e10vq
10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarter ended March 31, 2007
OR
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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 |
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(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
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600 Travis, Suite 5800
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Houston, Texas 77002 |
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(Address of principal executive offices)
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(Zip Code) |
(713) 209-8400
(Registrants telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant 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.
Large Accelerated Filer þ Accelerated Filer o 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
Number of registrants common stock outstanding as of March 31, 2007 was 183,044,209 Class A common
shares that are held by the public and 26,737,202 Class A common shares and 109,620,258 Class B
common shares that are held by the issuers wholly-owned subsidiaries.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
COOPER INDUSTRIES, LTD.
CONSOLIDATED INCOME STATEMENTS
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Three Months Ended |
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March 31, |
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2007 |
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2006 |
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(in millions, where applicable) |
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Revenues |
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$ |
1,394.0 |
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$ |
1,240.9 |
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Cost of sales |
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944.9 |
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846.8 |
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Selling and administrative expenses |
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255.4 |
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237.5 |
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Operating earnings |
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193.7 |
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156.6 |
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Interest expense, net |
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12.9 |
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12.1 |
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Income before income taxes |
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180.8 |
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144.5 |
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Income taxes |
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48.9 |
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36.8 |
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Net income |
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$ |
131.9 |
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$ |
107.7 |
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Income per common share: |
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Basic |
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$ |
.72 |
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$ |
.59 |
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Diluted |
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$ |
.71 |
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$ |
.57 |
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Cash dividends per common share |
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$ |
.21 |
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$ |
.185 |
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The accompanying notes are an integral part of these statements.
-2-
COOPER INDUSTRIES, LTD.
CONSOLIDATED BALANCE SHEETS
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March 31, |
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December 31, |
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2007 |
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2006 |
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(in millions) |
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ASSETS |
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Cash and cash equivalents |
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$ |
304.8 |
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$ |
423.5 |
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Receivables |
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1,007.4 |
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896.0 |
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Inventories |
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672.4 |
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607.6 |
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Deferred income taxes and other current assets |
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235.8 |
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266.6 |
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Total current assets |
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2,220.4 |
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2,193.7 |
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Property, plant and equipment, less accumulated depreciation |
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670.2 |
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665.4 |
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Goodwill |
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2,387.8 |
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2,336.9 |
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Other noncurrent assets |
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208.2 |
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178.8 |
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Total assets |
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$ |
5,486.6 |
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$ |
5,374.8 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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Short-term debt |
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$ |
4.3 |
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$ |
5.0 |
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Accounts payable |
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512.6 |
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471.7 |
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Accrued liabilities |
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473.0 |
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522.3 |
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Current discontinued operations liability |
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229.5 |
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199.6 |
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Current maturities of long-term debt |
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300.6 |
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300.7 |
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Total current liabilities |
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1,520.0 |
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1,499.3 |
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Long-term debt |
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706.4 |
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702.8 |
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Postretirement benefits other than pensions |
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82.4 |
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83.2 |
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Long-term discontinued operations liability |
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330.0 |
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330.0 |
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Other long-term liabilities |
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302.9 |
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284.2 |
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Total liabilities |
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2,941.7 |
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2,899.5 |
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Common stock, $.01 par value |
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1.8 |
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0.9 |
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Capital in excess of par value |
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277.1 |
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278.4 |
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Retained earnings |
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2,390.2 |
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2,324.4 |
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Accumulated other nonowner changes in equity |
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(124.2 |
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(128.4 |
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Total shareholders equity |
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2,544.9 |
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2,475.3 |
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Total liabilities and shareholders equity |
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$ |
5,486.6 |
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$ |
5,374.8 |
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The accompanying notes are an integral part of these statements.
-3-
COOPER INDUSTRIES, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
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Three Months Ended |
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March 31, |
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2007 |
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2006 |
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(in millions) |
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Cash flows from operating activities: |
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Net income |
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$ |
131.9 |
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$ |
107.7 |
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Adjustments to reconcile to net cash provided by operating activities: |
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Depreciation and amortization |
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28.9 |
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27.0 |
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Deferred income taxes |
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(4.1 |
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8.5 |
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Excess tax benefits from stock options and awards |
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(10.4 |
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(13.9 |
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Changes in assets and liabilities: (1) |
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Receivables |
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(93.2 |
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(77.2 |
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Inventories |
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(41.6 |
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(58.2 |
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Accounts payable and accrued liabilities |
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3.2 |
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(20.8 |
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Other assets and liabilities, net |
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59.0 |
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52.5 |
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Net cash provided by operating activities |
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73.7 |
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25.6 |
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Cash flows from investing activities: |
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Capital expenditures |
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(22.1 |
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(16.7 |
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Cash paid for acquired businesses |
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(124.3 |
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(83.2 |
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Proceeds from sales of property, plant and equipment and other |
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0.2 |
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Net cash used in investing activities |
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(146.4 |
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(99.7 |
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Cash flows from financing activities: |
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Repayments of debt |
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(1.0 |
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(2.0 |
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Dividends |
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(38.9 |
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(34.6 |
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Subsidiary purchase of parent shares |
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(39.3 |
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(69.3 |
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Excess tax benefits from stock options and awards |
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10.4 |
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13.9 |
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Activity under employee stock plans and other |
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21.5 |
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53.2 |
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Net cash used in financing activities |
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(47.3 |
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(38.8 |
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Effect of exchange rate changes on cash and cash equivalents |
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1.3 |
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3.7 |
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Decrease in cash and cash equivalents |
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(118.7 |
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(109.2 |
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Cash and cash equivalents, beginning of period |
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423.5 |
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452.8 |
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Cash and cash equivalents, end of period |
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$ |
304.8 |
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$ |
343.6 |
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(1) |
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Net of the effects of acquisitions and translation. |
The accompanying notes are an integral part of these statements.
-4-
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Accounting Policies
Basis of Presentation - The consolidated financial statements of Cooper Industries, Ltd., a
Bermuda company (Cooper), have been prepared in accordance with generally accepted accounting
principles in the United States.
The financial information presented as of any date other than December 31 has been prepared
from the books and records without audit. Financial information as of December 31 has been derived
from Coopers audited financial statements, but does not include all disclosures required by
generally accepted accounting principles. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, necessary for a fair presentation of the financial
information for the periods indicated, have been included. For further information regarding
Coopers accounting policies, refer to the Consolidated Financial Statements and related notes for
the year ended December 31, 2006 included in Part IV of Coopers 2006 Annual Report on Form 10-K.
Impact of New Accounting Standards - In June 2006, the Financial Accounting Standards Board
issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (the
Interpretation). The 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. For Cooper, the Interpretation was
effective January 1, 2007. See Note 8 of the Notes to the Consolidated Financial Statements.
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 February 2007, the Financial Accounting Standards Board issued FASB Statement 159, The Fair
Value Option for Financial Assets and Financial Liabilities (SFAS No. 159). SFAS No. 159 permits
companies to choose to measure many eligible recognized financial assets and financial liabilities,
financial instruments and certain other eligible items at fair value that are not currently
required to be measured at fair value. SFAS No. 159 also establishes presentation and disclosure
requirements designed to facilitate comparisons between entities that choose different measurement
attributes for similar types of assets and liabilities. SFAS No. 159 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.
