(g) trust. The revised proposed settlement agreement remains
subject to court approval, to approval by 75 percent of the current Abex asbestos claimants and to
certain other approvals.
Key terms and aspects of the revised proposed settlement agreement include Cooper agreeing to
pay $256 million in cash into the trust on the date Federal-Mogul emerges from bankruptcy, which
includes elimination of the contribution of 1.4 million common shares to the trust by increasing
the cash contribution. Removing Cooper common stock as a component of the revised settlement
agreement eliminates additional charges and reversals of charges that may have occurred to account
for any changes in the market value of Cooper stock. Cooper has or will receive $37.5 million from
other parties toward its cash obligation.
As in the December 2005 agreement, Cooper has agreed to make 25 annual payments of up to $20
million each to the trust with such payments being reduced by insurance proceeds. The minimum
annual payment of $3 million in the December 2005 agreement has been eliminated. However, Cooper
has agreed to make advances, beginning in 2015 through 2021, in the event the trust is unable to
pay outstanding qualified claims at 100 percent of the value provided for in the trust agreement.
In the event that advances are made by Cooper, they will accrue interest at 5 percent per annum,
and will be repaid in years where excess funds are available in the trust or credited against the
future year annual payments. The maximum advances are $36.6 million.
Cooper will pay all defense costs through the date Federal-Mogul emerges from bankruptcy and
will be reimbursed for indemnity payments to the extent such payments are eligible for payment from
the trust. Cooper will retain the rights to receive the insurance proceeds related to indemnity
and defense costs paid prior to the date Federal-Mogul emerges from bankruptcy. For claims paid by
the trust, the trust will retain 10 percent of any reimbursed insurance proceeds for the first 25
years and thereafter will retain 15 percent.
As in the December 2005 proposed agreement, Cooper will forego certain claims and objections
in the Federal-Mogul bankruptcy proceedings. However, under the revised proposed agreement, which
is subject to court approval, in the event that Coopers participation in the Federal-Mogul 524(g)
trust is not approved for any reason, Cooper would receive a cash payment of $138 million on the
date Federal-Mogul emerges from bankruptcy and 20 percent of any insurance policy settlements
related to the former Wagner business purchased by Federal-Mogul in 1998. If Cooper participates
in the trust, it will receive 12 percent of any Wagner insurance settlements.
Accordingly, 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.
The revised proposed settlement agreement has been incorporated into Federal-Moguls Fourth
Amended Joint Plan of Reorganization, which was filed on November 21, 2006.
On February 2, 2007, the U.S. Bankruptcy Court for the District of Delaware approved the
adequacy of Federal-Moguls Supplemental Disclosure Statement describing the Fourth Amended Joint
Plan of Reorganization. The Court also approved the Voting Procedures and ordered that the voting
period shall
12
expire on April 6, 2007. In addition, any objections to the Fourth Amended Plan must be filed
with the Court by April 6, 2007 and the Court set the dates for a hearing on confirmation of the
Plan on May 8 and 9, 2007. If the Plan is confirmed, Federal-Mogul could emerge from bankruptcy in
mid-year 2007.
From a cash flow perspective, Cooper management continues to believe that a settlement on the
terms of the revised agreement would allow Cooper to continue to grow through acquisitions and
return cash to shareholders through dividends and stock repurchases. The settlement agreement
remains subject to bankruptcy court approval, approval by the current claimants and other matters.
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
$529.6 million at December 31, 2006 and $526.3 million at December 31, 2005.
|
|
|
ITEM 4. |
|
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
During the fourth quarter of the fiscal year covered by this report, no matters were submitted
to a vote of the shareholders.
PART II
|
|
|
ITEM 5. |
|
MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES |
Cooper Class A common shares (symbol CBE) are listed on the New York Stock Exchange.
Options for Cooper Class A common shares are listed on the American Stock Exchange. Cooper Class B
common shares are not publicly traded. The Class B common shares were issued to Cooper Industries,
Inc. in connection with the reincorporation merger in May 2002 whereby Cooper Industries, Inc.,
formerly the publicly traded parent company, became a wholly-owned subsidiary of Cooper Industries,
Ltd. Effective January 1, 2005, the Class B common shares were transferred to Cooper US, Inc.,
which is a wholly-owned Cooper subsidiary. Cooper US, Inc. is the only holder of Class B common
shares. The holders of Class B common shares are not entitled to vote, except as to matters for
which the Bermuda Companies Act specifically requires voting rights for otherwise non-voting
shares. Cooper Industries, Ltd. and Cooper subsidiaries holding Class A or Class B common shares
have entered into a voting agreement whereby any Class A or Class B common shares held by such
Cooper subsidiaries will be voted (or abstained from voting) in the same proportion as the other
holders of Class A common shares. Therefore, Class A and Class B common shares held by Cooper
subsidiaries do not dilute the voting power of the Class A common shares held by the public.
As of January 31, 2007 there were 21,647 record holders of Cooper Class A common shares and
one holder of Cooper Class B common shares.
The high and low quarterly sales prices for the past two years of Cooper Class A common shares
as reported by Dow Jones & Company, Inc., are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter |
|
|
|
|
1 |
|
2 |
|
3 |
|
4 |
2006
|
|
High
|
|
$ |
87.85 |
|
|
$ |
96.12 |
|
|
$ |
94.03 |
|
|
$ |
94.69 |
|
|
|
Low
|
|
|
72.03 |
|
|
|
81.74 |
|
|
|
79.95 |
|
|
|
85.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
High
|
|
$ |
72.65 |
|
|
$ |
72.28 |
|
|
$ |
69.77 |
|
|
$ |
75.75 |
|
|
|
Low
|
|
|
64.12 |
|
|
|
62.10 |
|
|
|
62.08 |
|
|
|
66.05 |
|
13
Annual cash dividends declared on Coopers Class A and Class B common shares during 2005 and
2006 were $1.48 a share ($.37 a quarter). On February 14, 2007, the Board of Directors declared an
increase in the quarterly dividend to $.42 a share (or $1.68 on an annualized basis). This
represents a 14 percent increase over the prior dividend rate. On February 14, 2007, the Board of
Directors also approved a 2-for-1 stock split to shareholders of record as of February 28, 2007.
As a result of the 2-for-1 stock split, the increase in the dividend will equate to a quarterly
dividend of $.21 a share (or $.84 on an annualized basis). The increase in the dividend rate will
be effective for the dividend paid on April 2, 2007. Based on Coopers capital structure in 2006,
all of the dividend distributions paid by it in 2006 are treated as a return of capital to its
shareholders. For dividends payable in 2007, Cooper currently anticipates that based on its
capital structure all or a substantial portion of its dividend distributions will be treated as a
return of capital to its shareholders. Coopers subsidiaries waived the right to receive all
dividends on Class A and Class B common shares that were payable in 2004. For the dividends
payable in 2005 and 2006, Coopers subsidiaries that held Class A and Class B shares received
dividends on such shares.
The following table reflects activity related to equity securities purchased by Coopers
wholly-owned subsidiaries during the three months ended December 31, 2006:
Purchases of Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased as |
|
|
Maximum Number of |
|
|
|
Total Number |
|
|
Average |
|
|
Part of Publicly |
|
|
Shares that May Yet Be |
|
|
|
of Shares |
|
|
Price Paid |
|
|
Announced Plans |
|
|
Purchased Under the |
|
Period |
|
Purchased |
|
|
per Share |
|
|
or Programs |
|
|
Plans or Programs(1) |
|
As of 9/30/06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,631,250 |
|
10/01/06 10/31/06 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
3,631,250 |
|
11/01/06 11/30/06 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
3,631,250 |
|
12/01/06 12/31/06 |
|
|
27,900 |
|
|
$ |
89.78 |
|
|
|
27,900 |
|
|
|
5,103,350 |
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
27,900 |
|
|
$ |
89.78 |
|
|
|
27,900 |
|
|
|
|
|
|
|
|
(1) |
|
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, matched savings plan and dividend
reinvestment plan in order to offset the dilution that results from issuing shares
under these plans. |
|
(2) |
|
For 2007, Coopers current estimate is that 1.5 million shares will be
issued under equity compensation plans, which is reflected in the above table. |
Further information required by this Item is set forth under the caption Equity Compensation
Plan Information in Coopers Proxy Statement to be filed pursuant to Regulation 14A under the
Securities Exchange Act of 1934 in connection with Coopers 2007 Annual Meeting of Shareholders
(the Proxy Statement) and is incorporated herein by reference.
14
|
|
|
ITEM 6. |
|
SELECTED FINANCIAL DATA |
The following table sets forth selected historical financial data for Cooper for each of the
five years in the period ended December 31, 2006. The selected historical financial information
shown below has been derived from Coopers audited consolidated financial statements. This
information should be read in conjunction with Coopers consolidated financial statements and notes
thereto.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ending December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
(in millions, except per share data) |
|
INCOME STATEMENT DATA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
5,184.6 |
|
|
$ |
4,730.4 |
|
|
$ |
4,462.9 |
|
|
$ |
4,061.4 |
|
|
$ |
3,960.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
484.3 |
|
|
$ |
391.1 |
|
|
$ |
339.8 |
|
|
$ |
274.3 |
|
|
$ |
213.7 |
|
Charge from discontinued operations, net
of taxes |
|
|
20.3 |
|
|
|
227.2 |
|
|
|
|
|
|
|
126.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
464.0 |
|
|
$ |
163.9 |
|
|
$ |
339.8 |
|
|
$ |
148.3 |
|
|
$ |
213.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME PER COMMON SHARE DATA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
5.28 |
|
|
$ |
4.23 |
|
|
$ |
3.67 |
|
|
$ |
2.96 |
|
|
$ |
2.29 |
|
Charge from discontinued operations |
|
|
.22 |
|
|
|
2.46 |
|
|
|
|
|
|
|
1.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
5.06 |
|
|
$ |
1.77 |
|
|
$ |
3.67 |
|
|
$ |
1.60 |
|
|
$ |
2.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
5.16 |
|
|
$ |
4.12 |
|
|
$ |
3.58 |
|
|
$ |
2.92 |
|
|
$ |
2.28 |
|
Charge from discontinued operations |
|
|
.21 |
|
|
|
2.39 |
|
|
|
|
|
|
|
1.34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
4.95 |
|
|
$ |
1.73 |
|
|
$ |
3.58 |
|
|
$ |
1.58 |
|
|
$ |
2.28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE SHEET DATA (at December 31): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
5,374.8 |
|
|
$ |
5,215.1 |
|
|
$ |
5,407.8 |
|
|
$ |
4,965.3 |
|
|
$ |
4,687.9 |
|
Long-term debt, excluding current maturities. |
|
|
702.8 |
|
|
|
1,002.9 |
|
|
|
698.6 |
|
|
|
1,336.7 |
|
|
|
1,280.7 |
|
Shareholders equity |
|
|
2,475.3 |
|
|
|
2,205.2 |
|
|
|
2,286.5 |
|
|
|
2,118.2 |
|
|
|
2,002.4 |
|
CASH DIVIDENDS PER COMMON
SHARE |
|
$ |
1.48 |
|
|
$ |
1.48 |
|
|
$ |
1.40 |
|
|
$ |
1.40 |
|
|
$ |
1.40 |
|
In October 1998, Cooper sold its Automotive Products segment for $1.9 billion in
proceeds. Discontinued operations charges of $20.3 million, net of a $11.4 million income tax
benefit in 2006; $227.2 million, net of a $127.8 million income tax benefit in 2005 and $126.0
million, net of a $70.9 million income tax benefit in 2003 were recorded for potential liabilities
related to the Automotive Products segment sale and the Federal-Mogul bankruptcy. See Note 16 of
the Notes to the Consolidated Financial Statements.
|
|
|
ITEM 7. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS |
Forward Looking Statements
This Annual Report on Form 10-K, including Managements Discussion and Analysis of Financial
Condition and Results of Operations, 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, any
statements regarding future revenues, costs and expenses, earnings, earnings per share, margins,
cash flows, dividends 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, transportation and energy costs, industry
competition, the
15
ability to execute and realize the expected benefits from strategic initiatives
including revenue growth plans and cost-control and productivity improvement programs, the
magnitude of any disruptions from manufacturing rationalizations and the implementation of the
Enterprise Business System, 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 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.
Critical Accounting Policies
The Consolidated Financial Statements and Notes to the Consolidated Financial Statements
contain information that is pertinent to managements discussion and analysis. The preparation of
financial statements in conformity with United States generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities. Cooper believes the following
critical accounting policies involve additional management judgment due to the sensitivity of the
methods, assumptions and estimates necessary in determining the related asset and liability
amounts.
Cooper recognizes revenues when products are shipped and accruals for sales returns and other
allowances are provided at the time of shipment based upon past experience. If actual future
returns and allowances differ from past experience, additional allowances may be required. The
accrual for sales returns and other allowances was $73.4 million and $62.5 million at December 31,
2006 and 2005, respectively.
Allowances for excess and obsolete inventory are provided based on current assessments about
future demands, market conditions and related management initiatives. If market conditions are
less favorable than those projected by management, additional inventory allowances may be required.
The allowance for excess and obsolete inventory was $65.6 million at December 31, 2006 and $58.7
million at December 31, 2005.
Pension assets and liabilities are determined on an actuarial basis and are affected by the
market value of plan assets, estimates of the expected return on plan assets, discount rates and
estimated future employee earnings and demographics. Actual changes in the fair market value of
plan assets and differences between the actual return on plan assets and the expected return on
plan assets will affect the amount of pension expense ultimately recognized. Differences between
actuarial assumptions and estimates and actual experience are deferred in accumulated other
nonowner changes in equity as actuarial net gains and losses. Actuarial net gains and losses in
excess of a calculated minimum annual amount are amortized and recognized in net periodic pension
cost over the average remaining service period of active employees.
Total net periodic pension benefits cost was $31.0 million in 2006, $18.9 million in 2005 and
$18.9 million in 2004. During 2006, Cooper announced that effective January 1, 2007, future
benefit accruals will cease under the Cooper U.S. Salaried Pension Plan. Cooper recognized a $4.2
million curtailment loss in 2006 as a result of this action. During 2006, Cooper also recognized a
$4.1 million settlement loss primarily in connection with the retirement of senior executives.
Total net periodic pension benefits cost is currently expected to decline to approximately $2.1
million in 2007 primarily due to the elimination of service cost on the salaried pension plan and
non-recurrence of the 2006 losses discussed above. Beginning in 2007, Cooper will make a cash
contribution equal to 3% of compensation to the Cooper Retirement Savings and Stock-Ownership Plan
(CO-SAV). Cooper will further increase the company-matching contribution under the CO-SAV plan
to a dollar-for-dollar match up to 6% of employee contributions. The net periodic pension benefit
cost for 2007 has been estimated assuming a discount rate of 5.75% and an expected return on plan
assets of 8.25%. See Note 13 of the Notes to the Consolidated Financial Statements.
The postretirement benefits other than pensions liability is also determined on an actuarial
basis and is affected by assumptions including the discount rate and expected trends in health care
costs. Changes in the discount rate and differences between actual and expected health care costs
will affect the recorded
16
amount of postretirement benefits expense. Differences between assumptions
and actual experience are deferred in accumulated other nonowner changes in equity as actuarial net
gains and losses. Actuarial net gains and losses in excess of a minimum annual amount are
amortized and recognized in net periodic postretirement benefit cost over the average remaining
life expectancy of the participants. Cooper announced the elimination of postretirement life
insurance for active employees effective January 1, 2007. As a result, Cooper recognized a $3.2
million curtailment gain in the second quarter of 2006. Excluding the curtailment gain, net
periodic postretirement benefit cost decreased to $0.8 million in 2006, primarily as a result of
plan amendments related to the Medicare Prescription Drug, Improvement and Modernization Act of
2003, compared to $3.6 million in 2005 and $5.5 million in 2004. Net periodic postretirement
benefit cost is expected to be approximately $0.7 million in 2007, assuming a discount rate of
5.75%. See Note 13 of the Notes to the Consolidated Financial Statements.
Stock-based compensation expense is recorded for stock-option grants, performance-based and
restricted stock awards based upon fair value. The fair value of stock option awards are estimated
at the grant date using the Black-Scholes-Merton option pricing model, which includes assumptions
for volatility, expected term, risk-free interest rate and dividend yield. Expected volatility is
based on implied volatilities from traded options on Cooper stock, historical volatility of Cooper
stock and other factors. Historical data is used to estimate employee termination experience and
the expected term of the options. The risk-free interest rate is based on the U.S. Treasury yield
curve in effect at the time of grant. The fair value of performance-based and restricted stock
awards granted are measured at the market price on the grant date. Performance awards are
typically arranged in levels, with increasing number of shares earned as higher levels of growth
are achieved. Performance goals are currently assumed to be achieved at the maximum level. If
goal-level assumptions are not met, stock-based compensation expense is adjusted and previously
recognized compensation expense would be reversed. Total stock-based compensation expense was
$29.1 million in 2006, $40.3 million in 2005, and $22.1 million in 2004. See Note 10 of the Notes
to the Consolidated Financial Statements.
Environmental liabilities are accrued based on estimates of known environmental remediation
exposures. The liabilities include accruals for sites owned by Cooper and third-party sites where
Cooper was determined to be a potentially responsible party. Third party sites frequently involve
multiple potentially responsible parties and Coopers potential liability is determined based on
estimates of Coopers proportionate responsibility for the total cleanup. The amounts accrued for
such sites are based on these estimates as well as an assessment of the financial capacity of the
other potentially responsible parties. Environmental liability estimates may be affected by
changing determinations of what constitutes an environmental liability or an acceptable level of
cleanup. To the extent that remediation procedures change or the financial condition of other
potentially responsible parties is adversely affected, Coopers estimate of its environmental
liabilities may change. The liability for environmental remediation was $29.7 million at December
31, 2006 and $32.7 million at December 31, 2005. See Note 7 of the Notes to the Consolidated
Financial Statements.
Cooper records current tax liabilities as well as deferred tax assets and liabilities for
those taxes incurred as a result of current operations but deferred until future periods. The
annual provision for income taxes is the sum of both the current and deferred tax amounts. Current
taxes payable represents the liability related to Coopers income tax returns for the current year,
while the net deferred tax expense or benefit represents the change in the balance of deferred tax
assets or liabilities reported on Coopers consolidated balance sheet. Deferred tax assets or
liabilities are determined based upon differences between the book basis of assets and liabilities
and their respective tax basis as measured by the enacted tax rates that Cooper estimates will be
in effect when these differences reverse. In addition to estimating the future applicable tax
rates, Cooper must also make certain assumptions regarding whether tax differences are permanent or
temporary and whether taxable operating income in future periods will be sufficient to fully
recognize any gross deferred tax assets. Cooper has established valuation allowances when it is
more likely than not that some portion or all of the deferred tax assets will not be realized. During 2006, there were
no significant changes in the methodologies utilized to calculate Coopers tax provision or related
tax balance sheet accounts.
17
Cooper is subject to income taxes in both the United States and numerous non-U.S.
jurisdictions. Cooper is regularly under examination by various tax authorities. United States
federal and state tax authorities and tax authorities in other countries have challenged the amount
of taxes due for certain tax periods. Cooper evaluates the potential exposure associated with
various filing positions and records a liability for tax contingencies. Although Cooper believes
all tax positions are reasonable and properly reported in accordance with applicable tax laws and
regulations in effect during the periods involved, the final determination of tax audits and any
related litigation could be materially different than that which is reflected in historical income
tax provisions and accruals. Based on audits and litigation, a material effect on Coopers
consolidated cash flows in the period or periods for which that determination is finalized could
result. However, management does not believe that any of these matters will have a material effect
on Coopers consolidated financial position or consolidated results of operations. See Note 12 of
the Notes to the Consolidated Financial Statements.
During the fourth quarter of 2005, Cooper revised the accrual that represents its best
estimate of liabilities related to the sale of the Automotive Products business to Federal-Mogul in
1998. During the three year period ending December 31, 2006, Cooper accounted for payments made to
settle asbestos-related cases by reducing the accrual and insurance recoveries collected during the
periods as increases to the accrual. Subsequent proceeds from insurance claims for settlements
would increase the accrual. The analysis of Coopers contingent liability exposure for
asbestos-related claims involving Abex products was conducted in the fourth quarter of 2001 with
assistance from independent advisors, Bates White, LLC, and assumed future resolution of the
Abex-related asbestos claims within the Federal-Mogul bankruptcy proceeding. As discussed in Note
16 of the Notes to the Consolidated Financial Statements, 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 representatives of
Federal-Mogul, its bankruptcy committees and the future claimants (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 would 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.
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
in the fourth quarter of 2003.
In December 2005, Cooper announced that the Company and other parties involved in the
resolution of the Federal-Mogul bankruptcy proceeding had reached an agreement regarding Coopers
participation in Federal Moguls proposed 524 (g) asbestos trust. By participating in this trust,
Cooper would resolve its liability for asbestos claims arising from Coopers former Abex Friction
Products business. The proposed settlement agreement was subject to court approval, approval of 75
percent of the current Abex asbestos claimants and certain other approvals. The settlement would
resolve more than 38,000 pending Abex claims as of December 31, 2005. Future claims would be
resolved through the bankruptcy trust, and Cooper would be protected against future claims by an
injunction to be issued by the district court upon plan confirmation.
Key terms and aspects of the proposed settlement agreement included Cooper agreeing to pay
$130 million in cash into the trust, with $115 million payable upon Federal-Moguls emergence from
bankruptcy. The remainder would be due on January 15, 2007, or upon emergence from bankruptcy, if
later. Cooper would receive a total of $37.5 million during the funding period from other parties
associated with the Federal-Mogul bankruptcy. Cooper would further provide the trust 1.4 million
shares of Cooper common
18
stock upon Federal-Moguls emergence from bankruptcy. The agreement
provided that the trust may, during the first year after issuance, sell these shares to Cooper at
market prices and, thereafter, in open market transactions.
The proposed settlement agreement also provided for further payments by Cooper subject to the
amount and timing of insurance proceeds. Cooper agreed to make 25 annual payments of up to $20
million each, reduced by certain insurance proceeds received by the trust. In years that the
insurance proceeds exceed $17 million, Cooper would be required to contribute $3 million with the
excess insurance proceeds carried over to the next year. The trust would retain 10 percent of the
insurance proceeds for indemnity claims paid by the trust until Coopers obligation is satisfied
and would retain 15 percent thereafter. The agreement also provided for Cooper to receive the
insurance proceeds related to indemnity and defense costs paid prior to the date a stay of current
claims is entered by the bankruptcy court. Cooper would also be required to forego certain claims
and objections in the Federal-Mogul bankruptcy proceedings. In addition, the parties involved had
agreed to petition the court for a stay on all current claims outstanding.
Although the payments related to the settlement could extend to 25 years and the collection of
insurance proceeds could extend beyond 25 years, the liability and insurance would be undiscounted
on Coopers balance sheet as the amount of the actual annual payments is not reasonably
predictable.
A critical term of the proposed settlement was the issuance of a preliminary injunction
staying all pending Abex asbestos claims. At a hearing on January 20, 2006, other parties to the
bankruptcy proceedings were unable to satisfy the courts requirements to grant the required
preliminary injunction. As a result, the proposed settlement agreement required renegotiation of
certain terms. The final determination of whether Cooper will participate in the Federal-Mogul
524(g) trust was unknown. However, Cooper 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 is a revised
settlement approximating the December 2005 proposed settlement. Accordingly, Cooper recorded a
$227.2 million after-tax discontinued operations charge, net of a $127.8 million income tax
benefit, in the fourth quarter of 2005.
The fourth quarter 2005 charge to discontinued operations included payments to a 524(g) trust
over 25 years that were undiscounted, and the insurance recoveries only included recoveries where
insurance in place agreements, settlements or policy recoveries were probable. If the negotiations
with the Representatives in early 2004 had resulted in an agreement, Cooper would have paid all the
consideration when Federal-Mogul emerged from bankruptcy and the 524(g) trust was formed and would
have relinquished all rights to insurance. The lack of discounting and the limited recognition of
insurance recoveries in the fourth quarter 2005 charge to discontinued operations are a significant
component of the increase in the accrual for discontinued operations. While it is not possible to
quantify, the accrual for discontinued operations also includes a premium for resolving the
inherent uncertainty associated with resolving Abex claims though the tort system. If Cooper is
unable to reach a settlement to participate in the Federal-Mogul 524(g) trust, the accrual for
discontinued operations potentially may have to be reduced to the estimated liability and related
insurance recoveries through the tort system. There are numerous assumptions that are required to
project the liability in the tort system and Cooper has not completed the analysis and determined
the liability that would be recorded under this scenario.
Cooper, through Pneumo-Abex LLC, has access to Abex insurance policies with remaining limits
on policies with solvent insurers in excess of $750 million. Cooper included insurance recoveries
of approximately $215 million pre-tax in the fourth quarter 2005 charge to discontinued operations
discussed above. Cooper believes that it is likely that additional insurance recoveries will be
recorded in the future as new insurance in place agreements are consummated and settlements with
insurance carriers are completed. However, extensive litigation with the insurance carriers may be required to receive those
additional recoveries.
On July 7, 2006, Cooper announced a revised agreement had been reached regarding Coopers
participation in Federal-Moguls 524(g) trust. The revised proposed settlement agreement remains
subject to
19
court approval, to approval by 75 percent of the current Abex asbestos claimants and to
certain other approvals.
Key terms and aspects of the revised proposed settlement agreement include Cooper agreeing to
pay $256 million in cash into the trust on the date Federal-Mogul emerges from bankruptcy, which
includes elimination of the contribution of 1.4 million common shares to the trust by increasing
the cash contribution. Removing Cooper common stock as a component of the revised settlement
agreement eliminates additional charges and reversals of charges that may have occurred to account
for any changes in the market value of Cooper stock. Cooper has or will receive $37.5 million from
other parties toward its cash obligation.
As in the December 2005 agreement, Cooper has agreed to make 25 annual payments of up to $20
million each to the trust with such payments being reduced by insurance proceeds. The minimum
annual payment of $3 million in the December 2005 agreement has been eliminated. However, Cooper
has agreed to make advances, beginning in 2015 through 2021, in the event the trust is unable to
pay outstanding qualified claims at 100 percent of the value provided for in the trust agreement.
In the event that advances are made by Cooper, they will accrue interest at 5 percent per annum,
and will be repaid in years where excess funds are available in the trust or credited against the
future year annual payments. The maximum advances are $36.6 million.
Cooper will pay all defense costs through the date Federal-Mogul emerges from bankruptcy and
will be reimbursed for indemnity payments to the extent such payments are eligible for payment from
the trust. Cooper will retain the rights to receive the insurance proceeds related to indemnity
and defense costs paid prior to the date Federal-Mogul emerges from bankruptcy. For claims paid by
the trust, the trust will retain 10 percent of any reimbursed insurance proceeds for the first 25
years and thereafter will retain 15 percent.
As in the December 2005 proposed agreement, Cooper will forego certain claims and objections
in the Federal-Mogul bankruptcy proceedings. However, under the revised proposed agreement, which
is subject to court approval, in the event that Coopers participation in the Federal-Mogul 524(g)
trust is not approved for any reason, Cooper would receive a cash payment of $138 million on the
date Federal-Mogul emerges from bankruptcy and 20 percent of any insurance policy settlements
related to the former Wagner business purchased by Federal-Mogul in 1998. If Cooper participates
in the trust, it will receive 12 percent of any Wagner insurance settlements.
Accordingly, 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.
The revised proposed settlement agreement has been incorporated into Federal-Moguls Fourth
Amended Joint Plan of Reorganization, which was filed on November 21, 2006.
On February 2, 2007, the U.S. Bankruptcy Court for the District of Delaware approved the
adequacy of Federal-Moguls Supplemental Disclosure Statement describing the Fourth Amended Joint
Plan of Reorganization. The Court also approved the Voting Procedures and ordered that the voting
period shall expire on April 6, 2007. In addition, any objections to the Fourth Amended Plan must
be filed with the Court by April 6, 2007 and the Court set the dates for a hearing on confirmation
of the Plan on May 8 and 9, 2007. If the Plan is confirmed, Federal-Mogul could emerge from
bankruptcy in mid-year 2007.
If a settlement within the 524(g) trust is in fact achieved on a basis consistent with the
terms discussed above, Cooper will periodically assess the current overall adequacy of the accrual
for discontinued operations, including updates to the assumptions regarding estimates of insurance
recoveries, levels of defense and indemnity payments and other assumptions related to the matter. As this
additional information becomes available, Cooper will record a charge or credit to the accrual for
discontinued operations, which may be significant.
From a cash flow perspective, Cooper management continues to believe that a settlement on the
terms of the revised agreement would allow Cooper to continue to grow through acquisitions and
return cash
20
to shareholders through dividends and stock repurchases. The settlement agreement
remains subject to bankruptcy court approval, approval by the current claimants and other matters.
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
$529.6 million at December 31, 2006 and $526.3 million at December 31, 2005.