Note 2. Stock-Based Compensation
Cooper has a share-based compensation plan known as the Amended and Restated Stock Incentive
Plan (the Plan). The Plan provides for the granting of stock options, performance-based share
awards and restricted stock units. Since the original Plans inception in 1996, the aggregate
number of shares authorized under the Plan is 34 million. As of March 31, 2007, 3,197,591 shares
remain available for future grants under the Plan all of which are available for grants of stock
options, performance-based shares and restricted stock units. Total compensation expense for all
share-based compensation arrangements under the Plan was
-5-
$8.8 million and $6.9 million for the three months ended March 31, 2007 and 2006,
respectively. The total income tax benefit recognized in the income statement for all share-based
compensation arrangements under the Plan was $3.2 million and $2.5 million for the three months
ended March 31, 2007 and 2006, respectively. During the three months ended March 31, 2007, Cooper
granted 1,673,400 stock option awards, 540,080 performance-based shares and 236,600 restricted
stock units.
Note 3. Acquisitions
Cooper completed three acquisitions during the three months ended March 31, 2007. These
acquisitions were selected because of their strategic fit with existing Cooper businesses or were
new strategic lines that were complementary to Coopers operations.
In January 2007, Cooper acquired WPI and Cybectec. WPI provides highly customized
specification-grade connector technologies for use in harsh, heavy-duty and hazardous locations in
military, industrial and commercial applications. Cybectec provides products and software systems
that meet utilities most demanding real-time and reliability requirements in a number of areas,
including electrical power substation automation, integration, communication and instrumentation.
In March 2007, Cooper acquired Polaron, which provides intelligent lighting control solutions for
use in office, hospitality, educational and urban outdoors settings that allow customers to realize
energy savings, creative ambiance, or enhanced productivity, safety and security.
Total consideration was $124.3 million for the three acquisitions, net of cash acquired,
including acquisition costs. The acquisitions resulted in the recognition of preliminary estimated
aggregate goodwill of $51.5 million.
Cooper makes an initial allocation of the purchase price as of the date of acquisition, based
on its understanding of the fair value of the assets and liabilities acquired. The following table
summarizes the aggregate estimated preliminary fair values of the assets acquired and the
liabilities assumed at the acquisition date for the acquisitions completed during the three months
ended March 31, 2007:
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Total |
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(in millions) |
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Accounts receivable |
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$ |
15.3 |
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Inventory |
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21.0 |
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Property, plant and equipment |
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10.5 |
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Goodwill |
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51.5 |
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Other intangible assets |
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37.7 |
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Accounts payable |
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(7.0 |
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Other assets and liabilities, net |
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(4.7 |
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Net cash consideration |
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$ |
124.3 |
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Cooper continues to evaluate the fair value of the assets and liabilities acquired during the
three months ended March 31, 2007 and will adjust the allocations as additional information
relative to the businesses becomes available for up to one year from the acquisition date.
In January 2006, Cooper acquired G&H Technology, Inc., a designer and manufacturer of
advanced, high-reliability connectors and interconnect devices used in aerospace, subsea, and
military and industrial applications for total consideration of $41.8 million. In February 2006,
Cooper acquired Wheelock, Inc., a designer and manufacturer of fire safety and emergency incident
communication systems and devices for total consideration of $44.2 million.
The results of operations are included in Coopers consolidated financial statements since the
date of acquisition. Pro-forma net income and earnings per share for the three months ended March
31, 2007 and
-6-
2006, assuming the acquisitions had been made at the beginning of the year, would not have
been materially different from reported results.
Note 4. Inventories
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March 31, |
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December 31, |
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2007 |
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2006 |
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(in millions) |
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Raw materials |
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$ |
240.6 |
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$ |
204.2 |
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Work-in-process |
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178.5 |
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160.7 |
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Finished goods |
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384.7 |
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366.3 |
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Perishable tooling and supplies |
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15.3 |
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14.6 |
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819.1 |
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745.8 |
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Allowance for excess and obsolete inventory |
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(73.0 |
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(65.6 |
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Excess of current standard costs over LIFO costs |
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(73.7 |
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(72.6 |
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Net inventories |
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$ |
672.4 |
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$ |
607.6 |
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Note 5. Shareholders Equity
On February 14, 2007, Cooper announced that the Board of Directors approved a two-for-one
stock split of Cooper common stock. The record date for the stock split was February 28, 2007 and
the distribution date was March 15, 2007. All share and per share information presented in this
Form 10-Q has been retroactively restated to reflect the effect of the stock split.
At March 31, 2007, 183,044,209 Class A common shares, $.01 par value were issued and
outstanding (excluding 26,737,202 Class A common shares held by wholly-owned subsidiaries) compared
to 182,282,042 Class A common shares, $.01 par value (excluding 25,876,802 Class A common shares
held by wholly-owned subsidiaries) at December 31, 2006. During the first quarter of 2007, Cooper
issued 1,622,567 Class A common shares primarily in connection with employee incentive and benefit
plans and Coopers dividend reinvestment program. During the first quarter of 2007, Coopers
wholly-owned subsidiaries purchased 860,400 Class A common shares for $39.3 million under the
Companys 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.
A wholly-owned subsidiary also owns all the issued and outstanding Class B common shares. The
subsidiarys investment in the Class B common shares is eliminated in consolidation. If at any
time a dividend is declared and paid on the Class A common shares, a like dividend shall be
declared and paid on the Class B common shares in an equal amount per share. During the first
quarter of 2007, Coopers wholly-owned subsidiaries received the regular quarterly dividend of $.21
per share (or an aggregate of $28.5 million) on all Class A and Class B common shares held.
On February 14, 2007, Coopers Board of Directors increased the annual dividend rate of
Coopers common stock by $.10 per share to $.84.
-7-
Note 6. Segment Information
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Revenues |
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Operating Earnings |
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Three Months Ended |
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Three Months Ended |
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|
March 31, |
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March 31, |
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|
2007 |
|
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2006 |
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2007 |
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|
2006 |
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(in millions) |
|
Electrical Products |
|
$ |
1,210.6 |
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|
$ |
1,060.6 |
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|
$ |
193.5 |
|
|
$ |
160.1 |
|
Tools |
|
|
183.4 |
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|
180.3 |
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|
21.8 |
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17.3 |
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Total segments |
|
$ |
1,394.0 |
|
|
$ |
1,240.9 |
|
|
|
215.3 |
|
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|
177.4 |
|
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General Corporate expense |
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21.6 |
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20.8 |
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Interest expense, net |
|
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|
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|
12.9 |
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|
12.1 |
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Income before income taxes |
|
|
|
|
|
|
|
|
|
$ |
180.8 |
|
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$ |
144.5 |
|
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Note 7. Pension and Other Postretirement Benefits
During June 2006, Cooper announced that, effective January 1, 2007, future benefit accruals
would cease under the Cooper U. S. Salaried Pension Plan. Benefits earned through December 31,
2006 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 contributes cash equal to 3% of compensation to
the Retirement Savings and Stock-Ownership Plan (CO-SAV). Cooper further increased 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Postretirement |
|
|
|
Pension Benefits |
|
|
Benefits |
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
(in millions) |
|
Components of net periodic benefit cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
1.0 |
|
|
$ |
4.9 |
|
|
$ |
|
|
|
$ |
|
|
Interest cost |
|
|
10.2 |
|
|
|
10.3 |
|
|
|
1.3 |
|
|
|
1.4 |
|
Expected return on plan assets |
|
|
(12.8 |
) |
|
|
(12.6 |
) |
|
|
|
|
|
|
|
|
Amortization of prior service cost |
|
|
(0.5 |
) |
|
|
0.2 |
|
|
|
(0.5 |
) |
|
|
(0.5 |
) |
Recognized actuarial (gain) loss |
|
|
2.6 |
|
|
|
3.8 |
|
|
|
(0.6 |
) |
|
|
(0.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
0.5 |
|
|
$ |
6.6 |
|
|
$ |
0.2 |
|
|
$ |
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 8. Income Taxes
The effective tax rate was 27.1% for the three months ended March 31, 2007 and 25.5% for the
three months ended March 31, 2006. The increase is primarily related to increased taxable earnings
in 2007 without a corresponding increase in projected tax benefits.
-8-
In 2005, Cooper protested the United States Internal Revenue Service (IRS) examination
findings for the 2000-2001 tax years. The IRS 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 were 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 prevailed in its proposed treatment for the 2000-2001 tax years.
Interest continues 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 challenged these adjustments vigorously.
During 2007, Cooper and the IRS conducted negotiations regarding these transactions. On April 27,
2007, the IRS and Cooper finalized a settlement regarding these transactions for the 2000 and 2001
tax years. A similar settlement of these transactions for the 2002 and 2003 tax years may also be
reached.
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 challenged Coopers treatment of certain interest payments made during these years to a
subsidiary. If the proposed adjustments were upheld, it would require Cooper to pay approximately
$140 million of federal withholding tax plus accrued interest. Cooper believes that these interest
payments were 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 filed a protest related to these proposed adjustments and
challenged the proposed adjustments vigorously. On May 2, 2007, the IRS issued a letter to Cooper
accepting Coopers position regarding treatment of these interest payments for the 2002 through
2004 tax years.
As a result of the settlements discussed above, Cooper will recognize $10.9 million of tax
benefits in the 2007 second quarter. Should Cooper and the IRS finalize a settlement regarding the
government securities transactions discussed above for the 2002 and 2003 tax years in a similar
manner, approximately $40 million $50 million of tax benefits will be recognized at that time.
While the outcome of the above remaining proceedings cannot be predicted with certainty,
management believes that the ultimate outcome of these matters will not have a material adverse
impact on Coopers consolidated financial position or results of operations.
In addition to the items discussed above, Cooper believes it is reasonably possible that
additional tax benefits could be recognized within the next 12 months as various tax audits are
concluded. However, an estimate of the range of these benefits cannot be made.
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. With few exceptions,
Cooper is no longer subject to U.S. Federal, State and Local, or non-U.S. income tax examinations
by tax authorities for years before 1999. Cooper fully cooperates with all audits, but defends
existing positions vigorously. These audits are in various stages of completion. To provide for
potential tax exposures, Cooper maintains a liability for unrecognized tax benefits, which
management believes is adequate. The results of future audit assessments, if any, could have a
material effect on Coopers cash flows as these audits are completed.
Cooper adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in
Income Taxes, on January 1, 2007. As a result of the implementation of Interpretation 48, the
Company recognized a $27.2 million increase in the liability for unrecognized tax benefits, which
was accounted for as a reduction of the January 1, 2007 beginning retained earnings balance. A
reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
-9-
|
|
|
|
|
|
|
(in millions) |
|
Balance at January 1, 2007 |
|
$ |
122.8 |
|
Additions for tax positions of the current year |
|
|
1.0 |
|
Additions for tax positions of prior years |
|
|
1.0 |
|
|
|
|
|
Balance at March 31, 2007 |
|
$ |
124.8 |
|
|
|
|
|
The $124.8 million of unrecognized tax benefits, if recognized, would favorably impact the
effective tax rate.
Cooper recognizes interest and penalties accrued related to unrecognized tax benefits in
income taxes expense. During the three months ended March 31, 2007 and 2006, Cooper recognized
$1.0 million and $1.2 million in interest and penalties, respectively. Cooper had $22.2 million
and $13.2 million in interest and penalties accrued at March 31, 2007 and 2006, respectively.
Note 9. Net Income Per Common Share
On February 14, 2007, Cooper announced that the Board of Directors approved a two-for-one
stock split of Cooper common stock. The record date for the stock split was February 28, 2007 and
the distribution date was March 15, 2007. All share and per share information presented in this
Form 10-Q has been retroactively restated to reflect the effect of the stock split.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
Diluted |
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
(in millions) |
|
Net income applicable to common stock |
|
$ |
131.9 |
|
|
$ |
107.7 |
|
|
$ |
131.9 |
|
|
$ |
107.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
183.0 |
|
|
|
184.4 |
|
|
|
183.0 |
|
|
|
184.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incremental shares from assumed conversions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options, performance-based stock
awards and other employee awards |
|
|
|
|
|
|
|
|
|
|
3.5 |
|
|
|
4.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
and common share equivalents |
|
|
|
|
|
|
|
|
|
|
186.5 |
|
|
|
188.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options and employee awards are not considered in the calculations if the effect would be
antidilutive.
-10-
Note 10. Net Income and Other Nonowner Changes in Equity
The components of net income and other nonowner changes in equity, net of related taxes, were
as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2007 |
|
|
2006 |
|
|
|
(in millions) |
|
Net income |
|
$ |
131.9 |
|
|
$ |
107.7 |
|
Foreign currency translation gains (losses) |
|
|
(1.1 |
) |
|
|
4.6 |
|
Change in fair value of derivatives |
|
|
4.7 |
|
|
|
3.4 |
|
|
|
|
|
|
|
|
Net income and other nonowner changes in equity |
|
$ |
135.5 |
|
|
$ |
115.7 |
|
|
|
|
|
|
|
|
Note 11. 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 March 31, 2007, a total of 142,247 Abex Claims were filed, of which 110,640
claims have been resolved leaving 31,607 Abex Claims pending at March 31, 2007, that are the
responsibility of Federal-Mogul. During the three months ended March 31, 2007, 718 claims were
filed and 411 claims were resolved. Since August 28, 1998, the average indemnity payment for
resolved Abex Claims was $1,990 before insurance. A total of $112.2 million was spent on defense
costs for the period August 28, 1998 through March 31, 2007. 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 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
-11-
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.
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.
-12-
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 were 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 through 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 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
-13-
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 would expire on April 6, 2007. At a hearing on April 13, Federal-Mogul announced that the
Abex settlement had received a favorable vote of approximately 94%, well in excess of the required
vote. In addition, any objections to the Fourth Amended Plan must have been filed with the Court
by April 24, 2007 and the hearing on confirmation of the Plan was scheduled by the Court to begin
on June 18, 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 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 $559.5 million at March 31, 2007
and $529.6 million at December 31, 2006.
Note 12. 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.