Results of Operations
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
(in millions) |
|
Electrical Products |
|
$ |
4,426.0 |
|
|
$ |
3,997.5 |
|
|
$ |
3,722.2 |
|
Tools |
|
|
758.6 |
|
|
|
732.9 |
|
|
|
740.7 |
|
|
|
|
|
|
|
|
|
|
|
Total Revenues |
|
$ |
5,184.6 |
|
|
$ |
4,730.4 |
|
|
$ |
4,462.9 |
|
|
|
|
|
|
|
|
|
|
|
See the geographic information included in Note 15 of the Notes to the Consolidated Financial
Statements for a summary of revenues by country.
2006 vs. 2005 Revenues Revenues for 2006 increased 10% compared to 2005. The impact
of currency translation was nominal, while acquisitions, net of a small divestiture, added
approximately 2% in revenues.
Electrical Products segment revenues for 2006, which represented 85% of revenues, increased
approximately 11% compared to 2005. Currency translation had a nominal impact on 2006 revenues.
The impact of acquisitions, net of a small divestiture, increased segment revenues by approximately
2%. All of the Electrical Products segment businesses posted revenue growth during 2006. Sales
growth was a result of strong demand from industrial and utility markets, improvement in
non-residential construction demand and successful expansion into developing international markets.
These gains more than offset a decline in retail sales due to an overall slowdown in the
residential market and ceding product lines in the channel over prices.
Tools segment revenues for 2006, which represented 15% of revenues, increased approximately 4%
compared to 2005. Currency translation increased revenues by approximately 1%. Increased sales of
hand tools were driven by new product introductions, strength in industrial markets and
international expansion. These gains offset the loss of chain product position at a major retailer
and the overall slowdown in the residential market. Demand for industrial power tools strengthened
and strong fourth quarter shipments led to modest year over year growth in revenue from the
automated systems business.
2005 vs. 2004 Revenues Revenues for 2005 increased 6% compared to 2004. The impact of
currency translation increased revenues by approximately 1%.
Electrical Products segment revenues for 2005, which represented 85% of total revenues
increased approximately 7% compared to 2004. Currency translation contributed approximately 1% to
the revenue increase. All of Coopers Electrical Products businesses experienced revenue growth
over the prior year. Favorable industrial, utility and energy markets as well as steady commercial
construction drove organic sales growth. Key initiatives to expand global presence and deliver new products were
successful in penetrating new markets. Price increases in response to inflationary cost pressures
also supported growth across the business lines.
Tools segment revenues, which represented 15% of total revenues, decreased approximately 1%
compared to 2004. Currency translation increased revenues by approximately 1% in 2005. Solid
industrial demand drove growth in hand tools, but continued weaknesses in the automotive markets
resulted in declines
21
in power tools and automated assembly systems revenues. Retail demand
increased over the previous year for hand tools, while slowing in the fourth quarter from customer
inventory realignments.
Operating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
(in millions, except per share data) |
|
Electrical Products |
|
$ |
703.2 |
|
|
$ |
585.0 |
|
|
$ |
511.2 |
|
Tools |
|
|
85.6 |
|
|
|
66.7 |
|
|
|
62.7 |
|
|
|
|
|
|
|
|
|
|
|
Total Segment Operating Earnings |
|
|
788.8 |
|
|
|
651.7 |
|
|
|
573.9 |
|
General Corporate Expense |
|
|
89.6 |
|
|
|
91.9 |
|
|
|
77.3 |
|
|
|
|
|
|
|
|
|
|
|
Operating Earnings |
|
|
699.2 |
|
|
|
559.8 |
|
|
|
496.6 |
|
Interest Expense, net |
|
|
51.5 |
|
|
|
64.8 |
|
|
|
68.1 |
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations Before Income Taxes |
|
|
647.7 |
|
|
|
495.0 |
|
|
|
428.5 |
|
Income Tax Expense |
|
|
163.4 |
|
|
|
103.9 |
|
|
|
88.7 |
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations |
|
|
484.3 |
|
|
|
391.1 |
|
|
|
339.8 |
|
Charge Related to Discontinued Operations |
|
|
20.3 |
|
|
|
227.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
464.0 |
|
|
$ |
163.9 |
|
|
$ |
339.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations |
|
$ |
5.16 |
|
|
$ |
4.12 |
|
|
$ |
3.58 |
|
Charge from Discontinued Operations |
|
|
.21 |
|
|
|
2.39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
4.95 |
|
|
$ |
1.73 |
|
|
$ |
3.58 |
|
|
|
|
|
|
|
|
|
|
|
Cooper measures the performance of its businesses exclusive of financing expenses. All
costs directly attributable to operating businesses are included in segment operating earnings.
Corporate overhead costs, including costs of traditional headquarters activities, such as treasury,
are not allocated to the businesses. See Note 15 of the Notes to the Consolidated Financial
Statements.
2006 vs. 2005 Segment Operating Earnings Segment Operating Earnings were $788.8 million
in 2006 compared to $651.7 million in 2005.
Electrical Products segment 2006 operating earnings increased 20% to $703.2 million from
$585.0 million for 2005. Return on revenues was 15.9% for 2006 compared to 14.6% for 2005. The
increase was primarily due to leverage of fixed costs on higher volume, favorable pricing
offsetting inflation in production material costs, strong execution on productivity improvement
initiatives, and a shift in sales mix away from the lower margin retail channel.
Tools segment 2006 operating earnings increased 28% to $85.6 million compared to $66.7 million
for 2005. Return on revenues was 11.3% compared to 9.1% in 2005. The increase reflects leverage
on fixed costs due to increased volume, improved sales mix, price increase realization and successful
cost reduction initiatives.
2005 vs. 2004 Segment Operating Earnings Segment operating earnings were $651.7 million
in 2005 compared to $573.9 million in 2004.
Electrical Products segment 2005 operating earnings increased 14% to $585.0 million from
$511.2 million for 2004. Return on revenues was 14.6% for 2005, compared to 13.7% in 2004. The
increase in operating earnings was due to higher revenues in key industrial, construction and
utility markets and ongoing
22
productivity improvement initiatives. Price increases sufficient to
offset commodity and energy inflation also contributed to earnings. Partially offsetting these
positive factors were higher selling and administrative costs in support of global expansion.
Tools segment 2005 operating earnings increased 6% to $66.7 million compared to $62.7 million
in 2004. Return on revenues was 9.1% in 2005 and 8.5% in 2004. The increase in operating earnings
resulted from ongoing productivity improvement initiatives and benefits from previously completed
restructuring projects, which offset an overall revenue decline from broad-based weakness in
capital spending by global automotive companies and weaker demand for power tools. Favorable price
realization, which offset inflation in material and energy costs and reduced selling and
administrative costs, also contributed to earnings.
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 included plans for
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. In 2005, Cooper
finalized activities related to withdrawal from the multi-employer pension plan and recorded an
additional $4.0 million pre-tax charge. The multiple-employer pension obligation was satisfied
with a cash payment of $14.1 million in October 2006 representing full and final payment of the
withdrawal liability. The remaining $5.9 million charge in 2003 primarily represented severance
for announced employment reductions at several locations. As of December 31, 2006 and 2005, Cooper
had paid $5.9 million and $5.3 million, respectively, 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.
Cooper estimates the annual savings from the personnel reductions was approximately $6 million,
(net of the anticipated additional employees added in lower-cost regions) with most of the savings
beginning in the first quarter of 2004. The majority of the eliminated costs previously were
reflected as cost of sales.
See Note 2 of the Notes to the Consolidated Financial Statements for additional information on
restructuring charges.
General Corporate Expense General Corporate expense decreased $2.3 million during 2006
to $89.6 million compared to $91.9 million for 2005. In 2005, General Corporate expense included
additional stock-based compensation expense due to the accelerated vesting of expense related to
the retirement of a senior executive as well as costs relating to reorganizing certain corporate
activities.
Increased incentive costs and legal and environmental costs in 2006 were partially offset by
the benefit of the 2005 additional costs discussed above not recurring and $5.1 million of income
from Belden, Inc. (Belden) as discussed below.
General corporate expense was reduced in 2006 by $5.1 million in proceeds received under an
agreement with Belden. In 1993, Cooper completed an initial public offering of the stock of
Belden, formerly a division of Cooper. Under the agreement, Belden and Cooper made an election
that increased the tax basis of certain Belden assets. Belden is required to pay Cooper ninety
percent of the amount by which Belden has actually reduced tax payments that would otherwise have
been payable if the increase in the tax basis of assets had not occurred, as realized over
substantially fifteen years. If Belden does not have sufficient future taxable income, it is
possible that Belden will not be able to utilize the tax deductions arising from the increase in
the tax basis of the assets resulting in a tax loss carryforward. Belden is not obligated to
23
pay
Cooper until a tax loss carryforward is utilized. Belden can carry any loss forward twenty years
to offset future taxable income. Belden has incurred tax loss carryforwards and no proceeds under
the Agreement were received in the prior three years. The timing and ultimate receipt of future
payment are contingent upon the ultimate taxable income Belden reports each year.
General Corporate expense increased $14.6 million to $91.9 million during 2005 compared to
$77.3 million during 2004. The increase was primarily associated with costs incurred to reorganize
certain corporate activities, higher stock-based compensation costs from 2005 grants and
accelerated vesting of stock-based compensation and other costs related to the retirement of a
senior executive. Increased audit and Sarbanes-Oxley Act compliance expenses also contributed to
the increase.
Interest Expense, Net Interest expense, net for 2006 decreased $13.3 million from 2005 as
a result of both lower average debt balances and average interest rates. Average debt balances
were $1.04 billion and $1.26 billion and average interest rates were 5.70% and 5.87% for 2006 and
2005, respectively.
The decline in the average interest rates was primarily the result of conversion of debt
balances to lower interest-rate debt. The debt balance during 2005 included 6.25%, 300 million
Euro bonds that matured in October 2005. Cooper partially funded repayment of this Euro bond debt
with $325 million, 5.25% senior unsecured notes maturing in 2012. Proceeds from the notes were
swapped to 272.6 million with cross-currency interest-rate swaps, effectively converting the
seven-year U.S. notes to seven-year Euro notes with an annual interest rate of 3.55%.
Interest expense, net for 2005 decreased $3.3 million from 2004 primarily as a result of lower
average debt balances and additional interest earned on higher average cash balances, partially
offset by higher average interest rates. Average debt balances were $1.26 billion and $1.34
billion, and average interest rates were 5.87% and 5.63% for 2005 and 2004, respectively.
During August 2003, Cooper entered into interest-rate swaps to effectively convert $300
million of 5.25% long-term fixed-rate debt to variable-rate debt at the six-month LIBOR rate plus
1.91% (with semi-annual reset). The notional principal amount and maturity dates of the
interest-rate swaps match the underlying long-term debt, which matures in July 2007. During 2006,
Cooper recognized additional interest expense of $5.8 million due to the interest-rate swaps.
During 2005 and 2004, Cooper recognized reductions of interest expense, net of $0.1 million and
$5.1 million, respectively, related to the interest-rate swaps.
Income Tax Expense The effective tax rate attributable to continuing operations
was 25.2% for 2006, 21.0% for 2005 and 20.7% for 2004. The increase is primarily related to
increased taxable earnings in 2006 without a corresponding increase in tax benefits.
Charge Related to Discontinued Operations In the second quarter of 2006, Cooper
recorded an additional charge of $20.3 million, net of an $11.4 million income tax benefit, related
to potential asbestos obligations regarding the Automotive Products segment, which was sold in
1998. In the fourth quarter of 2005, Cooper concluded that additional charges of $227.2
million, net of a $127.8 million income tax benefit related to this matter were required in order
to adjust the existing accrual to amounts within the likely range of outcomes. See Note 16 of the
Notes to the Consolidated Financial Statements.
Diluted Earnings Per Share Diluted earnings per share from continuing
operations was $5.16 in 2006, $4.12 in 2005, and $3.58 in 2004.
24
Percentage of Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
Cost of Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
Electrical Products |
|
|
67.7 |
% |
|
|
68.1 |
% |
|
|
69.3 |
% |
Tools |
|
|
69.3 |
% |
|
|
70.8 |
% |
|
|
72.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and Administrative: |
|
|
|
|
|
|
|
|
|
|
|
|
Electrical Products |
|
|
16.4 |
% |
|
|
17.2 |
% |
|
|
17.0 |
% |
Tools |
|
|
19.4 |
% |
|
|
20.1 |
% |
|
|
18.9 |
% |
2006 vs 2005 Percentage of Revenues Electrical Products segment cost of sales, as a
percentage of revenues, was 67.7% for 2006 compared to 68.1% for 2005. The decrease in the cost of
sales percentage was primarily the result of leverage on higher volumes, pricing offsetting
inflationary pressures for production material and energy costs, successful productivity
improvement initiatives, and a shift in sales mix away from the lower margin retail channel. Tools
segment cost of sales, as a percentage of revenues, was 69.3% for 2006 compared to 70.8% for 2005.
The decrease in cost of sales percentage reflects continuing cost productivity improvements,
favorable sales mix, and price increase realization.
Electrical Products segment selling and administrative expenses, as a percentage of revenues,
for 2006 were 16.4% compared to 17.2% for 2005. The decrease in selling and administrative
expenses percentage is primarily due to leveraging higher volumes, enterprise business system
benefits, and benefits realized from prior year cost reductions. These performance improvements
more than offset continued investment in key commercial and global growth initiatives. Tools
segment selling and administrative expenses, as a percentage of revenues, for 2006 were 19.4%
compared to 20.1% for 2005. The decrease in the selling and administrative expenses percentage is
primarily due to leverage on fixed costs and cost reduction activities.
2005 vs. 2004 Percentage of Revenues Electrical Products segment cost of sales, as a
percentage of revenues, was 68.1% for 2005 compared to 69.3% for 2004. The decrease in the cost of
sales percentage was primarily a result of successful pricing actions, cost reductions through
focused execution of company-wide productivity initiatives and leveraging of manufacturing costs
from higher production volumes. Tools segment cost of sales, as a percentage of revenues, was
70.8% for 2005 compared to 72.6% for 2004. The decrease in cost of sales percentage reflects
successful pricing actions, productivity improvements and decreased sales of lower margin assembly
systems.
Electrical Products segment selling and administrative expenses, as a percentage of revenues,
for 2005 were 17.2% compared to 17.0% for 2004. The increase in selling and administrative
expenses percentage is primarily due to investment in strategic growth initiatives and increased
stock-based compensation costs. Tools segment selling and administrative expenses, as a percentage
of revenues, for 2005 were 20.1% compared to 18.9% for 2004. The increase in the selling and
administrative expenses percentage was primarily due to increased incentive-based compensation
expenses and investment in globalization initiatives.
Cooper realizes certain costs and proceeds that are not directly attributable to the operating
segments. These items are reflected as General Corporate expenses. See the General Corporate
Expense section above.
Earnings Outlook
The following sets forth Coopers general business outlook for 2007 based on current
expectations.
Cooper expects low double digit growth in revenues for Electrical Products in 2007 from
continuing growth in utility and industrial market demand, successful market penetration from key
growth initiatives
25
and price increases in response to commodity and energy cost inflation partially
offset by slower residential construction markets. Acquisitions completed through January 2007 add
approximately 3% to Electrical Products revenue growth. In the Tools segment, Cooper expects mid
single-digit revenue growth through continued expansion of industrial markets, focused market
penetration initiatives and price increases as a result of raw material and energy cost increases.
Operating earnings are expected to grow more rapidly than revenues as a result of benefits from
previous cost reduction programs, realizing further productivity improvements and leveraging of
fixed costs. Diluted continuing earnings per share is expected to increase 12% to 15% compared to
2006.
The above statements are forward looking, and actual results may differ materially. The above
statements are based on a number of assumptions, risks and uncertainties. The primary economic
assumptions include, without limitation: (1) continued growth in the United States and other
economies; (2) no significant change in raw material or energy costs that are not realized through
price increases; (3) realization of benefits of cost-reduction programs (including implementing an
Enterprise Business System) with no major disruptions from those programs currently underway; (4)
no significant adverse changes in the relationship of the U.S. dollar to the currencies of
countries in which Cooper does business, and (5) no significant changes in the income tax laws or
their interpretation. The estimates also assume, without limitation, no significant change in
competitive conditions and such other risk factors as are discussed from time to time in Coopers
periodic filings with the Securities and Exchange Commission.
Pricing and Volume
In each of Coopers segments, the nature of many of the products sold is such that an accurate
determination of the changes in unit volume of sales is neither practical nor, in some cases,
meaningful. Each segment produces a family of products, within which there exist considerable
variations in size, configuration and other characteristics.
It is Coopers judgment that unit volumes in both the Electrical Products and Tools segments
increased in 2006.
During the three-year period ending December 31, 2006, Cooper has experienced an overall
increase in customer pricing, primarily in response to increased material, energy and components
costs. Cooper has aggressively acted to control and reduce costs during the three-year period
through strategic sourcing, manufacturing improvement and rationalization efforts in order to
improve profitability in the segments.
Effect of Inflation
Over the three-year period, inflation has had a relatively minor impact on Coopers results of
operations. However, during 2006, 2005 and 2004, there were significant increases in certain key
commodities and components, which resulted in price increases in certain businesses lagging the
increased costs. Coopers on-going initiatives to improve productivity and rationalize its
operational base has mitigated increases in employee compensation and benefits, as well as general
inflation on operating costs.
Liquidity and Capital Resources
Operating Working Capital
For purposes of this discussion, operating working capital is defined as receivables and
inventories less accounts payable.
Coopers operating working capital increased $78.6 million during 2006. The increase included
a $53.6 million increase in receivables and a $68.9 million increase in inventories, partially
offset by a $43.9 million increase in accounts payable, which were driven primarily by increased sales volume
and actions to improve customer service, as well as working capital increases from completed
acquisitions. The increase in inventories was partially offset by a $6.9 million increase in the
allowance for excess and obsolete
26
inventories. Operating working capital turnover (defined as
annualized revenues divided by average quarterly operating working capital) for 2006 of 5.2 turns
increased from 4.9 turns in 2005 primarily due to initiatives focused on reducing days sales
outstanding and improved payables management. Inventory turns remained flat with 2005, as the
company maintained focus on improving customer service.
Coopers operating working capital decreased $40 million to $953 million in 2005 compared to
$993 million in 2004. The decrease in operating working capital for 2005 was due to a $77 million
increase in accounts payable, partially offset by a $21 million increase in receivables and a $16
million increase in inventories. Receivables and inventories increased with higher sales volume
and ongoing efforts to improve customer service. Payables increased on higher volumes and improved
payables management through expanded leverage of enterprise business system capabilities.
Operating working capital turnover (defined as annualized revenues divided by average quarterly
operating working capital) for 2005 of 4.9 turns increased from 4.6 turns in 2004 due to revenue
growth and a decline in operating working capital.
Coopers operating working capital increased $31 million to $993 million in 2004 compared to
$962 million in 2003. The increase in operating working capital for 2004 was due to a $82 million
increase in accounts receivable partially offset by a $29 million decrease in inventories and a $22
million increase in accounts payable. Excluding acquisitions and currency translation, operating
working capital was essentially flat on a 10% revenue increase. Operating working capital turnover
(defined as annual revenues divided by average operating working capital) for 2004 was 4.6 turns,
increasing from 4.2 turns in 2003, due to continued focus on improving the use of working capital,
particularly lowering inventory levels, while increasing sales. A portion of the reduction in
inventories was due to an $11 million increase in the allowance for excess and obsolete
inventories.
Cash Flows
Net cash provided by operating activities was $601 million during 2006. This cash, plus an
additional $29 million of cash and cash equivalents and $89 million of cash received from employee
stock option exercise activity were primarily used to fund capital expenditures of $85 million,
acquisitions of $280 million, dividends of $137 million and share purchases of $264 million.
Net cash provided by operating activities was $574 million for 2005. These funds, plus $200
million of cash and cash equivalents and $73 million of cash received from employee stock activity
were primarily used to fund capital expenditures of $97 million, dividends of $138 million, net
debt repayments of $384 million and share purchases of $211 million during 2005.
Net cash provided by operating activities in 2004 totaled $474 million. These funds, along
with $78 million of cash received from employee stock plan activity and a $90 million net increase
in debt, were used to fund capital expenditures of $103 million, dividends of $131 million, share
repurchases of $203 million and acquisitions of $49 million, resulting in an increase in cash and
cash equivalents of $189 million.
In connection with accounting for acquisitions, 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. At December 31, 2006, Cooper
had no accruals related to these activities. Cash flows from operating activities for each of the
three years in the period ended December 31, 2006, is reduced by the amounts expended on the
various accruals established in connection with each acquisition. Cooper spent $6.3 million, $4.7
million, and $7.1 million on these integration activities in 2006, 2005 and 2004, respectively.
See Note 7 of the Notes to the Consolidated Financial Statements for further information.
Cooper currently anticipates that it will continue to annually generate in excess of $300
million in cash flow available for acquisitions, debt repayment and common stock repurchases.
As discussed in Note 16 of Notes to the Consolidated Financial Statements, Cooper has reached
a revised agreement with the Representatives of Federal-Mogul, its bankruptcy committees and the
future
27
claimants regarding settlement of Coopers contingent liabilities related to the Automotive
Products sale to Federal-Mogul. Cooper anticipates that any settlement would be funded from
operating cash flows, existing cash, and commercial paper proceeds (if required).
Debt
At December 31, 2006 and 2005, Cooper had cash and cash equivalents of $423.5 million and
$452.8 million, respectively. At December 31, 2006 and 2005, Cooper had short-term debt of $5.0
million and $7.6 million, respectively. None of this short-term debt consisted of commercial
paper.
Coopers practice is to back up its short-term debt with a combination of cash and committed
credit facilities. At December 31, 2006 and 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 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.
On November 8, 2005, Cooper US, Inc., a subsidiary of Cooper, issued $325 million of 5.25%
senior unsecured notes that mature on November 15, 2012. Payment of the notes is guaranteed by
Cooper and certain of its subsidiaries. Proceeds of the notes were swapped with cross-currency
interest-rate swaps to 272.6 million, effectively converting the seven-year U.S. notes to
seven-year Euro notes with an annual interest rate of 3.55%. The proceeds of 272.6 million
partially funded repayment of the 6.25% Euro bonds that matured in October 2005.
Coopers $300 million, 5.25% senior unsecured notes, which were issued in June 2002, will
mature in July 2007. Cooper is evaluating alternatives for funding the repayment of these notes.
Alternatives under consideration include using available cash, issuing commercial paper, issuing
new long-term notes and various combinations of these alternatives.
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
Cooper executes stand-by letters of credit, performance bonds and other guarantees in the
normal course of business that ensure Coopers performance or payments to third parties. The
aggregate notional value of these instruments was $118.6 million and $104.3 million at December 31,
2006 and 2005, respectively. Eighty-six percent of these instruments have an expiration date
within one year. 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 cash outlays to occur in connection with these instruments.
28
The following table summarizes Coopers contractual obligations at December 31, 2006 and the
effect such obligations are expected to have on its liquidity and cash flows in future periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due |
|
|
|
|
|
|
|
Less than |
|
|
One to |
|
|
Four to |
|
|
After |
|
Contractual Obligations: |
|
Total |
|
|
One Year |
|
|
Three Years |
|
|
Five Years |
|
|
Five Years |
|
|
|
(in millions) |
|
Long-Term Debt |
|
$ |
1,003.5 |
|
|
$ |
300.7 |
|
|
$ |
375.3 |
|
|
$ |
2.3 |
|
|
$ |
325.2 |
|
Short-Term Debt |
|
|
5.0 |
|
|
|
5.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncancellable Operating Leases |
|
|
107.9 |
|
|
|
22.8 |
|
|
|
31.7 |
|
|
|
21.4 |
|
|
|
32.0 |
|
Purchase Obligations |
|
|
282.4 |
|
|
|
275.2 |
|
|
|
7.2 |
|
|
|
|
|
|
|
|
|
Other Long-Term Liabilities(1) |
|
|
235.9 |
|
|
|
20.3 |
|
|
|
39.4 |
|
|
|
37.1 |
|
|
|
139.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,634.7 |
|
|
$ |
624.0 |
|
|
$ |
453.6 |
|
|
$ |
60.8 |
|
|
$ |
496.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes unfunded other postretirement benefit obligations, unfunded non-U.S.
defined benefit pension plan liabilities, other postemployment benefit liabilities and
environmental liabilities. |
Capitalization
On November 2, 2004, Coopers Board of Directors authorized the purchase of up to five million
shares of common stock. Cooper has also announced that the Board 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.
Cooper targets a 30% to 40% debt-to-total capitalization ratio. Excess cash flows are
utilized to purchase shares of Coopers Common stock or fund acquisitions. At December 31, 2006,
2005 and 2004, Coopers debt-to-total capitalization ratio was 28.9%, 31.7% and 39.0%,
respectively.
On February 14, 2007, Cooper announced that the Board of Directors approved a two-for-one
stock split of Cooper common stock and increased the annual dividend rate of Coopers common stock
by $.20 cents per share to $1.68 (or $.84 per share after the stock split). The record date for
the stock split is February 28, 2007 and the distribution date is March 15, 2007. On February 9,
2005, Coopers Board of Directors increased the annual dividend rate of Coopers common stock by
eight cents per share to $1.48.
Capital Expenditures and Commitments
Capital expenditures on projects to reduce product costs, improve product quality, increase
manufacturing efficiency and operating flexibility, or expand production capacity were $85 million
in 2006, $97 million in 2005 and $103 million in 2004. Capital expenditures are projected to be
approximately $110 to $120 million in 2007. Projected expenditures for 2007 will focus on capacity
expansions in key markets, development of new products, continued implementation of new business
systems and cost reduction programs.
Interest Rate and Currency Risk
Changes in interest rates and currency exchange rates affect Coopers earnings and cash flows.
As a result of having sales, purchases and certain intercompany transactions denominated in
currencies other than the functional currencies used by Coopers businesses, Cooper is exposed to
the effect of exchange rate changes on its cash flows and earnings. Cooper enters into currency
forward exchange contracts to hedge significant non-functional currency denominated transactions
for periods consistent with the terms of the underlying transactions. Contracts generally have
maturities that do not exceed one year.
The table below provides information about Coopers derivative financial instruments and other
financial instruments at December 31, 2006 that are sensitive to changes in interest rates. For
debt obligations the table presents principal cash flows by expected maturity dates and weighted
average interest rates. For interest-rate swaps, the table presents notional amounts and weighted average
interest rates by
29
contractual maturity dates. Notional amounts are used to calculate the
contractual payments to be exchanged under the contract. The average pay-rate on interest-rate
swaps is based on implied forward-rates in the yield curve as of December 31, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2011 |
|
|
Thereafter |
|
|
Total |
|
|
|
($ in millions) |
|
Long-term debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-rate (U.S. Dollar) |
|
$ |
300.7 |
|
|
$ |
100.3 |
|
|
$ |
275.0 |
|
|
$ |
2.3 |
|
|
$ |
|
|
|
$ |
325.0 |
|
|
$ |
1,003.3 |
|
Average interest-rate |
|
|
5.5 |
% |
|
|
5.5 |
% |
|
|
5.4 |
% |
|
|
5.3 |
% |
|
|
5.3 |
% |
|
|
5.3 |
% |
|
|
5.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable-rate (U.S. Dollar) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
8.0 |
|
|
$ |
8.0 |
|
Average interest-rate |
|
|
5.6 |
% |
|
|
5.6 |
% |
|
|
5.6 |
% |
|
|
5.6 |
% |
|
|
5.6 |
% |
|
|
5.6 |
% |
|
|
5.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-rate swaps: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed to variable: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional amount(1) |
|
$ |
300.0 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
300.0 |
|
Average pay-rate |
|
|
7.38 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.38 |
% |
Average receive-rate |
|
|
5.25 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.25 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross-currency interest-rate
swaps: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed to fixed: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional amount(2) |
|
$ |
325.0 |
|
|
$ |
325.0 |
|
|
$ |
325.0 |
|
|
$ |
325.0 |
|
|
$ |
325.0 |
|
|
$ |
325.0 |
|
|
$ |
325.0 |
|
Average pay-rate |
|
|
3.5275 |
% |
|
|
3.5275 |
% |
|
|
3.5275 |
% |
|
|
3.5275 |
% |
|
|
3.5275 |
% |
|
|
3.5275 |
% |
|
|
3.5275 |
% |
Average receive-rate |
|
|
5.232 |
% |
|
|
5.232 |
% |
|
|
5.232 |
% |
|
|
5.232 |
% |
|
|
5.232 |
% |
|
|
5.232 |
% |
|
|
5.232 |
% |
|
|
|
(1) |
|
Cooper entered into interest-rate swaps to effectively convert its fixed-rate $300
million senior unsecured debt due in July 2007 to variable-rate debt. |
|
(2) |
|
Cooper entered into cross-currency interest-rate swaps to effectively convert $325
million of 5.25% senior unsecured debt due in November 2012 to Euro 272.6 million with an
annual interest rate of 3.55%. |
The table below provides information about Coopers currency forward exchange contracts
to purchase currencies in excess of $10 million at December 31, 2006. The contracts mature during
2007. The notional amount is used to calculate the contractual payments exchanged under the
contracts. The notional amount represents the U.S. dollar equivalent.
|
|
|
|
|
|
|
2007 |
|
|
|
(in millions, |
|
|
|
where applicable) |
|
Euro Functional Currency |
|
|
|
|
Buy U.S. Dollars / Sell Euro |
|
|
|
|
Notional amount |
|
$ |
143.9 |
|
Average contract rate |
|
|
1.288 |
|
|
|
|
|
|
U.S. Dollar Functional Currency |
|
|
|
|
Buy Euro / Sell U.S. Dollars |
|
|
|
|
Notional amount |
|
$ |
121.7 |
|
Average contract rate |
|
|
1.306 |
|
|
|
|
|
|
Canadian Dollar Functional Currency |
|
|
|
|
Buy U.S. Dollars / Sell Canadian Dollars |
|
|
|
|
Notional amount |
|
$ |
76.0 |
|
Average contract rate |
|
|
.8913 |
|
|
|
|
|
|
U.S. Dollar Functional Currency |
|
|
|
|
Buy Mexican Pesos / Sell U.S. Dollars |
|
|
|
|
Notional amount |
|
$ |
22.9 |
|
Average contract rate |
|
|
.0908 |
|
30
The table below provides information about Coopers derivative financial instruments and
other financial instruments at December 31, 2005 that are sensitive to changes in interest rates.