-14-
Consolidating Income Statements
Three Months Ended March 31, 2007
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cooper |
|
|
Cooper |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industries, |
|
|
US, |
|
|
|
|
|
|
Other |
|
|
Consolidating |
|
|
|
|
|
|
Cooper |
|
|
LLC |
|
|
Inc. |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
Revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
918.5 |
|
|
$ |
536.4 |
|
|
$ |
(60.9 |
) |
|
$ |
1,394.0 |
|
Cost of sales |
|
|
|
|
|
|
0.1 |
|
|
|
0.3 |
|
|
|
645.1 |
|
|
|
360.3 |
|
|
|
(60.9 |
) |
|
|
944.9 |
|
Selling and administrative
expenses |
|
|
2.4 |
|
|
|
3.5 |
|
|
|
15.7 |
|
|
|
133.3 |
|
|
|
100.5 |
|
|
|
|
|
|
|
255.4 |
|
Interest expense, net |
|
|
(0.6 |
) |
|
|
11.2 |
|
|
|
3.7 |
|
|
|
|
|
|
|
(1.4 |
) |
|
|
|
|
|
|
12.9 |
|
Equity in earnings of
subsidiaries, net of tax |
|
|
169.2 |
|
|
|
10.8 |
|
|
|
95.7 |
|
|
|
20.2 |
|
|
|
102.9 |
|
|
|
(398.8 |
) |
|
|
|
|
Intercompany income
(expense) |
|
|
(6.9 |
) |
|
|
(4.3 |
) |
|
|
15.1 |
|
|
|
(39.4 |
) |
|
|
64.0 |
|
|
|
(28.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before
income taxes |
|
|
160.5 |
|
|
|
(8.3 |
) |
|
|
91.1 |
|
|
|
120.9 |
|
|
|
243.9 |
|
|
|
(427.3 |
) |
|
|
180.8 |
|
Income tax expense
(benefit) |
|
|
|
|
|
|
(7.3 |
) |
|
|
(11.7 |
) |
|
|
38.8 |
|
|
|
29.1 |
|
|
|
|
|
|
|
48.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
160.5 |
|
|
$ |
(1.0 |
) |
|
$ |
102.8 |
|
|
$ |
82.1 |
|
|
$ |
214.8 |
|
|
$ |
(427.3 |
) |
|
$ |
131.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating Income Statements
Three Months Ended March 31, 2006
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cooper |
|
|
Cooper |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industries, |
|
|
US, |
|
|
|
|
|
|
Other |
|
|
Consolidating |
|
|
|
|
|
|
Cooper |
|
|
LLC |
|
|
Inc. |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
Revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
823.1 |
|
|
$ |
478.4 |
|
|
$ |
(60.6 |
) |
|
$ |
1,240.9 |
|
Cost of sales |
|
|
|
|
|
|
(0.2 |
) |
|
|
0.2 |
|
|
|
580.8 |
|
|
|
326.6 |
|
|
|
(60.6 |
) |
|
|
846.8 |
|
Selling and administrative
expenses |
|
|
2.3 |
|
|
|
2.2 |
|
|
|
16.1 |
|
|
|
130.1 |
|
|
|
86.8 |
|
|
|
|
|
|
|
237.5 |
|
Interest expense, net |
|
|
(0.1 |
) |
|
|
10.9 |
|
|
|
2.6 |
|
|
|
|
|
|
|
(1.3 |
) |
|
|
|
|
|
|
12.1 |
|
Equity in earnings of
subsidiaries, net of tax |
|
|
137.1 |
|
|
|
9.3 |
|
|
|
80.5 |
|
|
|
21.6 |
|
|
|
80.1 |
|
|
|
(328.6 |
) |
|
|
|
|
Intercompany income
(expense) |
|
|
(3.2 |
) |
|
|
(3.3 |
) |
|
|
5.0 |
|
|
|
(94.4 |
) |
|
|
120.0 |
|
|
|
(24.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before
income taxes |
|
|
131.7 |
|
|
|
(6.9 |
) |
|
|
66.6 |
|
|
|
39.4 |
|
|
|
266.4 |
|
|
|
(352.7 |
) |
|
|
144.5 |
|
Income tax expense
(benefit) |
|
|
|
|
|
|
(6.1 |
) |
|
|
(13.5 |
) |
|
|
7.8 |
|
|
|
48.6 |
|
|
|
|
|
|
|
36.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
131.7 |
|
|
$ |
(0.8 |
) |
|
$ |
80.1 |
|
|
$ |
31.6 |
|
|
$ |
217.8 |
|
|
$ |
(352.7 |
) |
|
$ |
107.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-15-
Consolidating Balance Sheets
March 31, 2007
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cooper |
|
|
Cooper |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industries, |
|
|
US, |
|
|
|
|
|
|
Other |
|
|
Consolidating |
|
|
|
|
|
|
Cooper |
|
|
LLC |
|
|
Inc |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
Cash and cash
equivalents |
|
$ |
28.1 |
|
|
$ |
|
|
|
$ |
42.8 |
|
|
$ |
(0.6 |
) |
|
$ |
234.5 |
|
|
$ |
|
|
|
$ |
304.8 |
|
Receivables |
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
564.7 |
|
|
|
442.5 |
|
|
|
|
|
|
|
1,007.4 |
|
Inventories |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
384.0 |
|
|
|
288.4 |
|
|
|
|
|
|
|
672.4 |
|
Deferred income taxes and
other current assets |
|
|
0.7 |
|
|
|
126.0 |
|
|
|
31.4 |
|
|
|
39.3 |
|
|
|
38.4 |
|
|
|
|
|
|
|
235.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
29.0 |
|
|
|
126.0 |
|
|
|
74.2 |
|
|
|
987.4 |
|
|
|
1,003.8 |
|
|
|
|
|
|
|
2,220.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and
equipment, less
accumulated
depreciation |
|
|
|
|
|
|
|
|
|
|
50.0 |
|
|
|
324.9 |
|
|
|
295.3 |
|
|
|
|
|
|
|
670.2 |
|
Goodwill |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,256.1 |
|
|
|
1,131.7 |
|
|
|
|
|
|
|
2,387.8 |
|
Investment in subsidiaries |
|
|
3,878.9 |
|
|
|
579.6 |
|
|
|
4,189.1 |
|
|
|
1,242.7 |
|
|
|
1,432.1 |
|
|
|
(11,322.4 |
) |
|
|
|
|
Investment in parent |
|
|
|
|
|
|
|
|
|
|
2,850.6 |
|
|
|
|
|
|
|
312.7 |
|
|
|
(3,163.3 |
) |
|
|
|
|
Intercompany accounts
receivable |
|
|
702.3 |
|
|
|
820.8 |
|
|
|
|
|
|
|
1,002.5 |
|
|
|
666.9 |
|
|
|
(3,192.5 |
) |
|
|
|
|
Intercompany notes
receivable |
|
|
60.0 |
|
|
|
24.9 |
|
|
|
714.5 |
|
|
|
0.8 |
|
|
|
4,145.4 |
|
|
|
(4,945.6 |
) |
|
|
|
|
Other noncurrent assets |
|
|
|
|
|
|
13.4 |
|
|
|
6.4 |
|
|
|
37.1 |
|
|
|
151.3 |
|
|
|
|
|
|
|
208.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
4,670.2 |
|
|
$ |
1,564.7 |
|
|
$ |
7,884.8 |
|
|
$ |
4,851.5 |
|
|
$ |
9,139.2 |
|
|
$ |
(22,623.8 |
) |
|
$ |
5,486.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
4.3 |
|
|
$ |
|
|
|
$ |
4.3 |
|
Accounts payable |
|
|
38.4 |
|
|
|
12.9 |
|
|
|
9.7 |
|
|
|
246.4 |
|
|
|
205.2 |
|
|
|
|
|
|
|
512.6 |
|
Accrued liabilities |
|
|
5.3 |
|
|
|
39.6 |
|
|
|
55.5 |
|
|
|
216.6 |
|
|
|
156.0 |
|
|
|
|
|
|
|
473.0 |
|
Current discontinued
operations liability |
|
|
|
|
|
|
229.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
229.5 |
|
Current maturities of
long-term debt |
|
|
|
|
|
|
300.0 |
|
|
|
|
|
|
|
|
|
|
|
0.6 |
|
|
|
|
|
|
|
300.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
liabilities |
|
|
43.7 |
|
|
|
582.0 |
|
|
|
65.2 |
|
|