For debt obligations the table presents principal cash flows by expected maturity dates and
weighted average interest rates. For interest-rate swaps, the table presents notional amounts and
weighted average interest rates by contractual maturity dates. Notional amounts are used to
calculate the contractual payments to be exchanged under the contract. The average pay-rate on
interest-rate swaps is based on implied forward-rates in the yield curve as of December 31, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
Thereafter |
|
|
Total |
|
|
|
($ in millions) |
|
Long-term debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-rate (U.S. Dollar) |
|
$ |
11.4 |
|
|
$ |
300.8 |
|
|
$ |
100.3 |
|
|
$ |
275.0 |
|
|
$ |
2.3 |
|
|
$ |
325.0 |
|
|
$ |
1,014.8 |
|
Average interest-rate |
|
|
5.5 |
% |
|
|
5.5 |
% |
|
|
5.5 |
% |
|
|
5.4 |
% |
|
|
5.3 |
% |
|
|
5.3 |
% |
|
|
5.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable-rate (U.S. Dollar) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
8.0 |
|
|
$ |
8.0 |
|
Average interest-rate |
|
|
4.5 |
% |
|
|
4.5 |
% |
|
|
4.5 |
% |
|
|
4.5 |
% |
|
|
4.5 |
% |
|
|
4.5 |
% |
|
|
4.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-rate swaps: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed to variable: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional amount(1) |
|
$ |
300.0 |
|
|
$ |
300.0 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
300.0 |
|
Average pay-rate |
|
|
6.78 |
% |
|
|
6.80 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.79 |
% |
Average receive-rate |
|
|
5.25 |
% |
|
|
5.25 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.25 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross-currency interest-rate
swaps: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed to fixed: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional amount(2) |
|
$ |
325.0 |
|
|
$ |
325.0 |
|
|
$ |
325.0 |
|
|
$ |
325.0 |
|
|
$ |
325.0 |
|
|
$ |
325.0 |
|
|
$ |
325.0 |
|
Average pay-rate |
|
|
3.5275 |
% |
|
|
3.5275 |
% |
|
|
3.5275 |
% |
|
|
3.5275 |
% |
|
|
3.5275 |
% |
|
|
3.5275 |
% |
|
|
3.5275 |
% |
Average receive-rate |
|
|
5.232 |
% |
|
|
5.232 |
% |
|
|
5.232 |
% |
|
|
5.232 |
% |
|
|
5.232 |
% |
|
|
5.232 |
% |
|
|
5.232 |
% |
|
|
|
(1) |
|
Cooper entered into interest-rate swaps to effectively convert its fixed-rate $300
million senior unsecured debt due in July 2007 to variable-rate debt. |
|
(2) |
|
Cooper entered into cross-currency interest-rate swaps to effectively convert $325
million of 5.25% senior unsecured debt due in November 2012 to Euro 272.6 million with an
annual interest rate of 3.55%. |
The table below provides information about Coopers currency forward exchange contracts
to purchase currencies in excess of $10 million at December 31, 2005. The contracts matured during
2006. The notional amount is used to calculate the contractual payments exchanged under the
contracts. The notional amount represents the U.S. dollar equivalent.
|
|
|
|
|
|
|
2006 |
|
|
|
(in millions, |
|
|
|
where applicable) |
|
Canadian Dollar Functional Currency |
|
|
|
|
Buy U.S. Dollars / Sell Canadian Dollars |
|
|
|
|
Notional amount |
|
$ |
98.9 |
|
Average contract rate |
|
|
.8542 |
|
|
|
|
|
|
U.S. Dollar Functional Currency |
|
|
|
|
Buy Mexican Pesos / Sell U.S. Dollars |
|
|
|
|
Notional amount |
|
$ |
19.1 |
|
Average contract rate |
|
|
.0884 |
|
See Note 17 of the Notes to the Consolidated Financial Statements for additional
information regarding the fair value of Coopers financial instruments.
31
Recently Issued Accounting Standards
See Note 1 of the Notes to the Consolidated Financial Statements.
|
|
|
ITEM 7A. |
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
The information required by this Item is included under Item 7. Managements Discussion and
Analysis of Financial Condition and Results of Operations.
|
|
|
ITEM 8. |
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
Coopers consolidated financial statements, together with the report thereon of Ernst & Young
LLP and the supplementary financial data are set forth on pages F-1 through F-44 hereof. (See Item
15 for Index.)
|
|
|
ITEM 9. |
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE |
Not applicable.
|
|
|
ITEM 9A. |
|
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 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. See Report of
Management on Internal Control Over Financial Reporting on page F-1.
Cooper is executing a multi-year process of implementing an Enterprise Business System (EBS)
globally. 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.
|
|
|
ITEM 9B. |
|
OTHER INFORMATION |
Not applicable.
PART III
|
|
|
ITEM 10. |
|
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
The information required by this Item is set forth under the captions Election of Directors,
Executive Officers, and Corporate Governance in Coopers Proxy Statement to be filed pursuant
to Regulation 14A under the Securities Exchange Act of 1934 in connection with Coopers 2007 Annual
Meeting of Shareholders (the Proxy Statement) and is incorporated herein by reference.
|
|
|
ITEM 11. |
|
EXECUTIVE COMPENSATION |
The information required by this Item is set forth under the caption Executive Management
Compensation and Directors Compensation in the Proxy Statement and is incorporated herein by
reference.
32
|
|
|
ITEM 12. |
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS |
The information required by this Item is set forth under the captions Cooper Stock Ownership
of Certain Beneficial Owners, Securities Ownership of Officers and Directors and Equity
Compensation Plan Information in the Proxy Statement and is incorporated herein by reference.
|
|
|
ITEM 13. |
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS |
The information required by this Item is set forth under the caption Transactions with
Related Persons and Corporate Governance-Director Independence in the Proxy Statement and is
incorporated herein by reference.
|
|
|
ITEM 14. |
|
PRINCIPAL ACCOUNTANT FEES AND SERVICES |
The information required by this Item is set forth under the caption Relationship with
Independent Auditors in the Proxy Statement and is incorporated herein by reference.
PART IV
|
|
|
ITEM 15. |
|
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
|
|
|
(a) 1. |
|
Financial Statements and Other Financial Data. |
|
|
|
|
|
Page |
Report of Management on Internal Control Over Financial Reporting
|
|
F-1 |
Report of Independent Registered Public Accounting Firm on Internal Control
Over Financial Reporting
|
|
F-2 |
Report of Independent Registered Public Accounting Firm
|
|
F-3 |
Consolidated Income Statements for each of the three years in the period ended
December 31, 2006
|
|
F-4 |
Consolidated Balance Sheets as of December 31, 2006 and 2005
|
|
F-5 |
Consolidated Statements of Cash Flows for each of the three years in the period
ended December 31, 2006
|
|
F-6 |
Consolidated Statements of Shareholders Equity for each of the three years in
the period ended December 31, 2006
|
|
F-7 |
Notes to Consolidated Financial Statements
|
|
F-8 |
Financial information with respect to subsidiaries not consolidated and 50 percent or less
owned entities accounted for by the equity method has not been included because in the aggregate
such subsidiaries and investments do not constitute a significant subsidiary.
|
2. |
|
Financial Statement Schedules |
Financial statement schedules are not included in this Form 10-K Annual Report
because they are not applicable or the required information is shown in the financial
statements or notes thereto.
|
2.0 |
|
Agreement and Plan of Merger among Cooper Industries, Inc., Cooper
Mergerco, Inc. and Cooper Industries, Ltd. (incorporated herein by reference to
Annex I to Coopers Registration Statement on Form S-4, Registration No. 333-62740). |
33
|
3.1 |
|
Memorandum of Association of Cooper Industries, Ltd. (incorporated herein
by reference to Annex II to Coopers Registration Statement on Form S-4,
Registration No. 333-62740). |
|
|
3.2 |
|
Amended and Restated Bye-Laws of Cooper Industries, Ltd. (incorporated
herein by reference to Annex III to Coopers Registration Statement on Form S-4,
Registration No. 333-62740). |
|
|
4.1 |
|
Rights Agreement dated as of May 16, 2002 between Cooper Industries, Ltd.
and EquiServe Trust Company, N.A., as Rights Agent (incorporated herein by reference
to Exhibit 4.4 to Coopers Registration Statement on Form 8-A, Registration No.
001-31330). |
|
|
4.2 |
|
Amended and Restated Voting Agreement between Cooper Industries, Ltd.,
Cooper Industries, Inc. and Cooper Bermuda Investments Ltd. (incorporated herein by
reference to Exhibit 4 to Coopers Form 10-Q for the quarter ended March 31, 2004). |
|
|
4.3 |
|
Indenture dated as of January 15, 1990, between Cooper Industries, Inc.
and The Chase Manhattan Bank (National Association), as Trustee (incorporated herein
by reference to Exhibit 4(a) to Coopers Registration Statement on Form S-3,
Registration No. 33-33011). |
|
|
4.4 |
|
First Supplemental Indenture dated as of May 15, 2002 between Cooper
Industries, Inc. and JPMorgan Chase Bank, N.A., as successor Trustee to The Chase
Manhattan Bank (National Association) (incorporated herein by reference to Exhibit
4.3 to Coopers Form 10-Q for the quarter ended June 30, 2002). |
|
|
4.5 |
|
Second Supplemental Indenture dated as of June 21, 2002 among Cooper
Industries, Inc., Cooper Industries, Ltd. and JPMorgan Chase Bank, N.A., as Trustee
(incorporated herein by reference to Exhibit 4.4 to Coopers Form 10-Q for the
quarter ended June 30, 2002). |
|
|
4.6 |
|
Third Supplemental Indenture dated as of October 28, 2002 among Cooper
Industries, Inc., Cooper Industries, Ltd. and JPMorgan Chase Bank, N.A., as Trustee
(incorporated herein by reference to Exhibit 4.1 to Coopers Form 10-Q for the
quarter ended September 30, 2002). |
|
|
4.7 |
|
Fourth Supplemental Indenture dated as of January 1, 2005 among Cooper
Industries, LLC, Cooper Industries, Ltd. and JPMorgan Chase Bank, N.A., as Trustee
(incorporated by reference to Exhibit 4 to Coopers Form 10-Q for the quarter ended
March 31, 2005). |
|
|
4.8 |
|
Indenture dated as of November 8, 2005 among Cooper US, Inc., Cooper
Industries, Ltd., Subsidiary Guarantors and JPMorgan Chase Bank, N.A., as Trustee
(incorporated by reference to Exhibit 4.1 to Coopers Form 8-K filed November 9,
2005). |
|
|
4.9 |
|
Registration Rights Agreement dated November 8, 2005 among Cooper US,
Inc., Cooper Industries, Ltd., Subsidiary Guarantors, and Banc of America Securities
LLC and Citigroup Global Markets, Inc. as representatives of several initial
purchasers of $325 million aggregate principal amount of debt securities
(incorporated by reference to Exhibit 4.2 to Coopers Form 8-K filed November 9,
2005). |
|
|
10.1 |
|
Cooper Industries, Inc. Directors Deferred Compensation Plan (incorporated
by reference to Exhibit 10.2 to Coopers Form 10-K for the year ended December 31,
1997). |
34
|
10.2 |
|
Cooper Industries, Inc. Directors Retirement Plan (incorporated by
reference to Exhibit 10.3 to Coopers Form 10-K for the year ended December 31,
1997). |
|
|
10.3 |
|
Cooper Industries, Inc. Executive Restricted Stock Incentive Plan
(incorporated by reference to Exhibit 10.4 to Coopers Form 10-K for the year ended
December 31, 1997). |
|
|
10.4 |
|
First Amendment to Cooper Industries, Inc. Executive Restricted Stock
Incentive Plan (incorporated by reference to Exhibit 10.4 to Coopers Form 10-K for
the year ended December 31, 2003). |
|
|
10.5 |
|
Cooper Industries, Inc. Supplemental Excess Defined Benefit Plan (August 1,
1998 Restatement) (incorporated by reference to Exhibit 10(iii) to Coopers Form 10-Q
for the quarter ended September 30, 1998). |
|
|
10.6 |
|
First Amendment to Cooper Industries, Inc. Supplemental Excess Defined
Benefit Plan (August 1, 1998 Restatement) (incorporated by reference to Exhibit 10.6
to Coopers Form 10-K for the year ended December 31, 2003). |
|
|
10.7 |
|
Cooper Industries, Inc. Supplemental Excess Defined Contribution Plan
(August 1, 1998 Restatement) (incorporated by reference to Exhibit 10(iv) to Coopers
Form 10-Q for the quarter ended September 30, 1998). |
|
|
10.8 |
|
First, Second and Third Amendments to Cooper Industries, Inc. Supplemental
Excess Defined Contribution Plan (August 1, 1998 Restatement) (incorporated by
reference to Exhibit 10.8 to Coopers Form 10-K for the year ended December 31,
2003). |
|
|
10.9 |
|
Management Incentive Compensation Deferral Plan (incorporated by reference
to Exhibit 10.7 to Coopers Form 10-K for the year ended December 31, 1997). |
|
|
10.10 |
|
Third and Fourth Amendments to Management Incentive Compensation Deferral
Plan (incorporated by reference to Exhibit 10.10 to Coopers Form 10-K for the year
ended December 31, 2003). |
|
|
10.11 |
|
Crouse-Hinds Company Officers Disability and Supplemental Pension Plan
(September 10, 1999 Restatement, as amended) (incorporated by reference to Exhibit
10.11 to Coopers Form 10-K for the year ended December 31, 2003). |
|
|
10.12 |
|
Cooper Industries Amended and Restated Stock Incentive Plan (February 9,
2005 Restatement) (incorporated herein by reference to Exhibit 10.4 to Coopers Form
10-Q for the quarter ended March 31, 2005). |
|
|
10.13 |
|
First Amendment to Cooper Industries Amended and Restated Stock Incentive
Plan. |
|
|
10.14 |
|
Form of Incentive Stock Option Agreement for Cooper Industries, Inc. Stock
Incentive Plan (incorporated by reference to Exhibit 10.14 to Coopers Form 10-K for
the year ended December 31, 2003). |
|
|
10.15 |
|
Form of Nonqualified Stock Option Agreement for Cooper Industries, Inc.
Stock Incentive Plan (incorporated by reference to Exhibit 10.15 to Coopers Form
10-K for the year ended December 31, 2003). |
|
|
10.16 |
|
Form of Cooper Industries, Inc. Executive Stock Incentive Agreement for
the performance period January 1, 2004 to December 31, 2006 (incorporated by
reference to Exhibit 10 to Coopers Form 10-Q for the quarter ended March 31, 2004). |
35
|
10.17 |
|
Form of Cooper US, Inc. Executive Stock Incentive Agreement for the
performance period January 1, 2005 to December 31, 2007 (incorporated by reference to
Exhibit 10.3 to Coopers Form 10-Q for the period ended March 31, 2005). |
|
|
10.18 |
|
Form of Cooper US, Inc. Executive Stock Incentive Agreement for the
performance period January 1, 2006 to December 31, 2008 (incorporated by reference to
Exhibit 10.1 to Coopers Form 10-Q for the period ended March 31, 2006). |
|
|
10.19 |
|
Cooper Industries Amended and Restated Management Annual Incentive Plan
(February 13, 2006 Restatement) (incorporated herein by reference to Appendix C to
Coopers Proxy Statement for the Annual Meeting of Shareholders held on April 25,
2006). |
|
|
10.20 |
|
First Amendment to Cooper Industries Amended and Restated Management
Annual Incentive Plan (February 13, 2006 Restatement). |
|
|
10.21 |
|
Amended and Restated Cooper Industries, Ltd. Directors Stock Plan
(February 14, 2006 Restatement) (incorporated herein by reference to Appendix D to
Coopers Proxy Statement for the Annual Meeting of Shareholders held on April 25,
2006). |
|
|
10.22 |
|
Form of Directors Nonqualified Stock Option Agreement for Directors
Stock Plan (incorporated herein by reference to Exhibit 10.18 to Coopers Form 10-K
for the year ended December 31, 1997). |
|
|
10.23 |
|
Cooper Industries, Ltd. Amended and Restated Directors Retainer Fee Stock
Plan (April 1, 2003 Restatement) (incorporated by reference to Exhibit 10.21 to
Coopers Form 10-K for the year ended December 31, 2003). |
|
|
10.24 |
|
Form of Management Continuity Agreement between Cooper Industries, Ltd.
and key management personnel, which applies if there is a Change in Control of Cooper
(incorporated herein by reference to Exhibit 10.5 to Coopers Form 10-Q for the
quarter ended March 31, 2005). |
|
|
10.25 |
|
Form of Indemnification Agreement between Cooper Industries, Ltd. and key
management personnel (incorporated by reference to Exhibit 10.23 to Coopers Form
10-K for the year ended December 31, 2003). |
|
|
10.26 |
|
Purchase and Sale Agreement between Cooper Industries, Inc. and
Federal-Mogul Corporation dated August 17, 1998 (incorporated herein by reference to
Exhibit 10(i) of Coopers Form 10-Q for the quarter ended September 30, 1998). |
|
|
10.27 |
|
Term Sheet Pneumo Abex Settlement Plan A and Plan B dated as of July 6,
2006 among Cooper Industries, Ltd.; Cooper Industries, LLC; Federal-Mogul
Corporation; Federal-Mogul Products, Inc.; the Future Claimants Representative for
Federal-Mogul Corporation and Federal-Mogul Products, Inc.; the Official Committee of
Asbestos Claimants for Federal-Mogul Corporation and Federal-Mogul Products, Inc.;
Pneumo Abex LLC; and PCT International Holdings, Inc. (incorporated by reference to
Exhibit 99.1 to Coopers Form 8-K dated July 20, 2006). |
|
|
10.28 |
|
Plan B Settlement Agreement dated as of September 18, 2006 among Cooper
Industries, Ltd.; Cooper Industries, LLC; Federal-Mogul Corporation; Federal-Mogul
Products, Inc.; the Future Claimants Representative for Federal-Mogul Corporation and
Federal-Mogul Products, Inc.; the Official Committee of Asbestos Claimants for
Federal-Mogul Corporation and Federal-Mogul Products, Inc.; Pneumo Abex LLC; and
PCT International Holdings, Inc. |
36
|
10.29 |
|
Cooper (UK 2002) Employee Share Purchase Plan (incorporated by reference
to Exhibit 10.25 to Coopers Form 10-K for the year ended December 31, 2003). |
|
|
10.30 |
|
Five-Year Credit Agreement dated November 3, 2004 among Cooper Industries,
Ltd., Cooper US, Inc. and the banks named therein (incorporated by reference to
Exhibit 10.25 of Coopers Form 10-K for the year ended December 31, 2004). |
|
|
10.31 |
|
Form of Executive Employment Agreement for employees who received stock
option and performance share awards on February 13, 2006 (incorporated by reference
to Exhibit 10.1 to Coopers Form 8-K dated March 17, 2006). |
|
|
10.32 |
|
Separation and Transition Agreement dated September 1, 2006 between Cooper
Industries, Ltd. and David R. Sheil (incorporated by reference to Exhibit 10.2 to
Coopers Form 10-Q for the quarter ended September 30, 2006). |
|
|
10.33 |
|
Separation and Transition Agreement dated January 16, 2007 between Cooper
Industries, Ltd. and Paul M. Isabella. |
|
|
12.0 |
|
Computation of Ratios of Earnings to Fixed Charges for the Calendar years
2002 through 2006. |
|
|
21.0 |
|
List of Cooper Industries, Ltd. Subsidiaries. |
|
|
23.1 |
|
Consent of Ernst & Young LLP. |
|
|
23.2 |
|
Consent of Bates White, LLC. |
|
|
24.0 |
|
Powers of Attorney from members of the Board of Directors of Cooper Industries, Ltd. |
|
|
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. |
Cooper will furnish to the Commission supplementally upon request a copy of any instrument
with respect to long-term debt of Cooper.
Copies of the above Exhibits are available to shareholders of record at a charge of $.25 per
page, minimum order of $10.00. Direct requests to:
Cooper Industries, Ltd.
Attn: Corporate Secretary
P.O. Box 4446
Houston, Texas 77210
37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
|
|
Date: February 21, 2007 |
By: |
/s/ Kirk S. Hachigian
|
|
|
|
Kirk S. Hachigian, Chairman, President and Chief Executive Officer |
|
|
|
|
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/ Kirk S. Hachigian
Kirk S. Hachigian |
|
Chairman, President and
Chief Executive Officer
|
|
February 21, 2007 |
/s/ Terry A. Klebe
Terry A. Klebe |
|
Senior Vice President and
Chief Financial Officer
|
|
February 21, 2007 |
/s/ Jeffrey B. Levos
Jeffrey B. Levos |
|
Vice President, Finance
and Chief Accounting Officer
|
|
February 21, 2007 |
*STEPHEN G. BUTLER
Stephen G. Butler |
|
Director
|
|
February 21, 2007 |
*JAMES J. POSTL
James J. Postl |
|
Director
|
|
February 21, 2007 |
*GERALD B. SMITH
Gerald B. Smith |
|
Director
|
|
February 21, 2007 |
*JAMES R. WILSON
James R. Wilson |
|
Director
|
|
February 21, 2007 |
|
|
|
|
|
|
|
|
*By: |
/s/ Kevin M. McDonald
|
|
|
|
|
Kevin M. McDonald, as Attorney-In-Fact |
|
|
|
for each of the persons indicated |
|
|
38
REPORT OF MANAGEMENT ON
INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Cooper Industries, Ltd. (Cooper) is responsible for establishing and
maintaining adequate internal control over financial reporting. Coopers internal control system
was designed to provide reasonable assurance to Coopers management and Board of Directors
regarding the preparation and fair presentation of published financial statements.
Cooper management assessed the effectiveness of Coopers internal control over financial
reporting as of December 31, 2006. In making this assessment, it used the criteria set forth by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control
Integrated Framework. Based on our assessment we believe that, as of December 31, 2006, Coopers
internal control over financial reporting is effective based on those criteria.
Coopers independent registered public accounting firm has issued an audit report on our
assessment of Coopers internal control over financial reporting. This report appears on Page F-2.
|
|
|
|
|
Kirk S. Hachigian
Chairman, President and
Chief Executive Officer
|
|
Terry A. Klebe
Senior Vice President and
Chief Financial Officer
|
|
Jeffrey B. Levos
Vice President, Finance and
and Chief Accounting Officer |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL
CONTROL OVER FINANCIAL REPORTING
The Board of Directors and Shareholders
Cooper Industries, Ltd.
We have audited managements assessment, included in the accompanying Report of Management on
Internal Control over Financial Reporting, that Cooper Industries, Ltd. (the Company) maintained
effective internal control over financial reporting as of December 31, 2006, based on criteria
established in Internal Control Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). The Companys management is
responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting. Our responsibility
is to express an opinion on managements assessment and an opinion on the effectiveness of the
Companys internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating managements assessment, testing and evaluating the
design and operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion.
A companys internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting
principles. A companys internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the companys assets that could have
a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, managements assessment that the Company maintained effective internal control
over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based
on the COSO criteria. Also, in our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2006, based on the COSO
criteria.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Cooper as of December 31, 2006
and 2005, and the related consolidated statements of income, shareholders equity, and cash flows
for each of the three years in the period ended December 31, 2006 and our report dated February 19,
2007 expressed an unqualified opinion thereon.
Houston, Texas
February 19, 2007
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Cooper Industries, Ltd.
We have audited the accompanying consolidated balance sheets of Cooper Industries, Ltd. (the
Company), as of December 31, 2006 and 2005, and the related consolidated statements of income,
shareholders equity, and cash flows for each of the three years in the period ended December 31,
2006. These financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of the Company at December 31, 2006 and 2005, and the
consolidated results of its operations and its cash flows for each of the three years in the period
ended December 31, 2006, in conformity with accounting principles generally accepted in the United
States.
As discussed in Note 1 to the consolidated financial statements, the Company adopted Statement
of Financial Accounting Standards No. 158 on December 31, 2006.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of the Companys internal control over financial
reporting as of December 31, 2006, based on criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated February 19, 2007 expressed an unqualified opinion thereon.
Houston, Texas
February 19, 2007
F-3
COOPER INDUSTRIES, LTD.
CONSOLIDATED INCOME STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
(in millions, except per share data) |
|
Revenues |
|
$ |
5,184.6 |
|
|
$ |
4,730.4 |
|
|
$ |
4,462.9 |
|
Cost of sales |
|
|
3,516.4 |
|
|
|
3,243.8 |
|
|
|
3,119.7 |
|
Selling and administrative expenses |
|
|
969.0 |
|
|
|
926.8 |
|
|
|
846.6 |
|
|
|
|
|
|
|
|
|
|
|
Operating earnings |
|
|
699.2 |
|
|
|
559.8 |
|
|
|
496.6 |
|
Interest expense, net |
|
|
51.5 |
|
|
|
64.8 |
|
|
|
68.1 |
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes. |
|
|
647.7 |
|
|
|
495.0 |
|
|
|
428.5 |
|
Income taxes |
|
|
163.4 |
|
|
|
103.9 |
|
|
|
88.7 |
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
484.3 |
|
|
|
391.1 |
|
|
|
339.8 |
|
Charge related to discontinued operations, net of income taxes |
|
|
20.3 |
|
|
|
227.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
464.0 |
|
|
$ |
163.9 |
|
|
$ |
339.8 |
|
|
|
|
|
|
|
|
|
|
|
Income per Common share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
5.28 |
|
|
$ |
4.23 |
|
|
$ |
3.67 |
|
Charge from discontinued operations |
|
|
.22 |
|
|
|
2.46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
5.06 |
|
|
$ |
1.77 |
|
|
$ |
3.67 |
|
|
|
|
|
|
|
|
|
|
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
5.16 |
|
|
$ |
4.12 |
|
|
$ |
3.58 |
|
Charge from discontinued operations |
|
|
.21 |
|
|
|
2.39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
4.95 |
|
|
$ |
1.73 |
|
|
$ |
3.58 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends per Common share |
|
$ |
1.48 |
|
|
$ |
1.48 |
|
|
$ |
1.40 |
|
|
|
|
|
|
|
|
|
|
|
The Notes to Consolidated Financial Statements are an integral part of these statements.
F-4
COOPER INDUSTRIES, LTD.
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(in millions) |
|
ASSETS |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
423.5 |
|
|
$ |
452.8 |
|
Receivables |
|
|
896.0 |
|
|
|
842.4 |
|
Inventories |
|
|
607.6 |
|
|
|
538.7 |
|
Deferred income taxes and other current assets |
|
|
266.6 |
|
|
|
297.2 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
2,193.7 |
|
|
|
2,131.1 |
|
|
|
|
|
|
|
|
Property, plant and equipment, less accumulated depreciation |
|
|
665.4 |
|
|
|
673.7 |
|
Goodwill |
|
|
2,336.9 |
|
|
|
2,084.0 |
|
Deferred income taxes and other noncurrent assets |
|
|
178.8 |
|
|
|
326.3 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
5,374.8 |
|
|
$ |
5,215.1 |
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Short-term debt |
|
$ |
5.0 |
|
|
$ |
7.6 |
|
Accounts payable |
|
|
471.7 |
|
|
|
427.8 |
|
Accrued liabilities |
|
|
522.3 |
|
|
|
518.0 |
|
Current discontinued operations liability |
|
|
199.6 |
|
|
|
196.3 |
|
Current maturities of long-term debt |
|
|
300.7 |
|
|
|
11.4 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
1,499.3 |
|
|
|
1,161.1 |
|
|
|
|
|
|
|
|
Long-term debt |
|
|
702.8 |
|
|
|
1,002.9 |
|
Postretirement benefits other than pensions |
|
|
83.2 |
|
|
|
163.0 |
|
Long-term discontinued operations liability |
|
|
330.0 |
|
|
|
330.0 |
|
Other long-term liabilities |
|
|
284.2 |
|
|
|
352.9 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
2,899.5 |
|
|
|
3,009.9 |
|
|
|
|
|
|
|
|
Common stock, $.01 par value |
|
|
0.9 |
|
|
|
0.9 |
|
Capital in excess of par value |
|
|
278.4 |
|
|
|
383.2 |
|
Retained earnings |
|
|
2,324.4 |
|
|
|
1,997.4 |
|
Accumulated other nonowner changes in equity |
|
|
(128.4 |
) |
|
|
(176.3 |
) |
|
|
|
|
|
|
|
Total shareholders equity |
|
|
2,475.3 |
|
|
|
2,205.2 |
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
5,374.8 |
|
|
$ |
5,215.1 |
|
|
|
|
|
|
|
|
The Notes to Consolidated Financial Statements are an integral part of these statements.