|
463.0 |
|
|
|
366.1 |
|
|
|
|
|
|
|
1,520.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
|
|
|
|
374.2 |
|
|
|
323.9 |
|
|
|
8.0 |
|
|
|
0.3 |
|
|
|
|
|
|
|
706.4 |
|
Intercompany
accounts payable |
|
|
|
|
|
|
|
|
|
|
3,192.6 |
|
|
|
|
|
|
|
|
|
|
|
(3,192.6 |
) |
|
|
|
|
Intercompany notes
payable |
|
|
593.8 |
|
|
|
344.7 |
|
|
|
1,874.1 |
|
|
|
1,741.2 |
|
|
|
391.7 |
|
|
|
(4,945.5 |
) |
|
|
|
|
Long-term discontinued
operations liability |
|
|
|
|
|
|
330.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
330.0 |
|
Other long-term
liabilities |
|
|
|
|
|
|
(93.5 |
) |
|
|
179.6 |
|
|
|
166.9 |
|
|
|
132.3 |
|
|
|
|
|
|
|
385.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
637.5 |
|
|
|
1,537.4 |
|
|
|
5,635.4 |
|
|
|
2,379.1 |
|
|
|
890.4 |
|
|
|
(8,138.1 |
) |
|
|
2,941.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common stock |
|
|
2.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.3 |
) |
|
|
1.8 |
|
Class B common stock |
|
|
1.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.1 |
) |
|
|
|
|
Subsidiary common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500.3 |
|
|
|
(500.3 |
) |
|
|
|
|
Capital in excess of
par value |
|
|
3,429.4 |
|
|
|
|
|
|
|
66.6 |
|
|
|
1,445.4 |
|
|
|
5,161.5 |
|
|
|
(9,825.8 |
) |
|
|
277.1 |
|
Retained earnings |
|
|
592.1 |
|
|
|
122.4 |
|
|
|
2,318.5 |
|
|
|
1,030.4 |
|
|
|
2,678.0 |
|
|
|
(4,351.2 |
) |
|
|
2,390.2 |
|
Accumulated other non-
owner changes in equity |
|
|
8.0 |
|
|
|
(95.1 |
) |
|
|
(135.7 |
) |
|
|
(3.4 |
) |
|
|
(91.0 |
) |
|
|
193.0 |
|
|
|
(124.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
4,032.7 |
|
|
|
27.3 |
|
|
|
2,249.4 |
|
|
|
2,472.4 |
|
|
|
8,248.8 |
|
|
|
(14,485.7 |
) |
|
|
2,544.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders equity |
|
$ |
4,670.2 |
|
|
$ |
1,564.7 |
|
|
$ |
7,884.8 |
|
|
$ |
4,851.5 |
|
|
$ |
9,139.2 |
|
|
$ |
(22,623.8 |
) |
|
$ |
5,486.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-16-
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 |
) |
|
|
|
|
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 non-owner 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-17-
Consolidating Statements of Cash Flows
Three Months Ended March 31, 2007
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cooper |
|
|
Cooper |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industries, |
|
|
US, |
|
|
|
|
|
|
Other |
|
|
Consolidating |
|
|
|
|
|
|
Cooper |
|
|
LLC |
|
|
Inc |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
Net cash provided by (used in)
operating activities |
|
$ |
(1.3 |
) |
|
$ |
(0.5 |
) |
|
$ |
31.2 |
|
|
$ |
(36.2 |
) |
|
$ |
80.5 |
|
|
$ |
|
|
|
$ |
73.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
|
|
|
|
|
|
|
|
(2.8 |
) |
|
|
(12.3 |
) |
|
|
(7.0 |
) |
|
|
|
|
|
|
(22.1 |
) |
Cash paid for acquired businesses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(74.3 |
) |
|
|
(50.0 |
) |
|
|
|
|
|
|
(124.3 |
) |
Investment in affiliates |
|
|
|
|
|
|
|
|
|
|
(0.7 |
) |
|
|
|
|
|
|
|
|
|
|
0.7 |
|
|
|
|
|
Loans to affiliates |
|
|
(60.0 |
) |
|
|
|
|
|
|
(14.8 |
) |
|
|
|
|
|
|
(309.0 |
) |
|
|
383.8 |
|
|
|
|
|
Repayments of loans from affiliates |
|
|
91.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
263.6 |
|
|
|
(355.4 |
) |
|
|
|
|
Dividends from affiliates |
|
|
|
|
|
|
|
|
|
|
26.3 |
|
|
|
|
|
|
|
2.2 |
|
|
|
(28.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
investing activities |
|
|
31.8 |
|
|
|
|
|
|
|
8.0 |
|
|
|
(86.6 |
) |
|
|
(100.2 |
) |
|
|
0.6 |
|
|
|
(146.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.0 |
) |
|
|
|
|
|
|
(1.0 |
) |
Borrowings from affiliates |
|
|
241.1 |
|
|
|
14.8 |
|
|
|
127.9 |
|
|
|
|
|
|
|
|
|
|
|
(383.8 |
) |
|
|
|
|
Repayments of loans to affiliates |
|
|
(199.6 |
) |
|
|
|
|
|
|
(154.1 |
) |
|
|
|
|
|
|
(1.7 |
) |
|
|
355.4 |
|
|
|
|
|
Other intercompany financing
activities |
|
|
5.0 |
|
|
|
(14.3 |
) |
|
|
(160.7 |
) |
|
|
125.0 |
|
|
|
45.0 |
|
|
|
|
|
|
|
|
|
Dividends |
|
|
(38.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(38.9 |
) |
Dividends paid to affiliates |
|
|
(28.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28.5 |
|
|
|
|
|
Subsidiary purchase of parent shares |
|
|
7.0 |
|
|
|
|
|
|
|
(46.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39.3 |
) |
Excess tax benefits from stock
options and awards |
|
|
|
|
|
|
|
|
|
|
10.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.4 |
|
Issuance of stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.7 |
|
|
|
(0.7 |
) |
|
|
|
|
Employee stock plan activity and
other |
|
|
|
|
|
|
|
|
|
|
21.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
financing activities |
|
|
(13.9 |
) |
|
|
0.5 |
|
|
|
(201.3 |
) |
|
|
125.0 |
|
|
|
43.0 |
|
|
|
(0.6 |
) |
|
|
(47.3 |
) |
Effect of exchange rate changes on
cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.3 |
|
|
|
|
|
|
|
1.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash
equivalents |
|
|
16.6 |
|
|
|
|
|
|
|
(162.1 |
) |
|
|
2.2 |
|
|
|
24.6 |
|
|
|
|
|
|
|
(118.7 |
) |
Cash and cash equivalents,
beginning of period |
|
|
11.5 |
|
|
|
|
|
|
|
204.9 |
|
|
|
(2.8 |
) |
|
|
209.9 |
|
|
|
|
|
|
|
423.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of
period |
|
$ |
28.1 |
|
|
$ |
|
|
|
$ |
42.8 |
|
|
$ |
(0.6 |
) |
|
$ |
234.5 |
|
|
$ |
|
|
|
$ |
304.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-18-
Consolidating Statements of Cash Flows
Three Months Ended March 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 |
|
$ |
(4.5 |
) |
|
$ |
1.3 |
|
|
$ |
(17.1 |
) |
|
$ |
(71.4 |
) |
|
$ |
117.3 |
|
|
$ |
|
|
|
$ |
25.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
|
|
|
|
|
|
|
|
(2.3 |
) |
|
|
(7.0 |
) |
|
|
(7.4 |
) |
|
|
|
|
|
|
(16.7 |
) |