F-5
COOPER INDUSTRIES, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
(in millions) |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
464.0 |
|
|
$ |
163.9 |
|
|
$ |
339.8 |
|
Plus: charge related to discontinued operations |
|
|
20.3 |
|
|
|
227.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
484.3 |
|
|
|
391.1 |
|
|
|
339.8 |
|
Adjustments to reconcile to net cash provided by
operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
111.7 |
|
|
|
111.0 |
|
|
|
117.6 |
|
Deferred income taxes |
|
|
15.4 |
|
|
|
21.5 |
|
|
|
27.7 |
|
Excess tax benefits from stock options and awards |
|
|
(26.8 |
) |
|
|
|
|
|
|
|
|
Restructuring charge payments |
|
|
|
|
|
|
(0.4 |
) |
|
|
(4.3 |
) |
Changes in assets and liabilities: (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables |
|
|
(16.1 |
) |
|
|
(39.8 |
) |
|
|
(56.7 |
) |
Inventories |
|
|
(43.3 |
) |
|
|
(17.6 |
) |
|
|
47.6 |
|
Accounts payable and accrued liabilities |
|
|
1.3 |
|
|
|
86.8 |
|
|
|
17.8 |
|
Other assets and liabilities, net |
|
|
74.9 |
|
|
|
20.9 |
|
|
|
(15.9 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
601.4 |
|
|
|
573.5 |
|
|
|
473.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(85.3 |
) |
|
|
(96.7 |
) |
|
|
(102.8 |
) |
Cash paid for acquired businesses |
|
|
(280.4 |
) |
|
|
(7.1 |
) |
|
|
(48.6 |
) |
Proceeds from sales of property, plant and equipment and other |
|
|
18.9 |
|
|
|
13.6 |
|
|
|
11.8 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(346.8 |
) |
|
|
(90.2 |
) |
|
|
(139.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuances of debt |
|
|
|
|
|
|
326.4 |
|
|
|
94.3 |
|
Repayments of debt |
|
|
(14.8 |
) |
|
|
(710.4 |
) |
|
|
(4.7 |
) |
Debt issuance costs |
|
|
|
|
|
|
(3.8 |
) |
|
|
|
|
Dividends |
|
|
(137.0 |
) |
|
|
(138.1 |
) |
|
|
(131.0 |
) |
Subsidiary purchase of parent shares |
|
|
(264.2 |
) |
|
|
(211.0 |
) |
|
|
(202.9 |
) |
Excess tax benefits from stock options and awards |
|
|
26.8 |
|
|
|
|
|
|
|
|
|
Activity under employee stock plans and other |
|
|
89.2 |
|
|
|
72.7 |
|
|
|
78.4 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(300.0 |
) |
|
|
(664.2 |
) |
|
|
(165.9 |
) |
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
16.1 |
|
|
|
(19.1 |
) |
|
|
21.0 |
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
|
(29.3 |
) |
|
|
(200.0 |
) |
|
|
189.1 |
|
Cash and cash equivalents, beginning of year |
|
|
452.8 |
|
|
|
652.8 |
|
|
|
463.7 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year |
|
$ |
423.5 |
|
|
$ |
452.8 |
|
|
$ |
652.8 |
|
|
|
|
|
|
|
|
|
|
|
(1) Net of the effects of acquisitions and translation.
The Notes to Consolidated Financial Statements are an integral part of these statements.
F-6
COOPER INDUSTRIES, LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital |
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
In Excess |
|
|
|
|
|
|
Nonowner |
|
|
|
|
|
|
Common |
|
|
of Par |
|
|
Retained |
|
|
Changes in |
|
|
|
|
|
|
Stock |
|
|
Value |
|
|
Earnings |
|
|
Equity |
|
|
Total |
|
|
|
(in millions) |
|
Balance December 31, 2003 |
|
$ |
0.9 |
|
|
$ |
518.0 |
|
|
$ |
1,762.8 |
|
|
$ |
(163.5 |
) |
|
$ |
2,118.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
339.8 |
|
|
|
|
|
|
|
339.8 |
|
Minimum pension liability adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8.0 |
) |
|
|
(8.0 |
) |
Translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36.3 |
|
|
|
36.3 |
|
Change in fair value of derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.0 |
|
|
|
3.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income and other nonowner
changes in equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
371.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock dividends |
|
|
|
|
|
|
|
|
|
|
(131.0 |
) |
|
|
|
|
|
|
(131.0 |
) |
Stock-based compensation |
|
|
|
|
|
|
21.5 |
|
|
|
|
|
|
|
|
|
|
|
21.5 |
|
Subsidiary purchase of parent shares |
|
|
|
|
|
|
(202.9 |
) |
|
|
|
|
|
|
|
|
|
|
(202.9 |
) |
Stock issued under employee stock plans |
|
|
|
|
|
|
107.5 |
|
|
|
|
|
|
|
|
|
|
|
107.5 |
|
Other activity |
|
|
|
|
|
|
2.1 |
|
|
|
|
|
|
|
|
|
|
|
2.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2004 |
|
|
0.9 |
|
|
|
446.2 |
|
|
|
1,971.6 |
|
|
|
(132.2 |
) |
|
|
2,286.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
163.9 |
|
|
|
|
|
|
|
163.9 |
|
Minimum pension liability adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11.0 |
) |
|
|
(11.0 |
) |
Translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(37.9 |
) |
|
|
(37.9 |
) |
Change in fair value of derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.8 |
|
|
|
4.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income and other nonowner
changes in equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock dividends |
|
|
|
|
|
|
|
|
|
|
(138.1 |
) |
|
|
|
|
|
|
(138.1 |
) |
Stock-based compensation |
|
|
|
|
|
|
40.3 |
|
|
|
|
|
|
|
|
|
|
|
40.3 |
|
Subsidiary purchase of parent shares |
|
|
|
|
|
|
(211.0 |
) |
|
|
|
|
|
|
|
|
|
|
(211.0 |
) |
Stock issued under employee stock plans |
|
|
|
|
|
|
106.4 |
|
|
|
|
|
|
|
|
|
|
|
106.4 |
|
Other activity |
|
|
|
|
|
|
1.3 |
|
|
|
|
|
|
|
|
|
|
|
1.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2005 |
|
|
0.9 |
|
|
|
383.2 |
|
|
|
1,997.4 |
|
|
|
(176.3 |
) |
|
|
2,205.2 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
464.0 |
|
|
|
|
|
|
|
464.0 |
|
Translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53.8 |
|
|
|
53.8 |
|
Change in fair value of derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.3 |
|
|
|
2.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income and other nonowner
changes in equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
520.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to initially apply SFAS No. 158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8.2 |
) |
|
|
(8.2 |
) |
Common stock dividends |
|
|
|
|
|
|
|
|
|
|
(137.0 |
) |
|
|
|
|
|
|
(137.0 |
) |
Stock-based compensation |
|
|
|
|
|
|
27.5 |
|
|
|
|
|
|
|
|
|
|
|
27.5 |
|
Subsidiary purchase of parent shares |
|
|
|
|
|
|
(264.2 |
) |
|
|
|
|
|
|
|
|
|
|
(264.2 |
) |
Stock issued under employee stock plans |
|
|
|
|
|
|
130.3 |
|
|
|
|
|
|
|
|
|
|
|
130.3 |
|
Other activity |
|
|
|
|
|
|
1.6 |
|
|
|
|
|
|
|
|
|
|
|
1.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2006 |
|
$ |
0.9 |
|
|
$ |
278.4 |
|
|
$ |
2,324.4 |
|
|
$ |
(128.4 |
) |
|
$ |
2,475.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Notes to Consolidated Financial Statements are an integral part of these statements.
F-7
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT 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.
Principles of Consolidation: The consolidated financial statements include the accounts of Cooper
and its majority-owned subsidiaries. Affiliated companies are accounted for on the equity method
where Cooper owns 20% to 50% of the affiliate unless significant economic, political or contractual
considerations indicate that the cost method is appropriate.
Use of Estimates: The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Equivalents: For purposes of the consolidated statements of cash flows, Cooper considers all
investments purchased with original maturities of three months or less to be cash equivalents.
Accounts Receivable: Cooper provides an allowance for doubtful trade accounts receivable,
determined under the specific identification method. The allowance was $9.8 million and $6.6
million at December 31, 2006 and 2005, respectively.
Inventories: Inventories are carried at cost or, if lower, net realizable value. On the basis of
current costs, 57.3% and 59.2% of inventories at December 31, 2006 and 2005, respectively, were
carried on the last-in, first-out (LIFO) method. The remaining inventories are carried on the
first-in, first-out (FIFO) method. Cooper records provisions for potential obsolete and excess
inventories. See Note 4 of the Notes to the Consolidated Financial Statements.
Property, Plant and Equipment: Property, plant and equipment are stated at cost. Depreciation is
provided over the estimated useful lives of the related assets using primarily the straight-line
method. This method is applied to group asset accounts, which in general have the following lives:
buildings 10 to 40 years; machinery and equipment 3 to 18 years; and tooling, dies, patterns
and other 3 to 10 years.
Goodwill: Under Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible
Assets (SFAS No. 142), goodwill is subject to an annual impairment test. Cooper designated
January 1 as the date of its annual goodwill impairment test. If an event occurs or circumstances
change that would more likely than not reduce the fair value of a reporting unit below its carrying
value, an interim impairment test would be performed between annual tests. The first step of the
SFAS No. 142 two-step goodwill impairment test compares the fair value of a reporting unit with its
carrying value. Cooper has designated seven reporting units, consisting of six units in the
Electrical Products reportable operating segment plus the Tools reportable operating segment. If
the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill
impairment test shall be performed. Fair value is determined by estimating the present value of
future cash flows. The second step compares the implied fair value of reporting unit goodwill to
the carrying amount of the goodwill to measure the amount of impairment loss. See Note 6 of the
Notes to the Consolidated Financial Statements.
Revenue Recognition: Cooper recognizes revenues when products are shipped. Accruals for sales
returns and other allowances are provided at the time of shipment based upon experience. The
accrual for sales returns and other allowances was $73.4 million and $62.5 million at December 31,
2006 and 2005,
F-8
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
respectively. Shipping and handling costs of $172.7 million, $157.1 million and
$132.2 million in 2006, 2005 and 2004, respectively, are reported as a reduction of revenues in the
consolidated income statements.
Research and Development Expenditures: Research and development expenditures are charged to
earnings as incurred. Research and development expenses were $83.5 million, $71.5 million and
$70.6 million in 2006, 2005 and 2004, respectively.
Impact of New Accounting Standards: In December 2004, the Financial Accounting Standards
Board issued FASB Statement 123(R), Share-Based Payment, which is a revision of SFAS No. 123.
Statement 123(R) also supersedes APB No. 25, and amends FASB Statement No. 95, Statement of Cash
Flows. For Cooper, the revised statement was effective January 1, 2006. See Note 10 of the Notes
to the Consolidated Financial Statements.
In June 2006, the Financial Accounting Standards Board issued FASB Interpretation No. 48 ¸
Accounting for Uncertainty in Income Taxes (the Interpretation). This Interpretation clarifies
the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No.
109, Accounting for Income Taxes. This Interpretation prescribes a more-likely-than not
recognition threshold that a tax position will be sustained upon examination and a measurement
attribute for the financial statement recognition of a tax position taken or expected to be taken
in a tax return. This Interpretation also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure and transition. This
Interpretation is effective for fiscal years beginning after December 15, 2006. The cumulative
effect of applying the provisions of this Interpretation shall be reported as an adjustment to the
opening balance of retained earnings in 2007. Cooper is currently evaluating the impact of the
Interpretation on its consolidated financial statements and anticipates the adjustment to retained
earnings will not be material.
In September 2006, the Financial Accounting Standards Board issued FASB Statement No. 157,
Fair Value Measurements (SFAS No. 157). SFAS No. 157 provides enhanced guidance for using fair
value to measure assets and liabilities. SFAS No. 157 clarifies the principle that fair value
should be based on the assumptions market participants would use when pricing the assets or
liabilities and establishes a hierarchy that prioritizes the information used to develop those
assumptions. SFAS No. 157 applies whenever other standards require (or permit) assets or
liabilities to be measured at fair value. SFAS No. 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007. Cooper is currently evaluating the
impact of this Statement on its consolidated financial statements.
In September 2006, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 158, Employers Accounting for Defined Benefit Pension and Other
Postretirement Plans (SFAS No. 158). SFAS No. 158 requires an employer to recognize the
overfunded or underfunded status of a defined benefit pension plan and other postretirement plans
as an asset or liability on its balance sheet and recognize changes in its funded status in the
year in which the change occurs through accumulated other nonowner changes in equity. For Cooper,
the Statement was effective December 31, 2006. See Note 13 of the Notes to the Consolidated
Financial Statements.
NOTE 2: 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 included plans for
the withdrawal
F-9
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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. In 2005, Cooper
finalized activities related to withdrawal from the multi-employer pension plan and recorded an
additional $4.0 million pre-tax charge. The multiple-employer pension obligation was satisfied
with a cash payment of $14.1 million in October 2006 representing full and final payment of the
withdrawal liability. The remaining $5.9 million charge primarily represented severance for
announced employment reductions at several locations. As of December 31, 2006, 2005 and 2004,
Cooper had paid $5.9 million, $5.3 million and $4.9 million, respectively, for the 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.
A total of 106 personnel were terminated as of December 31, 2003 and the remainder terminated in
2004. The majority of the remaining severance obligation was paid in the first half of 2004.
See Restructuring in Managements Discussion and Analysis of Financial Condition and Results
of Operations for additional information related to the restructuring.
NOTE 3: ACQUISITIONS AND DIVESTITURES
Cooper completed four acquisitions during 2006. These acquisitions were selected because of
their strategic fit with existing Cooper businesses or were new strategic lines that were
complementary to Coopers operations. Cooper makes an initial allocation of the purchase price as
of the date of acquisition, based on its understanding of the fair value of the assets and
liabilities acquired. In the months after the closing of the transaction, Cooper obtains
additional information about the assets and liabilities acquired and finalizes allocation of the
purchase price.
In August 2006, Cooper completed the acquisition of all of the outstanding stock of Cannon
Technologies, Inc. for $191.3 million, net of cash acquired, including acquisition costs. Cannon
is a provider of automation technologies for monitoring and metering, and energy management by
electrical utilities. The Cannon acquisition resulted in the recognition of a preliminary estimate
of goodwill of $149.0 million, primarily related to the future earnings and cash flow potential
resulting from Cannons rapidly expanding customer base.
Cooper acquired three additional companies during 2006 for total consideration of $89.1
million, net of cash acquired, including acquisition costs. In general, the acquired businesses
were manufacturers and assemblers of electrical products, in markets such as aerospace, subsea,
military, industrial and fire and safety. These companies were all complementary to existing
businesses owned by Cooper and resulted in aggregate goodwill of $39.2 million.
The following table summarizes the aggregate estimated preliminary fair values of the assets
acquired and the liabilities assumed at the date of acquisition for the acquisitions consummated
during the year ended December 31, 2006:
F-10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cannon |
|
|
All Others |
|
|
Total |
|
|
|
(in millions) |
|
Receivables |
|
$ |
7.0 |
|
|
$ |
8.8 |
|
|
$ |
15.8 |
|
Inventories |
|
|
4.6 |
|
|
|
12.2 |
|
|
|
16.8 |
|
Property, Plant and Equipment |
|
|
1.7 |
|
|
|
8.2 |
|
|
|
9.9 |
|
Goodwill |
|
|
149.0 |
|
|
|
39.2 |
|
|
|
188.2 |
|
Other intangible assets |
|
|
55.4 |
|
|
|
38.9 |
|
|
|
94.3 |
|
Accounts payable |
|
|
(3.9 |
) |
|
|
(4.2 |
) |
|
|
(8.1 |
) |
Other assets and liabilities, net |
|
|
(22.5 |
) |
|
|
(14.0 |
) |
|
|
(36.5 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash consideration |
|
$ |
191.3 |
|
|
$ |
89.1 |
|
|
$ |
280.4 |
|
|
|
|
|
|
|
|
|
|
|
Approximately $14.0 million of the $188.2 million of goodwill is expected to be deductible for
tax purposes.
In connection with the purchase of Cannon Technologies, Inc., $4.2 million pre-tax of
intangible asset cost was attributed to purchased research and development costs and written off on
the date of acquisition and included in cost of sales. Of the remaining intangible asset values,
$27.0 million was assigned to trademarks that are not subject to amortization, $30.3 million was
assigned to technology (15 year weighted average life), $28.5 million was assigned to customer
lists (16 year weighted average life), and $4.3 million assigned to other intangibles.
Cooper continues to evaluate the fair value of the assets and liabilities acquired during the
year ended December 31, 2006 and will adjust the allocations as additional information relative to
the businesses becomes available for up to one year from the acquisition date.
In 2004, Cooper acquired two companies for $48.6 million. These companies were complementary
to existing business in the Electrical Products segment. 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.
The results of operations of the acquisitions are included in the consolidated income
statement since the respective acquisition dates. Pro-forma net income and earnings per share for
the years ended December 31, 2006, 2005 and 2004, assuming the acquisitions had been made at the
beginning of the year, would not be materially different from reported results.
In July 2006, Cooper divested the assets of one small business within the Electrical Products
segment for aggregate proceeds of $11.5 million. A pre-tax gain of $4.7 million was recognized on
the divestiture.
In January 2007, Cooper completed two acquisitions for total consideration of approximately
$97 million. Both of these businesses are complementary to existing businesses in the Electrical
Products segment.
F-11
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 4: INVENTORIES
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(in millions) |
|
Raw materials |
|
$ |
204.2 |
|
|
$ |
206.1 |
|
Work-in-process |
|
|
160.7 |
|
|
|
137.9 |
|
Finished goods |
|
|
366.3 |
|
|
|
303.7 |
|
Perishable tooling and supplies |
|
|
14.6 |
|
|
|
14.4 |
|
|
|
|
|
|
|
|
|
|
|
745.8 |
|
|
|
662.1 |
|
Allowance for excess and obsolete inventory |
|
|
(65.6 |
) |
|
|
(58.7 |
) |
Excess of current standard costs over LIFO costs |
|
|
(72.6 |
) |
|
|
(64.7 |
) |
|
|
|
|
|
|
|
Net inventories |
|
$ |
607.6 |
|
|
$ |
538.7 |
|
|
|
|
|
|
|
|
NOTE 5: PROPERTY, PLANT AND EQUIPMENT
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(in millions) |
|
Land and land improvements. |
|
$ |
61.5 |
|
|
$ |
60.6 |
|
Buildings |
|
|
481.7 |
|
|
|
474.5 |
|
Machinery and equipment |
|
|
837.7 |
|
|
|
808.9 |
|
Tooling, dies and patterns. |
|
|
274.9 |
|
|
|
258.4 |
|
All other |
|
|
366.0 |
|
|
|
323.4 |
|
Construction in progress |
|
|
65.6 |
|
|
|
85.1 |
|
|
|
|
|
|
|
|
|
|
|
2,087.4 |
|
|
|
2,010.9 |
|
Accumulated depreciation |
|
|
(1,422.0 |
) |
|
|
(1,337.2 |
) |
|
|
|
|
|
|
|
|
|
$ |
665.4 |
|
|
$ |
673.7 |
|
|
|
|
|
|
|
|
NOTE 6: GOODWILL AND OTHER INTANGIBLE ASSETS
Changes in the carrying amount of goodwill by segment, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electrical |
|
|
|
|
|
|
|
|
|
Products |
|
|
Tools |
|
|
Total |
|
|
|
(in millions) |
|
Balance December 31, 2004 |
|
$ |
1,840.1 |
|
|
$ |
302.2 |
|
|
$ |
2,142.3 |
|
Additions to goodwill |
|
|
5.9 |
|
|
|
|
|
|
|
5.9 |
|
Translation adjustments |
|
|
(63.8 |
) |
|
|
(0.4 |
) |
|
|
(64.2 |
) |
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2005 |
|
|
1,782.2 |
|
|
|
301.8 |
|
|
|
2,084.0 |
|
Additions to goodwill |
|
|
188.2 |
|
|
|
|
|
|
|
188.2 |
|
Disposal of business |
|
|
(4.9 |
) |
|
|
|
|
|
|
(4.9 |
) |
Translation adjustments |
|
|
67.8 |
|
|
|
1.8 |
|
|
|
69.6 |
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2006 |
|
$ |
2,033.3 |
|
|
$ |
303.6 |
|
|
$ |
2,336.9 |
|
|
|
|
|
|
|
|
|
|
|
Under SFAS No. 142, goodwill is subject to an annual impairment test. See Note 1 of the Notes
to the Consolidated Financial Statements. The results of step one of the goodwill impairment test
did not require the completion of step two of the test for any reporting units in 2006, 2005 or
2004.
F-12
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Other intangible assets primarily consist of patents, trademarks, software and customer lists.
The gross carrying value of other intangible assets was $102.7 million and $11.8 million at
December 31, 2006 and 2005, respectively. Accumulated amortization of other intangible assets was
$13.6 million and $9.3 million at December 31, 2006 and 2005, respectively. Other intangible
assets are amortized over their remaining useful lives. Amortization expense of other intangible
assets was $4.1 million in 2006, $0.6 million in 2005, and $0.7 million in 2004. Annual
amortization expense is expected to be $6.8 million in 2007, $6.7 million in 2008 and $6.3 million
in 2009, $3.7 million in 2010 and $3.0 million in 2011.
NOTE 7: ACCRUED LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(in millions) |
|
Salaries, wages and employee benefit plans |
|
$ |
228.5 |
|
|
$ |
244.0 |
|
Commissions and customer incentives |
|
|
135.0 |
|
|
|
132.7 |
|
Product and environmental liability accruals |
|
|
34.1 |
|
|
|
36.2 |
|
Facility integration of acquired businesses |
|
|
|
|
|
|
6.3 |
|
Other (individual items less than 5% of total current liabilities) |
|
|
124.7 |
|
|
|
98.8 |
|
|
|
|
|
|
|
|
|
|
$ |
522.3 |
|
|
$ |
518.0 |
|
|
|
|
|
|
|
|
At December 31, 2006, Cooper had accruals of $19.3 million with respect to potential product
liability claims and $29.7 million with respect to potential environmental liabilities, including
$14.9 million classified as a long-term liability, based on Coopers current estimate of the most
likely amount of losses that it believes will be incurred.
The product liability accrual consists of $5.4 million of known claims with respect to ongoing
operations, $1.7 million of known claims for previously divested operations and $12.2 million,
which represents an estimate of claims that have been incurred but not yet reported. While Cooper
is generally self-insured with respect to product liability claims, Cooper has insurance coverage
for individual 2006 claims above $5.0 million.
Environmental remediation costs are accrued based on estimates of known environmental
remediation exposures. Such accruals are adjusted as information develops or circumstances change.
The environmental liability accrual includes $5.3 million related to sites owned by Cooper and
$24.4 million for retained environmental liabilities related to sites previously owned by Cooper
and third-party sites where Cooper was a potentially responsible party. 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.
It has been Coopers consistent practice to include the entire product liability accrual and a
significant portion of the environmental liability accrual as current liabilities, although only
approximately 15-25% of the balance classified as current is normally spent on an annual
basis. The annual effect on earnings for product liability is essentially equal to the amounts
disbursed. In the case of the environmental liability, the annual expense is considerably smaller
than the disbursements, since the vast majority of Coopers environmental liability has been
recorded in connection with acquired companies. The change in the accrual balances from year to
year reflects the effect of acquisitions and divestitures as well as normal expensing and funding.
F-13
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Cooper has not utilized any form of discounting in establishing its product or environmental
liability accruals. While both product liability and environmental liability accruals involve
estimates that can have wide ranges of potential liability, Cooper has taken a proactive approach
and has managed the costs in both of these areas over the years. Cooper does not believe that the
nature of its products, its production processes, or the materials or other factors involved in the
manufacturing process subject Cooper to unusual risks or exposures for product or environmental
liability. Coopers greatest exposure to inaccuracy in its estimates is with respect to the
constantly changing definitions of what constitutes an environmental liability or an acceptable
level of cleanup.
In connection with acquisitions, Cooper records, to the extent appropriate, accruals for the
costs of closing duplicate facilities, severing redundant personnel and integrating the acquired
business into existing Cooper operations. The following table summarizes the accrual balances and
activity during each of the last three years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
(in millions) |
|
Balance, beginning of year |
|
$ |
6.3 |
|
|
$ |
11.0 |
|
|
$ |
18.1 |
|
Spending |
|
|
(6.3 |
) |
|
|
(4.7 |
) |
|
|
(7.1 |
) |
|
|
|
|
|
|
|
|
|
|
Balance, end of year |
|
$ |
|
|
|
$ |
6.3 |
|
|
$ |
11.0 |
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2005 and 2004, respectively, $6.3 million and $11.0 million of the balance was
related to facilities shutdown and realignment costs resulting from the acquisition of Eagle
Electric in 2000. During the three years ended December 31, 2006, the annual spending was
primarily related to downsizing and consolidating facilities. Involuntary termination benefits of
$4.5 million in 2006, $2.0 million in 2005, and $1.2 million in 2004 were paid and 344 and 68
hourly positions were eliminated during 2005 and 2004, respectively. The termination and facility
shutdown activities were completed as of December 31, 2006.
NOTE 8: DEBT AND LEASE COMMITMENTS
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(in millions) |
|
5.25% senior unsecured notes, due July 2007 |
|
$ |
293.3 |
|
|
$ |
292.7 |
|
5.50% senior unsecured notes, due November 2009 |
|
|
275.0 |
|
|
|
275.0 |
|
5.25% senior unsecured notes, due November 2012 |
|
|
325.0 |
|
|
|
325.0 |
|
6.91% second series medium-term notes, due through 2010 |
|
|
2.3 |
|
|
|
13.3 |
|
6.38% third series medium-term notes, due through 2008. |
|
|
100.0 |
|
|
|
100.0 |
|
Other |
|
|
7.9 |
|
|
|
8.3 |
|
|
|
|
|
|
|
|
Total long-term debt |
|
|
1,003.5 |
|
|
|
1,014.3 |
|
Current maturities |
|
|
(300.7 |
) |
|
|
(11.4 |
) |
|
|
|
|
|
|
|
Long-term portion |
|
$ |
702.8 |
|
|
$ |
1,002.9 |
|
|
|
|
|
|
|
|
Cooper has a U.S. committed credit facility of $500 million, which matures in November 2009.
At December 31, 2006 and 2005, all of Coopers $500 million U.S. committed credit facility was
available. The agreement for the credit facility requires that Cooper maintain certain financial
ratios, including a prescribed limit on debt as a percentage of total capitalization and a minimum
earnings before interest, income taxes, depreciation and amortization to interest ratio. Retained
earnings are unrestricted as to the payment of dividends, except to the extent that payment would
cause a violation of the prescribed limit on the debt-to-total capitalization ratio.
F-14
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
On November 8, 2005, Cooper US, Inc., a subsidiary of Cooper, issued $325 million of 5.25%
senior unsecured notes that mature on November 15, 2012. Payment of the notes is guaranteed by
Cooper and certain of its subsidiaries. Proceeds of the notes were swapped to 272.6 million with
cross-currency interest-rate swaps, effectively converting the seven-year U.S. notes to seven-year
Euro notes with an annual interest rate of 3.55% (see Note 17). The proceeds of 272.6 million
partially funded repayment of the 6.25% Euro bonds that matured in October 2005.
During June 2002, Cooper issued $300 million senior unsecured notes due July 1, 2007 with a
5.25% interest rate. During August 2003, Cooper entered into interest-rate swaps to effectively
convert this fixed-rate debt to variable-rate debt (see Note 17). The fair value of the interest
rate swaps are included in long-term debt on the consolidated balance sheets.
Maturities of long-term debt for the five years subsequent to December 31, 2006 are $300.7
million in 2007, $100.3 million in 2008, $275.0 million in 2009, $2.3 million in 2010 and
insignificant in 2011. The future net minimum lease payments under capital leases are not
significant.
Total interest paid during 2006, 2005 and 2004 was $57 million, $79 million and $82 million,
respectively.
Cooper has entered into various operating lease agreements, primarily for manufacturing,
warehouse and sales office facilities and equipment. Generally, the leases include renewal
provisions and rental payments may be adjusted for increases in taxes, insurance and maintenance
related to the property. Rent expense for all operating leases was $33.3 million, $34.3 million
and $35.0 million during 2006, 2005 and 2004, respectively.
At December 31, 2006, minimum annual rental commitments under noncancellable operating leases
that have an initial or remaining lease term in excess of one year were $22.8 million in 2007,
$17.8 million in 2008, $13.9 million in 2009, $12.1 million in 2010, $9.3 million in 2011 and $32.0
million thereafter.
NOTE 9: COMMON AND PREFERRED STOCK
Coopers authorized share capital is U.S. $4,100,000 consisting of 250,000,000 Class A common
shares, par value of $.01 per share, 150,000,000 Class B common shares, par value $.01 per share
and 10,000,000 preferred shares, par value $.01 per share, which preferred shares may be designated
and created as shares of any other classes or series of shares with the respective rights and
restrictions determined by action of the Board of Directors. No preferred shares were outstanding
at December 31, 2006, 2005 or 2004.
At December 31, 2006, 91,141,021 Class A common shares, $.01 par value were issued and
outstanding (excluding the 12,938,401 Class A common shares held by wholly-owned subsidiaries as
discussed below) compared to 91,556,569 Class A common shares, $.01 par value (excluding the
9,850,101 Class A common shares held by wholly-owned subsidiaries) at December 31, 2005. During
2006, Cooper issued 2,672,752 Class A common shares primarily in connection with employee incentive
and benefit plans and Coopers dividend reinvestment program. During 2006, Coopers wholly-owned
subsidiaries purchased 3,088,300 Class A common shares for $264.2 million under Coopers share
repurchase plan. The share purchases are recorded by Coopers wholly-owned subsidiaries as an
investment in its parent company that is eliminated in consolidation.
At December 31, 2005, 91,556,569 Class A common shares, $.01 par value were issued and
outstanding (excluding the 9,850,101 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
2005, Cooper issued 2,152,309 Class A common shares primarily in connection with employee incentive
and benefit plans
F-15
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
and Coopers dividend reinvestment program. During 2005, Coopers wholly-owned
subsidiaries purchased 3,139,400 Class A common shares for $211.0 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
2005, 658,536 Class A common shares held by wholly-owned subsidiaries were issued in connection
with employee incentive and benefit plans, leaving 9,850,101 Class A common shares held by
wholly-owned subsidiaries at December 31, 2005.
At December 31, 2004, 92,543,660 Class A common shares, $.01 par value were issued and
outstanding (excluding the 3,700,200 Class A common shares held by wholly-owned subsidiaries as
discussed below) compared to 93,797,765 Class A common shares, $.01 par value (excluding the 1,130
Class A common shares held by wholly-owned subsidiaries) at December 31, 2003. During 2004, Cooper
issued 2,446,095 Class A common shares primarily in connection with employee incentive and benefit
plans and Coopers dividend reinvestment program. During 2004, Coopers wholly-owned subsidiaries
purchased 3,700,200 Class A common shares for $202.9 million. The share purchases are recorded by
Coopers wholly-owned subsidiaries as an investment in its parent company that is eliminated in
consolidation. During 2004, 1,130 Class A common shares held by wholly-owned subsidiaries were
issued primarily in connection with employee benefit plans, leaving 3,700,200 Class A common shares held by
wholly-owned subsidiaries at December 31, 2004.
Certain wholly-owned subsidiaries own Cooper Class A common shares and a wholly-owned
subsidiary owns all the issued and outstanding Cooper Class B common shares. The subsidiaries
investments in the Class A and Class B common shares are accounted for as investments in the parent
company that are eliminated in consolidation. The Class B common shares are not entitled to vote,
except as to matters for which Bermuda law specifically requires voting rights for otherwise
nonvoting shares. Cooper and its wholly-owned subsidiaries have entered into a voting agreement
which provides that in those limited circumstances where the Class B common shares have the right
to vote, Coopers wholly-owned subsidiaries shall vote the Class B common shares and any Class A
common shares that may be held by Coopers wholly-owned subsidiaries in the same proportion as the
holders of Class A common shares. If at any time a dividend is declared or paid on the Class A
common shares, a like dividend shall be declared and paid on Class B common shares in an equal
amount per share. During 2004, Coopers wholly-owned subsidiaries waived their rights to receive
the regular quarterly dividend declared of $.35 per share (a total of $81.6 million in 2004) on
both the Class A and Class B common shares held by Coopers wholly-owned subsidiaries.
Under the terms of the Dividend Reinvestment Plan, any holder of common stock may elect to
have cash dividends and up to $24,000 per year in cash payments invested in common stock without
incurring any brokerage commissions or service charges. At December 31, 2006, Cooper had
11,420,720 shares reserved for the Dividend Reinvestment Plan, grants and exercises of stock
options, performance-based stock awards, restricted stock awards and subscriptions under the
Employee Stock Purchase Plan and other plans.
On February 14, 2007, Cooper announced that the Board of Directors approved a two-for-one
stock split of Cooper Class A common stock and increased the annual dividend rate of Coopers
common stock by $.20 cents per share to $1.68 (or $.84 per share after the stock split). The
record date for the stock split is February 28, 2007 and the distribution date is March 15, 2007.
On February 9, 2005, Coopers Board of Directors increased the annual dividend rate of Coopers
common stock by eight cents per share to $1.48.
The Board of Directors adopted a Shareholder Rights Plan that authorized the issuance of one
right for each common share outstanding on May 22, 2002. Each Right entitles the holder to buy one
one-hundredth of a share of Series A Participating Preferred Stock at a purchase price of $225 per
one one-hundredth of a share or, in certain circumstances common shares having a value of twice the
purchase price. Each Right becomes exercisable only in certain circumstances constituting a
potential change of control on a
F-16
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
basis considered inadequate by the Board of Directors. The Rights
expire August 5, 2007 and, at Coopers option, may be redeemed prior to expiration for $.01 per
Right.
NOTE 10: STOCK-BASED COMPENSATION
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 accounted 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). In accordance with APB No. 25, compensation expense
was recognized for performance-based and restricted stock awards. No compensation expense was
recognized under Coopers fixed stock option plans or Employee Stock Purchase Plan for grants prior
to January 1, 2003.
SFAS No. 123 provided an alternative fair value based method for recognizing stock-based
compensation in which compensation expense was measured at the grant date based on the value of the
award and recognized over the service period, which was usually the vesting period. The fair value
of stock options was estimated on the grant date, using the Black-Scholes-Merton option-pricing
model. The fair value of restricted stock and performance-based awards granted were measured at
the market price on the grant date.
The following table presents pro forma net income and earnings per share as if the fair value
recognition provisions of SFAS No. 123 had been applied to all outstanding and unvested awards in
2005 and 2004. In 2005 and 2004, there were essentially two remaining differences between as
reported and pro-forma net income and earnings per share. First, Cooper accounted for awards
granted prior to January 1, 2003 using the intrinsic value method, whereas the pro-forma amounts
reflect those award grants as calculated under SFAS No. 123. Secondly, the pro-forma amounts
reflect recognition of the tax benefits of disqualifying dispositions of incentive stock options in
accordance with SFAS No. 123.
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31} |
|
|
|
2005 |
|
|
2004 |
|
|
|
(in millions) |
|
Net income, as reported |
|
$ |
163.9 |
|
|
$ |
339.8 |
|
Add: Stock-based employee compensation expense included in
reported net income, net of related tax effects |
|
|
24.9 |
|
|
|
13.3 |
|
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards, net
of related tax effects |
|
|
(20.9 |
) |
|
|
(14.6 |
) |
|
|
|
|
|
|
|
Pro forma net income |
|
$ |
167.9 |
|
|
$ |
338.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 |
|
|
|
2005 |
|
|
2004 |
|
Earnings per share: |
|
|
|
|
|
|
|
|
Basic as reported |
|
$ |
1.77 |
|
|
$ |
3.67 |
|
Basic pro forma |
|
$ |
1.81 |
|
|
$ |
3.66 |
|
Diluted as reported |
|
$ |
1.73 |
|
|
$ |
3.58 |
|
Diluted pro forma |
|
$ |
1.77 |
|
|
$ |
3.57 |
|
F-17
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
In December 2004, the Financial Accounting Standards Board issued FASB Statement 123(R),
Share-Based Payment, which is a revision of SFAS No. 123. Statement 123(R) also supersedes APB No.
25, and amends FASB Statement No. 95, Statement of Cash Flows. Effective January 1, 2006, Cooper
adopted Statement 123(R) using the modified prospective method. Recognition of compensation cost
is based on the requirements of Statement 123(R) for all share-based payments granted after January
1, 2006 and based on the requirements of SFAS No. 123 for all awards granted to employees prior to
January 1, 2006 that remained unvested on that date.
Cooper adopted SFAS No. 123 using the prospective transition method, which applied only to
awards granted, modified or settled after the adoption date. Accordingly, compensation expense for
some previously granted awards that were not recognized under SFAS No. 123 is recognized under
Statement 123(R). However, had we adopted Statement 123(R) in prior periods, the impact of that
standard would have approximated the impact of SFAS No. 123 as described in the disclosure of pro
forma net income and earnings per share above.
Cooper uses the Black-Scholes-Merton formula to estimate the value of stock options granted to
employees, as well as the straight-line recognition method for awards subject to graded vesting.
Cooper has recorded an estimate for forfeitures of 2006 awards of stock options, performance-based
shares and restricted stock units. This estimate will be adjusted as actual forfeitures differ
from the estimate. Prior to adoption of Statement 123(R), forfeitures were accounted for as
recognized when they actually occurred. Upon adoption of Statement 123(R), the cumulative effect
of this change in accounting principle to reflect compensation expense that would not have been
recognized in periods prior to 2006, had forfeitures been estimated during these periods, was
immaterial.
Statement 123(R) also requires the benefits of tax deductions in excess of recognized
compensation expense be reported as a financing cash flow, rather than as an operating cash flow.
This requirement reduced net operating cash flows and increased net financing cash flows during the
year ended 2006 by $26.8 million.
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 17 million. As of December 31, 2006, 2,762,091
shares remain available for future grants under the Plan all of which are available for grants of
performance-based shares and restricted stock units. Activity for each of these stock-incentive
awards is discussed in more detail below. Total compensation expense for all share-based
compensation arrangements under the Plan was $29.1 million, $40.3 million and $22.1 million during
the years ended December 31, 2006, 2005 and 2004, respectively. The total income tax benefit
recognized in the income statement for all share-based compensation arrangements under the Plan was
$10.3 million, $15.4 million and $8.8 million during the years ended December 31, 2006, 2005 and
2004, respectively.
Stock Options
Stock option awards are granted with an exercise price no less than the market price of
Coopers stock at the date of grant. Stock option awards generally vest over a three-year period
with one-third vesting in each successive year so that the option is fully exercisable after three
years and generally have five-, seven- and ten-year contractual terms. Stock option awards provide
that, upon a change in control in Cooper (as defined in the Plan), all options will be
cancelled and Cooper will make a cash payment to the employee equal to the difference in the
fair market value of Cooper Class A common shares (or the highest price actually paid for the stock
in connection with the change in control, if higher) and the option price.
F-18
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The fair value of each stock option award is estimated on the date of grant using the
Black-Scholes-Merton option valuation model using the assumptions noted in the following table.
Expected volatility in 2006 is based on implied volatilities from traded options on Cooper stock,
historical volatility of Cooper stock, and other factors. Cooper believes that the resulting
blended volatility represents a more accurate estimate of potential fluctuations in Cooper stock.
Cooper uses historical data to estimate employee termination experience. The expected term of
options granted is determined based on historical exercise behavior. The risk-free interest rate
for periods within the contractual life of the option is based on the U.S. Treasury yield curve in
effect at the time of grant.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
Expected volatility |
|
|
18.0 |
% |
|
|
27.7 |
% |
|
|
34.0 |
% |
Expected dividends |
|
|
1.8 |
% |
|
|
2.1 |
% |
|
|
2.5 |
% |
Expected term (in years) |
|
|
4.5 |
|
|
|
5.0 |
|
|
|
5.0 |
|
Risk-free interest rate |
|
|
4.6 |
% |
|
|
3.7 |
% |
|
|
3.1 |
% |
A summary of option activity under the Plan as of December 31, 2006, and changes during the
year then ended is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
Aggregate Intrinsic |
|
|
|
|
|
|
|
Weighted-Average |
|
|
Remaining |
|
|
Value |
|
Options |
|
Shares |
|
|
Exercise Price |
|
|
Contractual Term |
|
|
(in millions) |
|
Outstanding at January 1, 2006 |
|
|
5,428,821 |
|
|
$ |
48.81 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
823,600 |
|
|
$ |
82.94 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(1,955,185 |
) |
|
$ |
43.94 |
|
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
(185,425 |
) |
|
$ |
71.69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2006 |
|
|
4,111,811 |
|
|
$ |
56.93 |
|
|
|
4.3 |
|
|
$ |
139.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest at
December 31, 2006 |
|
|
4,058,933 |
|
|
$ |
56.59 |
|
|
|
4.4 |
|
|
$ |
138.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2006 |
|
|
2,363,863 |
|
|
$ |
45.05 |
|
|
|
3.5 |
|
|
$ |
108.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average grant date fair values of options granted during the years ended December
31, 2006, 2005 and 2004 were $16.06, $17.37 and $14.92, respectively. The total intrinsic value of
options exercised during the years ended December 31, 2006, 2005 and 2004 was $81.5 million, $54.7
million and $40.0 million, respectively.
As of December 31, 2006, total unrecognized compensation expense related to nonvested stock
options was $14.8 million. This expense is expected to be recognized over a weighted-average
period of 1.6 years. The total fair value of stock options vested during the years ended December
31, 2006, 2005 and 2004 was $12.6 million, $8.4 million and $3.6 million, respectively.
Performance-Based Shares and Restricted Stock Units
Under the Plan, Cooper grants certain executives and other key employees performance-based
share awards with vesting contingent upon meeting Company-wide performance goals, typically tied to
cumulative compound growth in earnings per share over a defined multi-year performance period.
Awards under the performance-based component of the Plan are typically arranged in levels, with
increasing numbers of shares earned as higher levels of growth are achieved. In order to earn the
performance shares, participants are generally required to remain actively employed by Cooper for
the performance period. Under the Plan,
F-19
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Cooper also awards grants of restricted stock units to
certain executives and other key employees in order to provide financial incentive to remain in the
employ of Cooper, thereby enhancing management continuity. Cooper may also utilize restricted
stock units for new executives and other key employees to replace equity compensation forfeited
upon resignation from their former employer. Restricted stock units vest pursuant to time-based
service conditions.
The fair value of each performance-based share and restricted stock unit was calculated at the
market price on the date of grant. Performance goals for the performance-based shares are
currently assumed to be achieved at the maximum level. If goal-level assumptions are not met,
compensation expense is adjusted and previously recognized compensation expense is reversed. Upon
distribution of performance-based shares, Cooper also pays the recipient cash equal to the
aggregate amount of cash dividends that the recipient would have received had they been the owner
of record from the date of grant. Dividends on restricted stock units are payable on the dividend
payment date or on the date when restrictions lapse, depending upon the specific award. For
performance-based share and restricted stock unit awards, upon a change in control in Cooper (as
defined in the Plan), all restrictions on those awards will lapse and shares shall be issued as
otherwise provided in the Plan.
A summary of the status of Coopers nonvested performance-based shares as of December 31, 2006
and changes during the year then ended is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Grant-Date |
|
Nonvested Performance-Based Shares |
|
Shares |
|
|
Fair Value |
|
Nonvested at January 1, 2006 |
|
|
962,138 |
|
|
$ |
55.05 |
|
Granted |
|
|
299,260 |
|
|
$ |
83.09 |
|
Vested |
|
|
(288,975 |
) |
|
$ |
37.58 |
|
Forfeited |
|
|
(134,857 |
) |
|
$ |
68.47 |
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2006 |
|
|
837,566 |
|
|
$ |
68.94 |
|
|
|
|
|
|
|
|
|
The weighted-average grant-date fair value of performance-based shares granted during the
years ended December 31, 2006, 2005 and 2004 was $83.09, $69.26 and $55.64, respectively. The
total intrinsic value of performance-based shares awarded during the years ended December
31, 2006, 2005 and 2004 was $27.2 million, $25.5 million and $26.0 million, respectively.
As of December 31, 2006, total unrecognized compensation expense related to nonvested
performance-based shares was $23.3 million. This expense is expected to be recognized over a
weighted-average period of 1.1 years. The total fair value of performance-based shares vested
during the year ended December 31, 2006 was $10.9 million. No performance based shares vested
during the years ended December 31, 2005 or December 31, 2004.
A summary of the status of Coopers nonvested restricted stock units as of December 31, 2006,
and changes during the year then ended is presented below:
F-20
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Grant-Date |
|
Nonvested Restricted Stock Units |
|
Shares |
|
|
Fair Value |
|
Nonvested at January 1, 2006 |
|
|
309,400 |
|
|
$ |
49.97 |
|
Granted |
|
|
52,000 |
|
|
$ |
87.34 |
|
Vested |
|
|
(178,850 |
) |
|
$ |
39.11 |
|
Forfeited |
|
|
(44,000 |
) |
|
$ |
56.76 |
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2006 |
|
|
138,550 |
|
|
$ |
75.84 |
|
|
|
|
|
|
|
|
|
The weighted-average grant-date fair value of restricted stock units granted during the years
ended December 31, 2006, 2005 and 2004 was $87.34, $68.93 and $55.64, respectively. The total
intrinsic value of restricted stock units awarded during the years ended December 31, 2006, 2005
and 2004 was $4.7 million, $9.2 million and $0.3 million, respectively.
As of December 31, 2006, total unrecognized compensation expense related to nonvested
restricted stock unit compensation arrangements was $7.0 million. This expense is expected to be
recognized over a weighted-average period of 3.4 years. The total fair value of restricted stock
units vested during the years ended December 31, 2006, 2005 and 2004 was $7.0 million, $6.1 million
and $2.3 million, respectively.
Cash received from stock option exercises during the years ended December 31, 2006, 2005 and
2004 was $89.2 million, $72.7 million and $78.4 million, respectively. The actual tax benefit
realized for the tax deductions from option exercises totaled $31.7 million, $18.7 million and
$13.7 million, respectively, during the years ended December 31, 2006, 2005 and 2004. Cash used to
settle equity instruments granted under all share-based payment arrangements during the years ended
December 31, 2006, 2005 and 2004 was immaterial in all periods.
Cooper has a practice of repurchasing shares on the open market to satisfy shares issued for
option exercises and share awards and expects to repurchase approximately 1.5 million shares during
2007, based on estimates of option exercises and share awards vesting for the year.
The impact of adopting Statement 123(R) on January 1, 2006, on Coopers income from continuing
operations before income taxes, net income and basic and diluted earnings per share during the year
ended December 31, 2006 was immaterial.
NOTE 11: ACCUMULATED NONOWNER CHANGES IN EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain |
|
|
|
|
|
|
|
|
|
Pension and |
|
|
|
|
|
|
(Loss) On |
|
|
Cumulative |
|
|
|
|
|
|
Postretirement |
|
|
Minimum |
|
|
Derivative |
|
|
Translation |
|
|
|
|
|
|
Benefit Plans |
|
|
Pension Liability |
|
|
Instruments |
|
|
Adjustment |
|
|
Total |
|
|
|
(in millions) |
|
Balance December 31, 2003 |
|
$ |
|
|
|
$ |
(59.7 |
) |
|
$ |
(1.5 |
) |
|
$ |
(102.3 |
) |
|
$ |
(163.5 |
) |
Current year activity |
|
|
|
|
|
|
(8.0 |
) |
|
|
3.0 |
|
|
|
36.3 |
|
|
|
31.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2004 |
|
|
|
|
|
|
(67.7 |
) |
|
|
1.5 |
|
|
|
(66.0 |
) |
|
|
(132.2 |
) |
Current year activity |
|
|
|
|
|
|
(11.0 |
) |
|
|
4.8 |
|
|
|
(37.9 |
) |
|
|
(44.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2005 |
|
|
|
|
|
|
(78.7 |
) |
|
|
6.3 |
|
|
|
(103.9 |
) |
|
|
(176.3 |
) |
Current year activity |
|
|
(86.9 |
) |
|
|
78.7 |
|
|
|
2.3 |
|
|
|
53.8 |
|
|
|
47.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2006 |
|
$ |
(86.9 |
) |
|
$ |
|
|
|
$ |
8.6 |
|
|
$ |
(50.1 |
) |
|
$ |
(128.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-21
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
Before |
|
|
Tax |
|
|
|
|
|
|
Before |
|
|
Tax |
|
|
|
|
|
|
Before |
|
|
Tax |
|
|
|
|
|
|
Tax |
|
|
(Expense) |
|
|
Net |
|
|
Tax |
|
|
(Expense) |
|
|
Net |
|
|
Tax |
|
|
(Expense) |
|
|
Net |
|
|
|
Amount |
|
|
Benefit |
|
|
Amount |
|
|
Amount |
|
|
Benefit |
|
|
Amount |
|
|
Amount |
|
|
Benefit |
|
|
Amount |
|
|
|
(in millions) |
|
Pension and postretirement
benefit plans |
|
$ |
(142.0 |
) |
|
$ |
55.1 |
|
|
$ |
(86.9 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum pension
liability adjustment |
|
|
130.8 |
|
|
|
(52.1 |
) |
|
|
78.7 |
|
|
|
(18.1 |
) |
|
|
7.1 |
|
|
|
(11.0 |
) |
|
|
(13.3 |
) |
|
|
5.3 |
|
|
|
(8.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of
derivatives |
|
|
15.3 |
|
|
|
(6.1 |
) |
|
|
9.2 |
|
|
|
10.7 |
|
|
|
(4.3 |
) |
|
|
6.4 |
|
|
|
5.2 |
|
|
|
(2.1 |
) |
|
|
3.1 |
|
Reclassification to
earnings |
|
|
(11.4 |
) |
|
|
4.5 |
|
|
|
(6.9 |
) |
|
|
(2.7 |
) |
|
|
1.1 |
|
|
|
(1.6 |
) |
|
|
(0.2 |
) |
|
|
0.1 |
|
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.9 |
|
|
|
(1.6 |
) |
|
|
2.3 |
|
|
|
8.0 |
|
|
|
(3.2 |
) |
|
|
4.8 |
|
|
|
5.0 |
|
|
|
(2.0 |
) |
|
|
3.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustment |
|
|
82.8 |
|
|
|
(29.0 |
) |
|
|
53.8 |
|
|
|
(58.3 |
) |
|
|
20.4 |
|
|
|
(37.9 |
) |
|
|
55.8 |
|
|
|
(19.5 |
) |
|
|
36.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other nonowner
changes in equity |
|
$ |
75.5 |
|
|
$ |
(27.6 |
) |
|
$ |
47.9 |
|
|
$ |
(68.4 |
) |
|
$ |
24.3 |
|
|
$ |
(44.1 |
) |
|
$ |
47.5 |
|
|
$ |
(16.2 |
) |
|
$ |
31.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 12: INCOME TAXES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
($ in millions) |
|
Components of income from continuing operations
before income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. operations |
|
$ |
234.0 |
|
|
$ |
104.4 |
|
|
$ |
71.3 |
|
Non-U.S. operations |
|
|
413.7 |
|
|
|
390.6 |
|
|
|
357.2 |
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before
income taxes |
|
$ |
647.7 |
|
|
$ |
495.0 |
|
|
$ |
428.5 |
|
|
|
|
|
|
|
|
|
|
|
Components of income tax expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal |
|
$ |
67.6 |
|
|
$ |
21.5 |
|
|
$ |
4.6 |
|
U.S. state and local |
|
|
11.6 |
|
|
|
14.2 |
|
|
|
4.9 |
|
Non-U.S |
|
|
68.8 |
|
|
|
46.7 |
|
|
|
51.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
148.0 |
|
|
|
82.4 |
|
|
|
61.0 |
|
|
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal |
|
|
21.1 |
|
|
|
3.6 |
|
|
|
19.8 |
|
U.S. state and local |
|
|
2.0 |
|
|
|
1.7 |
|
|
|
4.7 |
|
Non-U.S |
|
|
(7.7 |
) |
|
|
16.2 |
|
|
|
3.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15.4 |
|
|
|
21.5 |
|
|
|
27.7 |
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
$ |
163.4 |
|
|
$ |
103.9 |
|
|
$ |
88.7 |
|
|
|
|
|
|
|
|
|
|
|
Total income taxes paid |
|
$ |
175.0 |
|
|
$ |
90.9 |
|
|
$ |
87.3 |
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate reconciliation: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal statutory rate |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
State and local income taxes |
|
|
1.8 |
|
|
|
1.2 |
|
|
|
1.5 |
|
Non-U.S. Operations |
|
|
(10.6 |
) |
|
|
(13.8 |
) |
|
|
(13.5 |
) |
Extraterritorial income exclusion |
|
|
(0.3 |
) |
|
|
(0.6 |
) |
|
|
(1.0 |
) |
Tax credits |
|
|
(0.5 |
) |
|
|
(0.7 |
) |
|
|
(1.3 |
) |
Other |
|
|
(0.2 |
) |
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate attributable to
continuing operations |
|
|
25.2 |
% |
|
|
21.0 |
% |
|
|
20.7 |
% |
|
|
|
|
|
|
|
|
|
|
F-22
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(in millions) |
|
Components of deferred tax assets and liabilities: |
|
|
|
|
|
|
|
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Postretirement and other employee welfare benefits |
|
$ |
44.6 |
|
|
$ |
65.7 |
|
Accrued liabilities |
|
|
344.4 |
|
|
|
349.7 |
|
Pension plans |
|
|
19.1 |
|
|
|
52.1 |
|
Net operating loss carryforward |
|
|
23.3 |
|
|
|
15.6 |
|
Other |
|
|
9.9 |
|
|
|
32.5 |
|
|
|
|
|
|
|
|
Gross deferred tax assets |
|
|
441.3 |
|
|
|
515.6 |
|
Valuation allowance |
|
|
(8.4 |
) |
|
|
(9.6 |
) |
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
432.9 |
|
|
|
506.0 |
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Property, plant and equipment and intangibles |
|
|
(223.6 |
) |
|
|
(190.8 |
) |
Inventories |
|
|
(8.7 |
) |
|
|
(13.2 |
) |
Pension plans |
|
|
(13.6 |
) |
|
|
(70.6 |
) |
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
(245.9 |
) |
|
|
(274.6 |
) |
|
|
|
|
|
|
|
Net deferred tax asset |
|
$ |
187.0 |
|
|
$ |
231.4 |
|
|
|
|
|
|
|
|
Generally, Cooper provides United States income tax that would be imposed on the repatriation
of the earnings of its non-U.S. operations. However, as of December 31, 2006 and 2005, United
States income taxes have not been provided on approximately $125 million and $110 million,
respectively, of undistributed non-U.S. earnings that are expected to be permanently reinvested
outside the United States.
In 2005, Cooper protested the United States Internal Revenue Service (IRS) examination
findings for the 2000-2001 tax years. The IRS has challenged Coopers treatment of gains and
interest deductions claimed on its 2000 and 2001 federal income tax returns, relating to
transactions involving government securities. If the proposed adjustments are upheld, it would
require Cooper to pay approximately $26.5 million in taxes plus accrued interest. There would be
an additional payment related to those items for the 2002-2003 tax years of approximately $67.2
million in taxes plus accrued interest if the IRS prevails in its proposed treatment for the
2000-2001 tax years. 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 periods involved and is challenging
these adjustments vigorously.
On February 1, 2007, the IRS issued its examination report for the 2002-2004 tax years. In
addition to the finding related to transactions involving government securities discussed above,
the IRS has challenged Coopers treatment of certain interest payments made during these years to a
subsidiary. If the proposed adjustments are upheld, it would require Cooper to pay approximately
$140 million of federal withholding tax plus accrued interest. Cooper believes that
these interest payments are not subject to this tax, and that the interest payments were
properly reflected on its federal income tax returns in accordance with applicable tax laws and
regulations in effect during the period involved. Cooper is preparing a protest related to these
proposed adjustments, and will challenge the proposed adjustments vigorously.
F-23
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
While the outcome of the above proceedings cannot be predicted with certainty, management
believes that the ultimate outcome of these matters will not have a material impact on Coopers
consolidated financial position or results of operations.
In addition to the above, Cooper is under examination by various United States state and local
taxing authorities as well as various taxing authorities in other countries. 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 tax
contingencies, 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. However,
management does not believe that any of these matters will have a material adverse effect on
Coopers consolidated results of operations.
NOTE 13: PENSION AND OTHER POSTRETIREMENT BENEFITS
Cooper and its subsidiaries have numerous defined benefit pension plans and other
postretirement benefit plans. The benefits provided under Coopers various postretirement benefit
plans other than pensions, all of which are unfunded, include retiree medical care, dental care,
prescriptions and life insurance, with medical care accounting for approximately 90% of the total.
Current employees, unless grandfathered under plans assumed in acquisitions, are not provided
postretirement benefits other than pensions. The vast majority of the annual other postretirement
benefit expense is related to employees who are already retired. The measurement date for all plan
disclosures is December 31.