Cash paid for acquired businesses |
|
|
|
|
|
|
|
|
|
|
(42.4 |
) |
|
|
(40.8 |
) |
|
|
|
|
|
|
|
|
|
|
(83.2 |
) |
Investment in affiliates |
|
|
(4.2 |
) |
|
|
|
|
|
|
(35.9 |
) |
|
|
|
|
|
|
|
|
|
|
40.1 |
|
|
|
|
|
Loans to affiliates |
|
|
(22.1 |
) |
|
|
|
|
|
|
(12.3 |
) |
|
|
|
|
|
|
(145.5 |
) |
|
|
179.9 |
|
|
|
|
|
Repayments of loans from affiliates |
|
|
37.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.4 |
|
|
|
(40.3 |
) |
|
|
|
|
Dividends from affiliates |
|
|
|
|
|
|
|
|
|
|
22.1 |
|
|
|
|
|
|
|
2.0 |
|
|
|
(24.1 |
) |
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
investing activities |
|
|
11.6 |
|
|
|
|
|
|
|
(70.8 |
) |
|
|
(47.6 |
) |
|
|
(148.5 |
) |
|
|
155.6 |
|
|
|
(99.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.0 |
) |
|
|
|
|
|
|
(2.0 |
) |
Borrowings from affiliates |
|
|
59.1 |
|
|
|
12.2 |
|
|
|
108.5 |
|
|
|
|
|
|
|
0.1 |
|
|
|
(179.9 |
) |
|
|
|
|
Repayments of loans to affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.4 |
) |
|
|
(37.9 |
) |
|
|
40.3 |
|
|
|
|
|
Other intercompany financing
activities |
|
|
0.6 |
|
|
|
(13.5 |
) |
|
|
(72.9 |
) |
|
|
122.2 |
|
|
|
(36.4 |
) |
|
|
|
|
|
|
|
|
Dividends |
|
|
(34.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34.6 |
) |
Dividends paid to affiliates |
|
|
(24.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24.1 |
|
|
|
|
|
Subsidiary purchase of parent shares |
|
|
5.3 |
|
|
|
|
|
|
|
(74.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(69.3 |
) |
Issuance of stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40.1 |
|
|
|
(40.1 |
) |
|
|
|
|
Excess tax benefits from stock
options and awards |
|
|
|
|
|
|
|
|
|
|
13.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13.9 |
|
Employee stock plan activity and
other |
|
|
|
|
|
|
|
|
|
|
53.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
financing activities |
|
|
6.3 |
|
|
|
(1.3 |
) |
|
|
28.1 |
|
|
|
119.8 |
|
|
|
(36.1 |
) |
|
|
(155.6 |
) |
|
|
(38.8 |
) |
Effect of exchange rate changes on
cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.7 |
|
|
|
|
|
|
|
3.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash
equivalents |
|
|
13.4 |
|
|
|
|
|
|
|
(59.8 |
) |
|
|
0.8 |
|
|
|
(63.6 |
) |
|
|
|
|
|
|
(109.2 |
) |
Cash and cash equivalents,
beginning of period |
|
|
64.1 |
|
|
|
|
|
|
|
144.4 |
|
|
|
(3.5 |
) |
|
|
247.8 |
|
|
|
|
|
|
|
452.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of
period |
|
$ |
77.5 |
|
|
$ |
|
|
|
$ |
84.6 |
|
|
$ |
(2.7 |
) |
|
$ |
184.2 |
|
|
$ |
|
|
|
$ |
343.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-19-
|
|
|
Item 2. |
|
Managements Discussion and Analysis of Financial Condition
and Results of Operations |
Results of Operations
Three Months Ended March 31, 2007 Compared With Three Months Ended March 31, 2006
Net income for the first quarter of 2007 was $131.9 million on revenues of $1,394.0 million
compared with 2006 first quarter net income of $107.7 million on revenues of $1,240.9 million.
First quarter diluted earnings per share increased 25% to $.71 from $.57 in 2006. Subsequent to
the end of the first quarter, the last North American Electrical Products division went live on the
Companys enterprise business system. The Company estimates that $4 million to $6 million of
revenue that normally would have been shipped in the second quarter of 2007 was shipped in the 2007
first quarter in anticipation of the go-live. Diluted earnings per share are estimated to have
been increased by approximately $.02 per share from the shipments.
Revenues:
Revenues for the first quarter of 2007 increased 12% compared to the first quarter of 2006.
The impact of acquisitions and currency translation increased reported revenues by approximately 5%
for the quarter.
Electrical Products segment revenues increased 14% compared to the first quarter of 2006. The
impact of acquisitions increased revenues by approximately 4% for the quarter and favorable
currency translation increased reported revenues by approximately 1% for the quarter. Increased
revenues were driven by international expansion, strong demand from utility markets, and solid
demand from industrial and nonresidential construction and the go-live of a North American division
on the Companys enterprise business system. These gains were partially offset by declines in
retail sales due to the slowdown in the residential market.
Tools segment revenues for the first quarter of 2007 increased 2% from the first quarter of
2006. Favorable currency translation increased revenues by approximately 2% over the first quarter
of 2006. Strong demand from aerospace and industrial markets other than the motor vehicle market
was offset by soft demand from residential markets and the motor vehicle market.
Costs and Expenses:
Cost of sales, as a percentage of revenues, was 67.8% for the first quarter of 2007 compared
to 68.2% for the comparable 2006 quarter. The decline in the cost of sales percentage resulted
from leverage of fixed costs on higher volume, and execution on productivity improvements
initiatives.
Electrical Products segment cost of sales, as a percentage of revenues, was 67.9% for the
first quarter of 2007 compared to 67.9% for the first quarter 2006. Cost of sales as a percentage
of revenues was flat year over year due to benefits realized through productivity and production
leverage on higher volume, offset by the dilutive impact of acquisitions and the effect of
increased sales prices to recover material cost inflation. Tools segment cost of sales, as a
percentage of revenues, was 67.2% for the first quarter of 2007 compared to 70.3% for the first
quarter of 2006. The decrease in the cost of sales percentage was driven by benefits realized from
productivity initiatives and favorable sales mix.
Selling and administrative expenses, as a percentage of revenues, for the first quarter of
2007 were 18.3% compared to 19.1% for the first quarter of 2006. The decline was due to leverage
on higher sales, cost reductions from productivity initiatives and reduced pension costs.
Electrical Products segment selling and administrative expenses, as a percentage of revenues,
for the first quarter of 2007 were 16.1% compared to 17.0% for the first quarter of 2006. The
decline in selling and
-20-
administrative expenses, as a percentage of revenues, resulted from sales volume leverage and
productivity initiatives.
Tools segment selling and administrative expenses, as a percentage of revenues, for the first
quarter, of 2007 were 20.9% compared to 20.1% for the first quarter of 2006. The increase in
selling and administrative expenses, as a percentage of revenues, was driven by flat sales, sales
mix and productivity only partially offsetting inflation.
Interest expense, net for the first quarter of 2007 increased $0.8 million from the 2006 first
quarter, primarily as a result of higher average interest rates on borrowings. Average debt
balances were $1.03 billion and $1.03 billion and average interest rates were 5.85% and 5.57% for
the first quarter of 2007 and 2006, respectively.
Operating Earnings:
Electrical Products segment first quarter 2007 operating earnings increased 21% to $193.5
million from $160.1 million for the same quarter of last year. The increase resulted from leverage
of fixed costs on higher volume, price realization offsetting production material cost inflation,
and execution on productivity improvement initiatives, and the impact from the go-live of a North
American division on the Companys enterprise business system.
Tools segment first quarter 2007 operating earnings increased 26% to $21.8 million compared to
$17.3 million in the first quarter of 2006. The increase resulted from strong execution on
productivity initiatives.
Income Taxes:
The effective tax rate was 27.1% for the three months ended March 31, 2007 and 25.5% for the
three months ended March 31, 2006. The increase is primarily related to increased taxable earnings
in 2007 without a corresponding increase in tax benefits.
Liquidity and Capital Resources
Liquidity:
Coopers operating working capital (defined as receivables and inventories less accounts
payable) increased $135 million during the first quarter of 2007. A $111 million increase in
receivables and a $65 million increase in inventories, partially offset by a $41 increase in
accounts payable, were driven by increased sales volumes and the impact from acquisitions completed
in the 2007 first quarter. The increase in inventories was partially offset by a $7 million
increase in the allowance for excess and obsolete inventory. Inventories increased as a result of
acquisition activity and efforts to improve customer service metrics. Operating working capital
turnover (defined as annualized revenues divided by average quarterly operating working capital)
for the 2007 first quarter of 5.1 turns increased from 4.9 turns in the same period of 2006 and
primarily resulted from revenues growing at a higher rate than the increase in operating working
capital. Cooper continues to execute productivity initiatives focused on improving its working
capital position.
Cash provided by operating activities was $73.7 million during the 2007 first quarter. This
cash, plus an additional $118.7 million of cash and cash equivalents and $21.5 million of cash
received from stock option exercises were primarily used to fund capital expenditures of $22.1
million, acquisitions of $124.3 million, dividends of $38.9 million and share purchases of $39.3
million.
Cash provided by operating activities was $25.6 million during the 2006 first quarter. This
cash, plus an additional $109.2 million of cash and cash equivalents and $53.2 million of cash
received from stock
-21-
option exercises were primarily used to fund capital expenditures of $16.7 million,
acquisitions of $83.2 million, dividends of $34.6 million and share purchases of $69.3 million.
In connection with acquisitions accounted for as purchases, Cooper records, to the extent
appropriate, accruals for the costs of closing duplicate facilities, severing redundant personnel
and integrating the acquired businesses into existing Cooper operations. Cash flows from operating
activities are reduced by the amounts expended against the various accruals established in
connection with each acquisition. Spending against these accruals was $6.2 million during the
three months ended March 31, 2006. All spending related to the accruals was completed as of
December 31, 2006.
Cooper currently anticipates a continuation of its long-term ability to annually generate in
excess of $300 million in cash flow available for acquisitions, debt repayments and common stock
repurchases.
As discussed in Note 12 of Notes to the Consolidated Financial Statements, Cooper has reached
a revised agreement with the Representatives of Federal-Mogul, its bankruptcy committees and the
future claimants regarding settlement of Coopers contingent liabilities related to the Automotive
Products sale to Federal-Mogul. Cooper anticipates that any settlement would be funded from
operating cash flows, existing cash, and commercial paper proceeds (if required).
Capital Resources:
Cooper targets a 30% to 40% debt-to-total capitalization ratio. Excess cash flows are
utilized to fund acquisitions or to purchase shares of Cooper common stock. Coopers debt-to-total
capitalization ratio was 28.4% at March 31, 2007, 28.9% at December 31, 2006 and 30.8% at March 31,
2006.
At March 31, 2007 and December 31, 2006, Cooper had cash and cash equivalents of $304.8
million and $423.5 million, respectively. At March 31, 2007 and December 31, 2006, Cooper had
short-term debt of $4.3 million and $5.0 million, respectively and had no commercial paper
outstanding.
Coopers practice is to back up its short-term debt balance with a combination of cash and
committed credit facilities. At March 31, 2007, 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.
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.
-22-
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
As of March 31, 2007, there have been no material changes to Coopers off-balance sheet
arrangements and contractual obligations as described in its Annual Report on Form 10-K for the
year ended December 31, 2006.
Backlog
Sales backlog represents the dollar amount of all firm open orders for which all terms and
conditions pertaining to the sale have been approved such that a future sale is reasonably
expected. Sales backlog by segment was as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
2007 |
|
|
2006 |
|
|
|
(in millions) |
|
Electrical Products |
|
$ |
738.3 |
|
|
$ |
505.4 |
|
Tools |
|
|
59.8 |
|
|
|
70.0 |
|
|
|
|
|
|
|
|
|
|
$ |
798.1 |
|
|
$ |
575.4 |
|
|
|
|
|
|
|
|
Private Securities Litigation Reform Act Safe Harbor Statement
This Form 10-Q includes certain forward-looking statements. The forward-looking statements
reflect Coopers expectations, objectives and goals with respect to future events and financial
performance, and are based on assumptions and estimates which Cooper believes are reasonable.
Forward-looking statements include, but are not limited to, any statements regarding future
revenues, cost 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 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.
Item 4. Controls and Procedures
As of the end of the period covered by this report, Coopers management, under the supervision
and with the participation of the Chief Executive Officer and Chief Financial Officer, performed an
evaluation of the effectiveness of the design and operation of Coopers disclosure controls and
procedures. Based on that evaluation, Coopers management, including the Chief Executive Officer
and Chief Financial Officer, concluded that the disclosure controls and procedures are effective.
There have been no significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of this evaluation.
Cooper is executing a multi-year 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.
-23-
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Cooper is subject to various suits, legal proceedings and claims that arise in the normal
course of business. While it is not feasible to predict the outcome of these matters with
certainty, management is of the opinion that their ultimate disposition should not have a material
adverse effect on Coopers financial statements.