During June 2006, Cooper announced that, effective January 1, 2007, future benefit accruals
will cease under the Cooper U. S. Salaried Pension Plan. Benefits earned through December 31, 2006
will remain in each participants Salaried Pension Plan account. The account balance will
continue to earn interest credits until a participant is eligible for and elects to receive the
plan benefit. Cooper recognized a curtailment loss of $4.2 million in the second quarter of 2006 as
a result of this action. Beginning in 2007, Cooper will make a cash contribution equal to 3% of
compensation to the Cooper Retirement Savings and Stock-Ownership Plan (CO-SAV). Cooper will
further increase the company-matching contribution under the CO-SAV plan to a dollar-for-dollar
match up to 6% of employee contributions.
Cooper also announced the elimination of postretirement life insurance for active employees,
effective January 1, 2007. As a result, Cooper recognized a curtailment gain of $3.2 million in
the second quarter of 2006.
Effective December 31, 2006, Cooper adopted Statement of Financial Accounting Standards No.
158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans. See Note 1
of the Notes to the Consolidated Financial Statements.
F-24
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
Pension Benefits |
|
|
Postretirement Benefits |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
(in millions) |
|
Change in benefit obligation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at January 1 |
|
$ |
783.7 |
|
|
$ |
763.7 |
|
|
$ |
105.0 |
|
|
$ |
129.5 |
|
Service cost |
|
|
16.7 |
|
|
|
17.5 |
|
|
|
0.1 |
|
|
|
0.2 |
|
Interest cost |
|
|
41.4 |
|
|
|
41.0 |
|
|
|
5.6 |
|
|
|
6.8 |
|
Benefit payments |
|
|
(43.8 |
) |
|
|
(59.4 |
) |
|
|
(9.3 |
) |
|
|
(13.9 |
) |
Actuarial (gain) loss |
|
|
2.7 |
|
|
|
37.8 |
|
|
|
(3.4 |
) |
|
|
1.5 |
|
Exchange rate changes |
|
|
17.3 |
|
|
|
(17.2 |
) |
|
|
|
|
|
|
|
|
Settlements |
|
|
(26.0 |
) |
|
|
(1.3 |
) |
|
|
|
|
|
|
|
|
Curtailment |
|
|
(5.7 |
) |
|
|
|
|
|
|
(3.2 |
) |
|
|
|
|
Amendments |
|
|
(21.7 |
) |
|
|
|
|
|
|
|
|
|
|
(19.1 |
) |
Other |
|
|
3.6 |
|
|
|
1.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at December 31 |
|
|
768.2 |
|
|
|
783.7 |
|
|
|
94.8 |
|
|
|
105.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at January 1 |
|
|
650.1 |
|
|
|
660.5 |
|
|
|
|
|
|
|
|
|
Actual return on plan assets |
|
|
63.4 |
|
|
|
34.4 |
|
|
|
|
|
|
|
|
|
Employer contributions |
|
|
9.8 |
|
|
|
20.0 |
|
|
|
9.3 |
|
|
|
13.9 |
|
Benefit payments |
|
|
(43.8 |
) |
|
|
(56.7 |
) |
|
|
(9.3 |
) |
|
|
(13.9 |
) |
Exchange rate changes |
|
|
9.7 |
|
|
|
(7.5 |
) |
|
|
|
|
|
|
|
|
Settlements |
|
|
(23.1 |
) |
|
|
(1.3 |
) |
|
|
|
|
|
|
|
|
Other |
|
|
0.6 |
|
|
|
0.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at December 31 |
|
|
666.7 |
|
|
|
650.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status |
|
|
(101.5 |
) |
|
|
(133.6 |
) |
|
|
(94.8 |
) |
|
|
(105.0 |
) |
Unrecognized net actuarial (gain) loss |
|
|
|
|
|
|
246.6 |
|
|
|
|
|
|
|
(38.5 |
) |
Unrecognized prior service cost |
|
|
|
|
|
|
6.8 |
|
|
|
|
|
|
|
(19.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized |
|
$ |
(101.5 |
) |
|
$ |
119.8 |
|
|
$ |
(94.8 |
) |
|
$ |
(163.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
Pension Benefits |
|
|
Postretirement Benefits |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
(in millions) |
|
Assets and liabilities recognized in the balance sheet
consist of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent assets |
|
$ |
41.9 |
|
|
$ |
120.7 |
|
|
$ |
|
|
|
$ |
|
|
Accrued liabilities |
|
|
(4.4 |
) |
|
|
(24.5 |
) |
|
|
(11.6 |
) |
|
|
|
|
Long-term liabilities |
|
|
(139.0 |
) |
|
|
(107.2 |
) |
|
|
(83.2 |
) |
|
|
(163.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(101.5 |
) |
|
$ |
(11.0 |
)(1) |
|
$ |
(94.8 |
) |
|
$ |
(163.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In 2005, a pre-tax minimum pension liability adjustment of $130.8 million was
included in accumulated other nonowner changes in equity. |
F-25
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
Pension Benefits |
|
|
Postretirement Benefits |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
(in millions) |
|
Amounts recognized in accumulated other
nonowner changes in equity consist of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial (gain) loss |
|
$ |
217.6 |
|
|
$ |
|
|
|
$ |
(39.1 |
) |
|
$ |
|
|
Prior service cost |
|
|
(19.0 |
) |
|
|
|
|
|
|
(17.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
198.6 |
|
|
$ |
|
|
|
$ |
(56.6 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The incremental effect of adopting SFAS No. 158 on individual consolidated balance sheet line
items as of December 31, 2006 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before Application |
|
|
|
|
|
|
After Application |
|
|
|
of SFAS No. 158 |
|
|
Adjustments |
|
|
of SFAS No. 158 |
|
|
|
(in millions) |
|
Deferred income taxes and other
noncurrent assets |
|
$ |
335.6 |
|
|
$ |
(156.8 |
) |
|
$ |
178.8 |
|
Accrued liabilities |
|
|
541.9 |
|
|
|
(19.6 |
) |
|
|
522.3 |
|
Postretirement benefits other than
pensions |
|
|
139.8 |
|
|
|
(56.6 |
) |
|
|
83.2 |
|
Other long-term liabilities |
|
|
356.6 |
|
|
|
(72.4 |
) |
|
|
284.2 |
|
Accumulated other nonowner
changes in equity |
|
|
(120.2 |
) |
|
|
(8.2 |
) |
|
|
(128.4 |
) |
The accumulated benefit obligation for defined benefit pension plans was $758.3 million and
$763.3 million at December 31, 2006 and 2005, respectively.
The projected benefit obligation, accumulated benefit obligation and fair value of plan assets
of defined benefit pension plans with accumulated benefit obligations in excess of plan assets were
$313.2 million, $307.3 million and $172.0 million, respectively as of December 31, 2006 and $309.2
million, $302.5 million and $173.9 million, respectively at December 31, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
|
Other Postretirement Benefits |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
(in millions) |
|
Components of net periodic benefit cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
16.7 |
|
|
$ |
17.5 |
|
|
$ |
16.2 |
|
|
$ |
0.1 |
|
|
$ |
0.2 |
|
|
$ |
0.2 |
|
Interest cost |
|
|
41.4 |
|
|
|
41.0 |
|
|
|
41.8 |
|
|
|
5.6 |
|
|
|
6.8 |
|
|
|
8.2 |
|
Expected return on plan assets |
|
|
(49.1 |
) |
|
|
(50.7 |
) |
|
|
(47.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost |
|
|
0.5 |
|
|
|
0.6 |
|
|
|
0.6 |
|
|
|
(2.0 |
) |
|
|
(0.4 |
) |
|
|
(0.1 |
) |
Recognized actuarial (gain) loss |
|
|
13.2 |
|
|
|
10.0 |
|
|
|
7.4 |
|
|
|
(2.9 |
) |
|
|
(3.0 |
) |
|
|
(2.8 |
) |
Settlement loss |
|
|
4.1 |
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Curtailment (gain) loss |
|
|
4.2 |
|
|
|
|
|
|
|
|
|
|
|
(3.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
31.0 |
|
|
$ |
18.9 |
|
|
$ |
18.9 |
|
|
$ |
(2.4 |
) |
|
$ |
3.6 |
|
|
$ |
5.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-26
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The estimated net loss and prior service cost credit for the defined benefit pension plans
that will be amortized from accumulated other nonowner changes in equity into net periodic benefit
cost over the next fiscal year are $10.2 million and $(2.1) million, respectively. The estimated
net gain and prior service credit for the other postretirement plans that will be amortized from
accumulated other nonowner changes in equity into net periodic benefit cost over the next fiscal
year are $(2.7) million and $(2.0) million, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
Pension Benefits |
|
|
Postretirement Benefits |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Weighted average assumptions
used to determine benefit
obligations as of December
31: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
4.50% - 5.75 |
% |
|
|
4.25% - 5.60 |
% |
|
|
5.75 |
% |
|
|
5.60 |
% |
Rate of compensation increase |
|
|
2.75% - 4.00 |
% |
|
|
2.25% - 4.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
Pension Benefits |
|
|
Postretirement Benefits |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Weighted average assumptions
used to determine net costs
for the years ended December
31: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
4.25% - 5.60 |
% |
|
|
5.00% - 5.75 |
% |
|
|
5.60 |
% |
|
|
5.75 |
% |
Expected return on plan assets |
|
|
6.00% - 8.25 |
% |
|
|
6.00% - 8.25 |
% |
|
|
|
|
|
|
|
|
Rate of compensation increase. |
|
|
2.75% - 4.00 |
% |
|
|
2.75% - 4.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
Assumed healthcare cost trend rates: |
|
|
|
|
|
|
|
|
Healthcare cost trend rate assumed for next year |
|
|
8.00 |
% |
|
|
9.00 |
% |
Rate to which trend rate is assumed to decline (ultimate trend rate) |
|
|
5.00 |
% |
|
|
5.00 |
% |
Year that rate reaches ultimate trend rate |
|
|
2010 |
|
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
1-Percentage- |
|
|
1-Percentage- |
|
|
|
Point Increase |
|
|
Point Decrease |
|
|
|
(in millions) |
|
A one-percentage-point change in the assumed health care cost
trend rate would have the following effects: |
|
|
|
|
|
|
|
|
Effect on total of service and interest cost components |
|
$ |
0.4 |
|
|
$ |
(0.3 |
) |
Effect on the postretirement benefit obligation |
|
$ |
5.3 |
|
|
$ |
(4.7 |
) |
Defined benefit pension plan assets consist of:
|
|
|
|
|
|
|
|
|
|
|
Percentage of Plan Assets |
|
|
|
at December 31, |
|
Asset Category |
|
2006 |
|
|
2005 |
|
Equity Securities |
|
|
60 |
% |
|
|
60 |
% |
Debt Securities |
|
|
40 |
% |
|
|
40 |
% |
|
|
|
|
|
|
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
Coopers policy is to invest its pension assets in equity and fixed income investments.
The plan investments are managed by outside investment advisors and include equity futures, other
equity derivatives, fixed income futures and short to intermediate duration fixed income
securities. The allocation of plan assets is determined based on plan liabilities and funded
status.
F-27
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Coopers overall expected long-term rate of return on assets assumption is based upon (i) a
long-term expected inflation rate, (ii) long-term expected stock and bond market risk premiums over
the expected inflation rate, and (iii) a target allocation of equity and fixed income securities
that will generate the overall expected long-term rate of return.
During 2007, Cooper expects to contribute approximately $5.4 million in cash to the defined
benefit pension plans. Other postretirement benefit plans are not subject to any minimum
regulatory funding requirements. Cooper funds these benefits payments as incurred.
Estimated future benefit payments for the next five fiscal years, and in the aggregate for the
five fiscal years thereafter, are $55.5 million in 2007, $55.2 million in 2008, $56.4 million in
2009, $58.0 million in 2010, $59.3 million in 2011 and $301.6 million for 2012 through 2016.
During the fourth quarter of 2003, Cooper recorded a $12.5 million restructuring charge as an
estimate of Coopers portion of unfunded benefit obligations related to the withdrawal from a
multiple-employer pension plan associated with the closing of Cooper Wiring Device manufacturing
operations in New York City. In 2005, Cooper finalized activities related to withdrawal from the
multi-employer pension plan and recorded an additional $4.0 million pre-tax charge. The
multiple-employer pension obligation was satisfied with a cash payment of $14.1 million in 2006
representing full and final payment of the withdrawal liability. Cooper participates in two other
multiple-employer plans. Obligations under these plans are insignificant.
During 2006, 2005 and 2004, expense with respect to defined contribution plans (primarily
related to various groups of hourly employees) totaled $18.3 million, $17.8 million and $16.4
million, respectively.
NOTE 14: RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN
All full-time domestic employees, except for certain bargaining unit employees, are eligible
to participate in the Cooper Retirement Savings and Stock Ownership Plan (CO-SAV). Under the
terms of the CO-SAV plan, employee savings deferrals are partially matched with Cooper common
stock.
Compensation expense for the CO-SAV plan was $20.1 million, $19.5 million and $20.0 million in
2006, 2005 and 2004, respectively.
See Note 13 of the Notes to the Consolidated Financial Statements regarding changes in company
contribution levels for the CO-SAV plan that became effective January 1, 2007.
NOTE 15: INDUSTRY SEGMENTS AND GEOGRAPHIC INFORMATION
Industry Segments
Coopers operations consist of two segments: Electrical Products and Tools. Markets for
Coopers products and services are worldwide, with the United States being the largest market.
The Electrical Products segment manufactures, markets and sells electrical and circuit
protection products, including fittings, support systems, enclosures, wiring devices, plugs,
receptacles, lighting fixtures, hazardous duty electrical equipment, fuses, emergency lighting,
fire detection systems and security products for use in residential, commercial and industrial
construction, 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.
F-28
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Tools segment manufactures, markets and sells hand tools for industrial, construction and
consumer markets; automated assembly systems for industrial markets and electric and pneumatic
industrial power tools for general industry, primarily automotive and aerospace manufacturers.
The performance of businesses is evaluated at the segment level and resources are allocated
among the segments. The Cooper executive responsible for the segments further allocates resources
among the various division operating units that compose the segments and, in international markets,
determines the integration of product lines and operations across division operating units. The
accounting policies of the segments are the same as those described in the summary of significant
accounting policies in Note 1. 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 segments are managed separately because they manufacture and distribute distinct products.
Intersegment sales and related receivables for each of the years presented were insignificant.
Financial information by industry segment was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
Operating Earnings |
|
|
Total Assets |
|
|
|
Year Ended December 31, |
|
|
Year Ended December 31, |
|
|
Year Ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
(in millions) |
|
|
|
|
|
Electrical Products |
|
$ |
4,426.0 |
|
|
$ |
3,997.5 |
|
|
$ |
3,722.2 |
|
|
$ |
703.2 |
|
|
$ |
585.0 |
|
|
$ |
511.2 |
|
|
$ |
3,960.8 |
|
|
$ |
3,600.9 |
|
|
$ |
3,591.8 |
|
Tools |
|
|
758.6 |
|
|
|
732.9 |
|
|
|
740.7 |
|
|
|
85.6 |
|
|
|
66.7 |
|
|
|
62.7 |
|
|
|
686.6 |
|
|
|
700.5 |
|
|
|
737.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total management reporting |
|
$ |
5,184.6 |
|
|
$ |
4,730.4 |
|
|
$ |
4,462.9 |
|
|
|
788.8 |
|
|
|
651.7 |
|
|
|
573.9 |
|
|
|
4,647.4 |
|
|
|
4,301.4 |
|
|
|
4,328.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Corporate expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(89.6 |
) |
|
|
(91.9 |
) |
|
|
(77.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
699.2 |
|
|
|
559.8 |
|
|
|
496.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(51.5 |
) |
|
|
(64.8 |
) |
|
|
(68.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated income from
continuing operations
before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
647.7 |
|
|
$ |
495.0 |
|
|
$ |
428.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
727.4 |
|
|
|
913.7 |
|
|
|
1,079.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,374.8 |
|
|
$ |
5,215.1 |
|
|
$ |
5,407.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electrical |
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
|
Products |
|
|
Tools |
|
|
Corporate |
|
|
Total |
|
|
|
(in millions) |
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
$ |
90.4 |
|
|
$ |
20.0 |
|
|
$ |
1.3 |
|
|
$ |
111.7 |
|
Capital expenditures |
|
|
60.8 |
|
|
|
9.1 |
|
|
|
15.4 |
|
|
|
85.3 |
|
Investment in
unconsolidated affiliates. |
|
|
21.3 |
|
|
|
|
|
|
|
|
|
|
|
21.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
$ |
88.7 |
|
|
$ |
20.1 |
|
|
$ |
2.2 |
|
|
$ |
111.0 |
|
Capital expenditures |
|
|
69.9 |
|
|
|
12.4 |
|
|
|
14.4 |
|
|
|
96.7 |
|
Investment in
unconsolidated affiliates. |
|
|
21.6 |
|
|
|
|
|
|
|
|
|
|
|
21.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
$ |
93.9 |
|
|
$ |
21.7 |
|
|
$ |
2.0 |
|
|
$ |
117.6 |
|
Capital expenditures |
|
|
73.0 |
|
|
|
10.2 |
|
|
|
19.6 |
|
|
|
102.8 |
|
Investment in
unconsolidated affiliates. |
|
|
23.3 |
|
|
|
|
|
|
|
|
|
|
|
23.3 |
|
Geographic Information
Revenues and long-lived assets by country are summarized below. Revenues are attributed to
geographic areas based on the location of the assets producing the revenues. Revenues are
generally denominated in the currency of the location of the assets producing the revenues.
F-29
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
Long-Lived Assets |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
(in millions) |
|
United States |
|
$ |
3,781.1 |
|
|
$ |
3,459.5 |
|
|
$ |
3,264.4 |
|
|
$ |
490.0 |
|
|
$ |
726.3 |
|
|
$ |
703.4 |
|
Germany |
|
|
253.5 |
|
|
|
235.0 |
|
|
|
249.7 |
|
|
|
38.7 |
|
|
|
35.0 |
|
|
|
42.4 |
|
United Kingdom. |
|
|
305.3 |
|
|
|
311.3 |
|
|
|
283.6 |
|
|
|
41.1 |
|
|
|
57.2 |
|
|
|
67.3 |
|
Canada |
|
|
226.3 |
|
|
|
205.1 |
|
|
|
181.6 |
|
|
|
0.7 |
|
|
|
0.8 |
|
|
|
0.9 |
|
Mexico |
|
|
172.4 |
|
|
|
139.2 |
|
|
|
132.1 |
|
|
|
83.2 |
|
|
|
87.7 |
|
|
|
85.6 |
|
Other countries |
|
|
446.0 |
|
|
|
380.3 |
|
|
|
351.5 |
|
|
|
80.2 |
|
|
|
69.0 |
|
|
|
54.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,184.6 |
|
|
$ |
4,730.4 |
|
|
$ |
4,462.9 |
|
|
$ |
733.9 |
|
|
$ |
976.0 |
|
|
$ |
954.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International revenues by destination, based on the location products were delivered, were as
follows by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Revenues |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
(in millions) |
|
Electrical Products |
|
$ |
1,312.5 |
|
|
$ |
1,152.6 |
|
|
$ |
1,052.5 |
|
Tools |
|
|
343.0 |
|
|
|
312.9 |
|
|
|
329.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,655.5 |
|
|
$ |
1,465.5 |
|
|
$ |
1,381.5 |
|
|
|
|
|
|
|
|
|
|
|
NOTE 16: 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 December 31, 2006, a total of 141,529 Abex Claims were filed, of which
110,229 claims have been resolved leaving 31,300 Abex Claims pending at December 31, 2006, that are
the responsibility of Federal-Mogul. During the year ended December 31, 2006, 3,806 claims were
filed and 10,941 claims were resolved. Since August 28, 1998, the average indemnity payment for
resolved Abex Claims was $1,960 before insurance. A total of $107.4 million was spent on defense
costs for the period August 28, 1998 through December 31, 2006. Historically, existing insurance
coverage has provided 50% to 80% of the total defense and indemnity payments for Abex Claims.
However, insurance recovery is currently at a lower percentage (approximately 30%) due to
exhaustion of primary layers of coverage and litigation with certain excess insurers.
F-30
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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.
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 of Federal-Mogul, its bankruptcy committees and the future
claimants (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 would 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.
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 income tax benefit, in the fourth quarter of 2003.
In December 2005, Cooper announced that the Company and other parties involved in the
resolution of the Federal-Mogul bankruptcy proceeding had reached an agreement regarding Coopers
participation in Federal Moguls proposed 524 (g) asbestos trust. By participating in this trust,
Cooper would resolve its liability for asbestos claims arising from Coopers former Abex Friction
Products business. The proposed settlement agreement was subject to court approval, approval of 75
percent of the current Abex asbestos claimants and certain other approvals. The settlement would
resolve more than 38,000 pending Abex Claims as of December 31, 2005. Future claims would be
resolved through the bankruptcy trust, and Cooper would be protected against future claims by an
injunction to be issued by the district court upon plan confirmation.
Key terms and aspects of the proposed settlement agreement included Cooper agreeing to pay
$130 million in cash into the trust, with $115 million payable upon Federal-Moguls emergence from
bankruptcy. The remainder would be due on January 15, 2007, or upon emergence from bankruptcy, if
later. Cooper would receive a total of $37.5 million during the funding period from other parties
associated with the Federal-Mogul bankruptcy. Cooper would further provide the trust 1.4 million
shares of Cooper common stock upon Federal-Moguls emergence from bankruptcy. The agreement
provided that the trust may, during the first year after issuance, sell these shares to Cooper at
market prices and, thereafter, in open market transactions.
The proposed settlement agreement also provided for further payments by Cooper subject to the
amount and timing of insurance proceeds. Cooper agreed to make 25 annual payments of up to $20
million each, reduced by certain insurance proceeds received by the trust. In years that the
insurance proceeds exceed $17 million, Cooper would be required to contribute $3 million with the
excess insurance proceeds carried over to the next year. The trust would retain 10 percent of the
insurance proceeds for indemnity claims paid by the trust until Coopers obligation is satisfied
and would retain 15 percent thereafter. The agreement also provided for Cooper to receive the
insurance proceeds related to indemnity and defense costs paid prior to the date a stay of current
claims is entered by the bankruptcy court. Cooper would also be required to forego certain claims
and objections in the Federal-Mogul bankruptcy proceedings. In addition, the parties involved had
agreed to petition the court for a stay on all current claims outstanding.
F-31
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Although the payments related to the settlement could extend to 25 years and the collection of
insurance proceeds could extend beyond 25 years, the liability and insurance would be undiscounted
on Coopers balance sheet as the amount of the actual annual payments is not reasonably
predictable.
A critical term of the proposed settlement was the issuance of a preliminary injunction
staying all pending Abex asbestos claims. At a hearing on January 20, 2006, other parties to the
bankruptcy proceedings were unable to satisfy the courts requirements to grant the required
preliminary injunction. As a result, the proposed settlement agreement required renegotiation of
certain terms. The final determination of whether Cooper will participate in the Federal-Mogul
524(g) trust was unknown. However, Cooper 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 revised
settlement approximating the December 2005 proposed settlement.
Accordingly, Cooper recorded a $227.2 million after-tax discontinued operations charge, net of
a $127.8 million income tax benefit, in the fourth quarter of 2005.
The fourth quarter 2005 charge to discontinued operations included payments to a 524(g) trust
over 25 years that were undiscounted, and the insurance recoveries only included recoveries where
insurance in place agreements, settlements or policy recoveries were probable. If the negotiations
with the Representatives in early 2004 had resulted in an agreement, Cooper would have paid all the
consideration when Federal-Mogul emerged from bankruptcy and the 524(g) trust was formed and would
have relinquished all rights to insurance. The lack of discounting and the limited recognition of
insurance recoveries in the fourth quarter 2005 charge to discontinued operations are a significant
component of the increase in the accrual for discontinued operations. While it is not possible to
quantify, the accrual for discontinued operations also includes a premium for resolving the
inherent uncertainty associated with resolving Abex claims though the tort system. If Cooper is
unable to reach a settlement to participate in the Federal-Mogul 524(g) trust, the accrual for
discontinued operations potentially may have to be reduced to the estimated liability and related
insurance recoveries through the tort system. There are numerous assumptions that are required to
project the liability in the tort system and Cooper has not completed the analysis and determined
the liability that would be recorded under this scenario.
Cooper, through Pneumo-Abex LLC, has access to Abex insurance policies with remaining limits
on policies with solvent insurers in excess of $750 million. Cooper included insurance recoveries
of approximately $215 million pre-tax in the fourth quarter 2005 charge to discontinued operations
discussed above. Cooper believes that it is likely that additional insurance recoveries will be
recorded in the future as new insurance in place agreements are consummated and settlements with
insurance carriers are completed. However, extensive litigation with the insurance carriers may be
required to receive those additional recoveries.
On July 7, 2006, Cooper announced a revised agreement had been reached regarding Coopers
participation in Federal-Moguls 524(g) trust. The revised proposed settlement agreement remains
subject to court approval, to approval by 75 percent of the current Abex asbestos claimants and to
certain other approvals.
Key terms and aspects of the revised proposed settlement agreement include Cooper agreeing to
pay $256 million in cash into the trust on the date Federal-Mogul emerges from bankruptcy, which
includes elimination of the contribution of 1.4 million common shares to the trust by increasing
the cash contribution. Removing Cooper common stock as a component of the revised settlement
agreement eliminates additional charges and reversals of charges that may have occurred to account
for any changes in the market value of Cooper stock. Cooper has or will receive $37.5 million from
other parties toward its cash obligation.
As in the December 2005 agreement, Cooper has agreed to make 25 annual payments of up to $20
million each to the trust with such payments being reduced by insurance proceeds. The minimum
annual
F-32
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
payment of $3 million in the December 2005 agreement has been eliminated. However, Cooper has
agreed to make advances, beginning in 2015 through 2021, in the event the trust is unable to pay
outstanding qualified claims at 100 percent of the value provided for in the trust agreement. In
the event that advances are made by Cooper, they will accrue interest at 5 percent per annum, and
will be repaid in years where excess funds are available in the trust or credited against the
future year annual payments. The maximum advances are $36.6 million.
Cooper will pay all defense costs through the date Federal-Mogul emerges from bankruptcy and
will be reimbursed for indemnity payments to the extent such payments are eligible for payment from
the trust. Cooper will retain the rights to receive the insurance proceeds related to indemnity
and defense costs paid prior to the date Federal-Mogul emerges from bankruptcy. For claims paid by
the trust, the trust will retain 10 percent of any reimbursed insurance proceeds for the first 25
years and thereafter will retain 15 percent.
As in the December 2005 proposed agreement, Cooper will forego certain claims and objections
in the Federal-Mogul bankruptcy proceedings. However, under the revised proposed agreement, which
is subject to court approval, in the event that Coopers participation in the Federal-Mogul 524(g)
trust is not approved for any reason, Cooper would receive a cash payment of $138 million on the
date Federal-Mogul emerges from bankruptcy and 20 percent of any insurance policy settlements
related to the former Wagner business purchased by Federal-Mogul in 1998. If Cooper participates
in the trust, it will receive 12 percent of any Wagner insurance settlements.
Accordingly, 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.
The revised proposed settlement agreement has been incorporated into Federal-Moguls Fourth
Amended Joint Plan of Reorganization, which was filed on November 21, 2006.
On February 2, 2007, the U.S. Bankruptcy Court for the District of Delaware approved the
adequacy of Federal-Moguls Supplemental Disclosure Statement describing the Fourth Amended Joint
Plan of Reorganization. The Court also approved the Voting Procedures and ordered that the voting
period shall expire on April 6, 2007. In addition, any objections to the Fourth Amended Plan must
be filed with the Court by April 6, 2007 and the Court set the dates for a hearing on confirmation
of the Plan on May 8 and 9, 2007. If the Plan is confirmed, Federal-Mogul could emerge from
bankruptcy in mid-year 2007.
From a cash flow perspective, Cooper management continues to believe that a settlement on the
terms of the revised agreement would allow Cooper to continue to grow through acquisitions and
return cash to shareholders through dividends and stock repurchases. The settlement agreement
remains subject to bankruptcy court approval, approval by the current claimants and other matters.
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
$529.6 million at December 31, 2006 and $526.3 million at December 31, 2005.
|
|
NOTE 17: FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES, CONCENTRATIONS OF CREDIT RISK AND FAIR
VALUE OF FINANCIAL INSTRUMENTS |
Derivative Instruments and Hedging Activities
Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities (SFAS No. 133), as amended, requires that all derivatives be recognized as assets and
liabilities and measured at fair value. For derivative instruments that are not designated as
hedges, the gain or loss on the derivative is recognized in earnings currently. A derivative
instrument may be designated as a hedge of the exposure to changes in the fair value of an asset or
liability or variability in expected future cash flows if
F-33
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
the hedging relationship is expected to be highly effective in offsetting changes in fair
value or cash flows attributable to the hedged risk during the period of designation. If a
derivative is designated as a fair value hedge, the gain or loss on the derivative and the
offsetting loss or gain on the hedged asset, liability or firm commitment is recognized in
earnings. For derivative instruments designated as a cash flow hedge, the effective portion of the
gain or loss on the derivative instrument is reported as a component of accumulated nonowner
changes in equity and reclassified into earnings in the same period that the hedged transaction
affects earnings. The ineffective portion of the gain or loss is immediately recognized in
earnings.
Hedge accounting is discontinued prospectively when (1) it is determined that a
derivative is no longer effective in offsetting changes in the fair value or cash flows of a hedged
item; (2) the derivative is sold, terminated or exercised; (3) the hedged item no
longer meets the definition of a firm commitment; or (4) it is
unlikely that a forecasted transaction will occur within two months of the originally
specified time period.
When hedge accounting is discontinued because it is determined that the derivative no longer
qualifies as an effective fair-value hedge, the derivative will continue to be carried on the
balance sheet at its fair value, and the hedged asset or liability will no longer be adjusted for
changes in fair value. When hedge accounting is discontinued because a hedged item no longer meets
the definition of a firm commitment, the derivative will continue to be carried on the balance
sheet at its fair value, and any asset or liability that was recorded pursuant to recognition of
the firm commitment will be removed from the balance sheet and recognized as a gain or loss
currently in earnings. When hedge accounting is discontinued because it is probable that a
forecasted transaction will not occur within two months of the originally specified time period,
the derivative will continue to be carried on the balance sheet at its fair value, and gains and
losses reported in accumulated nonowner changes in equity will be recognized immediately in
earnings.
Cooper enters into currency forward exchange contracts and commodity futures contracts and
swaps to reduce the risks of adverse changes in currency exchange rates and commodity prices.
Cooper entered into cross-currency interest-rate swaps in 2005 and interest-rate swaps in 2003 to
reduce the interest-rate risk associated with certain fixed-rate debt. Cooper does not enter into
speculative derivative transactions.
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 a recognized asset, liability or firm
commitment are accounted for as fair value hedges. The net gain or loss on contracts designated as
fair value hedges was not material during 2006, 2005 or 2004. Currency forward exchange contracts
executed to hedge forecasted transactions are accounted for as cash flow hedges. The net gain or
loss on contracts designated as cash flow hedges was not material during 2006, 2005 or 2004.
Cooper also enters into certain currency forward exchange contracts that are not designated as
hedges. These contracts are intended to reduce cash flow volatility related to short-term
intercompany financing transactions.
Cooper enters into commodity futures contracts and swaps to reduce the volatility of price
fluctuations on a portion of its forecasted annual material purchases. These instruments are
designated as cash flow hedges. The net gain or loss on commodity futures contracts and swaps was
not material in 2006, 2005 or 2004.
During October 2005, Cooper entered into cross-currency interest-rate swaps to effectively
convert its newly issued $325 million, 5.25% fixed-rate debt to 272.6 million of 3.55% fixed-rate
debt.
F-34
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 interest-rate swaps have been designated as cash
flow hedges. Changes in the currency spot exchange rate results in reclassification of amounts
from other comprehensive income to earnings to offset transaction gains and losses on the
non-U.S.-denominated intercompany debt. The cross-currency interest-rate swaps mature in November
2012.
During August 2003, Cooper entered into interest-rate swaps to effectively convert $300
million of 5.25% long-term fixed-rate debt to variable-rate debt at the six-month LIBOR rate plus
1.91% (with semi-annual reset). The interest-rate swaps are designated as fair value hedges. The
notional principal amount and maturity dates of the interest-rate swaps match the underlying
long-term debt, which matures in July 2007.
During 2006, Cooper recognized $5.8 million additional interest expense, net related to
the interest-rate swaps. During the years ended December 31, 2005 and 2004, respectively, Cooper
recognized a $0.1 million and $5.1 million reduction of interest expense, net related to the
interest-rate swaps.
Gains or losses on derivative instruments are reported in the same line item as the underlying
hedged transaction in the consolidated statements of income. At December 31, 2006, Cooper
estimates that approximately $1.5 million of net gains on derivative instruments designated as cash
flow hedges will be reclassified from accumulated nonowner changes in equity to earnings during the
next twelve months. The amount of discontinued cash flow hedges during 2006, 2005 and 2004 was not
material.
The table below summarizes the U. S. dollar equivalent contractual amounts of Coopers forward
exchange contracts at December 31, 2006 and 2005.
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(in millions) |
|
U.S. Dollar |
|
$ |
224.3 |
|
|
$ |
108.2 |
|
Euro |
|
|
122.5 |
|
|
|
0.2 |
|
Mexican Peso |
|
|
23.2 |
|
|
|
19.1 |
|
British Pound Sterling |
|
|
8.5 |
|
|
|
0.4 |
|
Other |
|
|
0.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
379.2 |
|
|
$ |
127.9 |
|
|
|
|
|
|
|
|
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 $118.6 million and $104.3 million at December 31, 2006 and 2005, 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% of accounts receivable.
F-35
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 approximately $1.0 billion of debt instruments at both
December 31, 2006 and 2005. The book value of these instruments was approximately equal to fair
value (as represented primarily by quoted market prices) at December 31, 2006 and 2005.
NOTE 18: NET INCOME PER COMMON SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
Diluted |
|
|
|
Year Ended December 31, |
|
|
Year Ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
($ in millions, shares in thousands) |
|
Income from continuing operations |
|
$ |
484.3 |
|
|
$ |
391.1 |
|
|
$ |
339.8 |
|
|
$ |
484.3 |
|
|
$ |
391.1 |
|
|
$ |
339.8 |
|
Charge from discontinued operations |
|
|
20.3 |
|
|
|
227.2 |
|
|
|
|
|
|
|
20.3 |
|
|
|
227.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common stock |
|
$ |
464.0 |
|
|
$ |
163.9 |
|
|
$ |
339.8 |
|
|
$ |
464.0 |
|
|
$ |
163.9 |
|
|
$ |
339.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
91,773 |
|
|
|
92,520 |
|
|
|
92,480 |
|
|
|
91,773 |
|
|
|
92,520 |
|
|
|
92,480 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incremental shares from assumed conversions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options, performance-based stock awards
and other employee awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,019 |
|
|
|
2,529 |
|
|
|
2,283 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares and
common share equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93,792 |
|
|
|
95,049 |
|
|
|
94,763 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options and employee awards are not considered in the calculations if the effect would be
antidilutive.
On February 14, 2007, Cooper announced a two-for-one stock split to shareholders of record on
February 28, 2007, to be distributed on March 15, 2007. Unaudited pro forma earnings per share,
assuming that the stock split occurred on January 1, 2004, is presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
(unaudited) |
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
2.64 |
|
|
$ |
2.12 |
|
|
$ |
1.84 |
|
Charge from discontinued operations |
|
|
.11 |
|
|
|
1.23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
2.53 |
|
|
$ |
.89 |
|
|
$ |
1.84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
2.58 |
|
|
$ |
2.06 |
|
|
$ |
1.79 |
|
Charge from discontinued operations |
|
|
.10 |
|
|
|
1.19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
2.48 |
|
|
$ |
.87 |
|
|
$ |
1.79 |
|
|
|
|
|
|
|
|
|
|
|
F-36
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 19: UNAUDITED QUARTERLY OPERATING RESULTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 (by quarter) |
|
|
|
1 |
|
|
2 |
|
|
3 |
|
|
4 |
|
|
|
(in millions, except per share data) |
|
Revenues |
|
$ |
1,240.9 |
|
|
$ |
1,287.8 |
|
|
$ |
1,314.6 |
|
|
$ |
1,341.3 |
|
Cost of sales |
|
|
846.8 |
|
|
|
870.3 |
|
|
|
887.2 |
|
|
|
912.1 |
|
Selling and administrative expenses |
|
|
237.5 |
|
|
|
244.3 |
|
|
|
240.8 |
|
|
|
246.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings |
|
|
156.6 |
|
|
|
173.2 |
|
|
|
186.6 |
|
|
|
182.8 |
|
Interest expense, net |
|
|
12.1 |
|
|
|
12.4 |
|
|
|
14.0 |
|
|
|
13.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes |
|
|
144.5 |
|
|
|
160.8 |
|
|
|
172.6 |
|
|
|
169.8 |
|
Income taxes |
|
|
36.8 |
|
|
|
41.0 |
|
|
|
44.4 |
|
|
|
41.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
107.7 |
|
|
|
119.8 |
|
|
|
128.2 |
|
|
|
128.6 |
|
Charge related to discontinued operations |
|
|
|
|
|
|
20.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
107.7 |
|
|
$ |
99.5 |
|
|
$ |
128.2 |
|
|
$ |
128.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per Common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
1.17 |
|
|
$ |
1.30 |
|
|
$ |
1.40 |
|
|
$ |
1.41 |
|
Charge from discontinued operations |
|
|
|
|
|
|
.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1.17 |
|
|
$ |
1.08 |
|
|
$ |
1.40 |
|
|
$ |
1.41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
1.14 |
|
|
$ |
1.27 |
|
|
$ |
1.37 |
|
|
$ |
1.38 |
|
Charge from discontinued operations |
|
|
|
|
|
|
.21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1.14 |
|
|
$ |
1.06 |
|
|
$ |
1.37 |
|
|
$ |
1.38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 (by quarter) |
|
|
|
1 |
|
|
2 |
|
|
3 |
|
|
4 |
|
|
|
(in millions, except per share data) |
|
Revenues |
|
$ |
1,144.8 |
|
|
$ |
1,189.2 |
|
|
$ |
1,210.4 |
|
|
$ |
1,186.0 |
|
Cost of sales |
|
|
787.6 |
|
|
|
814.7 |
|
|
|
828.1 |
|
|
|
813.4 |
|
Selling and administrative expenses |
|
|
227.5 |
|
|
|
232.9 |
|
|
|
235.9 |
|
|
|
230.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings |
|
|
129.7 |
|
|
|
141.6 |
|
|
|
146.4 |
|
|
|
142.1 |
|
Interest expense, net |
|
|
17.8 |
|
|
|
17.7 |
|
|
|
16.5 |
|
|
|
12.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes |
|
|
111.9 |
|
|
|
123.9 |
|
|
|
129.9 |
|
|
|
129.3 |
|
Income taxes |
|
|
24.1 |
|
|
|
26.6 |
|
|
|
27.9 |
|
|
|
25.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
87.8 |
|
|
|
97.3 |
|
|
|
102.0 |
|
|
|
104.0 |
|
Charge related to discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
227.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
87.8 |
|
|
$ |
97.3 |
|
|
$ |
102.0 |
|
|
$ |
(123.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per Common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
.94 |
|
|
$ |
1.05 |
|
|
$ |
1.11 |
|
|
$ |
1.13 |
|
Charge from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
.94 |
|
|
$ |
1.05 |
|
|
$ |
1.11 |
|
|
$ |
(1.34 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
.92 |
|
|
$ |
1.02 |
|
|
$ |
1.08 |
|
|
$ |
1.10 |
|
Charge from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
.92 |
|
|
$ |
1.02 |
|
|
$ |
1.08 |
|
|
$ |
(1.30 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
F-37
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 20: CONSOLIDATING FINANCIAL INFORMATION
Cooper and certain of its principal operating subsidiaries (the Guarantors) fully and
unconditionally guarantee, on a joint and several basis, the registered debt securities of Cooper
Industries, LLC and Cooper US, Inc. The following condensed consolidating financial information is
included so that separate financial statements of Cooper Industries, LLC, Cooper US, Inc. or the
Guarantors are not required to be filed with the Securities and Exchange Commission. The
consolidating financial statements present investments in subsidiaries using the equity method of
accounting. Intercompany investments in the Class A and Class B common shares are accounted for
using the cost method.
Consolidating Income Statements
Year Ended December 31, 2006
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cooper |
|
|
Cooper |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industries, |
|
|
US, |
|
|
|
|
|
|
Other |
|
|
Consolidating |
|
|
|
|
|
|
Cooper |
|
|
LLC |
|
|
Inc. |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
Revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3,367.1 |
|
|
$ |
2,055.2 |
|
|
$ |
(237.7 |
) |
|
$ |
5,184.6 |
|
Cost of sales |
|
|
(5.1 |
) |
|
|
(1.0 |
) |
|
|
0.6 |
|
|
|
2,358.1 |
|
|
|
1,401.5 |
|
|
|
(237.7 |
) |
|
|
3,516.4 |
|
Selling and administrative
expenses |
|
|
9.6 |
|
|
|
19.7 |
|
|
|
64.9 |
|
|
|
509.1 |
|
|
|
365.7 |
|
|
|
|
|
|
|
969.0 |
|
Interest expense, net |
|
|
(0.8 |
) |
|
|
45.0 |
|
|
|
12.2 |
|
|
|
|
|
|
|
(4.9 |
) |
|
|
|
|
|
|
51.5 |
|
Equity in earnings of
subsidiaries, net of tax |
|
|
584.5 |
|
|
|
(105.3 |
) |
|
|
337.9 |
|
|
|
96.4 |
|
|
|
338.5 |
|
|
|
(1,252.0 |
) |
|
|
|
|
Intercompany income
(expense) |
|
|
(18.2 |
) |
|
|
133.8 |
|
|
|
22.4 |
|
|
|
(369.7 |
) |
|
|
330.4 |
|
|
|
(98.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
continuing operations
before income taxes |
|
|
562.6 |
|
|
|
(35.2 |
) |
|
|
282.6 |
|
|
|
226.6 |
|
|
|
961.8 |
|
|
|
(1,350.7 |
) |
|
|
647.7 |
|
Income tax expense
(benefit) |
|
|
|
|
|
|
(29.9 |
) |
|
|
(56.0 |
) |
|
|
48.4 |
|
|
|
200.9 |
|
|
|
|
|
|
|
163.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations |
|
|
562.6 |
|
|
|
(5.3 |
) |
|
|
338.6 |
|
|
|
178.2 |
|
|
|
760.9 |
|
|
|
(1,350.7 |
) |
|
|
484.3 |
|
Charge related to
discontinued operations,
net of tax |
|
|
|
|
|
|
20.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
562.6 |
|
|
$ |
(25.6 |
) |
|
$ |
338.6 |
|
|
$ |
178.2 |
|
|
$ |
760.9 |
|
|
$ |
(1,350.7 |
) |
|
$ |
464.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-38
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Consolidating Income Statements
Year Ended December 31, 2005
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cooper |
|
|
Cooper |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industries, |
|
|
US, |
|
|
|
|
|
|
Other |
|
|
Consolidating |
|
|
|
|
|
|
Cooper |
|
|
LLC |
|
|
Inc. |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
Revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3,124.2 |
|
|
$ |
1,745.7 |
|
|
$ |
(139.5 |
) |
|
$ |
4,730.4 |
|
Cost of sales |
|
|
0.2 |
|
|
|
0.4 |
|
|
|
1.1 |
|
|
|
2,203.4 |
|
|
|
1,178.2 |
|
|
|
(139.5 |
) |
|
|
3,243.8 |
|
Selling and administrative
expenses |
|
|
8.9 |
|
|
|
9.8 |
|
|
|
70.4 |
|
|
|
495.8 |
|
|
|
341.9 |
|
|
|
|
|
|
|
926.8 |
|
Interest expense, net |
|
|
(1.1 |
) |
|
|
51.3 |
|
|
|
(1.3 |
) |
|
|
|
|
|
|
15.9 |
|
|
|
|
|
|
|
64.8 |
|
Equity in earnings of
subsidiaries, net of tax. |
|
|
259.1 |
|
|
|
55.9 |
|
|
|
100.7 |
|
|
|
117.5 |
|
|
|
39.9 |
|
|
|
(573.1 |
) |
|
|
|
|
Intercompany income
(expense) |
|
|
(6.7 |
) |
|
|
(59.0 |
) |
|
|
(73.7 |
) |
|
|
(373.6 |
) |
|
|
593.5 |
|
|
|
(80.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
continuing operations
before income taxes |
|
|
244.4 |
|
|
|
(64.6 |
) |
|
|
(43.2 |
) |
|
|
168.9 |
|
|
|
843.1 |
|
|
|
(653.6 |
) |
|
|
495.0 |
|
Income tax expense
(benefit) |
|
|
|
|
|
|
(44.7 |
) |
|
|
(82.9 |
) |
|
|
15.1 |
|
|
|
216.4 |
|
|
|
|
|
|
|
103.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations |
|
|
244.4 |
|
|
|
(19.9 |
) |
|
|
39.7 |
|
|
|
153.8 |
|
|
|
626.7 |
|
|
|
(653.6 |
) |
|
|
391.1 |
|
Charge related to
discontinued operations,
net of taxes |
|
|
|
|
|
|
227.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
227.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
244.4 |
|
|
$ |
(247.1 |
) |
|
$ |
39.7 |
|
|
$ |
153.8 |
|
|
$ |
626.7 |
|
|
$ |
(653.6 |
) |
|
$ |
163.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating Income Statements
Year Ended December 31, 2004
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cooper |
|
|
|
|
|
|
Other |
|
|
Consolidating |
|
|
|
|
|
|
Cooper |
|
|
Ohio |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
Revenues |
|
$ |
|
|
|
$ |
185.5 |
|
|
$ |
2,666.5 |
|
|
$ |
1,656.2 |
|
|
$ |
(45.3 |
) |
|
$ |
4,462.9 |
|
Cost of sales |
|
|
0.7 |
|
|
|
124.1 |
|
|
|
1,891.1 |
|
|
|
1,149.1 |
|
|
|
(45.3 |
) |
|
|
3,119.7 |
|
Selling and administrative
expenses |
|
|
9.5 |
|
|
|
90.5 |
|
|
|
432.7 |
|
|
|
313.9 |
|
|
|
|
|
|
|
846.6 |
|
Interest expense, net |
|
|
(1.0 |
) |
|
|
47.8 |
|
|
|
|
|
|
|
21.3 |
|
|
|
|
|
|
|
68.1 |
|
Equity in earnings of
subsidiaries, net of tax |
|
|
353.4 |
|
|
|
379.5 |
|
|
|
30.0 |
|
|
|
162.0 |
|
|
|
(924.9 |
) |
|
|
|
|
Intercompany income (expense) |
|
|
(4.4 |
) |
|
|
(256.9 |
) |
|
|
(329.5 |
) |
|
|
590.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
339.8 |
|
|
|
45.7 |
|
|
|
43.2 |
|
|
|
924.7 |
|
|
|
(924.9 |
) |
|
|
428.5 |
|
Income tax expense (benefit) |
|
|
|
|
|
|
(116.3 |
) |
|
|
(3.1 |
) |
|
|
208.1 |
|
|
|
|
|
|
|
88.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
339.8 |
|
|
$ |
162.0 |
|
|
$ |
46.3 |
|
|
$ |
716.6 |
|
|
$ |
(924.9 |
) |
|
$ |
339.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-39
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Consolidating Balance Sheets
December 31, 2006
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cooper |
|
|
Cooper |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industries, |
|
|
US, |
|
|
|
|
|
|
Other |
|
|
Consolidating |
|
|
|
|
|
|
Cooper |
|
|
LLC |
|
|
Inc. |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
Cash and cash equivalents |
|
$ |
11.5 |
|
|
$ |
|
|
|
$ |
204.9 |
|
|
$ |
(2.8 |
) |
|
$ |
209.9 |
|
|
$ |
|
|
|
$ |
423.5 |
|
Receivables |
|
|
0.2 |
|
|
|
|
|
|
|
0.4 |
|
|
|
469.3 |
|
|
|
426.1 |
|
|
|
|
|
|
|
896.0 |
|
Inventories |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
348.6 |
|
|
|
259.0 |
|
|
|
|
|
|
|
607.6 |
|
Deferred income taxes and
other current assets |
|
|
1.1 |
|
|
|
141.4 |
|
|
|
51.9 |
|
|
|
25.6 |
|
|
|
46.6 |
|
|
|
|
|
|
|
266.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
12.8 |
|
|
|
141.4 |
|
|
|
257.2 |
|
|
|
840.7 |
|
|
|
941.6 |
|
|
|
|
|
|
|
2,193.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and
equipment, less
accumulated depreciation. |
|
|
|
|
|
|
|
|
|
|
49.8 |
|
|
|
320.0 |
|
|
|
295.6 |
|
|
|
|
|
|
|
665.4 |
|
Goodwill |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,025.0 |
|
|
|
1,311.9 |
|
|
|
|
|
|
|
2,336.9 |
|
Investment in subsidiaries |
|
|
3,554.6 |
|
|
|
570.0 |
|
|
|
4,081.8 |
|
|
|
1,219.2 |
|
|
|
1,346.2 |
|
|
|
(10,771.8 |
) |
|
|
|
|
Investment in parent |
|
|
|
|
|
|
|
|
|
|
2,811.2 |
|
|
|
|
|
|
|
312.8 |
|
|
|
(3,124.0 |
) |
|
|
|
|
Intercompany accounts
receivable |
|
|
686.3 |
|
|
|
806.5 |
|
|
|
|
|
|
|
1,289.0 |
|
|
|
598.6 |
|
|
|
(3,380.4 |
) |
|
|
|
|
Intercompany notes
receivable |
|
|
91.8 |
|
|
|
24.9 |
|
|
|
758.5 |
|
|
|
0.7 |
|
|
|
4,067.3 |
|
|
|
(4,943.2 |
) |
|
|
|
|
Deferred income taxes and
other noncurrent assets |
|
|
|
|
|
|
20.0 |
|
|
|
2.0 |
|
|
|
23.0 |
|
|
|
133.8 |
|
|
|
|
|
|
|
178.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
4,345.5 |
|
|
$ |
1,562.8 |
|
|
$ |
7,960.5 |
|
|
$ |
4,717.6 |
|
|
$ |
9,007.8 |
|
|
$ |
(22,219.4 |
) |
|
$ |
5,374.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
5.0 |
|
|
$ |
|
|
|
$ |
5.0 |
|
Accounts payable |
|
|
32.1 |
|
|
|
17.2 |
|
|
|
4.5 |
|
|
|
225.9 |
|
|
|
192.0 |
|
|
|
|
|
|
|
471.7 |
|
Accrued liabilities |
|
|
5.2 |
|
|
|
43.4 |
|
|
|
84.5 |
|
|
|
230.0 |
|
|
|
159.2 |
|
|
|
|
|
|
|
522.3 |
|
Current discontinued
operations liability |
|
|
|
|
|
|
199.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
199.6 |
|
Current maturities of
long-term debt |
|
|
|
|
|
|
300.0 |
|
|
|
|
|
|
|
|
|
|
|
0.7 |
|
|
|
|
|
|
|
300.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
37.3 |
|
|
|
560.2 |
|
|
|
89.0 |
|
|
|
455.9 |
|
|
|
356.9 |
|
|
|
|
|
|
|
1,499.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
|
|
|
|
370.5 |
|
|
|
323.9 |
|
|
|
8.0 |
|
|
|
0.4 |
|
|
|
|
|
|
|
702.8 |
|
Intercompany accounts
payable |
|
|
|
|
|
|
|
|
|
|
3,380.4 |
|
|
|
|
|
|
|
|
|
|
|
(3,380.4 |
) |
|
|
|
|
Intercompany notes
payable |
|
|
552.3 |
|
|
|
329.9 |
|
|
|
1,901.4 |
|
|
|
1,707.3 |
|
|
|
452.3 |
|
|
|
(4,943.2 |
) |
|
|
|
|
Long-term discontinued
operations liability |
|
|
|
|
|
|
330.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
330.0 |
|
Other long-term
liabilities |
|
|
|
|
|
|
(57.7 |
) |
|
|
119.2 |
|
|
|
172.9 |
|
|
|
133.0 |
|
|
|
|
|
|
|
367.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
589.6 |
|
|
|
1,532.9 |
|
|
|
5,813.9 |
|
|
|
2,344.1 |
|
|
|
942.6 |
|
|
|
(8,323.6 |
) |
|
|
2,899.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common stock |
|
|
1.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.1 |
) |
|
|
0.9 |
|
Class B common stock |
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.5 |
) |
|
|
|
|
Subsidiary common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500.3 |
|
|
|
(500.3 |
) |
|
|
|
|
Capital in excess of
par value |
|
|
3,392.0 |
|
|
|
|
|
|
|
56.2 |
|
|
|
1,431.5 |
|
|
|
5,174.7 |
|
|
|
(9,776.0 |
) |
|
|
278.4 |
|
Retained earnings |
|
|
358.4 |
|
|
|
128.3 |
|
|
|
2,230.1 |
|
|
|
943.3 |
|
|
|
2,485.6 |
|
|
|
(3,821.3 |
) |
|
|
2,324.4 |
|
Accumulated other nonowner changes in equity |
|
|
4.0 |
|
|
|
(98.4 |
) |
|
|
(139.7 |
) |
|
|
(1.3 |
) |
|
|
(95.4 |
) |
|
|
202.4 |
|
|
|
(128.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
3,755.9 |
|
|
|
29.9 |
|
|
|
2,146.6 |
|
|
|
2,373.5 |
|
|
|
8,065.2 |
|
|
|
(13,895.8 |
) |
|
|
2,475.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders equity |
|
$ |
4,345.5 |
|
|
$ |
1,562.8 |
|
|
$ |
7,960.5 |
|
|
$ |
4,717.6 |
|
|
$ |
9,007.8 |
|
|
$ |
(22,219.4 |
) |
|
$ |
5,374.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-40
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Consolidating Balance Sheets
December 31, 2005
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cooper |
|
|
Cooper |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industries, |
|
|
US, |
|
|
|
|
|
|
Other |
|
|
Consolidating |
|
|
|
|
|
|
Cooper |
|
|
LLC |
|
|
Inc |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
Cash and cash
equivalents |
|
$ |
64.1 |
|
|
$ |
|
|
|
$ |
144.4 |
|
|
$ |
(3.5 |
) |
|
$ |
247.8 |
|
|
$ |
|
|
|
$ |
452.8 |
|
Receivables |
|
|
0.1 |
|
|
|
|
|
|
|
8.6 |
|
|
|
469.7 |
|
|
|
364.0 |
|
|
|
|
|
|
|
842.4 |
|
Inventories |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
327.1 |
|
|
|
211.6 |
|
|
|
|
|
|
|
538.7 |
|
Deferred income taxes and
other current assets |
|
|
1.2 |
|
|
|
130.7 |
|
|
|
94.0 |
|
|
|
48.8 |
|
|
|
22.5 |
|
|
|
|
|
|
|
297.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
65.4 |
|
|
|
130.7 |
|
|
|
247.0 |
|
|
|
842.1 |
|
|
|
845.9 |
|
|
|
|
|
|
|
2,131.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and
equipment, less
accumulated
depreciation |
|
|
|
|
|
|
|
|
|
|
41.0 |
|
|
|
339.5 |
|
|
|
293.2 |
|
|
|
|
|
|
|
673.7 |
|
Goodwill |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,018.3 |
|
|
|
1,065.7 |
|
|
|
|
|
|
|
2,084.0 |
|
Investment in subsidiaries |
|
|
2,887.9 |
|
|
|
759.5 |
|
|
|
3,579.4 |
|
|
|
917.6 |
|
|
|
899.1 |
|
|
|
(9,043.5 |
) |
|
|
|
|
Investment in parent |
|
|
|
|
|
|
|
|
|
|
2,547.1 |
|
|
|
|
|
|
|
312.7 |
|
|
|
(2,859.8 |
) |
|
|
|
|
Intercompany accounts
receivables |
|
|
588.4 |
|
|
|
550.5 |
|
|
|
|
|
|
|
1,367.3 |
|
|
|
589.9 |
|
|
|
(3,096.1 |
) |
|
|
|
|
Intercompany notes
receivable |
|
|
43.9 |
|
|
|
23.5 |
|
|
|
651.1 |
|
|
|
0.8 |
|
|
|
3,683.4 |
|
|
|
(4,402.7 |
) |
|
|
|
|
Deferred income taxes
and other noncurrent
assets |
|
|
|
|
|
|
223.5 |
|
|
|
48.7 |
|
|
|
(43.2 |
) |
|
|
97.3 |
|
|
|
|
|
|
|
326.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
3,585.6 |
|
|
$ |
1,687.7 |
|
|
$ |
7,114.3 |
|
|
$ |
4,442.4 |
|
|
$ |
7,787.2 |
|
|
$ |
(19,402.1 |
) |
|
$ |
5,215.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
7.6 |
|
|
$ |
|
|
|
$ |
7.6 |
|
Accounts payable |
|
|
34.1 |
|
|
|
14.0 |
|
|
|
8.0 |
|
|
|
214.7 |
|
|
|
157.0 |
|
|
|
|
|
|
|
427.8 |
|
Accrued liabilities |
|
|
3.9 |
|
|
|
28.9 |
|
|
|
107.5 |
|
|
|
238.8 |
|
|
|
138.9 |
|
|
|
|
|
|
|
518.0 |
|
Current discontinued
operations liability |
|
|
|
|
|
|
196.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
196.3 |
|
Current maturities of
long-term debt |
|
|
|
|
|
|
11.0 |
|
|