In October 1998, Cooper sold its Automotive Products business to Federal-Mogul Corporation
(Federal-Mogul). These discontinued businesses (including the Abex product line obtained from
Pneumo-Abex Corporation (Pneumo) in 1994) were operated through subsidiary companies, and the
stock of those subsidiaries was sold to Federal-Mogul pursuant to a Purchase and Sale Agreement
dated August 17, 1998 (1998 Agreement). In conjunction with the sale, Federal-Mogul indemnified
Cooper for certain liabilities of these subsidiary companies, including liabilities related to the
Abex product line and any potential liability that Cooper may have to Pneumo pursuant to a 1994
Mutual Guaranty Agreement between Cooper and Pneumo. On October 1, 2001, Federal-Mogul and several
of its affiliates filed a Chapter 11 bankruptcy petition and indicated that Federal-Mogul may not
honor the indemnification obligations to Cooper. As of the date of this filing, Federal-Mogul had
not rejected the 1998 Agreement, which includes the indemnification to Cooper. If Federal-Mogul
rejects the 1998 Agreement, Cooper will be relieved of its future obligations under the 1998
Agreement, including specific indemnities relating to payment of taxes and certain obligations
regarding insurance for its former Automotive Products businesses. To the extent Cooper is
obligated to Pneumo for any asbestos-related claims arising from the Abex product line (Abex
Claims), Cooper has rights, confirmed by Pneumo, to significant insurance for such claims. Based
on information provided by representatives of Federal-Mogul and recent claims experience, from
August 28, 1998 through March 31, 2007, a total of 142,247 Abex Claims were filed, of which 110,640
claims have been resolved leaving 31,607 Abex Claims pending at March 31, 2007, that are the
responsibility of Federal-Mogul. During the three months ended March 31, 2007, 718 claims were
filed and 411 claims were resolved. Since August 28, 1998, the average indemnity payment for
resolved Abex Claims was $1,990 before insurance. A total of $112.2 million was spent on defense
costs for the period August 28, 1998 through March 31, 2007. 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 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
-24-
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.
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 were 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
-25-
resolving Abex claims through 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 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.
-26-
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 would expire on April 6, 2007. At a hearing on April 13, Federal-Mogul announced that the
Abex settlement had received a favorable vote of approximately 94%, well in excess of the required
vote. In addition, any objections to the Fourth Amended Plan must have been filed with the Court
by April 24, 2007 and the hearing on confirmation of the Plan was scheduled by the Court to begin
on June 18, 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 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 $559.5 million at March 31, 2007
and $529.6 million at December 31, 2006.
Item 1A. Risk Factors
There have been no material changes in the risk factors previously disclosed in Coopers
Annual Report on Form 10-K for the fiscal year ended December 31, 2006.
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
The following table reflects activity related to equity securities purchased by Coopers
wholly-owned subsidiaries during the three months ended March 31, 2007:
Purchases of Equity Securities (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of Shares |
|
|
Maximum Number of |
|
|
|
Total Number |
|
|
Average Price |
|
|
Purchased as Part of |
|
|
Shares that May Yet Be |
|
|
|
of Shares |
|
|
Paid per |
|
|
Publicly Announced |
|
|
Purchased Under the |
|
Period |
|
Purchased |
|
|
Share |
|
|
Plans or Programs (2) |
|
|
Plans or Programs (2) |
|
As of 12/31/06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,206,700 |
|
1/01/07 1/31/07 |
|
|
215,600 |
|
|
$ |
45.42 |
|
|
|
215,600 |
|
|
|
9,991,100 |
|
2/01/07 2/28/07 |
|
|
203,400 |
|
|
$ |
45.78 |
|
|
|
203,400 |
|
|
|
9,787,700 |
|
3/01/07 3/31/07 |
|
|
441,400 |
|
|
$ |
45.87 |
|
|
|
441,400 |
|
|
|
9,346,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
860,400 |
|
|
$ |
45.73 |
|
|
|
860,400 |
|
|
|
|
|
|
|
|
(1) |
|
On February 14, 2007, Cooper announced that the Board of Directors approved a
two-for-one stock split of Cooper common stock. The record date for the stock split was
February 28, 2007 and the distribution date was March 15, 2007. All share and per share
information presented in this Form 10-Q has been retroactively restated to reflect the effect
of the stock split. |
|
(2) |
|
On November 2, 2004, Coopers Board of Directors authorized the repurchase
of up to ten million shares of Cooper 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. For 2007, Coopers current
estimate is that 3.0 million shares will be issued under equity compensation plans, which is
reflected in the above table. |
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
-27-
Item 6. Exhibits
|
10.1 |
|
Form of Executive Stock Incentive Agreement for the Performance Period 2007-2009. |
|
|
10.2 |
|
Second Amendment to Cooper Industries Amended and Restated Stock Incentive Plan
(February 9, 2005 Restatement). |
|
|
10.3 |
|
First Amendment to Cooper Industries, Ltd. Amended and Restated Directors
Stock Plan (February 14, 2006 Restatement). |
|
|
10.4 |
|
First Amendment to Cooper Industries, Ltd. Amended and Restated Directors
Retainer Fee Stock Plan (April 1, 2003 Restatement). |
|
|
10.5 |
|
Description of Cooper Supplemental Executive Retirement Plan and Base Salary
Deferral Program Adopted effective January 1, 2007. |
|
|
12. |
|
Computation of Ratios of Earnings to Fixed Charges for the Calendar Years 2002
through 2006 and the Three Months Ended March 31, 2007 and 2006. |
|
|
23. |
|
Consent of Bates White, LLC. |
|
|
31.1 |
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
31.2 |
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
32.1 |
|
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
32.2 |
|
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
Cooper Industries, Ltd.
(Registrant)
|
|
Date: May 7, 2007 |
/s/ Terry A. Klebe
|
|
|
Terry A. Klebe |
|
|
Senior Vice President and
Chief Financial Officer |
|
|
|
|
|
Date: May 7, 2007 |
/s/ Jeffrey B. Levos
|
|
|
Jeffrey B. Levos |
|
|
Vice President, Finance and
Chief Accounting Officer |
|
|
-28-
Exhibit Index
Exhibit No.
|
10.1 |
|
Form of Executive Stock Incentive Agreement for the Performance Period 2007-2009. |
|
|
10.2 |
|
Second Amendment to Cooper Industries Amended and Restated Stock Incentive Plan
(February 9, 2005 Restatement). |
|
|
10.3 |
|
First Amendment to Cooper Industries, Ltd. Amended and Restated Directors
Stock Plan (February 14, 2006 Restatement). |
|
|
10.4 |
|
First Amendment to Cooper Industries, Ltd. Amended and Restated Directors
Retainer Fee Stock Plan (April 1, 2003 Restatement). |
|
|
10.5 |
|
Description of Cooper Supplemental Executive Retirement Plan and Base Salary
Deferral Program Adopted effective January 1, 2007. |
|
|
12. |
|
Computation of Ratios of Earnings to Fixed Charges for the Calendar Years 2002
through 2006 and the three months ended March 31, 2007 and 2006. |
|
|
23. |
|
Consent of Bates White, LLC. |
|
|
31.1 |
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
31.2 |
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
32.1 |
|
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
32.2 |
|
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
-29-