|
|
|
|
|
|
|
|
|
0.4 |
|
|
|
|
|
|
|
11.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
liabilities |
|
|
38.0 |
|
|
|
250.2 |
|
|
|
115.5 |
|
|
|
453.5 |
|
|
|
303.9 |
|
|
|
|
|
|
|
1,161.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
|
|
|
|
670.0 |
|
|
|
323.7 |
|
|
|
8.0 |
|
|
|
1.2 |
|
|
|
|
|
|
|
1,002.9 |
|
Intercompany
accounts payables |
|
|
|
|
|
|
|
|
|
|
3,096.1 |
|
|
|
|
|
|
|
|
|
|
|
(3,096.1 |
) |
|
|
|
|
Intercompany notes
payable |
|
|
326.0 |
|
|
|
258.7 |
|
|
|
1,652.8 |
|
|
|
1,708.0 |
|
|
|
457.2 |
|
|
|
(4,402.7 |
) |
|
|
|
|
Long-term discontinued
operations liability |
|
|
|
|
|
|
330.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
330.0 |
|
Other long-term
liabilities |
|
|
|
|
|
|
131.4 |
|
|
|
191.2 |
|
|
|
77.0 |
|
|
|
116.3 |
|
|
|
|
|
|
|
515.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
364.0 |
|
|
|
1,640.3 |
|
|
|
5,379.3 |
|
|
|
2,246.5 |
|
|
|
878.6 |
|
|
|
(7,498.8 |
) |
|
|
3,009.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common stock |
|
|
1.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.1 |
) |
|
|
0.9 |
|
Class B common stock |
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.5 |
) |
|
|
|
|
Subsidiary common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
272.9 |
|
|
|
(272.9 |
) |
|
|
|
|
Capital in excess of
par value |
|
|
3,232.7 |
|
|
|
|
|
|
|
29.4 |
|
|
|
1,388.6 |
|
|
|
5,082.3 |
|
|
|
(9,349.8 |
) |
|
|
383.2 |
|
Retained earnings |
|
|
31.5 |
|
|
|
162.4 |
|
|
|
1,892.3 |
|
|
|
832.5 |
|
|
|
1,733.2 |
|
|
|
(2,654.5 |
) |
|
|
1,997.4 |
|
Accumulated other nonowner changes in equity |
|
|
(44.1 |
) |
|
|
(115.0 |
) |
|
|
(186.7 |
) |
|
|
(25.2 |
) |
|
|
(179.8 |
) |
|
|
374.5 |
|
|
|
(176.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
3,221.6 |
|
|
|
47.4 |
|
|
|
1,735.0 |
|
|
|
2,195.9 |
|
|
|
6,908.6 |
|
|
|
(11,903.3 |
) |
|
|
2,205.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders equity |
|
$ |
3,585.6 |
|
|
$ |
1,687.7 |
|
|
$ |
7,114.3 |
|
|
$ |
4,442.4 |
|
|
$ |
7,787.2 |
|
|
$ |
(19,402.1 |
) |
|
$ |
5,215.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-41
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Consolidating Statements of Cash Flows
Year Ended December 31, 2006
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cooper |
|
|
Cooper |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industries, |
|
|
US, |
|
|
|
|
|
|
Other |
|
|
Consolidating |
|
|
|
|
|
|
Cooper |
|
|
LLC |
|
|
Inc |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
Net cash provided by (used
in) operating activities |
|
$ |
(20.9 |
) |
|
$ |
(18.8 |
) |
|
$ |
(11.7 |
) |
|
$ |
129.3 |
|
|
$ |
523.5 |
|
|
$ |
|
|
|
$ |
601.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
|
|
|
|
|
|
|
|
(15.3 |
) |
|
|
(37.2 |
) |
|
|
(32.8 |
) |
|
|
|
|
|
|
(85.3 |
) |
Cash paid for acquired
businesses |
|
|
|
|
|
|
|
|
|
|
(45.0 |
) |
|
|
(229.6 |
) |
|
|
(5.8 |
) |
|
|
|
|
|
|
(280.4 |
) |
Investment in affiliates |
|
|
(12.3 |
) |
|
|
|
|
|
|
(36.7 |
) |
|
|
|
|
|
|
|
|
|
|
49.0 |
|
|
|
|
|
Loans to affiliates |
|
|
(192.0 |
) |
|
|
|
|
|
|
(44.5 |
) |
|
|
|
|
|
|
(539.1 |
) |
|
|
775.6 |
|
|
|
|
|
Repayments of loans from
affiliates |
|
|
146.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
199.3 |
|
|
|
(345.5 |
) |
|
|
|
|
Dividends from affiliates |
|
|
5.0 |
|
|
|
5.5 |
|
|
|
91.7 |
|
|
|
18.1 |
|
|
|
7.9 |
|
|
|
(128.2 |
) |
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.0 |
|
|
|
17.9 |
|
|
|
|
|
|
|
18.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used
in) investing activities |
|
|
(53.1 |
) |
|
|
5.5 |
|
|
|
(49.8 |
) |
|
|
(247.7 |
) |
|
|
(352.6 |
) |
|
|
350.9 |
|
|
|
(346.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of debt |
|
|
|
|
|
|
(11.0 |
) |
|
|
|
|
|
|
|
|
|
|
(3.8 |
) |
|
|
|
|
|
|
(14.8 |
) |
Borrowings from affiliates |
|
|
271.2 |
|
|
|
44.4 |
|
|
|
458.4 |
|
|
|
1.5 |
|
|
|
0.1 |
|
|
|
(775.6 |
) |
|
|
|
|
Repayments of loans to
affiliates |
|
|
(47.3 |
) |
|
|
|
|
|
|
(251.8 |
) |
|
|
(2.4 |
) |
|
|
(44.0 |
) |
|
|
345.5 |
|
|
|
|
|
Other intercompany
financing activities |
|
|
13.0 |
|
|
|
(20.1 |
) |
|
|
83.7 |
|
|
|
120.0 |
|
|
|
(196.6 |
) |
|
|
|
|
|
|
|
|
Dividends |
|
|
(137.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(137.0 |
) |
Dividends paid to affiliates |
|
|
(98.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29.6 |
) |
|
|
128.2 |
|
|
|
|
|
Subsidiary purchase of
parent shares |
|
|
20.1 |
|
|
|
|
|
|
|
(284.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(264.2 |
) |
Issuance of stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49.0 |
|
|
|
(49.0 |
) |
|
|
|
|
Excess tax benefits from
stock options and awards |
|
|
|
|
|
|
|
|
|
|
26.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26.8 |
|
Employee stock plan
activity and other |
|
|
|
|
|
|
|
|
|
|
89.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used
in) financing activities |
|
|
21.4 |
|
|
|
13.3 |
|
|
|
122.0 |
|
|
|
119.1 |
|
|
|
(224.9 |
) |
|
|
(350.9 |
) |
|
|
(300.0 |
) |
Effect of exchange rate
changes on cash and cash
equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16.1 |
|
|
|
|
|
|
|
16.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash
and cash equivalents |
|
|
(52.6 |
) |
|
|
|
|
|
|
60.5 |
|
|
|
0.7 |
|
|
|
(37.9 |
) |
|
|
|
|
|
|
(29.3 |
) |
Cash and cash equivalents,
beginning of period |
|
|
64.1 |
|
|
|
|
|
|
|
144.4 |
|
|
|
(3.5 |
) |
|
|
247.8 |
|
|
|
|
|
|
|
452.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents,
end of period |
|
$ |
11.5 |
|
|
$ |
|
|
|
$ |
204.9 |
|
|
$ |
(2.8 |
) |
|
$ |
209.9 |
|
|
$ |
|
|
|
$ |
423.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-42
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Consolidating Statements of Cash Flows
Year Ended December 31, 2005
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cooper |
|
|
Cooper |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industries, |
|
|
US, |
|
|
|
|
|
|
Other |
|
|
Consolidating |
|
|
|
|
|
|
Cooper |
|
|
LLC |
|
|
Inc |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
Net cash provided by (used in)
operating activities |
|
$ |
(10.4 |
) |
|
$ |
(141.6 |
) |
|
$ |
2.0 |
|
|
$ |
103.6 |
|
|
$ |
619.9 |
|
|
$ |
|
|
|
$ |
573.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
|
|
|
|
|
|
|
|
(14.4 |
) |
|
|
(40.7 |
) |
|
|
(41.6 |
) |
|
|
|
|
|
|
(96.7 |
) |
Cash paid for acquired businesses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7.1 |
) |
|
|
|
|
|
|
(7.1 |
) |
Investment in affiliates |
|
|
(11.1 |
) |
|
|
(225.0 |
) |
|
|
(49.2 |
) |
|
|
(3.4 |
) |
|
|
|
|
|
|
288.7 |
|
|
|
|
|
Sale of investment in affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
130.9 |
|
|
|
(130.9 |
) |
|
|
|
|
Loans to affiliates |
|
|
(46.0 |
) |
|
|
(23.5 |
) |
|
|
(646.7 |
) |
|
|
(0.7 |
) |
|
|
(238.3 |
) |
|
|
955.2 |
|
|
|
|
|
Repayments of loans from affiliates |
|
|
27.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46.2 |
|
|
|
(73.9 |
) |
|
|
|
|
Dividends from affiliates |
|
|
10.0 |
|
|
|
0.9 |
|
|
|
98.4 |
|
|
|
52.8 |
|
|
|
5.1 |
|
|
|
(167.2 |
) |
|
|
|
|
Other |
|
|
|
|
|
|
1.5 |
|
|
|
|
|
|
|
0.6 |
|
|
|
11.5 |
|
|
|
|
|
|
|
13.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
investing activities |
|
|
(19.4 |
) |
|
|
(246.1 |
) |
|
|
(611.9 |
) |
|
|
8.6 |
|
|
|
(93.3 |
) |
|
|
871.9 |
|
|
|
(90.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuances of debt |
|
|
|
|
|
|
|
|
|
|
325.0 |
|
|
|
|
|
|
|
1.4 |
|
|
|
|
|
|
|
326.4 |
|
Repayments of debt |
|
|
|
|
|
|
(229.0 |
) |
|
|
|
|
|
|
|
|
|
|
(481.4 |
) |
|
|
|
|
|
|
(710.4 |
) |
Borrowings from affiliates |
|
|
235.8 |
|
|
|
258.7 |
|
|
|
|
|
|
|
5.9 |
|
|
|
454.8 |
|
|
|
(955.2 |
) |
|
|
|
|
Repayments of loans to affiliates |
|
|
(46.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27.7 |
) |
|
|
73.9 |
|
|
|
|
|
Other intercompany financing
activities |
|
|
(11.7 |
) |
|
|
358.0 |
|
|
|
227.6 |
|
|
|
(100.6 |
) |
|
|
(473.3 |
) |
|
|
|
|
|
|
|
|
Dividends |
|
|
(138.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(138.1 |
) |
Dividends paid to affiliates |
|
|
(70.2 |
) |
|
|
|
|
|
|
|
|
|
|
(22.2 |
) |
|
|
(74.8 |
) |
|
|
167.2 |
|
|
|
|
|
Subsidiary purchase of parent
shares |
|
|
12.8 |
|
|
|
|
|
|
|
(113.3 |
) |
|
|
|
|
|
|
(110.5 |
) |
|
|
|
|
|
|
(211.0 |
) |
Issuance of stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
157.8 |
|
|
|
(157.8 |
) |
|
|
|
|
Employee stock plan activity and
other |
|
|
|
|
|
|
|
|
|
|
68.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
financing activities |
|
|
(17.6 |
) |
|
|
387.7 |
|
|
|
508.2 |
|
|
|
(116.9 |
) |
|
|
(553.7 |
) |
|
|
(871.9 |
) |
|
|
(664.2 |
) |
Effect of exchange rate changes on
cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19.1 |
) |
|
|
|
|
|
|
(19.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in cash and cash
equivalents |
|
|
(47.4 |
) |
|
|
|
|
|
|
(101.7 |
) |
|
|
(4.7 |
) |
|
|
(46.2 |
) |
|
|
|
|
|
|
(200.0 |
) |
Cash and cash equivalents,
beginning of period |
|
|
111.5 |
|
|
|
|
|
|
|
246.1 |
|
|
|
1.2 |
|
|
|
294.0 |
|
|
|
|
|
|
|
652.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of
period |
|
$ |
$64.1 |
|
|
$ |
|
|
|
$ |
144.4 |
|
|
$ |
(3.5 |
) |
|
$ |
247.8 |
|
|
$ |
|
|
|
$ |
452.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-43
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Consolidating Statements of Cash Flows
Year Ended December 31, 2004
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cooper |
|
|
|
|
|
|
Other |
|
|
Consolidating |
|
|
|
|
|
|
Cooper |
|
|
Ohio |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
Net cash provided by (used in)
operating activities |
|
$ |
(7.3 |
) |
|
$ |
(173.9 |
) |
|
$ |
45.7 |
|
|
$ |
609.1 |
|
|
$ |
|
|
|
$ |
473.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
|
|
|
|
(21.4 |
) |
|
|
(40.7 |
) |
|
|
(40.7 |
) |
|
|
|
|
|
|
(102.8 |
) |
Cash paid for acquired business |
|
|
|
|
|
|
|
|
|
|
(10.1 |
) |
|
|
(38.5 |
) |
|
|
|
|
|
|
(48.6 |
) |
Intercompany sale (purchase) of
investment in parent |
|
|
|
|
|
|
(182.1 |
) |
|
|
|
|
|
|
182.1 |
|
|
|
|
|
|
|
|
|
Intercompany sale (purchase) of
investment in subsidiaries |
|
|
|
|
|
|
109.5 |
|
|
|
|
|
|
|
(109.5 |
) |
|
|
|
|
|
|
|
|
Investments in affiliates |
|
|
(9.0 |
) |
|
|
(80.3 |
) |
|
|
|
|
|
|
|
|
|
|
89.3 |
|
|
|
|
|
Loans to affiliates |
|
|
(60.5 |
) |
|
|
(23.6 |
) |
|
|
|
|
|
|
(154.0 |
) |
|
|
238.1 |
|
|
|
|
|
Repayments of loans from
affiliates |
|
|
35.1 |
|
|
|
23.0 |
|
|
|
|
|
|
|
84.5 |
|
|
|
(142.6 |
) |
|
|
|
|
Dividends from subsidiaries |
|
|
134.0 |
|
|
|
87.7 |
|
|
|
|
|
|
|
|
|
|
|
(221.7 |
) |
|
|
|
|
Other |
|
|
|
|
|
|
28.3 |
|
|
|
10.0 |
|
|
|
1.8 |
|
|
|
(28.3 |
) |
|
|
11.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used
in) investing activities. |
|
|
99.6 |
|
|
|
(58.9 |
) |
|
|
(40.8 |
) |
|
|
(74.3 |
) |
|
|
(65.2 |
) |
|
|
(139.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuances of debt. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94.3 |
|
|
|
|
|
|
|
94.3 |
|
Repayments of debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4.7 |
) |
|
|
|
|
|
|
(4.7 |
) |
Borrowings from affiliates |
|
|
176.1 |
|
|
|
|
|
|
|
8.5 |
|
|
|
53.5 |
|
|
|
(238.1 |
) |
|
|
|
|
Repayments of loans from
affiliates |
|
|
(132.1 |
) |
|
|
|
|
|
|
(0.8 |
) |
|
|
(9.7 |
) |
|
|
142.6 |
|
|
|
|
|
Other intercompany financing
activities |
|
|
9.8 |
|
|
|
253.6 |
|
|
|
(11.5 |
) |
|
|
(251.9 |
) |
|
|
|
|
|
|
|
|
Dividends |
|
|
(131.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(131.0 |
) |
Dividends paid to parent |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(221.7 |
) |
|
|
221.7 |
|
|
|
|
|
Subsidiary purchase of parent
shares |
|
|
|
|
|
|
(110.3 |
) |
|
|
|
|
|
|
(92.6 |
) |
|
|
|
|
|
|
(202.9 |
) |
Issuance of stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89.3 |
|
|
|
(89.3 |
) |
|
|
|
|
Employee stock plan activity
and other |
|
|
|
|
|
|
78.4 |
|
|
|
|
|
|
|
(28.3 |
) |
|
|
28.3 |
|
|
|
78.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used
in) financing activities |
|
|
(77.2 |
) |
|
|
221.7 |
|
|
|
(3.8 |
) |
|
|
(371.8 |
) |
|
|
65.2 |
|
|
|
(165.9 |
) |
Effect of exchange rate changes
on cash and cash equivalents. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21.0 |
|
|
|
|
|
|
|
21.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and
cash equivalents |
|
|
15.1 |
|
|
|
(11.1 |
) |
|
|
1.1 |
|
|
|
184.0 |
|
|
|
|
|
|
|
189.1 |
|
Cash and cash equivalents,
beginning of year |
|
|
96.4 |
|
|
|
257.2 |
|
|
|
0.1 |
|
|
|
110.0 |
|
|
|
|
|
|
|
463.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end
of year |
|
$ |
111.5 |
|
|
$ |
246.1 |
|
|
$ |
1.2 |
|
|
$ |
294.0 |
|
|
$ |
|
|
|
$ |
652.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-44
INDEX TO EXHIBITS
|
2.0 |
|
Agreement and Plan of Merger among Cooper Industries, Inc., Cooper
Mergerco, Inc. and Cooper Industries, Ltd. (incorporated herein by reference to
Annex I to Coopers Registration Statement on Form S-4, Registration No. 333-62740). |
|
|
3.1 |
|
Memorandum of Association of Cooper Industries, Ltd. (incorporated herein
by reference to Annex II to Coopers Registration Statement on Form S-4,
Registration No. 333-62740). |
|
|
3.2 |
|
Amended and Restated Bye-Laws of Cooper Industries, Ltd. (incorporated
herein by reference to Annex III to Coopers Registration Statement on Form S-4,
Registration No. 333-62740). |
|
|
4.1 |
|
Rights Agreement dated as of May 16, 2002 between Cooper Industries, Ltd.
and EquiServe Trust Company, N.A., as Rights Agent (incorporated herein by reference
to Exhibit 4.4 to Coopers Registration Statement on Form 8-A, Registration No.
001-31330). |
|
|
4.2 |
|
Amended and Restated Voting Agreement between Cooper Industries, Ltd.,
Cooper Industries, Inc. and Cooper Bermuda Investments Ltd. (incorporated herein by
reference to Exhibit 4 to Coopers Form 10-Q for the quarter ended March 31, 2004). |
|
|
4.3 |
|
Indenture dated as of January 15, 1990, between Cooper Industries, Inc.
and The Chase Manhattan Bank (National Association), as Trustee (incorporated herein
by reference to Exhibit 4(a) to Coopers Registration Statement on Form S-3,
Registration No. 33-33011). |
|
|
4.4 |
|
First Supplemental Indenture dated as of May 15, 2002 between Cooper
Industries, Inc. and JPMorgan Chase Bank, N.A., as successor Trustee to The Chase
Manhattan Bank (National Association) (incorporated herein by reference to Exhibit
4.3 to Coopers Form 10-Q for the quarter ended June 30, 2002). |
|
|
4.5 |
|
Second Supplemental Indenture dated as of June 21, 2002 among Cooper
Industries, Inc., Cooper Industries, Ltd. and JPMorgan Chase Bank, N.A., as Trustee
(incorporated herein by reference to Exhibit 4.4 to Coopers Form 10-Q for the
quarter ended June 30, 2002). |
|
|
4.6 |
|
Third Supplemental Indenture dated as of October 28, 2002 among Cooper
Industries, Inc., Cooper Industries, Ltd. and JPMorgan Chase Bank, N.A., as Trustee
(incorporated herein by reference to Exhibit 4.1 to Coopers Form 10-Q for the
quarter ended September 30, 2002). |
|
|
4.7 |
|
Fourth Supplemental Indenture dated as of January 1, 2005 among Cooper
Industries, LLC, Cooper Industries, Ltd. and JPMorgan Chase Bank, N.A., as Trustee
(incorporated by reference to Exhibit 4 to Coopers Form 10-Q for the quarter ended
March 31, 2005). |
|
|
4.8 |
|
Indenture dated as of November 8, 2005 among Cooper US, Inc., Cooper
Industries, Ltd., Subsidiary Guarantors and JPMorgan Chase Bank, N.A., as Trustee
(incorporated by reference to Exhibit 4.1 to Coopers Form 8-K filed November 9,
2005). |
|
|
4.9 |
|
Registration Rights Agreement dated November 8, 2005 among Cooper US,
Inc., Cooper Industries, Ltd., Subsidiary Guarantors, and Banc of America Securities
LLC and Citigroup Global Markets, Inc. as representatives of several initial
purchasers of $325 million aggregate principal amount of debt securities
(incorporated by reference to Exhibit 4.2 to Coopers Form 8-K filed November 9,
2005). |
|
|
10.1 |
|
Cooper Industries, Inc. Directors Deferred Compensation Plan (incorporated
by reference to Exhibit 10.2 to Coopers Form 10-K for the year ended December 31,
1997). |
|
10.2 |
|
Cooper Industries, Inc. Directors Retirement Plan (incorporated by
reference to Exhibit 10.3 to Coopers Form 10-K for the year ended December 31,
1997). |
|
|
10.3 |
|
Cooper Industries, Inc. Executive Restricted Stock Incentive Plan
(incorporated by reference to Exhibit 10.4 to Coopers Form 10-K for the year ended
December 31, 1997). |
|
|
10.4 |
|
First Amendment to Cooper Industries, Inc. Executive Restricted Stock
Incentive Plan (incorporated by reference to Exhibit 10.4 to Coopers Form 10-K for
the year ended December 31, 2003). |
|
|
10.5 |
|
Cooper Industries, Inc. Supplemental Excess Defined Benefit Plan (August 1,
1998 Restatement) (incorporated by reference to Exhibit 10(iii) to Coopers Form 10-Q
for the quarter ended September 30, 1998). |
|
|
10.6 |
|
First Amendment to Cooper Industries, Inc. Supplemental Excess Defined
Benefit Plan (August 1, 1998 Restatement) (incorporated by reference to Exhibit 10.6
to Coopers Form 10-K for the year ended December 31, 2003). |
|
|
10.7 |
|
Cooper Industries, Inc. Supplemental Excess Defined Contribution Plan
(August 1, 1998 Restatement) (incorporated by reference to Exhibit 10(iv) to Coopers
Form 10-Q for the quarter ended September 30, 1998). |
|
|
10.8 |
|
First, Second and Third Amendments to Cooper Industries, Inc. Supplemental
Excess Defined Contribution Plan (August 1, 1998 Restatement) (incorporated by
reference to Exhibit 10.8 to Coopers Form 10-K for the year ended December 31,
2003). |
|
|
10.9 |
|
Management Incentive Compensation Deferral Plan (incorporated by reference
to Exhibit 10.7 to Coopers Form 10-K for the year ended December 31, 1997). |
|
|
10.10 |
|
Third and Fourth Amendments to Management Incentive Compensation Deferral
Plan (incorporated by reference to Exhibit 10.10 to Coopers Form 10-K for the year
ended December 31, 2003). |
|
|
10.11 |
|
Crouse-Hinds Company Officers Disability and Supplemental Pension Plan
(September 10, 1999 Restatement, as amended) (incorporated by reference to Exhibit
10.11 to Coopers Form 10-K for the year ended December 31, 2003). |
|
|
10.12 |
|
Cooper Industries Amended and Restated Stock Incentive Plan (February 9,
2005 Restatement) (incorporated herein by reference to Exhibit 10.4 to Coopers Form
10-Q for the quarter ended March 31, 2005). |
|
|
10.13 |
|
First Amendment to Cooper Industries Amended and Restated Stock Incentive
Plan. |
|
|
10.14 |
|
Form of Incentive Stock Option Agreement for Cooper Industries, Inc. Stock
Incentive Plan (incorporated by reference to Exhibit 10.14 to Coopers Form 10-K for
the year ended December 31, 2003). |
|
|
10.15 |
|
Form of Nonqualified Stock Option Agreement for Cooper Industries, Inc.
Stock Incentive Plan (incorporated by reference to Exhibit 10.15 to Coopers Form
10-K for the year ended December 31, 2003). |
|
|
10.16 |
|
Form of Cooper Industries, Inc. Executive Stock Incentive Agreement for
the performance period January 1, 2004 to December 31, 2006 (incorporated by
reference to Exhibit 10 to Coopers Form 10-Q for the quarter ended March 31, 2004). |
|
10.17 |
|
Form of Cooper US, Inc. Executive Stock Incentive Agreement for the
performance period January 1, 2005 to December 31, 2007 (incorporated by reference to
Exhibit 10.3 to Coopers Form 10-Q for the period ended March 31, 2005). |
|
|
10.18 |
|
Form of Cooper US, Inc. Executive Stock Incentive Agreement for the
performance period January 1, 2006 to December 31, 2008 (incorporated by reference to
Exhibit 10.1 to Coopers Form 10-Q for the period ended March 31, 2006). |
|
|
10.19 |
|
Cooper Industries Amended and Restated Management Annual Incentive Plan
(February 13, 2006 Restatement) (incorporated herein by reference to Appendix C to
Coopers Proxy Statement for the Annual Meeting of Shareholders held on April 25,
2006). |
|
|
10.20 |
|
First Amendment to Cooper Industries Amended and Restated Management
Annual Incentive Plan (February 13, 2006 Restatement). |
|
|
10.21 |
|
Amended and Restated Cooper Industries, Ltd. Directors Stock Plan
(February 14, 2006 Restatement) (incorporated herein by reference to Appendix D to
Coopers Proxy Statement for the Annual Meeting of Shareholders held on April 25,
2006). |
|
|
10.22 |
|
Form of Directors Nonqualified Stock Option Agreement for Directors
Stock Plan (incorporated herein by reference to Exhibit 10.18 to Coopers Form 10-K
for the year ended December 31, 1997). |
|
|
10.23 |
|
Cooper Industries, Ltd. Amended and Restated Directors Retainer Fee Stock
Plan (April 1, 2003 Restatement) (incorporated by reference to Exhibit 10.21 to
Coopers Form 10-K for the year ended December 31, 2003). |
|
|
10.24 |
|
Form of Management Continuity Agreement between Cooper Industries, Ltd.
and key management personnel, which applies if there is a Change in Control of Cooper
(incorporated herein by reference to Exhibit 10.5 to Coopers Form 10-Q for the
quarter ended March 31, 2005). |
|
|
10.25 |
|
Form of Indemnification Agreement between Cooper Industries, Ltd. and key
management personnel (incorporated by reference to Exhibit 10.23 to Coopers Form
10-K for the year ended December 31, 2003). |
|
|
10.26 |
|
Purchase and Sale Agreement between Cooper Industries, Inc. and
Federal-Mogul Corporation dated August 17, 1998 (incorporated herein by reference to
Exhibit 10(i) of Coopers Form 10-Q for the quarter ended September 30, 1998). |
|
|
10.27 |
|
Term Sheet Pneumo Abex Settlement Plan A and Plan B dated as of July 6,
2006 among Cooper Industries, Ltd.; Cooper Industries, LLC; Federal-Mogul
Corporation; Federal-Mogul Products, Inc.; the Future Claimants Representative for
Federal-Mogul Corporation and Federal-Mogul Products, Inc.; the Official Committee of
Asbestos Claimants for Federal-Mogul Corporation and Federal-Mogul Products, Inc.;
Pneumo Abex LLC; and PCT International Holdings, Inc. (incorporated by reference to
Exhibit 99.1 to Coopers Form 8-K dated July 20, 2006). |
|
|
10.28 |
|
Plan B Settlement Agreement dated as of September 18, 2006 among Cooper
Industries, Ltd.; Cooper Industries, LLC; Federal-Mogul Corporation; Federal-Mogul
Products, Inc.; the Future Claimants Representative for Federal-Mogul Corporation and
Federal-Mogul Products, Inc.; the Official Committee of Asbestos Claimants for
Federal-Mogul Corporation and Federal-Mogul Products, Inc.; Pneumo Abex LLC; and
PCT International Holdings, Inc. |
|
10.29 |
|
Cooper (UK 2002) Employee Share Purchase Plan (incorporated by reference
to Exhibit 10.25 to Coopers Form 10-K for the year ended December 31, 2003). |
|
|
10.30 |
|
Five-Year Credit Agreement dated November 3, 2004 among Cooper Industries,
Ltd., Cooper US, Inc. and the banks named therein (incorporated by reference to
Exhibit 10.25 of Coopers Form 10-K for the year ended December 31, 2004). |
|
|
10.31 |
|
Form of Executive Employment Agreement for employees who received stock
option and performance share awards on February 13, 2006 (incorporated by reference
to Exhibit 10.1 to Coopers Form 8-K dated March 17, 2006). |
|
|
10.32 |
|
Separation and Transition Agreement dated September 1, 2006 between Cooper
Industries, Ltd. and David R. Sheil (incorporated by reference to Exhibit 10.2 to
Coopers Form 10-Q for the quarter ended September 30, 2006). |
|
|
10.33 |
|
Separation and Transition Agreement dated January 16, 2007 between Cooper
Industries, Ltd. and Paul M. Isabella. |
|
|
12.0 |
|
Computation of Ratios of Earnings to Fixed Charges for the Calendar years
2002 through 2006. |
|
|
21.0 |
|
List of Cooper Industries, Ltd. Subsidiaries. |
|
|
23.1 |
|
Consent of Ernst & Young LLP. |
|
|
23.2 |
|
Consent of Bates White, LLC. |
|
|
24.0 |
|
Powers of Attorney from members of the Board of Directors of Cooper Industries, Ltd. |
|
|
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. |
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32.1 |
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Certification of Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
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32.2 |
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Certification of Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |