e10vk
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 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 |
(State or Other Jurisdiction of
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(I.R.S. Employer |
Incorporation or Organization)
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Identification Number) |
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600 Travis, Suite 5600, Houston, Texas
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77002 |
(Address of Principal Executive Offices)
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(Zip Code) |
713/209-8400
(Registrants Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
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Name of Each Exchange |
Title of Each Class |
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on Which Registered |
Class A Common Shares, $0.01 par value
Rights to Purchase Preferred Shares
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The New York Stock Exchange
The New York Stock Exchange |
Securities
registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes þ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Exchange Act. Yes o No þ
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in
Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
The aggregate value of the registrants voting and non-voting common equity held by
non-affiliates of the registrant as of June 30, 2007 was $10,467,067,398 based on the closing sale
price as reported on the New York Stock Exchange.
Number of registrants common shares outstanding as of January 31, 2008 176,258,140
publicly traded Class A common shares, 27,195,002 Class A common shares held by the issuers
subsidiaries, and 109,620,258 Class B common shares held by the issuers subsidiaries.
DOCUMENTS INCORPORATED BY REFERENCE
Cooper Industries, Ltd. Proxy Statement to be filed for the Annual
Meeting of Shareholders
to be held on April 29, 2008 (Part II Item 5, Part III Items 10, 11, 12, 13 and 14)
PART I
ITEM 1. BUSINESS
GENERAL
The term Cooper refers to the registrant, Cooper Industries, Ltd., which was incorporated
under the laws of Bermuda on May 22, 2001, and became the successor-registrant to Cooper
Industries, Inc. on May 22, 2002.
Cooper operates in two business segments: Electrical Products and Tools. Cooper
manufactures, markets and sells its products and provides services throughout the world. Cooper
has manufacturing facilities in 23 countries and currently employs approximately 31,500 people.
Operations in the United States are conducted by wholly-owned subsidiaries of Cooper, organized by
the two business segments. Activities outside the United States contribute significantly to the
revenues and operating earnings of both segments of Cooper. These activities are conducted in
major commercial countries by wholly-owned subsidiaries and jointly-owned companies, the management
of which is structured through Coopers two business segments. As a result of operations outside
the United States, sales and distribution networks are maintained throughout most of the
industrialized world. Cooper generally believes that there are no substantial differences in the
business risks associated with operations outside the United States compared with United States
activities, although Cooper is subject to certain political and economic uncertainties encountered
in activities outside the United States, including trade barriers and restrictions on the exchange
and fluctuations of currency. Cooper generates the most non-U.S. revenues in Canada, Germany,
France, Mexico and the United Kingdom. Cooper has operations in India, Malaysia and China and has
several joint ventures with operations in China. Investments in emerging markets such as India,
Malaysia and China are subject to greater risks related to economic and political uncertainties as
compared to most countries where Cooper has operations. Exhibit 21.0 contains a list of Coopers
subsidiaries.
Financial information with respect to Coopers industry segments and geographic areas is
contained in Note 15 of the Notes to the Consolidated Financial Statements. A discussion of
acquisitions and divestitures is included in Notes 3, 7 and 16 of the Notes to the Consolidated
Financial Statements.
With its two business segments, Cooper serves four major markets: the industrial, commercial,
utility and residential markets. Cooper also serves the electronics and telecommunications
markets. Markets for Coopers products and services are worldwide, though the United States is the
largest market. Within the United States, there is no material geographic concentration by state
or region. Cooper experiences substantial competition in both of its business segments. The number
and size of competitors vary considerably depending on the product line. Cooper cannot specify
with exactitude the number of competitors in each product category or their relative market
position. However, most operating units experience significant competition from both larger and
smaller companies with the key competitive factors being customer and end-user service, price,
quality, brand name and availability. Cooper considers its reputation as a manufacturer of a broad
line of quality products and premier brands to be an important factor in its businesses. Cooper
believes that it is among the leading manufacturers in the world of electrical distribution
equipment, wiring devices, support systems, hazardous duty electrical equipment, lighting fixtures,
emergency lighting, fuses, nonpower hand tools and industrial power tools.
Coopers research and development activities are for purposes of improving existing products
and services and originating new products. During 2007, approximately $105.7 million was spent for
research and development activities as compared with approximately $83.5 million in 2006 and $71.5
million in 2005. Cooper obtains and holds patents on products and designs in the United States and
many other countries where operations are conducted or products are sold. Although in the
aggregate Coopers patents are important in the operation of its businesses, the loss by expiration
or otherwise of any one patent or license or group of patents or licenses would not materially
affect its business.
Cooper does not presently anticipate that compliance with currently applicable environmental
regulations and controls will significantly change its competitive position, capital spending or
earnings
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during 2008. Cooper has been a party to administrative and legal proceedings with
governmental agencies that have arisen under statutory provisions regulating the discharge or
potential discharge of material into the environment. Orders and decrees consented to by Cooper,
or currently under negotiation with state regulatory agencies, have contained agreed-upon
timetables for fulfilling reporting or remediation obligations or maintaining specified air and
water discharge levels in connection with permits for the operations of various plants. Cooper
believes it is in compliance with the orders and decrees, and such compliance is not material to
the business or financial condition of Cooper. For additional information concerning Coopers
accruals for environmental liabilities, see Note 7 of the Notes to the Consolidated Financial
Statements.
Approximately 60 percent of the United States hourly production work force of Cooper is
employed in 44 manufacturing facilities, distribution centers and warehouses not covered by labor
agreements. Numerous agreements covering approximately 40 percent of all hourly production
employees exist with 17 bargaining units at 19 operations in the United States and with various
unions at 32 operations in other countries. During 2007, new agreements were concluded covering
hourly production employees at 3 operations in the United States. Cooper considers its employee
relations to be excellent.
Sales backlog at December 31, 2007 was approximately $722.6 million, all of which is for
delivery during 2008, compared with backlog of approximately $677.6 million at December 31, 2006.
Coopers annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 are available, free of charge, at the Investor Center tab on
Coopers website (www.cooperindustries.com) as soon as reasonably practicable after such material
is electronically filed with or furnished to the Securities Exchange Commission.
The following describes the business conducted by each of Coopers business segments.
Additional information regarding the products, markets and distribution methods for each segment is
set forth in the table at the end of this Item. Information concerning market conditions, as well
as information concerning revenues and operating earnings for each segment, is included under Item
7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
Electrical Products
The Electrical Products segment manufactures, markets and sells electrical and circuit
protection products, including fittings, support systems, enclosures, specialty connectors, wiring
devices, plugs, receptacles, lighting fixtures and controls, hazardous duty electrical equipment,
fuses, emergency lighting, fire detection and mass notification systems and security products for
use in residential, commercial and industrial construction, maintenance and repair applications.
The segment also manufactures, markets and sells products for use by utilities and in industry for
electrical power transmission and distribution, including distribution switchgear, transformers,
transformer terminations and accessories, capacitors, voltage regulators, surge arresters, energy
automation solutions and other related power systems components.
The principal raw material requirements include: steel, copper, aluminum, aluminum ingots,
brass, tin, lead, plastics, electronic components and insulating materials including transformer
oil. These raw materials are available from and supplied by numerous sources located in the United
States and other countries, although there are limited sources of supply for electrical core steel
and transformer oil that Cooper uses in electrical power transmission and distribution products.
Demand for electrical products follows general economic conditions and is generally sensitive
to activity in the commercial and residential construction markets, industrial production levels,
electronic component production and spending by utilities for replacements, expansions and
efficiency improvements. The segments product lines are marketed directly to original equipment
manufacturers and utilities and to a variety of end users through major distributor chains, retail
home centers, hardware outlets and thousands of independent distributors.
3
Tools
The Tools segment manufactures, markets and sells hand tools for industrial, construction,
electronics and consumer markets; automated assembly systems for industrial markets; and electric
and pneumatic industrial power tools, related electronics and software control and monitoring
systems for general industry, primarily automotive and aerospace manufacturers.
The principal raw material requirements include: flat and bar stock steel, brass, copper,
fiberglass, aluminum, metal castings and forgings, wood, plastic pellets and plastic sheet. These
materials are available from and supplied by numerous sources located in the United States and
other countries.
Demand for nonpowered hand tools, assembly systems and industrial power tools is driven by
employment levels and industrial activity in major industrial countries and by consumer spending.
In addition, demand for industrial power tools is influenced by automotive and aerospace production
and general industrial production. The segments products are sold by a company sales force,
independent distributors and retailers.
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COOPER INDUSTRIES, LTD.
PRODUCTS, MARKETS AND DISTRIBUTION METHODS BY SEGMENT
Electrical Products - Major Products and Brands
Access Cabinets, E2 Cabinets and Enviroshield electrical enclosures.
Arktite and eXLink plugs and receptacles.
Ametrix, Corelite and Neo-Ray indirect lighting products.
ARIES wireless communication for vacuum-interrupter, distribution switchgear.
Arrow Hart industrial plugs and connectors.
Aspire and Siena decorative wiring devices.
Aspire RF radio frequency controls, switches and receptacles.
AtLite commercial, exit and emergency lighting.
B-Line support systems, enclosures, fasteners.
Burton undersea connectors.
Bussmann and Buss electrical and electronic fuses.
Cam-Lok electrical connectors.
Cannon Technologies and Cybectec software and automation technologies.
Capri cable accessories and flexible conduits.
CEAG emergency lighting systems and explosion protected electrical materials.
Cent-R-Rail and Redi-Rail metal rack units and cable trays.
Champ and Hazard-Gard HID and fluorescent lighting.
Chico conduit sealing compound.
Clarity LED architectural lighting fixtures.
Coiltronics inductors and transformers.
Combined Technologies current-limiting fuses.
Condulet fittings and outlet bodies.
Cooper Fire, Fulleon and Nugelec fire detection systems.
Cooper Power Systems distribution transformers, power capacitors, voltage regulators, surge arresters and SCADA master stations.
Cooper Wiring Devices sockets, connectors and wall plates.
Crompton lighting fixtures.
Crouse-Hinds and CEAG electrical construction materials and Crouse-Hinds aviation lighting products.
CUBEFuse fuses, fuse holders and fuse boxes.
DLS electrical wiring and control systems.
Domex electrical construction materials.
Domex Bond Rojo coated conduit system (total protection against corrosion).
Domex Ground (ground systems).
Dura-Cooper and Dura-Green epoxy coatings.
Edisol fluid used in capacitors.
Edison and Edison Pro relays and fusegear.
Edison Series Metering residential and commercial meter bases.
Eletromec DIN style fuses.
ELLK 92 explosion protected fluorescent light fixture.
Emerald consumer recessed and track lighting.
EMSA power transformers.
EnviroVR voltage regulator filled with Envirotemp FR3.
Envirotemp dielectric fluids.
EX® power capacitors.
EX-Cell and NexT industrial enclosures.
Exactra panel boards.
Fail-Safe high abuse, clean room and vandal-resistant lighting fixtures.
F.A.S.T. underfloor cable tray system.
Flex Station panel boards.
Flextray wire mesh cable tray.
FR3 dielectric fluid.
Fusetron electric fuses and protectors.
G&H specialty connectors.
General Connectors military connectors.
Grate-Lock interlocking plank grating system.
GridAdvisor remote detection of system faults.
Grip Strut safety grating.
GS Metals wire management and support systems.
Halo recessed and track lighting fixtures.
Hart-Lock electrical receptacles, caps, connectors and accessories.
Hyundai explosion-proof electrical products.
INVUE outdoor architectural lighting.
io Lighting LED architectural lighting fixtures.
IriS lighting systems.
JSB, Luminox and Menvier emergency lighting and fire detection systems.
Karp, Edison, Mercury and B&S electrical fuses.
Kwik Wire cable support systems.
Kyle distribution switchgear.
Limitron electric fuses.
Low-Peak electric fuses.
Lumière specification grade landscape lighting.
MadahCom WAVES notification solutions.
Magnum terminal strips and disconnect blocks.
MagneX interrupting device.
McGraw-Edison and Lumark indoor and outdoor lighting.
McGraw-Edison transformer components, cable accessories and fuses.
MEDC signals and alarms.
Media Sync multi-media wiring systems
Metalux fluorescent lighting.
Mobile X-Ray specialty plugs and receptacles.
Mini-Line molded-to-cable miniature connectors.
MWS modular wiring systems.
Myers electrical hubs.
Nortem electrical construction materials.
NOVA reclosers, sectionalizers and switches.
Novitas occupancy sensors and switch packs.
Omnex radio remote control products and industrial wireless networking solutions.
Optima fuseholders.
PCI digital lighting controls.
Perf-O Grip plank metal grating.
Polaron intelligent lighting control solutions.
Portfolio architectural recessed lighting.
Posi-Break electrical connectors.
Posi-Lok electrical panel units.
Power-Lock wiring devices, receptacles, caps and covers.
PowerPlus panel boards.
PowerStor carbon aerogel supercapacitors.
Pretronica and Univel emergency lighting and power systems.
RCM+ cable management systems.
Regalsafe signaling and life saving apparatus.
Regent security lighting systems.
Roam Secure personal and regional alerting.
Roam Secure RSAN text-based alerting and mass notification systems.
Royer wiring devices, sockets and switches.
Ruff-in prefabricated mounting and support systems.
SAFEPATH voice evacuation systems and accessories.
Scantronic and Menvier security systems.
Selectcom® communications modules.
Shaper specification and commercial grade lighting fixtures.
Shock Sentry circuit protective devices.
SMP substation modernization platform.
SpecOne panel boards.
Spectra panel boards.
Stabex explosion protected torch.
Streetworks outdoor lighting.
Subgate® mini remote terminal units.
Sure-Lites exit and emergency lighting.
Sure Power DC electrical system management products.
SurgBloc electrical voltage receptacles and surge suppressors.
Traction Tread perforated panels.
TransX transient voltage protection devices.
TrueCycle® asset monitoring.
UltraSIL surge arresters.
VaporGard incandescent clear globe lighting fixtures.
VariGap and VariStar surge arresters.
Viking miniature circular connectors.
VSS visual substation.
WAVES mass notification systems and accessories.
Wheelock notification appliances, devices and signals.
Willsher & Quick electrical enclosures.
WPI connectors and cable assemblies.
Yukon® software platform.
Tools Major Products and Brands
Airetool, Automated Systems, Cleco, DGD, Dotco,Gardner-Denver*, and Rotor Tool industrial power tools and assembly equipment.
Apex screwdriver bits, impact sockets and universal joints.
Belzer pliers, wrenches, sockets, and hex keys.
Brewer-Titchener blocks (chain line).
Campbell chain products.
Caulkmaster caulking dispenser.
Collins machetes, shovels and axes.
Crescent pliers and wrenches.
Diamond farrier tools and horseshoes.
Disston pliers.
Erem precision cutters and tweezers.
Kahnetics dispensing systems.
Lufkin measuring tapes.
Master Power industrial air tools.
Merrill plate clamps (chain line).
Metronix servos and drive controls.
Nicholson files, saws, pliers, wrenches, tapes, screwdrivers, sockets, and drill bits.
Plumb hammers.
Utica torque measuring and controls.
Weller soldering equipment.
Wire-Wrap solderless connection equipment.
Wiss and H.K. Porter cutting products.
Xcelite screwdrivers and nutdrivers.
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Gardner-Denver is a registered trademark of Gardner Denver, Inc. and is used by Cooper
Industries under license. |
5
COOPER INDUSTRIES, LTD.
PRODUCTS, MARKETS AND DISTRIBUTION METHODS BY SEGMENT (Continued)
ELECTRICAL PRODUCTS
Major Markets
Fuses and circuit protection products are utilized in products for the construction,
industrial, transportation and consumer markets and to manufacturers in the electrical, electronic,
telecommunications and transportation industries. Lighting fixtures are utilized in residential
construction, industrial, institutional and commercial building complexes, shopping centers,
parking lots, roadways, and sports facilities. Electrical power products are used by utilities and
commercial and industrial power users. Electrical construction materials are used in commercial,
residential and industrial projects, by utilities, airports and wastewater treatment plants and in
the process and energy industries. Emergency lighting, fire detection and security systems are
installed in residential, commercial and industrial applications. Support systems and enclosures
are used in industrial, commercial and telecommunications complexes. Wiring devices are used in
the construction, renovation, maintenance and repair of residential, commercial, industrial and
institutional buildings.
Principal Distribution Methods
Products are sold through distributors for use in general construction and renovation, plant
maintenance, process and energy applications, shopping centers, parking lots, sports facilities,
and data processing and telecommunications systems; through distributors and direct to utilities
and manufacturers for use in electronic equipment for consumer, industrial, government and military
applications; through distributors and direct to retail home centers and hardware outlets; and
direct to original equipment manufacturers of appliances, tools, machinery and electronic
equipment.
TOOLS
Major Markets
Power tools and assembly systems are used by general industrial manufacturers, particularly
durable goods producers and original equipment manufacturers, such as those in the aerospace and
automobile industries. Hand tools are used in a variety of industrial, electronics, agricultural,
construction and consumer applications.
Principal Distribution Methods
Products are sold through distributors and agents to general industry, particularly automotive
and aircraft; through distributors and wholesalers to hardware stores, lumberyards and department
stores; and direct to original equipment manufacturers, home centers, specialty stores, department
stores, mass merchandisers and hardware outlets.
ITEM 1A. RISK FACTORS
Our financial condition and performance are subject to various risks and uncertainties,
including the risk factors described below. We may amend or supplement the risk factors from time
to time by other reports that we file with the SEC in the future.
Our Businesses Are Subject to Competitive Pressures.
Our businesses operate in markets that are highly competitive, and we compete on the basis of
price, quality, service, innovation and/or brand name across the industries and markets served.
Some of our
6
competitors for certain products have greater sales, assets and financial resources than we
do. Competitive pressures could affect prices we charge our customers or demand for our products,
which could adversely affect our operating results.
Demand for Our Products Is Sensitive to the Economic Conditions in the Markets We Serve.
Demand for electrical products follows general economic conditions and is generally sensitive
to activity in the commercial and residential construction and renovation markets, industrial
production levels, electronic component production and spending by utilities for replacements,
expansions and efficiency improvements. Demand for non-powered hand tools, assembly systems and
industrial power tools is driven by employment levels, industrial activity and consumer spending.
In addition, demand for industrial power tools is influenced by automotive and aerospace
production. Reduced demand due to economic and market conditions could adversely affect our
results of operations.
Development and Introduction of New Products and Solutions Affect our Ability to Grow Revenues and
Improve Profitability.
Development and introduction of new products that increase our customers productivity and
efficiency, provide enhanced energy efficiency, introduce new technology solutions, enhance safety
and conform to electrical standards in regions and local countries contribute significantly to our
revenue growth and profitability. We continually invest in new products and solutions and are not
dependent upon the success of any one product or solution. However, our overall success depends on
continuous new products and solutions being introduced and accepted by our customers.
Price Increases or Significant Shortages of Raw Materials and Components Could Adversely Affect Our
Operating Costs and the Competitive Position of Our Products.
Our major requirements for raw materials include steel, copper, aluminum, electronic
components and plastics and, to a lesser degree brass, tin, lead, fiberglass, wood and insulating
materials including transformer oil. We have multiple sources of supply for each of our major
requirements, although there are limited sources of supply for electrical core steel and
transformer oil that Cooper uses in electrical power transmission and distribution products.
Significant shortages could disrupt the supply of raw materials or price increases could affect
prices we charge our customers, our product costs, and the competitive position of our products and
services, which could adversely affect our results of operations.
Operations and Supply Sources Located Outside the United States, Particularly Emerging Markets, Are
Subject to Increased Risks.
Our operating activities outside the United States contribute significantly to our revenues
and earnings. Serving a global customer base and remaining competitive in the global market place
requires that we place more production in countries other than the United States, including
emerging markets, to capitalize on market opportunities and maintain a cost-efficient structure.
In addition, we source a significant amount of raw materials and other components from third-party
suppliers or joint-venture operations in low-cost countries. Our operations outside the United
States could be disrupted by a natural disaster, labor strike, war, political unrest, terrorist
activity or public health concerns. Operations outside the United States are also subject to
certain regulatory and economic uncertainties including trade barriers and restrictions on the
exchange and fluctuations of currency. We believe that our operations in emerging markets such as
China, India and Malaysia are subject to greater risks related to these political and economic
uncertainties as compared to most countries where Cooper has operations.
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Our Key Strategic Initiatives Affect Our Ability to Grow Revenues, Control Costs and Improve
Productivity.
Our operating model is built on a platform of key strategic initiatives that are designed to
grow revenues, control costs and improve productivity. Our ability to execute and realize the
expected benefits from our strategic initiatives affects our revenues and operating costs. Also,
our operations could be disrupted by manufacturing rationalizations and system conversions relating
to the implementation of the Enterprise Business System.
We Engage in Acquisitions and May Encounter Difficulties in Integrating These Businesses.
We are a company that, from time to time, seeks to grow through strategic acquisitions. The
success of these transactions depends on our ability to integrate the assets and personnel acquired
in these transactions. We may encounter difficulties in integrating acquisitions with our
operations and may not realize the degree or timing of the benefits that we anticipated from an
acquisition.
We Have Liability Exposure for Asbestos-Related Claims.
We have owned businesses that produced and sold products that contained asbestos. We,
therefore, have potential liability arising from individuals claiming illness from exposure to
asbestos. Insurance policies satisfy portions of claim settlements and related legal costs. We
have reached a proposed settlement agreement, subject to court approval, that provides for us to
resolve asbestos claims arising from our former Abex Friction Products business by participating in
a 524(g) trust that is part of Federal-Mogul Corporations bankruptcy plan of reorganization. If
our participation in the 524(g) trust is not approved, we will adjust the estimates of our recorded
liabilities and insurance recoveries related to the matter. Those adjustments may be significant.
We Could Incur a Material Amount of Taxes if There Are Unfavorable Changes in the Tax Laws or Their
Interpretation.
Changes in tax laws, tax treaties or tax regulations or differing interpretation or
enforcement of applicable law by the U.S. Internal Revenue Service or other taxing jurisdiction
could have a material adverse impact on our financial statements. On May 22, 2002, we reorganized
Cooper and became a publicly traded Bermuda company. Among other benefits, the inversion
reorganization improved our worldwide effective tax rate and increased our cash flow. Recently,
and in prior years, there have been legislative efforts in the Senate to eliminate the tax benefit
realized by certain inverted companies. Previous attempts to enact such legislation have failed to
be adopted by both Houses of Congress. If enacted into law, such proposed legislation could have a
material adverse impact on our financial statements.
Inability to Maintain Access to Capital Markets May Adversely Affect Our Business and Financial
Results.
Our ability to invest in our businesses, make strategic acquisitions and refinance maturing
debt obligations may require access to the capital markets and sufficient bank credit lines to
support short-term borrowings. If we are unable to access the capital markets, we could experience
a material adverse affect on our business and financial results.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
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ITEM 2. PROPERTIES
On December 31, 2007, the plants and other facilities used by Cooper throughout the world
contained an aggregate of approximately 21.8 million square feet of space, of which approximately
79 percent was owned and 21 percent was leased. The charts on the next page show the number of
employees, square footage of facilities owned and leased and location of manufacturing facilities
for each industry segment.
9
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Number of |
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Manufacturing |
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Sales |
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Other |
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Owned |
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Leased |
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Electrical Products |
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26,303 |
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106 |
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19 |
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88 |
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3 |
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13.3 |
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Tools |
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4,902 |
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26 |
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6 |
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4.0 |
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0.4 |
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299 |
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2 |
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0.1 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
31,504 |
|
|
|
132 |
|
|
|
25 |
|
|
|
96 |
|
|
|
5 |
|
|
|
17.3 |
|
|
|
4.5 |
|
|
|
|
* |
|
Multi-purpose facilities at a single location are listed in each applicable column. |
Manufacturing Plant Locations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United |
|
(Other |
|
United |
|
|
|
|
|
South |
|
|
|
|
|
|
|
|
|
|
|
|
|
Republic |
|
|
|
|
|
|
Segment |
|
States |
|
Than UK) |
|
Kingdom |
|
Mexico |
|
America |
|
Australia |
|
Canada |
|
China |
|
of China |
|
India |
|
Korea |
|
Malaysia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electrical
Products |
|
|
50 |
|
|
|
11 |
|
|
|
18 |
|
|
|
10 |
|
|
|
2 |
|
|
|
1 |
|
|
|
5 |
|
|
|
5 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tools |
|
|
13 |
|
|
|
7 |
|
|
|
|
|
|
|
2 |
|
|
|
2 |
|
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
63 |
|
|
|
18 |
|
|
|
18 |
|
|
|
12 |
|
|
|
4 |
|
|
|
2 |
|
|
|
6 |
|
|
|
5 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
|
* |
|
Some facilities are shared by Electrical Products
and Tools operations. |
|
|
|
|
10
ITEM 3. LEGAL PROCEEDINGS
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. To the extent Cooper is obligated to Pneumo for
any asbestos-related claims arising from the Abex product line (Abex Claims), Cooper has rights,
confirmed by Pneumo, to significant insurance for such claims. Based on information provided by
representatives of Federal-Mogul and recent claims experience, from August 28, 1998 through
December 31, 2007, a total of 143,543 Abex Claims were filed, of which 114,084 claims have been
resolved leaving 29,450 Abex Claims pending at December 31, 2007, that are the responsibility of
Federal-Mogul. During the year ended December 31, 2007, 2,005 claims were filed and 3,855 claims
were resolved. Since August 28, 1998, the average indemnity payment for resolved Abex Claims was
$2,159 before insurance. A total of $129.5 million was spent on defense costs for the period
August 28, 1998 through December 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 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.
11
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 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 the Companys stock upon Federal-Moguls emergence from bankruptcy.
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 would 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 resolving Abex Claims though the tort system. If Cooper
is unable to reach a settlement to participate in the Federal-Mogul 524(g) trust, the accrual for
discontinued operations potentially may have to be adjusted 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.
12
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 was incorporated into Federal-Moguls Fourth Amended
Joint Plan of Reorganization 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 were filed with the Court by April
24, 2007 and hearings on
13
confirmation of the Plan were held the week of July 9th. The Court also
held hearings on October 1 and 2, 2007 for final briefs and hearings. At the conclusion of these
hearings, the Court neither approved or rejected the revised proposed settlement agreement.
The U.S. Bankruptcy Court for the District of Delaware confirmed Federal-Moguls plan of
reorganization on November 8, 2007, and the U.S. District Court for the District of Delaware
affirmed the Bankruptcy Courts order on November 14, 2007. As part of its ruling, the Bankruptcy
Court approved the settlement between Cooper and Federal-Mogul, which requires payment of $138
million to Cooper in the event Coopers participation in the Federal-Mogul 524(g) trust is not
approved for any reason. The Bankruptcy Court stated that it would consider approving Coopers
participation in the Federal-Mogul 524(g) trust at a later time, and that its order confirming the
plan of reorganization and approving the settlement between Cooper and Federal-Mogul does not
preclude later approval of Coopers participation in the 524(g) trust. Accordingly, in an effort
to continue working towards approval of Coopers participation in the trust and to address certain
legal issues identified by the Court, Cooper, Pneumo Abex, Federal Mogul, and other plan supporters
filed Modified Plan A Settlement Documents on December 13, 2007. The Modified Plan A Settlement
Documents are the same in all material respects as the settlement documents filed with the
Bankruptcy Court on July 7, 2006, except that the Modified Plan A Settlement Documents remove
provisions relating to insurance, to which various insurers and others had objected, and require a
final, non-appealable order before Cooper is obligated to contribute to the asbestos claims
settlement trust. If the Bankruptcy Court approves the modified settlement and that settlement is
implemented, Cooper, through Pneumo-Abex LLC, will continue
to have access to Abex insurance policies, but the settlement no longer provides for payments
of insurance proceeds to the trust. Briefing with respect to the Modified Plan A Settlement
Documents was expected to be concluded by February 11, 2008, and the Bankruptcy Court has scheduled
a hearing to address the modified settlement on February 25, 2008. There is no assurance, however,
that the Court will render a decision on that date.
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 $510.0 million at December 31,
2007 and $529.6 million at December 31, 2006.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this report, no matters were submitted
to a vote of the shareholders.
PART II
ITEM 5. |
|
MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES |
Cooper Class A common shares (symbol CBE) are listed on the New York Stock Exchange.
Options for Cooper Class A common shares are listed on the American Stock Exchange. Cooper Class B
common shares are not publicly traded. The Class B common shares were issued to Cooper Industries,
Inc. in connection with the reincorporation merger in May 2002 whereby Cooper Industries, Inc.,
formerly the publicly traded parent company, became a wholly-owned subsidiary of Cooper Industries,
Ltd. Effective January 1, 2005, the Class B common shares were transferred to Cooper US, Inc.,
which is a wholly-owned Cooper subsidiary. Cooper US, Inc. is the only holder of Class B common
shares. The holders of Class B common shares are not entitled to vote, except as to matters for
which the Bermuda Companies Act specifically requires voting rights for otherwise non-voting
shares. Cooper Industries, Ltd. and Cooper subsidiaries holding Class A or Class B common shares
have entered into a voting agreement whereby any Class A or Class B common shares held by such
Cooper subsidiaries will be voted (or abstained from voting)
14
in the same proportion as the other holders of Class A common shares. Therefore, Class A and Class B common shares held by Cooper
subsidiaries do not dilute the voting power of the Class A common shares held by the public.
As of January 31, 2008 there were 20,773 record holders of Cooper Class A common shares and
one holder of Cooper Class B common shares.
The high and low quarterly sales prices for the past two years of Cooper Class A common shares
as reported by Dow Jones & Company, Inc., are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter |
|
|
|
|
|
|
|
|
1 |
|
2 |
|
3 |
|
4 |
2007 |
|
High |
|
$ |
48.12 |
|
|
$ |
58.20 |
|
|
$ |
59.05 |
|
|
$ |
57.25 |
|
|
|
Low |
|
|
40.00 |
|
|
|
45.03 |
|
|
|
47.00 |
|
|
|
47.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
High |
|
$ |
43.93 |
|
|
$ |
48.06 |
|
|
$ |
47.02 |
|
|
$ |
47.35 |
|
|
|
Low |
|
|
36.02 |
|
|
|
40.87 |
|
|
|
39.98 |
|
|
|
42.50 |
|
Annual cash dividends declared on Coopers Class A and Class B common shares during 2005 and
2006 was $.74 a share ($.185 a quarter). On February 14, 2007, the Board of Directors declared an
increase in the quarterly dividend to $.21 a share (or $.84 on an annualized basis). This
represented a 14 percent increase over the prior dividend rate. On February 14, 2007, the Board of
Directors also approved a 2-for-1 stock split to shareholders of record as of February 28, 2007.
The increase in the dividend rate was effective for the dividend paid on April 2, 2007. Based on
Coopers capital structure in 2007, all of the dividend distributions paid by it in 2007 are
treated as a return of capital to its shareholders. For dividends payable in 2008, Cooper
currently anticipates that based on its capital structure all or a substantial portion of its
dividend distributions will be treated as a return of capital to its shareholders. For the
dividends payable in 2005, 2006 and 2007, Coopers subsidiaries that held Class A and Class B
shares received dividends on such shares. On February 12, 2008, the Board of Directors declared an
increase in the quarterly dividend to $.25 per share (or $1.00 on an annualized basis). This
represents a 19 percent increase over the prior dividend rate.
The following table reflects activity related to equity securities purchased by Cooper during
the three months ended December 31, 2007:
Purchases of Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of Shares |
|
Maximum Number of |
|
|
Total Number of |
|
|
|
|
|
Purchased as Part of |
|
Shares that May Yet Be |
|
|
Shares |
|
Average Price |
|
Publicly Announced Plans |
|
Purchased Under the |
Period |
|
Purchased |
|
Paid per Share |
|
or Programs |
|
Plans or Programs(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of 9/30/07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,661,687 |
|
10/01/07 10/31/07 |
|
|
347,100 |
|
|
$ |
53.01 |
|
|
|
347,100 |
|
|
|
5,314,587 |
|
11/01/07 11/30/07 |
|
|
540,000 |
|
|
$ |
50.82 |
|
|
|
540,000 |
|
|
|
4,774,587 |
|
12/01/07 12/31/07 |
|
|
451,240 |
|
|
$ |
51.57 |
|
|
|
451,240 |
|
|
|
4,323,347 |
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,338,340 |
|
|
$ |
51.64 |
|
|
|
1,338,340 |
|
|
|
|
|
|
|
|
(1) |
|
On November 2, 2004, Coopers Board of Directors authorized the repurchase
of up to ten million additional shares of Coopers Class A common stock. Cooper has
also announced that the Board authorized the repurchase of shares issued from time
to time under its equity compensation plans, matched savings plan and dividend
reinvestment plan in order to offset the dilution that results from issuing shares
under these plans. |
15
|
|
|
(2) |
|
For 2008, Coopers current estimate is that 3 million shares will be
issued under equity compensation plans, which is not reflected in the above table. |
|
(3) |
|
As of the date of this filing in 2008, Cooper had repurchased the 3
million shares intended to offset dilution from share issuances under equity
compensation plans, as well as approximately 600,000 additional shares under the
November 2, 2004 Cooper Board of Directors authorization discussed above. Cooper
may continue to repurchase shares under this authorization from time to time during
2008. The decision whether to do so will be dependent on the favorability of market
conditions, as well as potential cash requirements for acquisitions. |
|
(4) |
|
On February 12, 2008, Cooper announced that the Board of Directors
authorized the purchase of ten million shares of common stock in addition to the
remaining November 2, 2004 authorization, which is not reflected in the above table. |
Further information required by this Item is set forth under the caption Equity Compensation
Plan Information in Coopers Proxy Statement to be filed pursuant to Regulation 14A under the
Securities Exchange Act of 1934 in connection with Coopers 2008 Annual Meeting of Shareholders
(the Proxy Statement) and is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected historical financial data for Cooper for each of the
five years in the period ended December 31, 2007. The selected historical financial information
shown below has been derived from Coopers audited consolidated financial statements. This
information should be read in conjunction with Coopers consolidated financial statements and notes
thereto.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ending December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
(in millions, except per share data) |
|
INCOME STATEMENT DATA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
5,903.1 |
|
|
$ |
5,184.6 |
|
|
$ |
4,730.4 |
|
|
$ |
4,462.9 |
|
|
$ |
4,061.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
692.3 |
|
|
$ |
484.3 |
|
|
$ |
391.1 |
|
|
$ |
339.8 |
|
|
$ |
274.3 |
|
Charge from discontinued operations, net
of taxes |
|
|
|
|
|
|
20.3 |
|
|
|
227.2 |
|
|
|
|
|
|
|
126.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
692.3 |
|
|
$ |
464.0 |
|
|
$ |
163.9 |
|
|
$ |
339.8 |
|
|
$ |
148.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME PER COMMON SHARE DATA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
3.80 |
|
|
$ |
2.64 |
|
|
$ |
2.12 |
|
|
$ |
1.84 |
|
|
$ |
1.48 |
|
Charge from discontinued operations |
|
|
|
|
|
|
.11 |
|
|
|
1.23 |
|
|
|
|
|
|
|
.68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
3.80 |
|
|
$ |
2.53 |
|
|
$ |
.89 |
|
|
$ |
1.84 |
|
|
$ |
.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
3.73 |
|
|
$ |
2.58 |
|
|
$ |
2.06 |
|
|
$ |
1.79 |
|
|
$ |
1.46 |
|
Charge from discontinued operations |
|
|
|
|
|
|
.11 |
|
|
|
1.19 |
|
|
|
|
|
|
|
.67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
3.73 |
|
|
$ |
2.47 |
|
|
$ |
.87 |
|
|
$ |
1.79 |
|
|
$ |
.79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE SHEET DATA (at December 31): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
6,133.5 |
|
|
$ |
5,374.8 |
|
|
$ |
5,215.1 |
|
|
$ |
5,407.8 |
|
|
$ |
4,965.3 |
|
Long-term debt, excluding current maturities |
|
|
909.9 |
|
|
|
702.8 |
|
|
|
1,002.9 |
|
|
|
698.6 |
|
|
|
1,336.7 |
|
Shareholders equity |
|
|
2,841.9 |
|
|
|
2,475.3 |
|
|
|
2,205.2 |
|
|
|
2,286.5 |
|
|
|
2,118.2 |
|
CASH DIVIDENDS PER COMMON
SHARE |
|
$ |
.84 |
|
|
$ |
.74 |
|
|
$ |
.74 |
|
|
$ |
.70 |
|
|
$ |
.70 |
|
In October 1998, Cooper sold its Automotive Products segment for $1.9 billion in proceeds.
Discontinued operations charges of $20.3 million, net of a $11.4 million income tax benefit in
2006; $227.2 million, net of a $127.8 million income tax benefit in 2005 and $126.0 million, net of
a $70.9 million income tax benefit in 2003 were recorded for potential liabilities related to the
Automotive Products segment sale and the Federal-Mogul bankruptcy. See Note 16 of the Notes to the
Consolidated Financial Statements.
16
ITEM 7. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Forward Looking Statements
This Annual Report on Form 10-K, including Managements Discussion and Analysis of Financial
Condition and Results of Operations, includes certain forward-looking statements. The
forward-looking statements reflect Coopers expectations, objectives and goals with respect to
future events and financial performance, and are based on assumptions and estimates which Cooper
believes are reasonable. Forward-looking statements include, but are not limited to, any
statements regarding future revenues, costs and expenses, earnings, earnings per share, margins,
cash flows, dividends and capital expenditures. Cooper wishes to caution readers not to put undue
reliance on these statements and that actual results could differ materially from anticipated
results. Important factors which may affect the actual results include, but are not limited to,
the resolution of Coopers participation in the Federal-Mogul 524(g) trust, 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.
Critical Accounting Policies
The Consolidated Financial Statements and Notes to the Consolidated Financial Statements
contain information that is pertinent to managements discussion and analysis. The preparation of
financial statements in conformity with United States generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities. Cooper believes the following
critical accounting policies involve additional management judgment due to the sensitivity of the
methods, assumptions and estimates necessary in determining the related asset and liability
amounts.
Cooper recognizes revenues when products are shipped and accruals for sales returns and other
allowances are provided at the time of shipment based upon past experience. If actual future
returns and allowances differ from past experience, additional allowances may be required. The
accrual for sales returns and other allowances was $95.1 million and $73.4 million at December 31,
2007 and 2006, respectively.
Allowances for excess and obsolete inventory are provided based on current assessments about
future demands, market conditions and related management initiatives. If market conditions are
less favorable than those projected by management, additional inventory allowances may be required.
The allowance for excess and obsolete inventory was $77.9 million at December 31, 2007 and $65.6
million at December 31, 2006.
Pension assets and liabilities are determined on an actuarial basis and are affected by the
market value of plan assets, estimates of the expected return on plan assets, discount rates and
estimated future employee earnings and demographics. Actual changes in the fair market value
of plan assets and differences between the actual return on plan assets and the expected return on
plan assets will affect the amount of pension expense ultimately recognized. Differences between
actuarial assumptions and estimates and actual experience are deferred in accumulated other
nonowner changes in equity as actuarial net gains and losses. Actuarial net gains and losses in
excess of a calculated minimum annual amount are amortized and recognized in net periodic pension
cost over the average remaining service period of active employees.
17
Total net periodic pension benefits cost was $3.9 million in 2007, $31.0 million in 2006 and
$18.9 million in 2005. During 2006, Cooper announced that effective January 1, 2007, future
benefit accruals would cease under the Cooper U.S. Salaried Pension Plan. Cooper recognized a $4.2
million curtailment loss in 2006 as a result of this action. During 2006, Cooper also recognized a
$4.1 million settlement loss primarily in connection with the retirement of senior executives.
Total net periodic pension benefits cost as expected declined in 2007 primarily due to the
elimination of service cost on the salaried pension plan and non-recurrence of the 2006 losses
discussed above. Beginning in 2007, Cooper contributed cash equal to 3% of compensation to the
Cooper 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. The net periodic pension benefit cost of $3.3 million for 2008 has been
estimated assuming a discount rate of 6.00% and an expected return on plan assets of 8.25%. See
Note 13 of the Notes to the Consolidated Financial Statements.
The postretirement benefits other than pensions liability is also determined on an actuarial
basis and is affected by assumptions including the discount rate and expected trends in health care
costs. Changes in the discount rate and differences between actual and expected health care costs
will affect the recorded amount of postretirement benefits expense. Differences between assumptions
and actual experience are deferred in accumulated other nonowner changes in equity as actuarial net
gains and losses. Actuarial net gains and losses in excess of a minimum annual amount are
amortized and recognized in net periodic postretirement benefit cost over the average remaining
life expectancy of the participants. Net periodic postretirement benefit cost was $0.7 million in
2007. Cooper announced the elimination of postretirement life insurance for active employees
effective January 1, 2007. As a result, Cooper recognized a $3.2 million curtailment gain in the
second quarter of 2006. Excluding the curtailment gain, net periodic postretirement benefit cost
decreased to $0.8 million in 2006, primarily as a result of plan amendments related to the Medicare
Prescription Drug, Improvement and Modernization Act of 2003, compared to $3.6 million in 2005.
Net periodic postretirement benefit cost is expected to be approximately $0.7 million in 2008,
assuming a discount rate of 6.00%. See Note 13 of the Notes to the Consolidated Financial
Statements.
Stock-based compensation expense is recorded for stock-option grants, performance-based and
restricted stock awards based upon fair value. The fair value of stock option awards are estimated
at the grant date using the Black-Scholes-Merton option pricing model, which includes assumptions
for volatility, expected term, risk-free interest rate and dividend yield. Expected volatility is
based on implied volatilities from traded options on Cooper stock, historical volatility of Cooper
stock and other factors. Historical data is used to estimate employee termination experience and
the expected term of the options. The risk-free interest rate is based on the U.S. Treasury yield
curve in effect at the time of grant. The fair value of performance-based and restricted stock
awards granted are measured at the market price on the grant date. Performance awards are
typically arranged in levels, with increasing number of shares earned as higher levels of growth
are achieved. Performance goals are currently assumed to be achieved at the maximum level. If
goal-level assumptions are not met, stock-based compensation expense is
adjusted and previously recognized compensation expense would be reversed. Total stock-based
compensation expense was $39.0 million in 2007, $29.1 million in 2006, and $40.3 million in 2005.
See Note 10 of the Notes to the Consolidated Financial Statements.
Environmental liabilities are accrued based on estimates of known environmental remediation
exposures. The liabilities include accruals for sites owned by Cooper and third-party sites where
Cooper was determined to be a potentially responsible party. Third party sites frequently involve
multiple potentially responsible parties and Coopers potential liability is determined based on
estimates of Coopers proportionate responsibility for the total cleanup. The amounts accrued for
such sites are based on these estimates as well as an assessment of the financial capacity of the
other potentially responsible parties. Environmental liability estimates may be affected by
changing determinations of what constitutes an environmental liability or an acceptable level of
cleanup. To the extent that remediation procedures change or the financial condition of other
potentially responsible parties is adversely affected, Coopers estimate of its environmental
liabilities may change. The liability for environmental remediation was $30.2 million at December
31, 2007 and $29.7 million at December 31, 2006. See Note 7 of the Notes to the Consolidated
Financial Statements.
18
Cooper records current tax liabilities as well as deferred tax assets and liabilities for
those taxes incurred as a result of current operations but deferred until future periods. The
annual provision for income taxes is the sum of both the current and deferred tax amounts. Current
taxes payable represents the liability related to Coopers income tax returns for the current year,
while the net deferred tax expense or benefit represents the change in the balance of deferred tax
assets or liabilities reported on Coopers consolidated balance sheet. Deferred tax assets or
liabilities are determined based upon differences between the book basis of assets and liabilities
and their respective tax basis as measured by the enacted tax rates that Cooper expects will be in
effect when these differences reverse. In addition to estimating the future applicable tax rates,
Cooper must also make certain assumptions regarding whether tax differences are permanent or
temporary and whether taxable operating income in future periods will be sufficient to fully
recognize any gross deferred tax assets. Cooper has established valuation allowances when it is
more likely than not that some portion or all of the deferred tax assets will not be realized.
During 2007, there were no significant changes in the methodologies utilized to calculate Coopers
tax provision or related tax balance sheet accounts.
Cooper is subject to income taxes in both the United States and numerous non-U.S.
jurisdictions. Cooper is regularly under examination by various tax authorities. United States
federal and state tax authorities and tax authorities in other countries have challenged the amount
of taxes due for certain tax periods. Cooper evaluates the potential exposure associated with
various filing positions and records a liability for tax contingencies. Although Cooper believes
all tax positions are reasonable and properly reported in accordance with applicable tax laws and
regulations in effect during the periods involved, the final determination of tax audits and any
related litigation could be materially different than that which is reflected in historical income
tax provisions and accruals. Based on audits and litigation, a material effect on Coopers
consolidated cash flows in the period or periods for which that determination is finalized could
result. In 2007, Cooper reduced income taxes expense by $83.8 million ($.45 per share) as a result
of the expiration of statute of limitations, favorable audit settlements and other matters.
However, management does not believe that any of these matters will have a material effect on
Coopers consolidated financial position or consolidated results of operations. See Note 12 of the
Notes to the Consolidated Financial Statements.
During the fourth quarter of 2005, Cooper revised the accrual that represents its best
estimate of liabilities related to the sale of the Automotive Products business to Federal-Mogul in
1998. During the three year period ending December 31, 2007, Cooper accounted for payments made to
settle asbestos-related cases by reducing the accrual and insurance recoveries collected during the
periods as increases to the accrual. Subsequent proceeds from insurance claims for settlements
would increase the accrual. The analysis of Coopers contingent liability exposure for
asbestos-related claims involving Abex products was conducted in the fourth quarter of 2001 with
assistance from independent advisors, Bates White, LLC, and assumed future resolution of the
Abex-related asbestos claims within the Federal-Mogul bankruptcy proceeding. As discussed in Note
16 of the Notes to the Consolidated Financial Statements, throughout 2003, Cooper worked towards
resolution of the indemnification issues and future handling of the Abex-related claims within the
Federal-Mogul bankruptcy proceedings. This included negotiations with representatives of
Federal-Mogul, its bankruptcy committees and the future claimants (Representatives) regarding
participation in Federal-Moguls proposed 524(g) asbestos trust.
Based on the status of the negotiations in 2004, Cooper concluded that it was probable that
Federal-Mogul would reject the 1998 Agreement. Cooper also concluded that the Representatives
would require any negotiated settlement through the Federal-Mogul bankruptcy to be at the high end
of the Bates White, LLC liability analysis and with substantially lower insurance recovery
assumptions and higher administrative costs.
During late February and early March 2004, Cooper reassessed the accrual required based on the
then current status of the negotiations with the Representatives and the liability and insurance
receivable that would be required to be recorded if this matter is not settled within the
Federal-Mogul bankruptcy. Cooper concluded that resolution within the Federal-Mogul proposed
524(g) asbestos trust would likely be within the
19
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 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 the Companys stock upon Federal-Moguls emergence from bankruptcy.
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 would 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 resolving Abex Claims though the tort system. If Cooper
is unable to reach a settlement to participate in the
20
Federal-Mogul 524(g) trust, the accrual for
discontinued operations potentially may have to be adjusted 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 was incorporated into Federal-Moguls Fourth Amended
Joint Plan of Reorganization 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
21
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 were filed with the Court by April
24, 2007 and hearings on confirmation of the Plan were held the week of July 9th. The Court also
held hearings on October 1 and 2, 2007 for final briefs and
hearings. At the conclusion of these hearings, the Court neither approved or rejected the
revised proposed settlement agreement.
The U.S. Bankruptcy Court for the District of Delaware confirmed Federal-Moguls plan of
reorganization on November 8, 2007, and the U.S. District Court for the District of Delaware
affirmed the Bankruptcy Courts order on November 14, 2007. As part of its ruling, the Bankruptcy
Court approved the settlement between Cooper and Federal-Mogul, which requires payment of $138
million to Cooper in the event Coopers participation in the Federal-Mogul 524(g) trust is not
approved for any reason. The Bankruptcy Court stated that it would consider approving Coopers
participation in the Federal-Mogul 524(g) trust at a later time, and that its order confirming the
plan of reorganization and approving the settlement between Cooper and Federal-Mogul does not
preclude later approval of Coopers participation in the 524(g) trust. Accordingly, in an effort
to continue working towards approval of Coopers participation in the trust and to address certain
legal issues identified by the Court, Cooper, Pneumo Abex, Federal Mogul, and other plan supporters
filed Modified Plan A Settlement Documents on December 13, 2007. The Modified Plan A Settlement
Documents are the same in all material respects as the settlement documents filed with the
Bankruptcy Court on July 7, 2006, except that the Modified Plan A Settlement Documents remove
provisions relating to insurance, to which various insurers and others had objected, and require a
final, non-appealable order before Cooper is obligated to contribute to the asbestos claims
settlement trust. If the Bankruptcy Court approves the modified settlement and that settlement is
implemented, Cooper, through Pneumo-Abex LLC, will continue to have access to Abex insurance
policies, but the settlement no longer provides for payments of insurance proceeds to the trust.
Briefing with respect to the Modified Plan A Settlement Documents was expected to be concluded by
February 11, 2008, and the Bankruptcy Court has scheduled a hearing to address the modified
settlement on February 25, 2008. There is no assurance, however, that the Court will render a
decision on that date.
Cooper will periodically assess the current overall adequacy of the accrual for discontinued
operations, including updates to the assumptions regarding estimates of insurance recoveries,
levels of defense and indemnity payments and other assumptions related to the matter. As this
additional information becomes available, Cooper will record a charge or credit to the accrual for
discontinued operations, which may be significant.
From a cash flow perspective, Cooper management continues to believe that a settlement on the
terms of the revised agreement would allow Cooper to continue to grow through acquisitions and
return cash 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 $510.0 million at December 31,
2007 and $529.6 million at December 31, 2006.
Results of Operations
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
(in millions) |
|
Electrical Products |
|
$ |
5,108.4 |
|
|
$ |
4,426.0 |
|
|
$ |
3,997.5 |
|
Tools |
|
|
794.7 |
|
|
|
758.6 |
|
|
|
732.9 |
|
|
|
|
|
|
|
|
|
|
|
Total Revenues |
|
$ |
5,903.1 |
|
|
$ |
5,184.6 |
|
|
$ |
4,730.4 |
|
|
|
|
|
|
|
|
|
|
|
22
See the geographic information included in Note 15 of the Notes to the Consolidated Financial
Statements for a summary of revenues by country.
2007 vs. 2006 Revenues Revenues for 2007 increased 14% compared to 2006. The impact
of currency translation was 2%, while acquisitions added approximately 4% in revenues.
Electrical Products segment revenues for 2007, which represented 87% of revenues, increased
approximately 15% compared to 2006. Currency translation represented 2% of the revenue growth.
The impact of acquisitions increased segment revenues by approximately 4%. Six of the seven
Electrical Products segment businesses posted revenue growth during 2007. Sales growth was a
result of strong demand from the utility and industrial markets, international expansion and solid
demand from U.S. nonresidential construction. Continued softness in the U.S. residential markets
partially offset these increases.
Tools segment revenues for 2007, which represented 13% of revenues, increased approximately 5%
compared to 2006, with currency translation representing 3% of the increase. Sales increases were
driven by solid demand from aerospace, partially offset by soft demand in the motor vehicle end
markets. Retail sales compared to 2006 were down slightly in a challenging U.S. market.
2006 vs. 2005 Revenues Revenues for 2006 increased 10% compared to 2005. The impact
of currency translation was nominal, while acquisitions, net of a small divestiture, added
approximately 2% in revenues.
Electrical Products segment revenues for 2006, which represented 85% of revenues, increased
approximately 11% compared to 2005. Currency translation had a nominal impact on 2006 revenues.
The impact of acquisitions, net of a small divestiture, increased segment revenues by approximately
2%. All of the Electrical Products segment businesses posted revenue growth during 2006. Sales
growth was a result of strong demand from industrial and utility markets, improvement in
non-residential construction demand and successful expansion into developing international markets.
These gains more than offset a decline in retail sales due to an overall slowdown in the
residential market and ceding product lines in the channel over prices.
Tools segment revenues for 2006, which represented 15% of revenues, increased approximately 4%
compared to 2005. Currency translation increased revenues by approximately 1%. Increased sales of
hand tools were driven by new product introductions, strength in industrial markets and
international expansion. These gains offset the loss of chain product position at a major retailer
and the overall slowdown in the residential market. Demand for industrial power tools strengthened
and strong fourth quarter shipments led to modest year over year growth in revenue from the
automated systems business.
23
Operating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
(in millions, except per share data) |
|
Electrical Products |
|
$ |
848.2 |
|
|
$ |
703.2 |
|
|
$ |
585.0 |
|
Tools |
|
|
94.0 |
|
|
|
85.6 |
|
|
|
66.7 |
|
|
|
|
|
|
|
|
|
|
|
Total Segment Operating Earnings |
|
|
942.2 |
|
|
|
788.8 |
|
|
|
651.7 |
|
General Corporate Expense |
|
|
98.1 |
|
|
|
94.7 |
|
|
|
91.9 |
|
|
|
|
|
|
|
|
|
|
|
Operating Earnings |
|
|
844.1 |
|
|
|
694.1 |
|
|
|
559.8 |
|
|
|
|
|
|
|
|
|
|
|
Income from Belden agreement |
|
|
33.1 |
|
|
|
5.1 |
|
|
|
|
|
Interest Expense, net |
|
|
51.0 |
|
|
|
51.5 |
|
|
|
64.8 |
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations Before Income Taxes |
|
|
826.2 |
|
|
|
647.7 |
|
|
|
495.0 |
|
Income Tax Expense |
|
|
133.9 |
|
|
|
163.4 |
|
|
|
103.9 |
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations |
|
|
692.3 |
|
|
|
484.3 |
|
|
|
391.1 |
|
Charge Related to Discontinued Operations |
|
|
|
|
|
|
20.3 |
|
|
|
227.2 |
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
692.3 |
|
|
$ |
464.0 |
|
|
$ |
163.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations |
|
$ |
3.73 |
|
|
$ |
2.58 |
|
|
$ |
2.06 |
|
Charge from Discontinued Operations |
|
|
|
|
|
|
.11 |
|
|
|
1.19 |
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
3.73 |
|
|
$ |
2.47 |
|
|
$ |
.87 |
|
|
|
|
|
|
|
|
|
|
|
Cooper measures the performance of its businesses exclusive of financing expenses. All costs
directly attributable to operating businesses are included in segment operating earnings. Corporate
overhead costs, including costs of traditional headquarters activities, such as treasury, are not
allocated to the businesses. See Note 15 of the Notes to the Consolidated Financial Statements.
2007 vs. 2006 Segment Operating Earnings Segment Operating Earnings were $942.2 million
in 2007 compared to $788.8 million in 2006.
Electrical Products segment 2007 operating earnings increased 21% to $848.2 million from
$703.2 million for 2006. Return on revenues was 16.6% for 2007 compared to 15.9% for 2006. The
increase was primarily due to leverage on fixed costs due to higher sales volumes and continued
execution on productivity initiatives and lean manufacturing programs.
Tools segment 2007 operating earnings increased 10% to $94.0 million compared to $85.6 million
for 2006. Return on revenues was 11.8% compared to 11.3% in 2006. The modest core growth in sales
volume was further leveraged through focus on productivity activities and cost reductions.
2006 vs. 2005 Segment Operating Earnings Segment Operating Earnings were $788.8 million
in 2006 compared to $651.7 million in 2005.
Electrical Products segment 2006 operating earnings increased 20% to $703.2 million from
$585.0 million for 2005. Return on revenues was 15.9% for 2006 compared to 14.6% for 2005. The
increase was primarily due to leverage of fixed costs on higher volume, favorable pricing
offsetting inflation in production material costs, strong execution on productivity improvement
initiatives, and a shift in sales mix away from the lower margin retail channel.
24
Tools segment 2006 operating earnings increased 28% to $85.6 million compared to $66.7 million
for 2005. Return on revenues was 11.3% compared to 9.1% in 2005. The increase reflects leverage
on fixed costs due to increased volume, improved sales mix, price increase realization and
successful cost reduction initiatives.
Restructuring During the fourth quarter of 2003, Cooper recorded net restructuring
charges of $16.9 million, or $13.6 million after taxes ($.07 per diluted common share). This
represented costs associated with restructuring projects undertaken in 2003 of $18.4 million,
partially offset by a $1.5 million adjustment of estimates for restructuring projects initiated in
2002.
The most significant action included in the charges was an announcement of the closing of
Cooper Wiring Devices manufacturing operations in New York City. This action included plans for
the withdrawal from a multiple-employer pension plan. Cooper recorded a $12.5 million obligation as
an estimate of Coopers portion of unfunded benefit obligations of the plan. In 2005, Cooper
finalized activities related to withdrawal from the multi-employer pension plan and recorded an
additional $4.0 million pre-tax charge. The multiple-employer pension obligation was satisfied
with a cash payment of $14.1 million in October 2006 representing full and final payment of the
withdrawal liability. The remaining $5.9 million charge in 2003 primarily represented severance
for announced employment reductions at several locations. As of December 31, 2007 and 2006, Cooper
had paid $5.9 million and $5.9 million, respectively, for these actions, all of which was for
severance costs.
General Corporate Expense General Corporate expense increased $3.4 million during 2007
to $98.1 million compared to $94.7 million for 2006. General Corporate expense includes $8.8
million and $4.8 million in 2007 and 2006, respectively, for legal and environmental costs related
to businesses disposed of in prior years. Excluding these costs, General Corporate expense
decreased $0.6 million in 2007 to $89.3 million compared to $89.9 million in 2006. The decrease in
2007 is primarily related to continued cost containment.
General Corporate expenses increased $2.8 million during 2006 to $94.7 million compared to
$91.9 million for 2005. General Corporate expense includes $4.8 million in 2006 for legal and
environmental costs related to businesses disposed of in prior years, and includes $6.5 million in
2005 for retirement and other costs related to senior executives. Excluding these items, General
Corporate expense increased $4.5 million in 2006 primarily as a result of increased incentive
compensation costs.
Income from Belden agreement Income from Belden agreement was $33.1 million in 2007
compared to $5.1 million during 2006. In 1993, Cooper completed an initial public offering of the
stock of Belden, formerly a division of Cooper. Under the agreement, Belden and Cooper made an
election that increased the tax basis of certain Belden assets. Belden is required to pay Cooper
ninety percent of the amount by which Belden has actually reduced tax payments that would otherwise
have been payable if the increase in the tax basis of assets had not occurred, as realized
principally over fifteen years. If Belden does not have sufficient future taxable income, it is
possible that Belden will not be able to utilize the tax deductions arising from the increase in
the tax basis of the assets resulting in a tax loss carryforward. Belden is not obligated to
pay Cooper until a tax loss carryforward is utilized. Belden can carry any loss forward twenty
years to offset future taxable income. Cooper estimates that between $40 and $45 million in
future payments potentially remain under the Belden agreement. The timing and ultimate receipt of
future payment are contingent upon the ultimate taxable income Belden reports each year.
Interest Expense, Net Interest expense, net for 2007 decreased $0.5 million from 2006 as
a result of lower average interest rates offsetting higher average debt balances. Average debt
balances were $1.05 billion and $1.04 billion and average interest rates were 5.64% and 5.70% for
2007 and 2006, respectively.
Coopers $300 million, 5.25% senior unsecured notes, which were issued in June 2002, matured
in July 2007. Interest-rate swaps that effectively converted this fixed-rate debt to variable-rate
debt also matured at that time (see Note 17 of the Notes to the Consolidated Financial Statements).
On June 18, 2007, Coopers wholly-owned subsidiary, Cooper US, Inc., issued $300 million of senior
unsecured notes due in
25
2017. The fixed rate notes have an interest coupon of 6.10% and are
guaranteed by Cooper and certain of its principal operating subsidiaries. Proceeds from the
financing were used to repay the maturing 5.25% notes. Combined with interest rate hedges
implemented in anticipation of the offering, the 6.10% notes will have an effective annual cost to
Cooper of 5.75%.
Interest expense, net for 2006 decreased $13.3 million from 2005 as a result of both lower
average debt balances and average interest rates. Average debt balances were $1.04 billion and
$1.26 billion, and average interest rates were 5.70% and 5.87% for 2006 and 2005, respectively.
The decline in the average interest rates was primarily the result of conversion of debt balances
to lower interest-rate debt. The debt balance during 2005 included 6.25%, 300 million Euro bonds
that matured in October 2005. Cooper partially funded repayment of this Euro bond debt with $325
million, 5.25% senior unsecured notes maturing in 2012. Proceeds from the notes were swapped to
272.6 million with cross-currency interest-rate swaps, effectively converting the seven-year U.S.
notes to seven-year Euro notes with an annual interest rate of 3.55%.
Income Tax Expense The effective tax rate attributable to continuing operations was 16.2%
for 2007, 25.2% for 2006 and 21.0% for 2005.
The decrease in the 2007 rate is primarily due to an $83.8 million ($.45 per share) reduction
of income tax expense associated principally with finalized settlements with the Internal Revenue
Service related to the 2000 through 2004 tax years, the expiration of the statute of limitation
regarding certain potential tax exposure matters, changes to state and international valuation
allowances and tax benefits of international reorganizations. Excluding these tax expense
reductions, as well as the General Corporate costs related to businesses disposed of in prior years and income from Belden as discussed above,
the effective tax rate for 2007 was 27.3%.
The increase in tax rate in 2006 compared to 2005 was primarily related to increased taxable
earnings in 2006 without a corresponding increase in tax benefits.
Charge Related to Discontinued Operations In the second quarter of 2006, Cooper recorded
an additional charge of $20.3 million, net of an $11.4 million income tax benefit, related to
potential asbestos obligations regarding the Automotive Products segment, which was sold in 1998.
In the fourth quarter of 2005, Cooper concluded that additional charges of $227.2 million, net of a
$127.8 million income tax benefit related to this matter were required in order to adjust
the existing accrual to amounts within the likely range of outcomes. See Note 16 of the Notes
to the Consolidated Financial Statements.
Diluted Earnings Per Share Diluted earnings per share from continuing operations was
$3.73 in 2007, $2.58 in 2006, and $2.06 in 2005. The income from the Belden agreement, increased
legal and environmental costs on businesses disposed of in prior years, and income tax reduction
discussed above increased 2007 diluted earnings per share from continuing operations by $.59.
Percentage of Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
2007 |
|
2006 |
|
2005 |
Cost of Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
Electrical Products |
|
|
67.0 |
% |
|
|
67.7 |
% |
|
|
68.1 |
% |
Tools |
|
|
68.8 |
% |
|
|
69.3 |
% |
|
|
70.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and Administrative: |
|
|
|
|
|
|
|
|
|
|
|
|
Electrical Products |
|
|
16.4 |
% |
|
|
16.4 |
% |
|
|
17.2 |
% |
Tools |
|
|
19.4 |
% |
|
|
19.4 |
% |
|
|
20.1 |
% |
2007 vs 2006 Percentage of Revenues Electrical Products segment cost of sales, as a
percentage of revenues, was 67.0% for 2007 compared to 67.7% for 2006. The decrease in the cost of
sales percentage was primarily the result of productivity initiatives
and production leverage on higher volume, partially offset
26
by the impact of acquisitions. Tools segment cost of sales, as a
percentage of revenues, was 68.8% for 2007 compared to 69.3% for 2006. The decrease in cost of
sales percentage reflects operating efficiency gains from productivity improvements and cost
reductions and the lower level of sales of large low margin assembly systems projects.
Electrical Products segment selling and administrative expenses, as a percentage of revenues,
for 2007 were 16.4% compared to 16.4% for 2006. The selling and administrative expenses percentage
is unchanged, but was favorably impacted by leverage and productivity initiatives, offset by the
higher average percentage of revenue for the newly acquired organizations and continued investment
in global growth initiatives. Tools segment selling and administrative expenses, as a percentage
of revenues, for 2007 were 19.4% compared to 19.4% for 2006, as productivity initiatives were
offset by inflation.
2006 vs 2005 Percentage of Revenues Electrical Products segment cost of sales, as a
percentage of revenues, was 67.7% for 2006 compared to 68.1% for 2005. The decrease in the cost of
sales percentage was primarily the result of leverage on higher volumes, pricing offsetting
inflationary pressures for production material and energy costs, successful productivity
improvement initiatives, and a shift in sales mix away from the lower margin retail channel. Tools
segment cost of sales, as a percentage of revenues, was 69.3% for 2006 compared to 70.8% for 2005.
The decrease in cost of sales percentage reflects continuing cost productivity improvements,
favorable sales mix, and price increase realization.
Electrical Products segment selling and administrative expenses, as a percentage of revenues,
for 2006 were 16.4% compared to 17.2% for 2005. The decrease in selling and administrative
expenses percentage is primarily due to leveraging higher volumes, enterprise business system
benefits, and benefits realized from prior year cost reductions. These
performance improvements more than offset continued investment in key commercial and global
growth initiatives. Tools segment selling and administrative expenses, as a percentage of
revenues, for 2006 were 19.4% compared to 20.1% for 2005. The decrease in the selling and
administrative expenses percentage is primarily due to leverage on fixed costs and cost reduction
activities.
Cooper realizes certain costs and proceeds that are not directly attributable to the operating
segments. These items are reflected as General Corporate expenses. See the General Corporate
Expense section above.
Earnings Outlook
The following sets forth Coopers general business outlook for 2008 based on current
expectations.
Cooper expects low double digit growth in revenues for Electrical Products in 2008 from
continuing global growth in utility and industrial market demand, successful market penetration
from key growth initiatives and price increases in response to commodity and energy cost inflation
partially offset by the soft U.S. residential markets and slower growth in the other U.S. markets.
Acquisitions completed in 2007 or forecast to be completed in the first quarter of 2008 are
expected to be approximately 7% of Electrical Products revenue growth. In the Tools segment,
Cooper expects low single-digit revenue growth due to the weakness in the residential and motor
vehicle markets. Operating earnings are expected to grow more rapidly than revenues as a result of
benefits from on-going cost reduction programs, realizing further productivity improvements and
leveraging of fixed costs. Cooper is expecting diluted continuing earnings per share to be in the
range of $3.45 to $3.61, including the impact of acquisitions, integration costs and costs to
reorganize the Tools segment.
The above statements are forward looking, and actual results may differ materially. The above
statements are based on a number of assumptions, risks and uncertainties. The primary economic
assumptions include, without limitation: (1) continued growth in the United States and other
economies; (2) no significant change in raw material or energy costs that are not realized through
price increases; (3) realization of benefits of cost-reduction programs (including implementing an
Enterprise Business System) with no major disruptions from those programs currently underway; (4)
no significant adverse changes in the
27
relationship of the U.S. dollar to the currencies of
countries in which Cooper does business, and (5) no significant changes in the income tax laws or
their interpretation. The estimates also assume, without limitation, no significant change in
competitive conditions and such other risk factors as are discussed from time to time in Coopers
periodic filings with the Securities and Exchange Commission.
Pricing and Volume
In each of Coopers segments, the nature of many of the products sold is such that an accurate
determination of the changes in unit volume of sales is neither practical nor, in some cases,
meaningful. Each segment produces a family of products, within which there exist considerable
variations in size, configuration and other characteristics.
It is Coopers judgment that unit volumes in both the Electrical Products and Tools segments
increased in 2007.
During the three-year period ending December 31, 2007, Cooper has experienced an overall
increase in customer pricing, primarily in response to increased material, energy and components
costs. Cooper has aggressively acted to control and reduce costs during the three-year period
through strategic sourcing, manufacturing improvement and rationalization efforts in order to
improve profitability in the segments.
Effect of Inflation
Over the three-year period, inflation has had a relatively minor impact on Coopers results of
operations. However, during 2007, 2006 and 2005, there were significant increases in certain key
commodities and components, which resulted in price increases in certain businesses, on occasion,
lagging the increased costs. In each of the last three years, Cooper has realized price increases
at least equal to material purchase cost increases. Coopers on-going initiatives to improve
productivity and rationalize its operational base has mitigated increases in employee compensation
and benefits, as well as general inflation on operating costs.
Liquidity and Capital Resources
Operating Working Capital
For purposes of this discussion, operating working capital is defined as receivables and
inventories less accounts payable.
Coopers operating working capital increased $127.3 million during 2007. The increase
included a $152.6 million increase in receivables and a $36.1 million increase in inventories,
partially offset by a $61.4 million increase in accounts payable, which were driven primarily by
increased sales volume and actions to improve customer service, as well as working capital
increases from completed acquisitions, which accounted for $69.2 million of the overall increase in
operating working capital. The increase in inventories was partially offset by a $12.3 million
increase in the allowance for excess and obsolete inventories. Operating working capital turnover
(defined as annualized revenues divided by average quarterly operating working capital) for 2007 of
5.4 turns increased from 5.2 turns in 2006 primarily due to initiatives focused on improved
inventory turns. Accounts receivable days sales outstanding deteriorated slightly, although this
was due in part to acquisitions closing in December and the increased sales outside of the U.S.
where commercial terms are generally longer.
Coopers operating working capital increased $78.6 million during 2006. The increase included
a $53.6 million increase in receivables and a $68.9 million increase in inventories, partially
offset by a $43.9 million increase in accounts payable, which were driven primarily by increased
sales volume and actions to improve customer service, as well as working capital increases from
completed acquisitions. The increase in inventories was partially offset by a $6.9 million
increase in the allowance for excess and obsolete inventories. Operating working capital turnover
(defined as annualized revenues divided by average
28
quarterly operating working capital) for 2006 of
5.2 turns increased from 4.9 turns in 2005 primarily due to initiatives focused on reducing days
sales outstanding and improved payables management. Inventory turns remained flat with 2005, as
the company maintained focus on improving customer service.
Coopers operating working capital decreased $40 million to $953 million in 2005 compared to
$993 million in 2004. The decrease in operating working capital for 2005 was due to a $77 million
increase in accounts payable, partially offset by a $21 million increase in receivables and a $16
million increase in inventories. Receivables and inventories increased with
higher sales volume and ongoing efforts to improve customer service. Payables increased on
higher volumes and improved payables management through expanded leverage of enterprise business
system capabilities. Operating working capital turnover (defined as annualized revenues divided by
average quarterly operating working capital) for 2005 of 4.9 turns increased from 4.6 turns in 2004
due to revenue growth and a decline in operating working capital.
Cash Flows
Net cash provided by operating activities was $795 million during 2007. This cash, plus an
additional $191 million of cash and cash equivalents, net debt proceeds of $251 million, and $68
million of cash received from employee stock option exercise activity were primarily used to fund
capital expenditures of $116 million, acquisitions of $336 million, dividends of $154 million,
share purchases of $344 million, and $94 million in investments. In addition, Cooper used $290
million to fund a binding offer for all outstanding shares of MTL Instruments Group plc, a
publicly-traded company based in the United Kingdom that is expected to close in the first quarter
of 2008.
Net cash provided by operating activities was $601 million during 2006. This cash, plus an
additional $29 million of cash and cash equivalents and $89 million of cash received from employee
stock option exercise activity were primarily used to fund capital expenditures of $85 million,
acquisitions of $280 million, dividends of $137 million and share purchases of $264 million.
Net cash provided by operating activities was $574 million for 2005. These funds, plus $200
million of cash and cash equivalents and $73 million of cash received from employee stock activity
were primarily used to fund capital expenditures of $97 million, dividends of $138 million, net
debt repayments of $384 million and share purchases of $211 million during 2005.
In connection with accounting for acquisitions, Cooper records, to the extent appropriate,
accruals for the costs of closing duplicate facilities, severing redundant personnel and
integrating the acquired businesses into existing Cooper operations. At December 31, 2007 and
2006, Cooper had no accruals related to these activities. Cash flows from operating activities for
each of the three years in the period ended December 31, 2007, is reduced by the amounts expended
on the various accruals established in connection with each acquisition. See Note 7 of the Notes
to the Consolidated Financial Statements for further information.
Cooper currently anticipates that it will annually generate in excess of $400 million in cash
flow available for acquisitions, debt repayment and common stock repurchases.
As discussed in Note 16 of Notes to the Consolidated Financial Statements, Cooper has reached
a revised agreement with the Representatives of Federal-Mogul, its bankruptcy committees and the
future 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 debt proceeds (if required).
Debt
At December 31, 2007 and 2006, Cooper had cash and cash equivalents of $232.8 million and
$423.5 million, respectively. At December 31, 2007 and 2006, Cooper had short-term debt of $256.1
million and $5.0 million, respectively, consisting primarily of commercial paper.
29
Coopers practice is to back up its short-term debt with a combination of cash and committed
credit facilities. At December 31, 2007 and 2006, Cooper had a $500 million committed credit
facility, which matures in November 2009. Short-term debt, to the extent not backed up by cash,
reduces the amount of additional liquidity provided by the committed credit facility.
The credit facility agreement is not subject to termination based on a decrease in Coopers
debt ratings or a material adverse change clause. The principal financial covenants in the
agreement limit Coopers debt-to-total capitalization ratio to 60% and require Cooper to maintain a
minimum earnings before interest expense, income taxes, depreciation and amortization to interest
ratio of 3 to 1. Cooper is in compliance with all covenants set forth in the credit facility
agreement.
Coopers access to the commercial paper market could be adversely affected by a change in the
credit ratings assigned to its commercial paper. Should Coopers access to the commercial paper
market be adversely affected due to a change in its credit ratings, Cooper would rely on a
combination of available cash and its committed credit facility to provide short-term funding. The
committed credit facility does not contain any provision, which makes its availability to Cooper
dependent on Coopers credit ratings.
On November 8, 2005, Cooper US, Inc., a subsidiary of Cooper, issued $325 million of 5.25%
senior unsecured notes that mature on November 15, 2012. Payment of the notes is guaranteed by
Cooper and certain of its subsidiaries. Proceeds of the notes were swapped with cross-currency
interest-rate swaps to 272.6 million, effectively converting the seven-year U.S. notes to
seven-year Euro notes with an annual interest rate of 3.55%. The proceeds of 272.6 million
partially funded repayment of the 6.25% Euro bonds that matured in October 2005.
Coopers $300 million, 5.25% senior unsecured notes, which were issued in June 2002, matured
in July 2007. On June 18, 2007, Coopers wholly-owned subsidiary, Cooper US, Inc. issued $300
million of senior unsecured notes due in 2017. The fixed rate notes have an interest coupon of
6.10% and are guaranteed by Cooper and certain of its principal operating subsidiaries. Proceeds
from the financing were used to repay the maturing 5.25% notes. Combined with interest rate hedges
implemented in anticipation of the offering, the 6.10% notes will have an effective annual cost to
Cooper of 5.75 %.
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
Cooper executes stand-by letters of credit, performance bonds and other guarantees in the
normal course of business that ensure Coopers performance or payments to third parties. The
aggregate notional value of these instruments was $99.5 million and $118.6 million at December 31,
2007 and 2006, respectively. Eighty-six percent of these instruments have an expiration date
within one year. In the past, no significant claims have been made against these financial
instruments. Management believes the likelihood of demand for payment under these instruments is
minimal and expects no material cash outlays to occur in connection with these instruments.
The following table summarizes Coopers contractual obligations at December 31, 2007 and the
effect such obligations are expected to have on its liquidity and cash flows in future periods.
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due |
|
|
|
|
|
|
|
Less than |
|
|
One to |
|
|
Four to |
|
|
After |
|
|
|
Total |
|
|
One Year |
|
|
Three Years |
|
|
Five Years |
|
|
Five Years |
|
Contractual Obligations: |
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Debt |
|
$ |
1,010.0 |
|
|
$ |
100.1 |
|
|
$ |
277.5 |
|
|
$ |
324.1 |
|
|
$ |
308.3 |
|
Short-Term Debt |
|
|
256.1 |
|
|
|
256.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncancellable Operating Leases |
|
|
114.9 |
|
|
|
24.4 |
|
|
|
35.6 |
|
|
|
19.2 |
|
|
|
35.7 |
|
Purchase Obligations |
|
|
333.7 |
|
|
|
328.9 |
|
|
|
4.8 |
|
|
|
|
|
|
|
|
|
Other Long-Term Liabilities (1), (2) |
|
|
228.1 |
|
|
|
20.1 |
|
|
|
39.8 |
|
|
|
39.9 |
|
|
|
128.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,942.8 |
|
|
$ |
729.6 |
|
|
$ |
357.7 |
|
|
$ |
383.2 |
|
|
$ |
472.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes unfunded other postretirement benefit obligations, unfunded non-U.S.
defined benefit pension plan liabilities, other postemployment benefit liabilities and
environmental liabilities. |
|
(2) |
|
Due to uncertainty with respect to the timing of future cash flows associated with
Coopers unrecognized tax benefits at December 31, 2007, Cooper is unable to make reliable
estimates of the period of cash settlement with the respective taxing authorities. Therefore,
$57.3 million of unrecognized tax benefits have been excluded from the contractual obligations
table above. |
Capitalization
On November 2, 2004, Coopers Board of Directors authorized the purchase of up to ten million
shares of common stock. At December 31, 2007, 4.3 million shares remained available to purchase
under the authorization. On February 12, 2008, Cooper announced that the Board of Directors
authorized the purchase of ten million shares of common stock in addition to the remaining November
2, 2004 authorization. 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.
As of the date of this filing in 2008, Cooper had repurchased the 3 million shares intended to
offset dilution from share issuances under equity compensation plans, as well as approximately
600,000 additional shares under the November 2, 2004 Cooper Board of Directors authorization
discussed above. Cooper may continue to repurchase shares under this authorization from time to
time during 2008. The decision whether to do so will be dependent on the favorability of market
conditions, as well as potential cash requirements for acquisitions.
Cooper targets a 30% to 40% debt-to-total capitalization ratio. Excess cash flows are
utilized to purchase shares of Coopers Common stock or fund acquisitions. At December 31, 2007,
2006 and 2005, Coopers debt-to-total capitalization ratio was 30.8%, 28.9% and 31.7%,
respectively.
On February 12, 2008, Cooper announced that the Board of Directors approved an increase in the
annual dividend rate of Coopers common stock by $.16 per share to $1.00 per share. On February
14, 2007, Cooper announced that the Board of Directors approved a two-for-one stock split of Cooper
common stock and increased the annual dividend rate of Coopers common stock by $.10 cents per
share to $.84 per share. The record date for the stock split was February 28, 2007 and the
distribution date was March 15, 2007. On February 9, 2005, Coopers Board of Directors increased
the annual dividend rate of Coopers common stock by eight cents
per share to $.74. All share and per share information presented in this Form 10-K has been
retroactively restated to reflect the effect of the stock split.
Capital Expenditures and Commitments
Capital expenditures on projects to reduce product costs, improve product quality, increase
manufacturing efficiency and operating flexibility, or expand production capacity were $116 million
in 2007, $85 million in 2006 and $97 million in 2005. Capital expenditures are projected to be
approximately $120 to
31
$130 million in 2008. Projected expenditures for 2008 will focus on capacity
expansions in key markets, development of new products, continued implementation of new business
systems and cost reduction programs.
Interest Rate and Currency Risk
Changes in interest rates and currency exchange rates affect Coopers earnings and cash flows.
As a result of having sales, purchases and certain intercompany transactions denominated in
currencies other than the functional currencies used by Coopers businesses, Cooper is exposed to
the effect of exchange rate changes on its cash flows and earnings. Cooper enters into currency
forward exchange contracts to hedge significant non-functional currency denominated transactions
for periods consistent with the terms of the underlying transactions. Contracts generally have
maturities that do not exceed one year.
The table below provides information about Coopers derivative financial instruments and other
financial instruments at December 31, 2007 that are sensitive to changes in interest rates. For
debt obligations the table presents principal cash flows by expected maturity dates and weighted
average interest rates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2011 |
|
|
2012 |
|
|
Thereafter |
|
|
Total |
|
|
|
($ in millions) |
|
Long-term debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-rate (U.S. Dollar) |
|
$ |
100.1 |
|
|
$ |
275.2 |
|
|
$ |
2.3 |
|
|
$ |
|
|
|
$ |
325.0 |
|
|
$ |
300.3 |
|
|
$ |
1,002.9 |
|
Average interest-rate |
|
|
5.7 |
% |
|
|
5.6 |
% |
|
|
5.7 |
% |
|
|
5.7 |
% |
|
|
5.7 |
% |
|
|
6.1 |
% |
|
|
5.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable-rate (U.S. Dollar) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
8.0 |
|
|
$ |
8.0 |
|
Average interest-rate |
|
|
5.6 |
% |
|
|
5.6 |
% |
|
|
5.6 |
% |
|
|
5.6 |
% |
|
|
5.6 |
% |
|
|
5.6 |
% |
|
|
5.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross-currency interest-rate
swaps: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed to fixed: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional amount (1) |
|
$ |
325.0 |
|
|
$ |
325.0 |
|
|
$ |
325.0 |
|
|
$ |
325.0 |
|
|
$ |
325.0 |
|
|
$ |
325.0 |
|
|
$ |
325.0 |
|
Average pay-rate |
|
|
3.5275 |
% |
|
|
3.5275 |
% |
|
|
3.5275 |
% |
|
|
3.5275 |
% |
|
|
3.5275 |
% |
|
|
3.5275 |
% |
|
|
3.5275 |
% |
Average receive-rate |
|
|
5.232 |
% |
|
|
5.232 |
% |
|
|
5.232 |
% |
|
|
5.232 |
% |
|
|
5.232 |
% |
|
|
5.232 |
% |
|
|
5.232 |
% |
|
|
|
(1) |
|
Cooper entered into cross-currency interest-rate swaps to effectively convert $325
million of 5.25% senior unsecured debt due in November 2012 to Euro 272.6 million with an
annual interest rate of 3.55%. |
The table below provides information about Coopers currency forward exchange contracts to
purchase currencies in excess of $10 million at December 31, 2007. The contracts mature during
2008. The contracts related to funding of the MTL tender offer have been excluded due to the very
short terms of those contracts. The notional amount is used to calculate
the contractual payments exchanged under the contracts. The notional amount represents the
U.S. dollar equivalent.
32
|
|
|
|
|
|
|
2008 |
|
|
(in millions, |
|
|
where applicable) |
U.S. Dollar Functional Currency |
|
|
|
|
Buy U.S. Dollars / Sell Euro |
|
|
|
|
Notional amount |
|
$ |
10.7 |
|
Average contract rate |
|
|
1.408 |
|
|
|
|
|
|
U.S. Dollar Functional Currency |
|
|
|
|
Buy Euro / Sell U.S. Dollars |
|
|
|
|
Notional amount |
|
$ |
88.8 |
|
Average contract rate |
|
|
1.440 |
|
|
|
|
|
|
Canadian Dollar Functional Currency |
|
|
|
|
Buy U.S. Dollars / Sell Canadian Dollars |
|
|
|
|
Notional amount |
|
$ |
91.5 |
|
Average contract rate |
|
|
1.030 |
|
|
|
|
|
|
U.S. Dollar Functional Currency |
|
|
|
|
Buy Mexican Pesos / Sell U.S. Dollars |
|
|
|
|
Notional amount |
|
$ |
26.5 |
|
Average contract rate |
|
|
.0884 |
|
|
|
|
|
|
U.S. Dollar Functional Currency |
|
|
|
|
Buy U.S. Dollars / Sell Great Britain Pounds |
|
|
|
|
Notional amount |
|
$ |
220.6 |
|
Average contract rate |
|
|
1.977 |
|
|
|
|
|
|
Euro Functional Currency |
|
|
|
|
Buy Euro / Sell U.S. Dollars |
|
|
|
|
Notional amount |
|
$ |
18.5 |
|
Average contract rate |
|
|
1.467 |
|
|
|
|
|
|
U.S. Dollar Functional Currency |
|
|
|
|
Buy Great Britain Pounds / Sell U.S. Dollars |
|
|
|
|
Notional amount |
|
$ |
10.6 |
|
Average contract rate |
|
|
1.998 |
|
|
|
|
|
|
Great Britain Pound Functional Currency |
|
|
|
|
Buy Great Britain Pounds / Sell U.S. Dollars |
|
|
|
|
Notional amount |
|
$ |
14.5 |
|
Average contract rate |
|
|
2.007 |
|
The table below provides information about Coopers derivative financial instruments and other
financial instruments at December 31, 2006 that are sensitive to changes in interest rates. For
debt obligations the table presents principal cash flows by expected maturity dates and weighted
average interest rates. For interest-rate swaps, the table presents notional amounts and weighted
average interest rates by contractual maturity dates. Notional amounts are used to calculate the
contractual payments to be exchanged under the contract. The average pay-rate on interest-rate
swaps is based on implied forward-rates in the yield curve as of December 31, 2006.
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2008 |
|
2009 |
|
2010 |
|
2011 |
|
Thereafter |
|
Total |
|
|
($ in millions) |
Long-term debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-rate (U.S. Dollar) |
|
$ |
300.7 |
|
|
$ |
100.3 |
|
|
$ |
275.0 |
|
|
$ |
2.3 |
|
|
$ |
|
|
|
$ |
325.0 |
|
|
$ |
1,003.3 |
|
Average interest-rate |
|
|
5.5 |
% |
|
|
5.5 |
% |
|
|
5.4 |
% |
|
|
5.3 |
% |
|
|
5.3 |
% |
|
|
5.3 |
% |
|
|
5.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable-rate (U.S. Dollar) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
8.0 |
|
|
$ |
8.0 |
|
Average interest-rate |
|
|
5.6 |
% |
|
|
5.6 |
% |
|
|
5.6 |
% |
|
|
5.6 |
% |
|
|
5.6 |
% |
|
|
5.6 |
% |
|
|
5.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-rate swaps: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed to variable: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional amount (1) |
|
$ |
300.0 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
300.0 |
|
Average pay-rate |
|
|
7.38 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.38 |
% |
Average receive-rate |
|
|
5.25 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.25 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross-currency interest-rate
swaps: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed to fixed: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional amount (2) |
|
$ |
325.0 |
|
|
$ |
325.0 |
|
|
$ |
325.0 |
|
|
$ |
325.0 |
|
|
$ |
325.0 |
|
|
$ |
325.0 |
|
|
$ |
325.0 |
|
Average pay-rate |
|
|
3.5275 |
% |
|
|
3.5275 |
% |
|
|
3.5275 |
% |
|
|
3.5275 |
% |
|
|
3.5275 |
% |
|
|
3.5275 |
% |
|
|
3.5275 |
% |
Average receive-rate |
|
|
5.232 |
% |
|
|
5.232 |
% |
|
|
5.232 |
% |
|
|
5.232 |
% |
|
|
5.232 |
% |
|
|
5.232 |
% |
|
|
5.232 |
% |
|
|
|
(1) |
|
Cooper entered into interest-rate swaps to effectively convert its fixed-rate $300
million senior unsecured debt due in July 2007 to variable-rate debt. |
|
(2) |
|
Cooper entered into cross-currency interest-rate swaps to effectively convert $325
million of 5.25% senior unsecured debt due in November 2012 to Euro 272.6 million with an
annual interest rate of 3.55%. |
The table below provides information about Coopers currency forward exchange contracts to
purchase currencies in excess of $10 million at December 31, 2006. The contracts matured during
2007. The notional amount is used to calculate the contractual payments exchanged under the
contracts. The notional amount represents the U.S. dollar equivalent.
|
|
|
|
|
|
|
2007 |
|
|
(in millions, |
|
|
where applicable) |
Euro Functional Currency |
|
|
|
|
Buy U.S. Dollars / Sell Euro |
|
|
|
|
Notional amount |
|
$ |
143.9 |
|
Average contract rate |
|
|
1.288 |
|
|
|
|
|
|
U.S. Dollar Functional Currency |
|
|
|
|
Buy Euro / Sell U.S. Dollars |
|
|
|
|
Notional amount |
|
$ |
121.7 |
|
Average contract rate |
|
|
1.306 |
|
|
|
|
|
|
Canadian Dollar Functional Currency |
|
|
|
|
Buy U.S. Dollars / Sell Canadian Dollars |
|
|
|
|
Notional amount |
|
$ |
76.0 |
|
Average contract rate |
|
|
.8913 |
|
|
|
|
|
|
U.S. Dollar Functional Currency |
|
|
|
|
Buy Mexican Pesos / Sell U.S. Dollars |
|
|
|
|
Notional amount |
|
$ |
22.9 |
|
Average contract rate |
|
|
.0908 |
|
See Note 17 of the Notes to the Consolidated Financial Statements for additional information
regarding the fair value of Coopers financial instruments.
34
Recently Issued Accounting Standards
See Note 1 of the Notes to the Consolidated Financial Statements.
|
|
|
ITEM 7A. |
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
The information required by this Item is included under Item 7. Managements Discussion and
Analysis of Financial Condition and Results of Operations.
|
|
|
ITEM 8. |
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
Coopers consolidated financial statements, together with the report thereon of Ernst & Young
LLP and the supplementary financial data are set forth on pages F-1
through F-47 hereof. (See Item
15 for Index.)
|
|
|
ITEM 9. |
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
Not applicable.
|
|
|
ITEM 9A. |
|
CONTROLS AND PROCEDURES |
As of the end of the period covered by this report, Coopers management, under the supervision
and with the participation of the Chief Executive Officer and Chief Financial Officer, performed an
evaluation of the effectiveness of the design and operation of Coopers disclosure controls and
procedures. Based on that evaluation, Coopers management, including the Chief Executive Officer
and Chief Financial Officer, concluded that the disclosure controls and procedures are effective.
There have been no significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of this evaluation. See Report of
Management on Internal Control Over Financial Reporting on page F-1.
Cooper is executing a multi-year process of implementing an Enterprise Business System (EBS)
globally. Implementing an EBS system on a global basis involves significant changes in business
processes. The implementation is phased, which reduces the risks associated with making these
changes. In addition, Cooper is taking the necessary steps to monitor and maintain appropriate
internal controls during the implementations. As of December 31, 2007, approximately 85% of
Coopers revenues are on the global system.
|
|
|
ITEM 9B. |
|
OTHER INFORMATION |
Not applicable.
PART III
|
|
|
ITEM 10. |
|
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
The information required by this Item is set forth under the captions Election of Directors,
Executive Officers, Section 16(a) Beneficial Ownership Reporting Compliance, and Corporate
Governance in Coopers Proxy Statement to be filed pursuant to Regulation 14A under the Securities
Exchange Act of 1934 in connection with Coopers 2008 Annual Meeting of Shareholders (the Proxy
Statement) and is incorporated herein by reference.
35
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ITEM 11. |
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EXECUTIVE COMPENSATION |
The information required by this Item is set forth under the caption Executive Management
Compensation and Directors Compensation in the Proxy Statement and is incorporated herein by
reference.
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ITEM 12. |
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS |
The information required by this Item is set forth under the captions Cooper Stock Ownership
of Certain Beneficial Owners, Securities Ownership of Officers and Directors and Equity
Compensation Plan Information in the Proxy Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is set forth under the caption Transactions with
Related Persons and Corporate Governance-Director Independence in the Proxy Statement and is
incorporated herein by reference.
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ITEM 14. |
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PRINCIPAL ACCOUNTANT FEES AND SERVICES |
The information required by this Item is set forth under the caption Relationship with
Independent Auditors in the Proxy Statement and is incorporated herein by reference.
PART IV
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ITEM 15. |
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EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
(a) |
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1. Financial Statements and Other Financial Data. |
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Page |
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F-1 |
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F-2 |
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F-3 |
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F-4 |
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F-5 |
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F-6 |
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F-7 |
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F-8 |
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Financial information with respect to subsidiaries not consolidated and 50 percent or less
owned entities accounted for by the equity method has not been included because in the aggregate
such subsidiaries and investments do not constitute a significant subsidiary.
|
2. |
|
Financial Statement Schedules |
Financial statement schedules are not included in this Form 10-K Annual Report
because they are not applicable or the required information is shown in the financial
statements or notes thereto.
36
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2.0
|
|
Agreement and Plan of Merger among Cooper Industries, Inc., Cooper
Mergerco, Inc. and Cooper Industries, Ltd. (incorporated herein by reference to
Annex I to Coopers Registration Statement on Form S-4, Registration No. 333-62740). |
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3.1
|
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Memorandum of Association of Cooper Industries, Ltd. (incorporated herein
by reference to Annex II to Coopers Registration Statement on Form S-4,
Registration No. 333-62740). |
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3.2
|
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Amended and Restated Bye-Laws of Cooper Industries, Ltd. (incorporated
herein by reference to Annex III to Coopers Registration Statement on Form S-4,
Registration No. 333-62740). |
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4.1
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Amended and Restated Rights Agreement dated as of August 3, 2007 between
Cooper Industries, Ltd. and Computershare Trust Company, N.A., as Rights Agent
(incorporated herein by reference to Exhibit 4.1 to Coopers Amendment No. 1 to
Registration Statement on Form 8-A, Registration No. 001-31330). |
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4.2
|
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Amended and Restated Voting Agreement between Cooper Industries, Ltd.,
Cooper Industries, Inc. and Cooper Bermuda Investments Ltd. (incorporated herein by
reference to Exhibit 4 to Coopers Form 10-Q for the quarter ended March 31, 2004). |
|
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4.3
|
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Indenture dated as of January 15, 1990, between Cooper Industries, Inc.
and The Chase Manhattan Bank (National Association), as Trustee (incorporated herein
by reference to Exhibit 4(a) to Coopers Registration Statement on Form S-3,
Registration No. 33-33011). |
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4.4
|
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First Supplemental Indenture dated as of May 15, 2002 between Cooper
Industries, Inc. and JPMorgan Chase Bank, N.A., as successor Trustee to The Chase
Manhattan Bank (National Association) (incorporated herein by reference to Exhibit
4.3 to Coopers Form 10-Q for the quarter ended June 30, 2002). |
|
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4.5
|
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Second Supplemental Indenture dated as of June 21, 2002 among Cooper
Industries, Inc., Cooper Industries, Ltd. and JPMorgan Chase Bank, N.A., as Trustee
(incorporated herein by reference to Exhibit 4.4 to Coopers Form 10-Q for the
quarter ended June 30, 2002). |
|
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4.6
|
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Third Supplemental Indenture dated as of October 28, 2002 among Cooper
Industries, Inc., Cooper Industries, Ltd. and JPMorgan Chase Bank, N.A., as Trustee
(incorporated herein by reference to Exhibit 4.1 to Coopers Form 10-Q for the
quarter ended September 30, 2002). |
|
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4.7
|
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Fourth Supplemental Indenture dated as of January 1, 2005 among Cooper
Industries, LLC, Cooper Industries, Ltd. and JPMorgan Chase Bank, N.A., as Trustee
(incorporated by reference to Exhibit 4 to Coopers Form 10-Q for the quarter ended
March 31, 2005). |
|
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4.8
|
|
Indenture dated as of November 8, 2005 among Cooper US, Inc., Cooper
Industries, Ltd., Subsidiary Guarantors and JPMorgan Chase Bank, N.A., as Trustee
(incorporated by reference to Exhibit 4.1 to Coopers Form 8-K filed November 9,
2005). |
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4.9
|
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Registration Rights Agreement dated November 8, 2005 among Cooper US,
Inc., Cooper Industries, Ltd., Subsidiary Guarantors, and Banc of America Securities
LLC and Citigroup Global Markets, Inc. as representatives of several initial
purchasers of $325 million aggregate principal amount of debt securities
(incorporated by reference to Exhibit 4.2 to Coopers Form 8-K filed November 9,
2005). |
37
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4.10
|
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Form of Indenture among Cooper US, Inc., Cooper Industries, Ltd. and
Deutsche Bank Trust Company Americas, as Trustee (incorporated by reference to
Exhibit 4.1 to Coopers Form 8-K dated June 13, 2007). |
|
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4.11
|
|
Form of First Supplemental Indenture among Cooper US, Inc., Cooper
Industries, Ltd., the Subsidiary Guarantors named therein and Deutsche Bank Trust
Company Americas, as Trustee (incorporated by reference to Exhibit 4.2 to Coopers
Form 8-K dated June 13, 2007). |
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10.1
|
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Cooper Industries, Inc. Directors Deferred Compensation Plan (incorporated
by reference to Exhibit 10.2 to Coopers Form 10-K for the year ended December 31,
1997). |
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10.2
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Cooper Industries, Inc. Directors Retirement Plan (incorporated by
reference to Exhibit 10.3 to Coopers Form 10-K for the year ended December 31,
1997). |
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10.3
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Cooper Industries, Inc. Supplemental Excess Defined Benefit Plan (August 1,
1998 Restatement) (incorporated by reference to Exhibit 10(iii) to Coopers Form 10-Q
for the quarter ended September 30, 1998). |
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10.4
|
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First Amendment to Cooper Industries, Inc. Supplemental Excess Defined
Benefit Plan (August 1, 1998 Restatement) (incorporated by reference to Exhibit 10.6
to Coopers Form 10-K for the year ended December 31, 2003). |
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10.5
|
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Cooper Industries, Inc. Supplemental Excess Defined Contribution Plan
(August 1, 1998 Restatement) (incorporated by reference to Exhibit 10(iv) to Coopers
Form 10-Q for the quarter ended September 30, 1998). |
|
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10.6
|
|
First, Second and Third Amendments to Cooper Industries, Inc. Supplemental
Excess Defined Contribution Plan (August 1, 1998 Restatement) (incorporated by
reference to Exhibit 10.8 to Coopers Form 10-K for the year ended December 31,
2003). |
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10.7
|
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Description of Cooper Supplemental Executive Retirement Plan and Base
Salary Deferral Program Adopted effective January 1, 2007 (incorporated by reference
to Exhibit 10.5 to Coopers Form 10-Q for the period ended March 31, 2007). |
|
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10.8
|
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Management Incentive Compensation Deferral Plan (incorporated by reference
to Exhibit 10.7 to Coopers Form 10-K for the year ended December 31, 1997). |
|
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10.9
|
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Third and Fourth Amendments to Management Incentive Compensation Deferral
Plan (incorporated by reference to Exhibit 10.10 to Coopers Form 10-K for the year
ended December 31, 2003). |
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10.10
|
|
Crouse-Hinds Company Officers Disability and Supplemental Pension Plan
(September 10, 1999 Restatement, as amended) (incorporated by reference to Exhibit
10.11 to Coopers Form 10-K for the year ended December 31, 2003). |
|
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10.11
|
|
Cooper Industries Amended and Restated Stock Incentive Plan (February 9,
2005 Restatement) (incorporated herein by reference to Exhibit 10.4 to Coopers Form
10-Q for the quarter ended March 31, 2005). |
|
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10.12
|
|
First Amendment to Cooper Industries Amended and Restated Stock Incentive
Plan (February 9, 2005 Restatement) (incorporated by reference to Exhibit 10.13 to
Coopers Form 10-K for the year ended December 31, 2006). |
38
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10.13
|
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Second Amendment to Cooper Industries Amended and Restated Stock Incentive
Plan (February 9, 2005 Restatement) (incorporated by reference to Exhibit 10.2 to
Coopers Form 10-Q for the period ended March 31, 2007). |
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10.14
|
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Form of Incentive Stock Option Agreement for Cooper Industries, Inc. Stock
Incentive Plan (incorporated by reference to Exhibit 10.14 to Coopers Form 10-K for
the year ended December 31, 2003). |
|
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10.15
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Form of Nonqualified Stock Option Agreement for Cooper Industries, Inc.
Stock Incentive Plan (incorporated by reference to Exhibit 10.15 to Coopers Form
10-K for the year ended December 31, 2003). |
|
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10.16
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Form of Cooper US, Inc. Executive Stock Incentive Agreement for the
performance period January 1, 2005 to December 31, 2007 (incorporated by reference to
Exhibit 10.3 to Coopers Form 10-Q for the period ended March 31, 2005). |
|
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10.17
|
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Form of Cooper US, Inc. Executive Stock Incentive Agreement for the
performance period January 1, 2006 to December 31, 2008 (incorporated by reference to
Exhibit 10.1 to Coopers Form 10-Q for the period ended March 31, 2006). |
|
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10.18
|
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Form of Cooper US, Inc. Executive Stock Incentive Agreement for the
performance period January 1, 2007 to December 31, 2009 (incorporated by reference to
Exhibit 10.1 to Coopers Form 10-Q for the period ended March 31, 2007). |
|
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10.19
|
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Cooper Industries Amended and Restated Management Annual Incentive Plan
(February 13, 2006 Restatement) (incorporated herein by reference to Appendix C to
Coopers Proxy Statement for the Annual Meeting of Shareholders held on April 25,
2006). |
|
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10.20
|
|
First Amendment to Cooper Industries Amended and Restated Management
Annual Incentive Plan (February 13, 2006 Restatement) (incorporated by reference to
Exhibit 10.20 to Coopers Form 10-K for the year ended December 31, 2006). |
|
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10.21
|
|
Amended and Restated Cooper Industries, Ltd. Directors Stock Plan
(February 14, 2006 Restatement) (incorporated herein by reference to Appendix D to
Coopers Proxy Statement for the Annual Meeting of Shareholders held on April 25,
2006). |
|
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10.22
|
|
First Amendment to Cooper Industries, Ltd. Amended and Restated Directors
Stock Plan (February 14, 2006 Restatement) (incorporated by reference to Exhibit 10.3
to Coopers Form 10-Q for the period ended March 31, 2007). |
|
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10.23
|
|
Form of Directors Nonqualified Stock Option Agreement for Directors
Stock Plan (incorporated herein by reference to Exhibit 10.18 to Coopers Form 10-K
for the year ended December 31, 1997). |
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10.24
|
|
Cooper Industries, Ltd. Amended and Restated Directors Retainer Fee Stock
Plan (April 1, 2003 Restatement) (incorporated by reference to Exhibit 10.21 to
Coopers Form 10-K for the year ended December 31, 2003). |
|
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10.25
|
|
First Amendment to Cooper Industries, Ltd. Amended and Restated Directors
Retainer Fee Stock Plan (April 1, 2003 Restatement) (incorporated by reference to
Exhibit 10.4 to Coopers Form 10-Q for the period ended March 31, 2007). |
|
|
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10.26
|
|
Form of Management Continuity Agreement between Cooper Industries, Ltd.
and key management personnel, which applies if there is a Change in Control of Cooper |
39
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(incorporated herein by reference to Exhibit 10.5 to Coopers Form 10-Q for the
quarter ended March 31, 2005). |
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10.27
|
|
Form of Indemnification Agreement between Cooper Industries, Ltd. and key
management personnel (incorporated by reference to Exhibit 10.23 to Coopers Form
10-K for the year ended December 31, 2003). |
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10.28
|
|
Purchase and Sale Agreement between Cooper Industries, Inc. and
Federal-Mogul Corporation dated August 17, 1998 (incorporated herein by reference to
Exhibit 10(i) of Coopers Form 10-Q for the quarter ended September 30, 1998). |
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10.29
|
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Term Sheet Pneumo Abex Settlement Plan A and Plan B dated as of July 6,
2006 among Cooper Industries, Ltd.; Cooper Industries, LLC; Federal-Mogul
Corporation; Federal-Mogul Products, Inc.; the Future Claimants Representative for
Federal-Mogul Corporation and Federal-Mogul Products, Inc.; the Official Committee of
Asbestos Claimants for Federal-Mogul Corporation and Federal-Mogul Products, Inc.;
Pneumo Abex LLC; and PCT International Holdings, Inc. (incorporated by reference to
Exhibit 99.1 to Coopers Form 8-K dated July 20, 2006). |
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10.30
|
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Plan B Settlement Agreement dated as of September 18, 2006 among Cooper
Industries, Ltd.; Cooper Industries, LLC; Federal-Mogul Corporation; Federal-Mogul
Products, Inc.; the Future Claimants Representative for Federal-Mogul Corporation
and Federal-Mogul Products, Inc.; the Official Committee of Asbestos Claimants for
Federal-Mogul Corporation and Federal-Mogul Products, Inc.; Pneumo Abex LLC; and PCT
International Holdings, Inc. (incorporated by reference to Exhibit 10.28 to Coopers
Form 10-K for the year ended December 31, 2006). |
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10.31
|
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Cooper (UK 2002) Employee Share Purchase Plan (incorporated by reference
to Exhibit 10.25 to Coopers Form 10-K for the year ended December 31, 2003). |
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10.32
|
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Five-Year Credit Agreement dated November 3, 2004 among Cooper Industries,
Ltd., Cooper US, Inc. and the banks named therein (incorporated by reference to
Exhibit 10.25 of Coopers Form 10-K for the year ended December 31, 2004). |
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10.33
|
|
Form of Executive Employment Agreement for employees who received stock
option and performance share awards on February 13, 2006 (incorporated by reference
to Exhibit 10.1 to Coopers Form 8-K dated March 17, 2006). |
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10.34
|
|
Separation and Transition Agreement dated September 1, 2006 between Cooper
Industries, Ltd. and David R. Sheil (incorporated by reference to Exhibit 10.2 to
Coopers Form 10-Q for the quarter ended September 30, 2006). |
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10.35
|
|
Separation and Transition Agreement dated January 16, 2007 between Cooper
Industries, Ltd. and Paul M. Isabella (incorporated by reference to Exhibit 10.33 to
Coopers Form 10-K for the year ended December 31, 2006). |
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12.0
|
|
Computation of Ratios of Earnings to Fixed Charges for the Calendar years
2003 through 2007. |
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21.0
|
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List of Cooper Industries, Ltd. Subsidiaries. |
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23.1
|
|
Consent of Ernst & Young LLP. |
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23.2
|
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Consent of Bates White, LLC. |
40
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24.0
|
|
Powers of Attorney from members of the Board of Directors of Cooper Industries, Ltd. |
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31.1
|
|
Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
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31.2
|
|
Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
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32.1
|
|
Certification of Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
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32.2
|
|
Certification of Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
Cooper will furnish to the Commission supplementally upon request a copy of any instrument
with respect to long-term debt of Cooper.
Copies of the above Exhibits are available to shareholders of record at a charge of $.25 per
page, minimum order of $10.00. Direct requests to:
Cooper Industries, Ltd.
Attn: Corporate Secretary
P.O. Box 4446
Houston, Texas 77210
41
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
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COOPER INDUSTRIES, LTD.
|
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Date: February 22, 2008 |
By: |
/s/ Kirk S. Hachigian
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|
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Kirk S. Hachigian, Chairman, President |
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and Chief Executive Officer |
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|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the
dates indicated.
|
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Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/ Kirk S. Hachigian
Kirk S. Hachigian
|
|
Chairman, President and Chief
Executive Officer
|
|
February 22, 2008 |
|
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|
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/s/ Terry A. Klebe
Terry A. Klebe
|
|
Senior Vice President and Chief
Financial Officer
|
|
February 22, 2008 |
|
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|
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/s/ Jeffrey B. Levos
Jeffrey B. Levos
|
|
Vice President, Finance and
Chief Accounting Officer
|
|
February 22, 2008 |
|
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*STEPHEN G. BUTLER
Stephen G. Butler
|
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Director
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|
February 22, 2008 |
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*ROBERT M. DEVLIN
Robert M. Devlin
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Director
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February 22, 2008 |
|
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*IVOR J. EVANS
Ivor J. Evans
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Director
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February 22, 2008 |
|
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*LINDA A. HILL
Linda A. Hill
|
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Director
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|
February 22, 2008 |
|
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*LAWRENCE D. KINGSLEY
Lawrence D. Kingsley
|
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Director
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|
February 22, 2008 |
|
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|
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*JAMES J. POSTL
James J. Postl
|
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Director
|
|
February 22, 2008 |
|
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*DAN F. SMITH
Dan F. Smith
|
|
Director
|
|
February 22, 2008 |
|
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|
|
*GERALD B. SMITH
Gerald B. Smith
|
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Director
|
|
February 22, 2008 |
|
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|
|
*MARK S. THOMPSON
Mark S. Thompson
|
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Director
|
|
February 22, 2008 |
|
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|
|
*JAMES R. WILSON
James R. Wilson
|
|
Director
|
|
February 22, 2008 |
|
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* By: |
|
/s/ Kevin M. McDonald
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Kevin M. McDonald, as Attorney-In-Fact for each of the persons indicated |
|
|
42
REPORT OF MANAGEMENT ON
INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Cooper Industries, Ltd. (Cooper) is responsible for establishing and
maintaining adequate internal control over financial reporting. Coopers internal control system
was designed to provide reasonable assurance to Coopers management and Board of Directors
regarding the preparation and fair presentation of published financial statements.
Cooper management assessed the effectiveness of Coopers internal control over financial
reporting as of December 31, 2007. In making this assessment, it used the criteria set forth by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control
Integrated Framework. Based on our assessment we believe that, as of December 31, 2007, Coopers
internal control over financial reporting is effective based on those criteria.
Coopers independent registered public accounting firm has issued an audit report on Coopers
internal control over financial reporting. This report appears on Page F-2.
|
|
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|
|
Kirk S. Hachigian
|
|
Terry A. Klebe
|
|
Jeffrey B. Levos |
Chairman, President and
|
|
Senior Vice President and
|
|
Vice President, Finance and |
Chief Executive Officer
|
|
Chief Financial Officer
|
|
and Chief Accounting Officer |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Board of Directors and Shareholders of
Cooper Industries, Ltd.
We have audited Cooper Industries, Ltd.s internal control over financial reporting as of December
31, 2007, based on criteria established in Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Cooper
Industries, Ltd.s management is responsible for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal control over financial
reporting included in the accompanying Managements Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the companys internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that,
in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance
with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition
of the companys assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Cooper Industries, Ltd. maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2007 based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Cooper Industries, Ltd. as of December
31, 2007 and 2006 and the related consolidated statements of income, shareholders equity, and cash
flows for each of the three years in the period ended December 31, 2007, and our report dated
February 19, 2008 expressed an unqualified opinion thereon.
|
|
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|
|
ERNST & YOUNG LLP |
|
|
|
Houston, Texas
|
|
|
February 19, 2008 |
|
|
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board
of Directors and Shareholders of
Cooper Industries, Ltd.
We have audited the accompanying consolidated balance sheets of Cooper Industries, Ltd. (the
Company), as of December 31, 2007 and 2006, and the related consolidated statements of income,
shareholders equity, and cash flows for each of the three years in the period ended December 31,
2007. These financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of the Company at December 31, 2007 and 2006, and the
consolidated results of its operations and its cash flows for each of the three years in the period
ended December 31, 2007, in conformity with U.S. generally
accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company adopted FASB
Interpretation No. 48 on January 1, 2007 and Statement of Financial Accounting Standards No. 158 on
December 31, 2006.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Companys internal control over financial reporting as of
December 31, 2007, based on criteria established in Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated
February 19, 2008 expressed an unqualified opinion thereon.
|
|
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|
|
ERNST & YOUNG LLP |
|
|
|
Houston, Texas
|
|
|
February 19, 2008 |
|
|
F-3
COOPER INDUSTRIES, LTD.
CONSOLIDATED INCOME STATEMENTS
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Year Ended December 31, |
|
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2007 |
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2006 |
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2005 |
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(in millions, except per share data) |
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|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
5,903.1 |
|
|
$ |
5,184.6 |
|
|
$ |
4,730.4 |
|
Cost of sales |
|
|
3,970.0 |
|
|
|
3,521.5 |
|
|
|
3,243.8 |
|
Selling and administrative expenses |
|
|
1,089.0 |
|
|
|
969.0 |
|
|
|
926.8 |
|
|
|
|
|
|
|
|
|
|
|
Operating earnings |
|
|
844.1 |
|
|
|
694.1 |
|
|
|
559.8 |
|
|
|
|
|
|
|
|
|
|
|
Income from Belden agreement |
|
|
33.1 |
|
|
|
5.1 |
|
|
|
|
|
Interest expense, net |
|
|
51.0 |
|
|
|
51.5 |
|
|
|
64.8 |
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes |
|
|
826.2 |
|
|
|
647.7 |
|
|
|
495.0 |
|
Income taxes |
|
|
133.9 |
|
|
|
163.4 |
|
|
|
103.9 |
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
692.3 |
|
|
|
484.3 |
|
|
|
391.1 |
|
Charge related to discontinued operations, net of income taxes |
|
|
|
|
|
|
20.3 |
|
|
|
227.2 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
692.3 |
|
|
$ |
464.0 |
|
|
$ |
163.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per Common share |
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
3.80 |
|
|
$ |
2.64 |
|
|
$ |
2.12 |
|
Charge from discontinued operations |
|
|
|
|
|
|
.11 |
|
|
|
1.23 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
3.80 |
|
|
$ |
2.53 |
|
|
$ |
.89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
3.73 |
|
|
$ |
2.58 |
|
|
$ |
2.06 |
|
Charge from discontinued operations |
|
|
|
|
|
|
.11 |
|
|
|
1.19 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
3.73 |
|
|
$ |
2.47 |
|
|
$ |
.87 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends per Common share |
|
$ |
.84 |
|
|
$ |
.74 |
|
|
$ |
.74 |
|
|
|
|
|
|
|
|
|
|
|
The Notes
to Consolidated Financial Statements are an integral part of these statements.
F-4
COOPER INDUSTRIES, LTD.
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
|
(in millions) |
|
ASSETS |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
232.8 |
|
|
$ |
423.5 |
|
Investments |
|
|
93.7 |
|
|
|
|
|
Receivables |
|
|
1,048.6 |
|
|
|
896.0 |
|
Inventories |
|
|
643.7 |
|
|
|
607.6 |
|
Deferred income taxes and other current assets |
|
|
284.2 |
|
|
|
266.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
2,303.0 |
|
|
|
2,193.7 |
|
|
|
|
|
|
|
|
Restricted cash |
|
|
290.1 |
|
|
|
|
|
Property, plant and equipment, less accumulated depreciation |
|
|
719.8 |
|
|
|
665.4 |
|
Goodwill |
|
|
2,540.3 |
|
|
|
2,336.9 |
|
Other noncurrent assets |
|
|
280.3 |
|
|
|
178.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
6,133.5 |
|
|
$ |
5,374.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
Short-term debt |
|
$ |
256.1 |
|
|
$ |
5.0 |
|
Accounts payable |
|
|
533.1 |
|
|
|
471.7 |
|
Accrued liabilities |
|
|
566.7 |
|
|
|
522.3 |
|
Current discontinued operations liability |
|
|
179.1 |
|
|
|
199.6 |
|
Current maturities of long-term debt |
|
|
100.1 |
|
|
|
300.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
1,635.1 |
|
|
|
1,499.3 |
|
|
|
|
|
|
|
|
Long-term debt |
|
|
909.9 |
|
|
|
702.8 |
|
Postretirement benefits other than pensions |
|
|
81.4 |
|
|
|
83.2 |
|
Long-term discontinued operations liability |
|
|
330.0 |
|
|
|
330.0 |
|
Other long-term liabilities |
|
|
335.2 |
|
|
|
284.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
3,291.6 |
|
|
|
2,899.5 |
|
|
|
|
|
|
|
|
Common stock, $.01 par value |
|
|
1.8 |
|
|
|
0.9 |
|
Capital in excess of par value |
|
|
85.7 |
|
|
|
278.4 |
|
Retained earnings |
|
|
2,835.1 |
|
|
|
2,324.4 |
|
Accumulated other nonowner changes in equity |
|
|
(80.7 |
) |
|
|
(128.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
2,841.9 |
|
|
|
2,475.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
6,133.5 |
|
|
$ |
5,374.8 |
|
|
|
|
|
|
|
|
The Notes to Consolidated Financial Statements are an integral part of these statements.
F-5
COOPER INDUSTRIES, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
(in millions) |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
692.3 |
|
|
$ |
464.0 |
|
|
$ |
163.9 |
|
Plus: charge related to discontinued operations |
|
|
|
|
|
|
20.3 |
|
|
|
227.2 |
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
692.3 |
|
|
|
484.3 |
|
|
|
391.1 |
|
Adjustments to reconcile to net cash provided by
operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
118.2 |
|
|
|
111.7 |
|
|
|
111.0 |
|
Deferred income taxes |
|
|
12.4 |
|
|
|
15.4 |
|
|
|
21.5 |
|
Excess tax benefits from stock options and awards |
|
|
(25.8 |
) |
|
|
(26.8 |
) |
|
|
|
|
Restructuring charge payments |
|
|
|
|
|
|
|
|
|
|
(0.4 |
) |
Changes in assets and liabilities: (1) |
|
|
|
|
|
|
|
|
|
|
|
|
Receivables |
|
|
(66.1 |
) |
|
|
(16.1 |
) |
|
|
(39.8 |
) |
Inventories |
|
|
27.3 |
|
|
|
(43.3 |
) |
|
|
(17.6 |
) |
Accounts payable and accrued liabilities |
|
|
36.4 |
|
|
|
1.3 |
|
|
|
86.8 |
|
Other assets and liabilities, net |
|
|
0.6 |
|
|
|
74.9 |
|
|
|
20.9 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
795.3 |
|
|
|
601.4 |
|
|
|
573.5 |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments |
|
|
(93.7 |
) |
|
|
|
|
|
|
|
|
Cash restricted for business acquisition |
|
|
(290.1 |
) |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(115.5 |
) |
|
|
(85.3 |
) |
|
|
(96.7 |
) |
Cash paid for acquired businesses |
|
|
(336.1 |
) |
|
|
(280.4 |
) |
|
|
(7.1 |
) |
Proceeds from sales of property, plant and equipment and other |
|
|
1.8 |
|
|
|
18.9 |
|
|
|
13.6 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(833.6 |
) |
|
|
(346.8 |
) |
|
|
(90.2 |
) |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuances of debt |
|
|
547.3 |
|
|
|
|
|
|
|
326.4 |
|
Debt issuance costs |
|
|
(2.7 |
) |
|
|
|
|
|
|
(3.8 |
) |
Proceeds from debt derivatives |
|
|
10.0 |
|
|
|
|
|
|
|
|
|
Repayments of debt |
|
|
(303.3 |
) |
|
|
(14.8 |
) |
|
|
(710.4 |
) |
Dividends |
|
|
(154.3 |
) |
|
|
(137.0 |
) |
|
|
(138.1 |
) |
Purchase of common shares |
|
|
(343.9 |
) |
|
|
(264.2 |
) |
|
|
(211.0 |
) |
Excess tax benefits from stock options and awards |
|
|
25.8 |
|
|
|
26.8 |
|
|
|
|
|
Activity under employee stock plans and other |
|
|
68.3 |
|
|
|
89.2 |
|
|
|
72.7 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(152.8 |
) |
|
|
(300.0 |
) |
|
|
(664.2 |
) |
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
0.4 |
|
|
|
16.1 |
|
|
|
(19.1 |
) |
|
|
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents |
|
|
(190.7 |
) |
|
|
(29.3 |
) |
|
|
(200.0 |
) |
Cash and cash equivalents, beginning of year |
|
|
423.5 |
|
|
|
452.8 |
|
|
|
652.8 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year |
|
$ |
232.8 |
|
|
$ |
423.5 |
|
|
$ |
452.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Net of the effects of acquisitions and translation. |
The Notes to Consolidated Financial Statements are an integral part of these statements.
F-6
COOPER INDUSTRIES, LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital |
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
In Excess |
|
|
|
|
|
|
Nonowner |
|
|
|
|
|
|
Common |
|
|
of Par |
|
|
Retained |
|
|
Changes in |
|
|
|
|
|
|
Stock |
|
|
Value |
|
|
Earnings |
|
|
Equity |
|
|
Total |
|
|
|
(in millions) |
|
Balance December 31, 2004 |
|
$ |
0.9 |
|
|
$ |
446.2 |
|
|
$ |
1,971.6 |
|
|
$ |
(132.2 |
) |
|
$ |
2,286.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
163.9 |
|
|
|
|
|
|
|
163.9 |
|
Minimum pension liability adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11.0 |
) |
|
|
(11.0 |
) |
Translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(37.9 |
) |
|
|
(37.9 |
) |
Change in fair value of derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.8 |
|
|
|
4.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income and other nonowner
changes in equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock dividends |
|
|
|
|
|
|
|
|
|
|
(138.1 |
) |
|
|
|
|
|
|
(138.1 |
) |
Stock-based compensation |
|
|
|
|
|
|
40.3 |
|
|
|
|
|
|
|
|
|
|
|
40.3 |
|
Subsidiary purchase of parent shares |
|
|
|
|
|
|
(211.0 |
) |
|
|
|
|
|
|
|
|
|
|
(211.0 |
) |
Stock issued under employee stock plans |
|
|
|
|
|
|
106.4 |
|
|
|
|
|
|
|
|
|
|
|
106.4 |
|
Other activity |
|
|
|
|
|
|
1.3 |
|
|
|
|
|
|
|
|
|
|
|
1.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2005 |
|
|
0.9 |
|
|
|
383.2 |
|
|
|
1,997.4 |
|
|
|
(176.3 |
) |
|
|
2,205.2 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
464.0 |
|
|
|
|
|
|
|
464.0 |
|
Translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53.8 |
|
|
|
53.8 |
|
Change in fair value of derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.3 |
|
|
|
2.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income and other nonowner
changes in equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
520.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to initially apply SFAS No. 158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8.2 |
) |
|
|
(8.2 |
) |
Common stock dividends |
|
|
|
|
|
|
|
|
|
|
(137.0 |
) |
|
|
|
|
|
|
(137.0 |
) |
Stock-based compensation |
|
|
|
|
|
|
27.5 |
|
|
|
|
|
|
|
|
|
|
|
27.5 |
|
Subsidiary purchase of parent shares |
|
|
|
|
|
|
(264.2 |
) |
|
|
|
|
|
|
|
|
|
|
(264.2 |
) |
Stock issued under employee stock plans |
|
|
|
|
|
|
130.3 |
|
|
|
|
|
|
|
|
|
|
|
130.3 |
|
Other activity |
|
|
|
|
|
|
1.6 |
|
|
|
|
|
|
|
|
|
|
|
1.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2006 |
|
|
0.9 |
|
|
|
278.4 |
|
|
|
2,324.4 |
|
|
|
(128.4 |
) |
|
|
2,475.3 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
692.3 |
|
|
|
|
|
|
|
692.3 |
|
Adjustment to initially apply FIN No. 48 |
|
|
|
|
|
|
|
|
|
|
(27.2 |
) |
|
|
|
|
|
|
(27.2 |
) |
Translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20.3 |
|
|
|
20.3 |
|
Change in fair value of derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17.7 |
|
|
|
17.7 |
|
Pension and postretirement benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.7 |
|
|
|
9.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income and other nonowner
changes in equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
712.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock dividends |
|
|
|
|
|
|
|
|
|
|
(154.4 |
) |
|
|
|
|
|
|
(154.4 |
) |
Stock-based compensation |
|
|
|
|
|
|
38.8 |
|
|
|
|
|
|
|
|
|
|
|
38.8 |
|
Purchase of common shares |
|
|
|
|
|
|
(343.9 |
) |
|
|
|
|
|
|
|
|
|
|
(343.9 |
) |
Stock issued under employee stock plans |
|
|
|
|
|
|
111.5 |
|
|
|
|
|
|
|
|
|
|
|
111.5 |
|
Stock split |
|
|
0.9 |
|
|
|
(0.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Other activity |
|
|
|
|
|
|
1.8 |
|
|
|
|
|
|
|
|
|
|
|
1.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2007 |
|
$ |
1.8 |
|
|
$ |
85.7 |
|
|
$ |
2,835.1 |
|
|
$ |
(80.7 |
) |
|
$ |
2,841.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Notes to Consolidated Financial Statements are an integral part of these statements.
F-7
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The consolidated financial statements of Cooper Industries, Ltd., a Bermuda
company (Cooper), have been prepared in accordance with generally accepted accounting principles
in the United States.
Principles of Consolidation: The consolidated financial statements include the accounts of Cooper
and its majority-owned subsidiaries. Affiliated companies are accounted for on the equity method
where Cooper
owns 20% to 50% of the affiliate unless significant economic, political or contractual
considerations indicate that the cost method is appropriate.
Use of Estimates: The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Equivalents: For purposes of the consolidated statements of cash flows, Cooper considers all
investments purchased with original maturities of three months or less to be cash equivalents.
Investments and Restricted Cash: For purposes of the consolidated balance sheet and statement of
cash flows, Cooper recorded cash held in a U.S. Money Market Fund as investments and cash held in
an account for the irrevocable tender offer to purchase all outstanding shares of MTL Instruments
Group plc, a publicly-traded company based in the United Kingdom, as restricted cash until expected
consummation of the transaction in 2008.
Accounts Receivable: Cooper provides an allowance for doubtful trade accounts receivable,
determined under the specific identification method. The allowance was $11.6 million and $9.8
million at December 31, 2007 and 2006, respectively.
Inventories: Inventories are carried at cost or, if lower, net realizable value. On the basis of
current costs, 53% and 57% of inventories at December 31, 2007 and 2006, respectively, were carried
on the last-in, first-out (LIFO) method. The remaining inventories are carried on the first-in,
first-out (FIFO) method. Cooper records provisions for potential obsolete and excess inventories.
See Note 4 of the Notes to the Consolidated Financial Statements.
Property, Plant and Equipment: Property, plant and equipment are stated at cost. Depreciation is
provided over the estimated useful lives of the related assets using primarily the straight-line
method. This method is applied to group asset accounts, which in general have the following lives:
buildings 10 to 40 years; machinery and equipment 3 to 18 years; and tooling, dies, patterns
and other 3 to 10 years.
Goodwill: Under Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible
Assets (SFAS No. 142), goodwill is subject to an annual impairment test. Cooper designated
January 1 as the date of its annual goodwill impairment test. If an event occurs or circumstances
change that would more likely than not reduce the fair value of a reporting unit below its carrying
value, an interim impairment test would be performed between annual tests. The first step of the
SFAS No. 142 two-step goodwill impairment test compares the fair value of a reporting unit with its
carrying value. Cooper has designated seven reporting units, consisting of six units in the
Electrical Products reportable operating segment plus the Tools reportable operating segment. If
the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill
impairment test shall be performed. Fair value is determined by estimating the present value of
future cash flows. The second step compares the implied fair value of reporting unit goodwill to
the carrying
F-8
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
amount of the goodwill to measure the amount of impairment loss. See Note 6 of the
Notes to the Consolidated Financial Statements.
Revenue Recognition: Cooper recognizes revenues when products are shipped. Accruals for sales
returns and other allowances are provided at the time of shipment based upon experience. The
accrual for sales returns and other allowances was $95.1 million and $73.4 million at December 31,
2007 and 2006, respectively. Shipping and handling costs of $174.3 million, $172.7 million and
$157.1 million in 2007, 2006 and 2005, respectively, are reported as a reduction of revenues in the
consolidated income statements.
Research and Development Expenditures: Research and development expenditures are charged to
earnings as incurred. Research and development expenses were $105.7 million, $83.5 million and
$71.5 million in 2007, 2006 and 2005, respectively.
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).
This Interpretation clarifies the accounting for uncertainty in income taxes recognized in
accordance with FASB Statement No. 109, Accounting for Income Taxes. This Interpretation
prescribes a more-likely-than not recognition threshold that a tax position will be sustained upon
examination and a measurement attribute for the financial statement recognition of a tax position
taken or expected to be taken in a tax return. This Interpretation also provides guidance on
derecognition, classification, interest and penalties, accounting in interim periods, disclosure
and transition. Cooper adopted the provisions of the Interpretation on January 1, 2007. As a
result of the implementation of the Interpretation, Cooper 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. See Note 12 of the Notes to the Consolidated
Financial Statements.
In September 2006, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 157, Fair Value Measurements (SFAS No. 157). SFAS No. 157 provides
enhanced guidance for using fair value to measure assets and liabilities. SFAS No. 157 clarifies
the principle that fair value should be based on the assumptions market participants would use when
pricing 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. For Cooper, SFAS No. 157 is
effective January 1, 2008. On February 12, 2008, the Financial Accounting Standards Board delayed
the effective date of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities, except for
items that are recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually). For Cooper, this action defers the effective date for those assets and
liabilities until January 1, 2009. Cooper believes that the implementation of SFAS No. 157 will
not have a material impact on the Companys results of operations, financial position or cash
flows.
In September 2006, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 158, Employers Accounting for Defined Benefit Pension and Other
Postretirement Plans (SFAS No. 158). SFAS No. 158 requires an employer to recognize the
overfunded or underfunded status of a defined benefit pension plan and other postretirement plans
as an asset or liability on its balance sheet and recognize changes in its funded status in the
year in which the change occurs through accumulated other nonowner changes in equity. For Cooper,
the Statement was effective December 31, 2006. See Note 13 of the Notes to the Consolidated
Financial Statements.
In February 2007, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 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
F-9
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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. For Cooper, SFAS No. 159 is effective January 1, 2008. Cooper believes that the
implementation of SFAS No. 159 will not have a material impact on the Companys results of
operations, financial position or cash flows.
In December 2007, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 141(R), Business Combinations (SFAS No.141(R)). SFAS No. 141(R)
provides enhanced guidance related to the measurement of identifiable assets acquired, liabilities
assumed and disclosure of information related to business combinations and their effect on the
Company. This Statement, together with the International Accounting Standards Boards IFRS 3,
Business Combinations, completes a joint effort by the FASB and IASB to improve financial reporting
about business combinations
and promotes the international convergence of accounting standards. For Cooper, SFAS No.
141(R) applies prospectively to business combinations in 2009 and is not subject to early adoption.
Cooper is currently evaluating the potential impact of SFAS No. 141(R) on business combinations
and related valuations.
In December 2007, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 160, Noncontrolling Interests in Consolidating Financial Statements (SFAS
No. 160). SFAS No. 160 provides enhanced guidance related to the disclosure of information
regarding noncontrolling interest in a subsidiary and their effect on the Company. This Statement,
together with the International Accounting Standards Boards IAS 27, Consolidated and Separate
Financial Statements, concludes a joint effort by the FASB and IASB to improve the accounting for
and reporting of noncontrolling interests in consolidated financial statements and promotes
international convergence of accounting standards. For Cooper, SFAS No. 160 is effective in 2009.
Cooper is currently evaluating the impact of this Statement on its consolidated financial
statements.
Reclassification
Certain amounts in the Consolidated Income Statement for the year ended December 31, 2006 have
been reclassified to conform to the 2007 presentation.
NOTE 2: RESTRUCTURING
During the fourth quarter of 2003, Cooper recorded net restructuring charges of $16.9 million,
or $13.6 million after taxes ($.07 per diluted common share). This represented costs associated
with restructuring projects undertaken in 2003 of $18.4 million, partially offset by a $1.5 million
adjustment of estimates for restructuring projects initiated in 2002.
The most significant action included in the charges was an announcement of the closing of
Cooper Wiring Devices manufacturing operations in New York City. This action included plans for
the withdrawal from a multiple-employer pension plan. Cooper recorded a $12.5 million obligation as
an estimate of Coopers portion of unfunded benefit obligations of the plan. In 2005, Cooper
finalized activities related to withdrawal from the multi-employer pension plan and recorded an
additional $4.0 million pre-tax charge. The multiple-employer pension obligation was satisfied
with a cash payment of $14.1 million in October 2006 representing full and final payment of the
withdrawal liability. The remaining $5.9 million charge primarily represented severance for
announced employment reductions at several locations. As of December 31, 2007, 2006 and 2005,
Cooper had paid $5.9 million, $5.9 million and $5.3 million, respectively, for the actions, all of
which was for severance costs.
F-10
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 3: ACQUISITIONS AND DIVESTITURES
Cooper completed numerous acquisitions during 2007 and 2006. These acquisitions were selected
because of their strategic fit with existing Cooper businesses or were new strategic lines that
were complementary to Coopers operations. Cooper makes an initial allocation of the purchase
price as of the date of acquisition, based on its understanding of the fair value of the assets and
liabilities acquired. In the months after the closing of the transaction, Cooper obtains
additional information about the assets and liabilities acquired and finalizes allocation of the
purchase price.
During 2007, Cooper completed thirteen acquisitions. Six of the acquisitions, representing
approximately 28% of the cash consideration, were outside of the United States. All of the
acquired businesses are included in the Electrical Products segment.
Total cash consideration was $336.1 million for the 2007 acquisitions, net of cash acquired,
including acquisition costs. The acquisitions resulted in the recognition of preliminary estimated
aggregate goodwill of $169.8 million.
The following table summarizes the aggregate estimated preliminary fair values of the assets
acquired and the liabilities assumed at the date of acquisition for the acquisitions consummated
during the year ended December 31, 2007:
|
|
|
|
|
|
|
(in millions) |
|
Receivables |
|
$ |
58.0 |
|
Inventories |
|
|
47.7 |
|
Property, Plant and Equipment |
|
|
41.7 |
|
Goodwill |
|
|
169.8 |
|
Other intangible assets |
|
|
122.3 |
|
Accounts payable |
|
|
(36.5 |
) |
Other assets and liabilities, net |
|
|
(66.9 |
) |
|
|
|
|
Net cash consideration |
|
$ |
336.1 |
|
|
|
|
|
Approximately $76.9 million of the $169.8 million of goodwill is expected to be deductible for
tax purposes.
Cooper continues to evaluate the fair value of the assets and liabilities acquired during the
year ended December 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. This includes
finalization of amount by major asset class and weighted-average amortization period for other
intangible assets acquired during the year ended December 31, 2007.
In August 2006, Cooper completed the acquisition of all of the outstanding stock of Cannon
Technologies, Inc. for $191.7 million, net of cash acquired, including acquisition costs. Cannon
is a provider of automation technologies for monitoring and metering, and energy management by
electrical utilities. The Cannon acquisition resulted in the recognition of goodwill of $154.3
million, primarily related to the future earnings and cash flow potential resulting from Cannons
rapidly expanding customer base.
Cooper acquired three additional companies during 2006 for total consideration of $87.9
million, net of cash acquired, including acquisition costs. In general, the acquired businesses
were manufacturers and assemblers of electrical products, in markets such as aerospace, subsea,
military, industrial and fire and safety. These companies were all complementary to existing
businesses owned by Cooper and resulted in aggregate goodwill of $35.7 million.
F-11
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table summarizes the aggregate fair values of the assets acquired and the
liabilities assumed at the date of acquisition for the acquisitions consummated during the year
ended December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cannon |
|
|
All Others |
|
|
Total |
|
|
|
(in millions) |
|
Receivables |
|
$ |
7.0 |
|
|
$ |
8.8 |
|
|
$ |
15.8 |
|
Inventories |
|
|
4.6 |
|
|
|
12.2 |
|
|
|
16.8 |
|
Property, Plant and Equipment |
|
|
1.7 |
|
|
|
8.2 |
|
|
|
9.9 |
|
Goodwill |
|
|
154.3 |
|
|
|
35.7 |
|
|
|
190.0 |
|
Other intangible assets |
|
|
55.4 |
|
|
|
41.0 |
|
|
|
96.4 |
|
Accounts payable |
|
|
(3.9 |
) |
|
|
(4.2 |
) |
|
|
(8.1 |
) |
Other assets and liabilities, net |
|
|
(27.4 |
) |
|
|
(13.8 |
) |
|
|
(41.2 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash consideration |
|
$ |
191.7 |
|
|
$ |
87.9 |
|
|
$ |
279.6 |
|
|
|
|
|
|
|
|
|
|
|
Approximately $13.1 million of the $190.0 million of goodwill is expected to be deductible for
tax purposes.
In connection with the purchase of Cannon Technologies, Inc., $4.2 million pre-tax of
intangible asset cost was attributed to purchased research and development costs and written off on
the date of acquisition and included in cost of sales. Of the remaining intangible asset values,
$27.0 million was assigned to trademarks that are not subject to amortization, $30.3 million was
assigned to technology (15 year weighted average life), $28.5 million was assigned to customer
lists (16 year weighted average life), and $6.4 million assigned to other intangibles.
The results of operations of the acquisitions are included in the consolidated income
statement since the respective acquisition dates. The unaudited pro-forma data for the years set
forth below gives effect to the above noted acquisitions as if they had occurred at the beginning
of the year. This data is presented for informational purposes only and is not necessarily
indicative of the results of operations that would have been achieved had the acquisitions been
consummated as of that time (unaudited, in millions except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
Revenues |
|
$ |
6,078.1 |
|
|
$ |
5,522.5 |
|
Income from continuing operations |
|
$ |
692.0 |
|
|
$ |
482.2 |
|
Net income |
|
$ |
692.0 |
|
|
$ |
461.9 |
|
Diluted earnings per share from continuing operations |
|
$ |
3.73 |
|
|
$ |
2.57 |
|
Diluted earnings per share |
|
$ |
3.73 |
|
|
$ |
2.46 |
|
In July 2006, Cooper divested the assets of one small business within the Electrical Products
segment for aggregate proceeds of $11.5 million. A pre-tax gain of $4.7 million was recognized on
the divestiture.
In December 2007, Cooper made a binding offer for all outstanding shares of MTL Instruments
Group plc (MTL), a publicly-traded company based in the United Kingdom. The total purchase price
for the shares is approximately £145 million. In 2006, MTL had revenues of £85.3 million and net
income of £5.5 million. As of the date of this filing in 2008, the transaction has received the
required shareholder and regulatory approvals and has closed.
F-12
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 4: INVENTORIES
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
Raw materials |
|
$ |
221.5 |
|
|
$ |
204.2 |
|
Work-in-process |
|
|
178.8 |
|
|
|
160.7 |
|
Finished goods |
|
|
396.2 |
|
|
|
366.3 |
|
Perishable tooling and supplies |
|
|
15.0 |
|
|
|
14.6 |
|
|
|
|
|
|
|
|
|
|
|
811.5 |
|
|
|
745.8 |
|
Allowance for excess and obsolete inventory |
|
|
(77.9 |
) |
|
|
(65.6 |
) |
Excess of current standard costs over LIFO costs |
|
|
(89.9 |
) |
|
|
(72.6 |
) |
|
|
|
|
|
|
|
Net inventories |
|
$ |
643.7 |
|
|
$ |
607.6 |
|
|
|
|
|
|
|
|
NOTE 5: PROPERTY, PLANT AND EQUIPMENT
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
|
(in millions) |
|
Land and land improvements |
|
$ |
83.7 |
|
|
$ |
61.5 |
|
Buildings |
|
|
506.5 |
|
|
|
481.7 |
|
Machinery and equipment |
|
|
898.6 |
|
|
|
837.7 |
|
Tooling, dies and patterns |
|
|
293.1 |
|
|
|
274.9 |
|
All other |
|
|
427.0 |
|
|
|
366.0 |
|
Construction in progress |
|
|
59.3 |
|
|
|
65.6 |
|
|
|
|
|
|
|
|
|
|
|
2,268.2 |
|
|
|
2,087.4 |
|
Accumulated depreciation |
|
|
(1,548.4 |
) |
|
|
(1,422.0 |
) |
|
|
|
|
|
|
|
|
|
$ |
719.8 |
|
|
$ |
665.4 |
|
|
|
|
|
|
|
|
NOTE 6: GOODWILL AND OTHER INTANGIBLE ASSETS
Changes in the carrying amount of goodwill by segment, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electrical |
|
|
|
|
|
|
|
|
|
Products |
|
|
Tools |
|
|
Total |
|
|
|
(in millions) |
|
Balance December 31, 2005 |
|
$ |
1,782.2 |
|
|
$ |
301.8 |
|
|
$ |
2,084.0 |
|
Additions to goodwill |
|
|
188.2 |
|
|
|
|
|
|
|
188.2 |
|
Disposal of business |
|
|
(4.9 |
) |
|
|
|
|
|
|
(4.9 |
) |
Translation adjustments |
|
|
67.8 |
|
|
|
1.8 |
|
|
|
69.6 |
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2006 |
|
|
2,033.3 |
|
|
|
303.6 |
|
|
|
2,336.9 |
|
Additions to goodwill |
|
|
181.0 |
|
|
|
|
|
|
|
181.0 |
|
Translation adjustments |
|
|
18.8 |
|
|
|
3.6 |
|
|
|
22.4 |
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2007 |
|
$ |
2,233.1 |
|
|
$ |
307.2 |
|
|
$ |
2,540.3 |
|
|
|
|
|
|
|
|
|
|
|
Under SFAS No. 142, goodwill is subject to an annual impairment test. See Note 1 of the Notes
to the Consolidated Financial Statements. The results of step one of the goodwill impairment test
did not require the completion of step two of the test for any reporting units in 2007, 2006 or
2005.
F-13
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Other intangible assets primarily consist of patents, trademarks, software and customer lists.
The gross carrying value of other intangible assets was $217.0 million and $102.7 million at
December 31, 2007 and 2006, respectively. Accumulated amortization of other intangible assets was
$24.7 million and $13.6
million at December 31, 2007 and 2006, respectively. Other intangible assets are amortized
over their remaining useful lives. Amortization expense of other intangible assets was $9.1 million
in 2007, $4.1 million in 2006, and $0.6 million in 2005. Annual amortization expense exclusive of
businesses acquired in 2008 is expected to be $14.4 million in 2008, $13.5 million in 2009, $10.8
million in 2010, $10.0 million in 2011 and $10.0 million in 2012.
NOTE 7: ACCRUED LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
Salaries, wages and employee benefit plans |
|
$ |
234.8 |
|
|
$ |
228.5 |
|
Commissions and customer incentives |
|
|
154.2 |
|
|
|
135.0 |
|
Product and environmental liability accruals |
|
|
37.4 |
|
|
|
34.1 |
|
Other (individual items less than 5% of total current liabilities) |
|
|
140.3 |
|
|
|
124.7 |
|
|
|
|
|
|
|
|
|
|
$ |
566.7 |
|
|
$ |
522.3 |
|
|
|
|
|
|
|
|
At December 31, 2007, Cooper had accruals of $20.9 million with respect to potential product
liability claims and $30.2 million with respect to potential environmental liabilities, including
$13.7 million classified as a long-term liability, based on Coopers current estimate of the most
likely amount of losses that it believes will be incurred.
The product liability accrual consists of $7.7 million of known claims with respect to ongoing
operations, $1.6 million of known claims for previously divested operations and $11.6 million,
which represents an estimate of claims that have been incurred but not yet reported. While Cooper
is generally self-insured with respect to product liability claims, Cooper has insurance coverage
for individual 2007 claims above $5.0 million.
Environmental remediation costs are accrued based on estimates of known environmental
remediation exposures. Such accruals are adjusted as information develops or circumstances change.
The environmental liability accrual includes $4.2 million related to sites owned by Cooper and $26
million for retained environmental liabilities related to sites previously owned by Cooper and
third-party sites where Cooper was a potentially responsible party. Third-party sites usually
involve multiple contributors where Coopers liability will be determined based on an estimate of
Coopers proportionate responsibility for the total cleanup. The amount actually accrued for such
sites is based on these estimates as well as an assessment of the financial capacity of the other
potentially responsible parties.
It has been Coopers consistent practice to include the entire product liability accrual and a
significant portion of the environmental liability accrual as current liabilities, although only
approximately 15-25% of the balance classified as current is normally spent on an annual basis.
The annual effect on earnings for product liability is essentially equal to the amounts disbursed.
In the case of the environmental liability, the annual expense is considerably smaller than the
disbursements, since the vast majority of Coopers environmental liability has been recorded in
connection with acquired companies. The change in the accrual balances from year to year reflects
the effect of acquisitions and divestitures as well as normal expensing and funding.
F-14
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Cooper has not utilized any form of discounting in establishing its product or environmental
liability accruals. While both product liability and environmental liability accruals involve
estimates that can have wide ranges of potential liability, Cooper has taken a proactive approach
and has managed the costs in both of these areas over the years. Cooper does not believe that the
nature of its products, its production processes, or the materials or other factors involved in the
manufacturing process subject Cooper to unusual risks or exposures for product or environmental
liability. Coopers greatest exposure to inaccuracy in its
estimates is with respect to the constantly changing definitions of what constitutes an
environmental liability or an acceptable level of cleanup.
In connection with acquisitions, Cooper records, to the extent appropriate, accruals for the
costs of closing duplicate facilities, severing redundant personnel and integrating the acquired
business into existing Cooper operations. The following table summarizes the accrual balances and
activity during each of the last three years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
(in millions) |
|
Balance, beginning of year |
|
$ |
|
|
|
$ |
6.3 |
|
|
$ |
11.0 |
|
Spending |
|
|
|
|
|
|
(6.3 |
) |
|
|
(4.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year |
|
$ |
|
|
|
$ |
|
|
|
$ |
6.3 |
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2005, $6.3 million of the balance was related to facilities shutdown and
realignment costs resulting from the acquisition of Eagle Electric in 2000. During the three years
ended December 31, 2006, the annual spending was primarily related to downsizing and consolidating
facilities. Involuntary termination benefits of $4.5 million in 2006 and $2.0 million in 2005 were
paid and 344 hourly positions were eliminated during 2005. The termination and facility shutdown
activities were completed as of December 31, 2006.
NOTE 8: DEBT AND LEASE COMMITMENTS
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
|
(in millions) |
|
5.25% senior unsecured notes, due July 2007 |
|
$ |
|
|
|
$ |
293.3 |
|
5.50% senior unsecured notes, due November 2009 |
|
|
275.0 |
|
|
|
275.0 |
|
5.25% senior unsecured notes, due November 2012 |
|
|
325.0 |
|
|
|
325.0 |
|
6.10% senior unsecured notes, due July 2017 |
|
|
300.0 |
|
|
|
|
|
6.91% second series medium-term notes, due through 2010 |
|
|
2.3 |
|
|
|
2.3 |
|
6.38% third series medium-term notes, due through 2008 |
|
|
100.0 |
|
|
|
100.0 |
|
Other |
|
|
7.7 |
|
|
|
7.9 |
|
|
|
|
|
|
|
|
Total long-term debt |
|
|
1,010.0 |
|
|
|
1,003.5 |
|
Current maturities |
|
|
(100.1 |
) |
|
|
(300.7 |
) |
|
|
|
|
|
|
|
Long-term portion |
|
$ |
909.9 |
|
|
$ |
702.8 |
|
|
|
|
|
|
|
|
Cooper has a U.S. committed credit facility of $500 million, which matures in November 2009.
At December 31, 2007, commercial paper borrowings of $228.7 million reduced the amount of
availability provided by the committed credit facility with no commercial paper borrowings
outstanding at December 31, 2006. The agreement for the credit facility requires that Cooper
maintain certain financial ratios, including a prescribed limit on debt as a percentage of total
capitalization and a minimum earnings before interest, income taxes, depreciation and amortization
to interest ratio. Retained earnings are unrestricted as to the
F-15
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
payment of dividends, except to the
extent that payment would cause a violation of the prescribed limit on the debt-to-total
capitalization ratio.
Coopers $300 million, 5.25% senior unsecured notes, which were issued in June 2002, matured
in July 2007. Interest-rate swaps that effectively converted this fixed-rate debt to variable-rate
debt also matured at that time (see Note 17). On June 18, 2007, Coopers wholly-owned subsidiary,
Cooper US, Inc. issued $300 million of senior unsecured notes due in 2017. The fixed rate notes
have an interest coupon of 6.10% and are guaranteed by Cooper and certain of its principal
operating subsidiaries. Proceeds from the
financing were used to repay the maturing 5.25% notes. Combined with interest rate hedges
implemented in anticipation of the offering, the 6.10% notes will have an effective annual cost to
Cooper of 5.75 %.
On November 8, 2005, Cooper US, Inc., a subsidiary of Cooper, issued $325 million of 5.25%
senior unsecured notes that mature on November 15, 2012. Payment of the notes is guaranteed by
Cooper and certain of its subsidiaries. Proceeds of the notes were swapped to 272.6 million with
cross-currency interest-rate swaps, effectively converting the seven-year U.S. notes to seven-year
Euro notes with an annual interest rate of 3.55% (see Note 17). The proceeds of 272.6 million
partially funded repayment of the 6.25% Euro bonds that matured in October 2005.
Maturities of long-term debt for the five years subsequent to December 31, 2007 are $100.1
million in 2008, $275.2 million in 2009, $2.3 million in 2010, insignificant in 2011 and $324.1
million in 2012. The future net minimum lease payments under capital leases are not significant.
Total interest paid during 2007, 2006 and 2005 was $51 million, $57 million and $79 million,
respectively.
Cooper has entered into various operating lease agreements, primarily for manufacturing,
warehouse and sales office facilities and equipment. Generally, the leases include renewal
provisions and rental payments may be adjusted for increases in taxes, insurance and maintenance
related to the property. Rent expense for all operating leases was $36.4 million, $33.3 million
and $34.3 million during 2007, 2006 and 2005, respectively.
At December 31, 2007, minimum annual rental commitments under noncancellable operating leases
that have an initial or remaining lease term in excess of one year were $24.4 million in 2008,
$19.1 million in 2009, $16.5 million in 2010, $11.3 million in 2011, $7.9 million in 2012 and $35.7
million thereafter.
NOTE 9: COMMON AND PREFERRED STOCK
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-K has been retroactively restated to reflect the effect of the stock split.
Coopers authorized share capital is U.S. $7,600,000 consisting of 500,000,000 Class A common
shares, par value of $.01 per share, 250,000,000 Class B common shares, par value $.01 per share
and 10,000,000 preferred shares, par value $.01 per share, which preferred shares may be designated
and created as shares of any other classes or series of shares with the respective rights and
restrictions determined by action of the Board of Directors. No preferred shares were outstanding
at December 31, 2007, 2006 or 2005.
At December 31, 2007, 179,453,923 Class A common shares, $.01 par value were issued and
outstanding (excluding the 27,195,002 Class A common shares held by wholly-owned subsidiaries as
discussed below) compared to 182,282,042 Class A common shares, $.01 par value (excluding the
F-16
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
25,876,802 Class A common shares held by wholly-owned subsidiaries) at December 31, 2006. During
2007, Cooper issued 4,055,234 Class A common shares primarily in connection with employee incentive
and benefit plans and Coopers dividend reinvestment program. During 2007, Cooper and its
wholly-owned subsidiaries purchased 6,883,353 Class A common shares for $343.9 million under
Coopers share repurchase plan. The share purchases are recorded by Coopers wholly-owned
subsidiaries as an investment in its parent company that is eliminated in consolidation.
On February 12, 2008, Cooper announced that the Board of Directors authorized the purchase of
ten million shares of common stock in addition to the remaining November 2, 2004 authorization.
As of the date of this filing in 2008, Cooper had repurchased the 3 million shares intended to
offset dilution from share issuances under equity compensation plans, as well as approximately
600,000 additional shares under the November 2, 2004 Cooper Board of Directors authorization
discussed above. Cooper may continue to repurchase shares under this authorization from time to
time during 2008. The decision whether to do so will be dependent on the favorability of market
conditions, as well as potential cash requirements for acquisitions.
At December 31, 2006, 182,282,042 Class A common shares, $.01 par value were issued and
outstanding (excluding the 25,876,802 Class A common shares held by wholly-owned subsidiaries as
discussed below) compared to 183,113,138 Class A common shares, $.01 par value (excluding the
19,700,202 Class A common shares held by wholly-owned subsidiaries) at December 31, 2005. During
2006, Cooper issued 5,345,504 Class A common shares primarily in connection with employee incentive
and benefit plans and Coopers dividend reinvestment program. During 2006, Coopers wholly-owned
subsidiaries purchased 6,176,600 Class A common shares for $264.2 million under Coopers share
repurchase plan. The share purchases are recorded by Coopers wholly-owned subsidiaries as an
investment in its parent company that is eliminated in consolidation.
At December 31, 2005, 183,113,138 Class A common shares, $.01 par value were issued and
outstanding (excluding the 19,700,202 Class A common shares held by wholly-owned subsidiaries as
discussed below) compared to 185,087,320 Class A common shares, $.01 par value (excluding the
7,400,400 Class A common shares held by wholly-owned subsidiaries) at December 31, 2004. During
2005, Cooper issued 4,304,618 Class A common shares primarily in connection with employee incentive
and benefit plans and Coopers dividend reinvestment program. During 2005, Coopers wholly-owned
subsidiaries purchased 6,278,800 Class A common shares for $211.0 million under Coopers share
repurchase plan and a wholly-owned subsidiary purchased 7,338,074 previously unissued Class A
common shares at fair market value. The share purchases are recorded by Coopers wholly-owned
subsidiaries as an investment in its parent company that is eliminated in consolidation. During
2005, 1,317,072 Class A common shares held by wholly-owned subsidiaries were issued in connection
with employee incentive and benefit plans, leaving 19,700,202 Class A common shares held by
wholly-owned subsidiaries at December 31, 2005.
Certain wholly-owned subsidiaries own Cooper Class A common shares and a wholly-owned
subsidiary owns all the issued and outstanding Cooper Class B common shares. The subsidiaries
investments in the Class A and Class B common shares are accounted for as investments in the parent
company that are eliminated in consolidation. The Class B common shares are not entitled to vote,
except as to matters for which Bermuda law specifically requires voting rights for otherwise
nonvoting shares. Cooper and its wholly-owned subsidiaries have entered into a voting agreement
which provides that in those limited circumstances where the Class B common shares have the right
to vote, Coopers wholly-owned subsidiaries shall vote the Class B common shares and any Class A
common shares that may be held by Coopers wholly-owned subsidiaries in the same proportion as the
holders of Class A common shares. If at any time a dividend is declared or paid on the Class A
common shares, a like dividend shall be declared and paid on Class B common shares in an equal
amount per share.
F-17
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Under the terms of the Dividend Reinvestment Plan, any holder of common stock may elect to
have cash dividends and up to $24,000 per year in cash payments invested in common stock without
incurring any brokerage commissions or service charges. At December 31, 2007, Cooper had
16,605,001 shares reserved for the Dividend Reinvestment Plan, grants and exercises of stock
options, performance-based stock awards, restricted stock awards and subscriptions under the
Employee Stock Purchase Plan and other plans.
The Board of Directors adopted a Shareholder Rights Plan that authorized the issuance of one
right for each common share outstanding on May 22, 2002. Each Right entitled the holder to buy one
one-hundredth of a share of Series A Participating preferred Stock at a purchase price of $225 per
one one-hundredth of a share or, in certain circumstances common shares having a value of twice the
purchase price. Each Right became exercisable only in certain circumstances constituting a
potential change of control on a basis considered inadequate by the Board of Directors. The Rights
were scheduled to expire August 5, 2007.
On August 3, 2007, Cooper entered into an Amended and Restated Rights Agreement (the Amended
Rights Plan). The Amended Rights Plan extends the final expiration of the Shareholder Rights Plan
to August 1, 2017. In addition, the Amended Rights Plan increases the exercise price of each full
Right from $225 to $600 (equivalent to $300 for each one-half of a Right, which is the fraction of
a Right that is currently associated with each Class A common share following the two-for-one stock
split effective March 2007); eliminates a ten-day window to redeem the Rights after a person has
become an Acquiring Person (as defined in the Amended Rights Plan); adds a provision that allows
the Board of Directors to exchange the outstanding and exercisable Rights for additional common
shares (or, in certain situations, a number of Series A Participating Preferred Shares) at the rate
of one common share per Right, at anytime after a person becomes an Acquiring Person, and adds a
provision clarifying that Cooper is allowed to lower the acquiror ownership threshold at which
dilution is triggered to no less than 10% at anytime prior to the time any person becomes an
Acquiring Person.
On February 12, 2008, Coopers Board of Directors increased the annual dividend rate of
Coopers common stock by $.16 per share to $1.00. On February 14, 2007, Coopers Board of
Directors increased the annual dividend rate of Coopers common stock by $.10 per share to $.84.
On February 9, 2005, Coopers Board of Directors increased the annual dividend rate of Coopers
common stock by $.04 per share to $.74.
NOTE 10: STOCK-BASED COMPENSATION
Effective January 1, 2003, Cooper adopted Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (SFAS No. 123), as amended. Cooper utilized the
prospective method of adoption. Cooper accounted for stock-based compensation awards granted,
modified or settled prior to January 1, 2003 using the intrinsic value method of accounting as
prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees
and related interpretations (APB No. 25). In accordance with APB No. 25, compensation expense
was recognized for performance-based and restricted stock awards. No compensation expense was
recognized under Coopers fixed stock option plans or Employee Stock Purchase Plan for grants prior
to January 1, 2003.
SFAS No. 123 provided an alternative fair value based method for recognizing stock-based
compensation in which compensation expense was measured at the grant date based on the value of the
award and recognized over the service period, which was usually the vesting period. The fair value
of stock options was estimated on the grant date, using the Black-Scholes-Merton option-pricing
model. The fair value of restricted stock and performance-based awards granted were measured at
the market price on the grant date.
The following table presents pro forma net income and earnings per share as if the fair value
recognition provisions of SFAS No. 123 had been applied to all outstanding and unvested awards in
2005. In 2005, there were essentially two remaining differences between as reported and pro-forma
net income and
F-18
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
earnings per share. First, Cooper accounted for awards granted prior to January 1,
2003 using the intrinsic value method, whereas the pro-forma amounts reflect those award grants as
calculated under SFAS No. 123. Secondly, the pro-forma amounts reflect recognition of the tax
benefits of disqualifying dispositions of incentive stock options in accordance with SFAS No. 123.
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
2005 |
|
|
(in millions) |
Net income, as reported |
|
$ |
163.9 |
|
Add: Stock-based employee compensation expense included in
reported net income, net of related tax effects |
|
|
24.9 |
|
Deduct: Total stock-based employee compensation expense determined under
fair value based method for all awards, net of related tax effects |
|
|
(20.9 |
) |
|
|
|
|
|
|
|
|
|
Pro forma net income |
|
$ |
167.9 |
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
2005 |
|
|
|
|
|
Earnings per share: |
|
|
|
|
Basic as reported |
|
$ |
.89 |
|
Basic pro forma |
|
$ |
.91 |
|
|
|
|
|
|
Diluted as reported |
|
$ |
.87 |
|
Diluted pro forma |
|
$ |
.88 |
|
In December 2004, the Financial Accounting Standards Board issued FASB Statement 123(R),
Share-Based Payment, which is a revision of SFAS No. 123. Statement 123(R) also supersedes APB No.
25, and amends FASB Statement No. 95, Statement of Cash Flows. Effective January 1, 2006, Cooper
adopted Statement 123(R) using the modified prospective method. Recognition of compensation cost
is based on the requirements of Statement 123(R) for all share-based payments granted after January
1, 2006 and based on the requirements of SFAS No. 123 for all awards granted to employees prior to
January 1, 2006 that remained unvested on that date.
Cooper adopted SFAS No. 123 using the prospective transition method, which applied only to
awards granted, modified or settled after the adoption date. Accordingly, compensation expense for
some previously granted awards that were not recognized under SFAS No. 123 is recognized under
Statement 123(R). However, had we adopted Statement 123(R) in prior periods, the impact of that
standard would have approximated the impact of SFAS No. 123 as described in the disclosure of pro
forma net income and earnings per share above.
Cooper uses the Black-Scholes-Merton formula to estimate the value of stock options granted to
employees, as well as the straight-line recognition method for awards subject to graded vesting.
Cooper has recorded an estimate for forfeitures of 2007 and 2006 awards of stock options,
performance-based shares and restricted stock units. These estimates are adjusted as actual
forfeitures differ from the estimate. Prior to adoption of Statement 123(R), forfeitures were
accounted for as recognized when they actually occurred. Upon adoption of Statement 123(R), the
cumulative effect of this change in accounting principle to reflect compensation expense that would
not have been recognized in periods prior to 2006, had forfeitures been estimated during these
periods, was immaterial.
Statement 123(R) also requires the benefits of tax deductions in excess of recognized
compensation expense be reported as a financing cash flow, rather than as an operating cash flow.
This requirement
F-19
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
reduced net operating cash flows and increased net financing cash flows during the
years ended 2007 and 2006 by $25.8 million and $26.8 million, respectively.
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 December 31, 2007, 3,341,124
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. Activity for each of these
stock-incentive awards is discussed in more detail below. Total compensation expense for all
share-based compensation arrangements under the Plan was $39.0 million, $29.1 million and $40.3
million during the years ended December 31, 2007, 2006 and 2005, respectively. The total income
tax benefit recognized in the income statement for all share-based compensation arrangements under
the Plan was $13.6 million, $10.3 million and $15.4 million during the years ended December 31,
2007, 2006 and 2005, respectively.
Stock Options
Stock option awards are granted with an exercise price no less than the market price of
Coopers stock at the date of grant. Stock option awards generally vest over a three-year period
with one-third vesting in each successive year so that the option is fully exercisable after three
years and generally have five-, seven- and ten-year contractual terms. Stock option awards provide
that, upon a change in control in Cooper (as defined in the Plan), all options will be cancelled
and Cooper will make a cash payment to the employee equal to the difference in the fair market
value of Cooper Class A common shares (or the highest price actually paid for the stock in
connection with the change in control, if higher) and the option price.
The fair value of each stock option award is estimated on the date of grant using the
Black-Scholes-Merton option valuation model using the assumptions noted in the following table.
Expected volatility in 2007 and 2006 is based on implied volatilities from traded options on Cooper
stock, historical volatility of Cooper stock, and other factors. Cooper believes that the
resulting blended volatility represents a more accurate estimate of potential fluctuations in
Cooper stock. Cooper uses historical data to estimate employee termination experience. The
expected term of options granted is determined based on historical exercise behavior. The
risk-free interest rate for periods within the contractual life of the option is based on the U.S.
Treasury yield curve in effect at the time of grant.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected volatility |
|
|
19.0 |
% |
|
|
18.0 |
% |
|
|
27.7 |
% |
Expected dividends |
|
|
1.8 |
% |
|
|
1.8 |
% |
|
|
2.1 |
% |
Expected term (in years) |
|
|
4.5 |
|
|
|
4.5 |
|
|
|
5.0 |
|
Risk-free interest rate |
|
|
4.6 |
% |
|
|
4.6 |
% |
|
|
3.7 |
% |
F-20
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
A summary of option activity under the Plan as of December 31, 2007, and changes during the
year then ended is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
Aggregate Intrinsic |
|
|
|
|
|
|
|
Weighted-Average |
|
|
Remaining |
|
|
Value |
|
Options |
|
Shares |
|
|
Exercise Price |
|
|
Contractual Term |
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2007 |
|
|
8,223,622 |
|
|
$ |
28.46 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
1,745,700 |
|
|
$ |
47.30 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(2,888,519 |
) |
|
$ |
23.87 |
|
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
(298,162 |
) |
|
$ |
39.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007 |
|
|
6,782,641 |
|
|
$ |
34.80 |
|
|
|
4.4 |
|
|
$ |
122.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest at
December 31, 2007 |
|
|
6,665,790 |
|
|
$ |
34.58 |
|
|
|
4.2 |
|
|
$ |
122.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2007 |
|
|
3,601,042 |
|
|
$ |
27.28 |
|
|
|
3.4 |
|
|
$ |
92.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average grant date fair values of options granted during the years ended December
31, 2007, 2006 and 2005 were $9.50, $8.03 and $8.69, respectively. The total intrinsic value of
options exercised during the years ended December 31, 2007, 2006 and 2005 was $75.8 million, $81.5
million and $54.7 million, respectively. Total stock option grants for 1,745,700 shares in 2007
compares to total stock option grants for 1,647,200 shares in 2006 and 2,395,600 shares in 2005.
As of December 31, 2007, total unrecognized compensation expense related to nonvested stock
options was $15.2 million. This expense is expected to be recognized over a weighted-average
period of 1.3 years. The total fair value of stock options vested during the years ended December
31, 2007, 2006 and 2005 was $12.5 million, $12.6 million and $8.4 million, respectively.
Performance-Based Shares and Restricted Stock Units
Under the Plan, Cooper grants certain executives and other key employees performance-based
share awards with vesting contingent upon meeting Company-wide performance goals, typically tied to
cumulative compound growth in earnings per share over a defined multi-year performance period.
Awards under the performance-based component of the Plan are typically arranged in levels, with
increasing numbers of shares earned as higher levels of growth are achieved. In order to earn the
performance shares, participants are generally required to remain actively employed by Cooper for
the performance period. Under the Plan, Cooper also awards grants of restricted stock units to
certain executives and other key employees in order to provide financial incentive to remain in the
employ of Cooper, thereby enhancing management continuity. Cooper may also utilize restricted
stock units for new executives and other key employees to replace equity compensation forfeited
upon resignation from their former employer. Restricted stock units vest pursuant to time-based
service conditions.
The fair value of each performance-based share and restricted stock unit was calculated at the
market price on the date of grant. Performance goals for the performance-based shares are
currently assumed to be achieved at the maximum level. If goal-level assumptions are not met,
compensation expense is adjusted and previously recognized compensation expense is reversed. Upon
distribution of performance-based shares, Cooper also pays the recipient cash equal to the
aggregate amount of cash dividends that the recipient would have received had they been the owner
of record from the date of grant. Dividends on restricted stock units are payable on the dividend
payment date or on the date when restrictions lapse, depending upon the specific award. For
performance-based share and restricted stock unit awards, upon a change in control in Cooper (as
defined in the Plan), all restrictions on those awards will lapse and shares shall be issued as
otherwise provided in the Plan.
F-21
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
A summary of the status of Coopers nonvested performance-based shares as of December 31, 2007
and changes during the year then ended is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Grant-Date |
|
Nonvested Performance-Based Shares |
|
Shares |
|
|
Fair Value |
|
|
|
|
|
|
|
|
|
|
Nonvested at January 1, 2007 |
|
|
1,675,132 |
|
|
$ |
34.47 |
|
Granted |
|
|
556,000 |
|
|
$ |
46.01 |
|
Vested |
|
|
(631,958 |
) |
|
$ |
28.18 |
|
Forfeited |
|
|
(81,080 |
) |
|
$ |
39.32 |
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2007 |
|
|
1,518,094 |
|
|
$ |
41.06 |
|
|
|
|
|
|
|
|
|
The weighted-average grant-date fair value of performance-based shares granted during the
years ended December 31, 2007, 2006 and 2005 was $46.01, $41.55 and $34.63, respectively. The
total intrinsic value of performance-based shares awarded during the years ended December 31, 2007,
2006 and 2005 was $29.4 million, $27.2 million and $25.5 million, respectively. Total
performance-based shares vested in 2007 of 631,958 compares to 577,950 performance-based shares
vested in 2006. No performance-based shares vested during the year ended December 31, 2005.
As of December 31, 2007, total unrecognized compensation expense related to nonvested
performance-based shares was $25.7 million. This expense is expected to be recognized over a
weighted-average period of 1.3 years. The total fair value of performance-based shares vested
during the year ended December 31, 2007 and 2006 was $17.8 and $10.9 million, respectively.
A summary of the status of Coopers nonvested restricted stock units as of December 31, 2007,
and changes during the year then ended is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Grant-Date |
|
Nonvested Restricted Stock Units |
|
Shares |
|
|
Fair Value |
|
|
|
|
|
|
|
|
|
|
Nonvested at January 1, 2007 |
|
|
277,100 |
|
|
$ |
37.92 |
|
Granted |
|
|
282,900 |
|
|
$ |
46.78 |
|
Vested |
|
|
(49,850 |
) |
|
$ |
37.35 |
|
Forfeited |
|
|
(21,900 |
) |
|
$ |
38.78 |
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2007 |
|
|
488,250 |
|
|
$ |
43.07 |
|
|
|
|
|
|
|
|
|
The weighted-average grant-date fair value of restricted stock units granted during the years
ended December 31, 2007, 2006 and 2005 was $46.78, $43.67 and $34.47, respectively. The total
restricted stock units granted in 2007 of 282,900 compares to 104,000 restricted stock units
granted in 2006 and 253,400 in 2005. The total intrinsic value of restricted stock units awarded
during the years ended December 31, 2007, 2006 and 2005 was $15.0 million, $4.7 million and $9.2
million, respectively.
As of December 31, 2007, total unrecognized compensation expense related to nonvested
restricted stock unit compensation arrangements was $14.1 million. This expense is expected to be
recognized over a weighted-average period of 3.8 years. The total fair value of restricted stock
units vested during the years ended December 31, 2007, 2006 and 2005 was $1.9 million, $7.0 million
and $6.1 million, respectively.
Cash received from stock option exercises during the years ended December 31, 2007, 2006 and
2005 was $68.3 million, $89.2 million and $72.7 million, respectively. The actual tax benefit
realized for the
F-22
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
tax deductions from option exercises totaled $36.4 million, $31.7 million and
$18.7 million, respectively, during the years ended December 31, 2007, 2006 and 2005. Cash used to
settle equity instruments granted under all share-based payment arrangements during the years ended
December 31, 2007, 2006 and 2005 was immaterial in all periods.
Cooper has a practice of repurchasing shares on the open market to satisfy shares issued for
option exercises and share awards and expects to repurchase approximately 3.0 million shares during
2008, based on estimates of option exercises and share awards vesting for the year.
The impact of adopting Statement 123(R) on January 1, 2006, on Coopers income from continuing
operations before income taxes, net income and basic and diluted earnings per share during the year
ended December 31, 2006 was immaterial.
NOTE 11: ACCUMULATED NONOWNER CHANGES IN EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and |
|
|
|
|
|
|
|
|
|
Cumulative |
|
|
|
|
|
|
Postretirement |
|
|
Minimum |
|
|
Derivative |
|
|
Translation |
|
|
|
|
|
|
Benefit Plans |
|
|
Pension Liability |
|
|
Instruments |
|
|
Adjustment |
|
|
Total |
|
|
|
(in millions) |
|
Balance December 31, 2004 |
|
$ |
|
|
|
$ |
(67.7 |
) |
|
$ |
1.5 |
|
|
$ |
(66.0 |
) |
|
$ |
(132.2 |
) |
Current year activity |
|
|
|
|
|
|
(11.0 |
) |
|
|
4.8 |
|
|
|
(37.9 |
) |
|
|
(44.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2005 |
|
|
|
|
|
|
(78.7 |
) |
|
|
6.3 |
|
|
|
(103.9 |
) |
|
|
(176.3 |
) |
Current year activity |
|
|
(86.9 |
) |
|
|
78.7 |
|
|
|
2.3 |
|
|
|
53.8 |
|
|
|
47.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2006 |
|
|
(86.9 |
) |
|
|
|
|
|
|
8.6 |
|
|
|
(50.1 |
) |
|
|
(128.4 |
) |
Current year activity |
|
|
9.7 |
|
|
|
|
|
|
|
17.7 |
|
|
|
20.3 |
|
|
|
47.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2007 |
|
$ |
(77.2 |
) |
|
$ |
|
|
|
$ |
26.3 |
|
|
$ |
(29.8 |
) |
|
$ |
(80.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
Before |
|
|
Tax |
|
|
|
|
|
|
Before |
|
|
Tax |
|
|
|
|
|
|
Before |
|
|
Tax |
|
|
|
|
|
|
Tax |
|
|
(Expense) |
|
|
Net |
|
|
Tax |
|
|
(Expense) |
|
|
Net |
|
|
Tax |
|
|
(Expense) |
|
|
Net |
|
|
|
Amount |
|
|
Benefit |
|
|
Amount |
|
|
Amount |
|
|
Benefit |
|
|
Amount |
|
|
Amount |
|
|
Benefit |
|
|
Amount |
|
|
|
(in millions) |
Pension and postretirement
benefit plans |
|
$ |
14.9 |
|
|
$ |
(5.2 |
) |
|
$ |
9.7 |
|
|
$ |
(142.0 |
) |
|
$ |
55.1 |
|
|
$ |
(86.9 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum pension
liability adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
130.8 |
|
|
|
(52.1 |
) |
|
|
78.7 |
|
|
|
(18.1 |
) |
|
|
7.1 |
|
|
|
(11.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of
derivatives |
|
|
29.9 |
|
|
|
(12.0 |
) |
|
|
17.9 |
|
|
|
15.3 |
|
|
|
(6.1 |
) |
|
|
9.2 |
|
|
|
10.7 |
|
|
|
(4.3 |
) |
|
|
6.4 |
|
Reclassification to
earnings |
|
|
(0.4 |
) |
|
|
0.2 |
|
|
|
(0.2 |
) |
|
|
(11.4 |
) |
|
|
4.5 |
|
|
|
(6.9 |
) |
|
|
(2.7 |
) |
|
|
1.1 |
|
|
|
(1.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29.5 |
|
|
|
(11.8 |
) |
|
|
17.7 |
|
|
|
3.9 |
|
|
|
(1.6 |
) |
|
|
2.3 |
|
|
|
8.0 |
|
|
|
(3.2 |
) |
|
|
4.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustment |
|
|
31.3 |
|
|
|
(11.0 |
) |
|
|
20.3 |
|
|
|
82.8 |
|
|
|
(29.0 |
) |
|
|
53.8 |
|
|
|
(58.3 |
) |
|
|
20.4 |
|
|
|
(37.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other nonowner
changes in equity |
|
$ |
75.7 |
|
|
$ |
(28.0 |
) |
|
$ |
47.7 |
|
|
$ |
75.5 |
|
|
$ |
(27.6 |
) |
|
$ |
47.9 |
|
|
$ |
(68.4 |
) |
|
$ |
24.3 |
|
|
$ |
(44.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-23
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 12: INCOME TAXES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
($ in millions) |
|
Components of income from continuing operations
before income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. operations |
|
$ |
317.3 |
|
|
$ |
234.0 |
|
|
$ |
104.4 |
|
Non-U.S. operations |
|
|
508.9 |
|
|
|
413.7 |
|
|
|
390.6 |
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before
income taxes |
|
$ |
826.2 |
|
|
$ |
647.7 |
|
|
$ |
495.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of income tax expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal |
|
$ |
17.3 |
|
|
$ |
67.6 |
|
|
$ |
21.5 |
|
U.S. state and local |
|
|
10.1 |
|
|
|
11.6 |
|
|
|
14.2 |
|
Non-U.S. |
|
|
94.1 |
|
|
|
68.8 |
|
|
|
46.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
121.5 |
|
|
|
148.0 |
|
|
|
82.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal |
|
|
10.7 |
|
|
|
21.1 |
|
|
|
3.6 |
|
U.S. state and local |
|
|
8.7 |
|
|
|
2.0 |
|
|
|
1.7 |
|
Non-U.S. |
|
|
(7.0 |
) |
|
|
(7.7 |
) |
|
|
16.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.4 |
|
|
|
15.4 |
|
|
|
21.5 |
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
$ |
133.9 |
|
|
$ |
163.4 |
|
|
$ |
103.9 |
|
|
|
|
|
|
|
|
|
|
|
Total income taxes paid |
|
$ |
158.4 |
|
|
$ |
175.0 |
|
|
$ |
90.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate reconciliation: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal statutory rate |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
State and local income taxes |
|
|
2.0 |
|
|
|
1.8 |
|
|
|
1.2 |
|
Non-U.S. Operations |
|
|
(8.3 |
) |
|
|
(10.6 |
) |
|
|
(13.8 |
) |
Extraterritorial income exclusion |
|
|
(1.9 |
) |
|
|
(0.3 |
) |
|
|
(0.6 |
) |
Tax credits |
|
|
(0.4 |
) |
|
|
(0.5 |
) |
|
|
(0.7 |
) |
Federal audit settlements |
|
|
(6.8 |
) |
|
|
|
|
|
|
|
|
Statute expirations |
|
|
(2.0 |
) |
|
|
|
|
|
|
|
|
Other |
|
|
(1.4 |
) |
|
|
(0.2 |
) |
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
Effective tax rate attributable to
continuing operations |
|
|
16.2 |
% |
|
|
25.2 |
% |
|
|
21.0 |
% |
|
|
|
|
|
|
|
|
|
|
F-24
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
Components of deferred tax assets and liabilities: |
|
|
|
|
|
|
|
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Postretirement and other employee welfare benefits |
|
$ |
45.2 |
|
|
$ |
44.6 |
|
Accrued liabilities |
|
|
340.5 |
|
|
|
344.4 |
|
Pension plans |
|
|
19.1 |
|
|
|
19.1 |
|
Net operating loss carryforward |
|
|
20.8 |
|
|
|
23.3 |
|
Other |
|
|
|
|
|
|
9.9 |
|
|
|
|
|
|
|
|
Gross deferred tax assets |
|
|
425.6 |
|
|
|
441.3 |
|
Valuation allowance |
|
|
(7.7 |
) |
|
|
(8.4 |
) |
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
417.9 |
|
|
|
432.9 |
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Property, plant and equipment and intangibles |
|
|
(269.1 |
) |
|
|
(223.6 |
) |
Inventories |
|
|
(3.7 |
) |
|
|
(8.7 |
) |
Pension plans |
|
|
(12.2 |
) |
|
|
(13.6 |
) |
Other |
|
|
(25.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
(310.7 |
) |
|
|
(245.9 |
) |
|
|
|
|
|
|
|
Net deferred tax asset |
|
$ |
107.2 |
|
|
$ |
187.0 |
|
|
|
|
|
|
|
|
Generally, Cooper provides United States income tax that would be imposed on the repatriation
of the earnings of its non-U.S. operations. However, as of December 31, 2007 and 2006, United
States income taxes have not been provided on approximately $99 million and $125 million,
respectively, of undistributed non-U.S. earnings that are expected to be permanently reinvested
outside the United States.
The 2007 fourth quarter includes a $20.3 million reduction of income taxes expense due to
expiration of the statute of limitations regarding certain potential tax exposure matters, changes
to the state and international valuation allowances and tax benefits related to certain
international reorganizations.
The 2007 second quarter includes a $63.5 million reduction of income taxes expense. The
United States Internal Revenues Service (IRS) challenged Coopers treatment of gains and interest
deductions claimed on its 2000 through 2003 federal income tax returns, relating to transactions
involving government securities. If the proposed adjustments were upheld, it would require Cooper
to pay approximately $93.7 million in taxes plus accrued interest. During the second quarter of
2007, the IRS and Cooper finalized a settlement regarding these transactions.
On February 1, 2007, the IRS issued its examination report for the 2002 through 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. On May 2, 2007, the
IRS issued a letter to Cooper accepting Coopers positions regarding treatment of these interest
payments for the 2002 through 2004 years.
F-25
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
As a result of the settlements discussed above, Cooper recognized $55.7 million of previously
unrecognized tax benefits in the 2007 second quarter. A change in rates for the Texas margin tax
and other developments in the 2007 second quarter represented the remaining $7.8 million of income
taxes expense reduction.
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 and statutes expire. However, an estimate of the range of these benefits cannot be
reasonably made.
The Internal Revenue Service has begun an examination of Coopers 2005 and 2006 Federal income
tax returns and Cooper is under examination by various United States State and Local taxing
authorities as well as various taxing authorities in other countries. Cooper is no longer subject
to U.S. Federal income tax examinations by tax authorities for years prior to 2005, and with few
exceptions, Cooper is no longer subject to State and Local, or non-U.S. income tax examinations by
tax authorities for years before 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 and its subsidiaries have both non-U.S. and United States State operating losses
available to carry forward to future tax years. These losses generally have a carry forward period
of either 15 or 20 years from the date created. If unused, the losses are set to expire throughout
the period 2008 to 2026, with the most significant portion of these losses expiring during the
period 2018 through 2022.
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:
|
|
|
|
|
|
(in millions) |
|
Balance as of January 1, 2007 |
|
$ |
113.7 |
|
Additions for tax positions of the current year |
|
|
9.7 |
|
Additions for tax positions of prior years |
|
|
|
|
Reduction in tax positions for statute expirations |
|
|
(20.7 |
) |
Reduction in tax positions for audit settlements |
|
|
(45.4 |
) |
|
|
|
|
Balance at December 31,2007 |
|
$ |
57.3 |
|
|
|
|
|
Approximately $56.8 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 years ended December 31, 2007 and 2006, Cooper recognized $5.8
million and $6.9 million in interest and penalties, respectively. Cooper had $11.5 million and
$16.8 million in interest and penalties accrued at December 31, 2007 and 2006, respectively.
NOTE 13: PENSION AND OTHER POSTRETIREMENT BENEFITS
Cooper and its subsidiaries have numerous defined benefit pension plans and other postretirement
benefit plans. The benefits provided under Coopers various postretirement benefit plans other than
pensions, all of which are unfunded, include retiree medical care, dental care, prescriptions and
life insurance, with
F-26
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
medical care accounting for approximately 90% of the total. Current employees, unless
grandfathered under plans assumed in acquisitions, are not provided postretirement benefits other
than pensions. The vast majority of the annual other postretirement benefit expense is related to
employees who are already retired. The measurement date for all plan disclosures is December 31.
During June 2006, Cooper announced that, effective January 1, 2007, future benefit accruals
would cease under the Cooper U. S. Salaried Pension Plan. Benefits earned through December 31,
2006 would 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 makes a cash contribution equal to 3% of
compensation to the Cooper 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.
Effective December 31, 2006, Cooper adopted Statement of Financial Accounting Standards No.
158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans. See Note 1
of the Notes to the Consolidated Financial Statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
Pension Benefits |
|
|
Postretirement Benefits |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
(in millions) |
|
Change in benefit obligation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at January 1 |
|
$ |
768.2 |
|
|
$ |
783.7 |
|
|
$ |
94.8 |
|
|
$ |
105.0 |
|
Service cost |
|
|
4.0 |
|
|
|
16.7 |
|
|
|
0.1 |
|
|
|
0.1 |
|
Interest cost |
|
|
41.4 |
|
|
|
41.4 |
|
|
|
5.2 |
|
|
|
5.6 |
|
Benefit payments |
|
|
(54.0 |
) |
|
|
(43.8 |
) |
|
|
(8.2 |
) |
|
|
(9.3 |
) |
Actuarial (gain) loss |
|
|
(29.6 |
) |
|
|
2.7 |
|
|
|
1.2 |
|
|
|
(3.4 |
) |
Exchange rate changes |
|
|
11.0 |
|
|
|
17.3 |
|
|
|
|
|
|
|
|
|
Settlements |
|
|
(5.0 |
) |
|
|
(26.0 |
) |
|
|
|
|
|
|
|
|
Curtailment |
|
|
|
|
|
|
(5.7 |
) |
|
|
|
|
|
|
(3.2 |
) |
Amendments |
|
|
0.5 |
|
|
|
(21.7 |
) |
|
|
|
|
|
|
|
|
Other |
|
|
2.3 |
|
|
|
3.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at December 31 |
|
|
738.8 |
|
|
|
768.2 |
|
|
|
93.1 |
|
|
|
94.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at January 1 |
|
|
666.7 |
|
|
|
650.1 |
|
|
|
|
|
|
|
|
|
Actual return on plan assets |
|
|
32.2 |
|
|
|
63.4 |
|
|
|
|
|
|
|
|
|
Employer contributions |
|
|
6.4 |
|
|
|
9.8 |
|
|
|
8.2 |
|
|
|
9.3 |
|
Benefit payments |
|
|
(54.0 |
) |
|
|
(43.8 |
) |
|
|
(8.2 |
) |
|
|
(9.3 |
) |
Exchange rate changes |
|
|
1.4 |
|
|
|
9.7 |
|
|
|
|
|
|
|
|
|
Settlements |
|
|
(1.7 |
) |
|
|
(23.1 |
) |
|
|
|
|
|
|
|
|
Other |
|
|
0.6 |
|
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at December 31 |
|
|
651.6 |
|
|
|
666.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized (funded status) |
|
$ |
(87.2 |
) |
|
$ |
(101.5 |
) |
|
$ |
(93.1 |
) |
|
$ |
(94.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
F-27
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
Pension Benefits |
|
|
Postretirement Benefits |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
(in millions) |
|
Assets and liabilities recognized in the balance sheet
consist of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent assets |
|
$ |
33.6 |
|
|
$ |
41.9 |
|
|
$ |
|
|
|
$ |
|
|
Accrued liabilities |
|
|
(7.6 |
) |
|
|
(4.4 |
) |
|
|
(11.6 |
) |
|
|
(11.6 |
) |
Long-term liabilities |
|
|
(113.2 |
) |
|
|
(139.0 |
) |
|
|
(81.5 |
) |
|
|
(83.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(87.2 |
) |
|
$ |
(101.5 |
) |
|
$ |
(93.1 |
) |
|
$ |
(94.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
Pension Benefits |
|
|
Postretirement Benefits |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
Amounts recognized in accumulated other
nonowner changes in equity consist of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial (gain) loss |
|
$ |
196.0 |
|
|
$ |
217.6 |
|
|
$ |
(35.3 |
) |
|
$ |
(39.1 |
) |
Prior service cost |
|
|
(16.3 |
) |
|
|
(19.0 |
) |
|
|
(15.5 |
) |
|
|
(17.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
179.7 |
|
|
$ |
198.6 |
|
|
$ |
(50.8 |
) |
|
$ |
(56.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
The incremental effect of adopting SFAS No. 158 on individual consolidated balance sheet line
items as of December 31, 2006 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before Application |
|
|
|
|
|
After Application |
|
|
of SFAS No. 158 |
|
Adjustments |
|
of SFAS No. 158 |
|
|
(in millions) |
Deferred income taxes and other
noncurrent assets |
|
$ |
335.6 |
|
|
$ |
(156.8 |
) |
|
$ |
178.8 |
|
Accrued liabilities |
|
|
541.9 |
|
|
|
(19.6 |
) |
|
|
522.3 |
|
Postretirement benefits other than
pensions |
|
|
139.8 |
|
|
|
(56.6 |
) |
|
|
83.2 |
|
Other long-term liabilities |
|
|
356.6 |
|
|
|
(72.4 |
) |
|
|
284.2 |
|
Accumulated other nonowner
changes in equity |
|
|
(120.2 |
) |
|
|
(8.2 |
) |
|
|
(128.4 |
) |
The accumulated benefit obligation for defined benefit pension plans was $728.1 million and
$758.3 million at December 31, 2007 and 2006, respectively.
The projected benefit obligation, accumulated benefit obligation and fair value of plan assets
of defined benefit pension plans with accumulated benefit obligations in excess of plan assets were
$131.3 million, $125.3 million and $10.6 million, respectively as of December 31, 2007 and $313.2
million, $307.3 million and $172.0 million, respectively at December 31, 2006.
F-28
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
|
Other Postretirement Benefits |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
(in millions) |
|
Components of net periodic benefit cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
4.0 |
|
|
$ |
16.7 |
|
|
$ |
17.5 |
|
|
$ |
0.1 |
|
|
$ |
0.1 |
|
|
$ |
0.2 |
|
Interest cost |
|
|
41.4 |
|
|
|
41.4 |
|
|
|
41.0 |
|
|
|
5.2 |
|
|
|
5.6 |
|
|
|
6.8 |
|
Expected return on plan assets |
|
|
(51.1 |
) |
|
|
(49.1 |
) |
|
|
(50.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost |
|
|
(2.1 |
) |
|
|
0.5 |
|
|
|
0.6 |
|
|
|
(2.0 |
) |
|
|
(2.0 |
) |
|
|
(0.4 |
) |
Recognized actuarial (gain) loss |
|
|
10.9 |
|
|
|
13.2 |
|
|
|
10.0 |
|
|
|
(2.6 |
) |
|
|
(2.9 |
) |
|
|
(3.0 |
) |
Settlement loss |
|
|
0.7 |
|
|
|
4.1 |
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Curtailment (gain) loss |
|
|
0.1 |
|
|
|
4.2 |
|
|
|
|
|
|
|
|
|
|
|
(3.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
3.9 |
|
|
$ |
31.0 |
|
|
$ |
18.9 |
|
|
$ |
0.7 |
|
|
$ |
(2.4 |
) |
|
$ |
3.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated net loss and prior service cost credit for the defined benefit pension plans
that will be amortized from accumulated other nonowner changes in equity into net periodic benefit
cost over the next fiscal year are $9.7 million and $(2.1) million, respectively. The estimated
net gain and prior service credit for the other postretirement plans that will be amortized from
accumulated other nonowner changes in equity into net periodic benefit cost over the next fiscal
year are $(2.5) million and $(2.0) million, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
Pension Benefits |
|
Postretirement Benefits |
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
Weighted average assumptions
used to determine benefit
obligations as of December
31: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
4.50% - 6.00 |
% |
|
|
4.50% - 5.75 |
% |
|
|
6.00 |
% |
|
|
5.75 |
% |
Rate of compensation increase |
|
|
2.75% - 3.50 |
% |
|
|
2.75% - 4.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
Pension Benefits |
|
Postretirement Benefits |
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
Weighted average assumptions
used to determine net costs
for the years ended December
31: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
4.50% - 5.75 |
% |
|
|
4.25% - 5.60 |
% |
|
|
5.75 |
% |
|
|
5.60 |
% |
Expected return on plan assets |
|
|
6.00% - 8.25 |
% |
|
|
6.00% - 8.25 |
% |
|
|
|
|
|
|
|
|
Rate of compensation increase |
|
|
2.75% - 3.50 |
% |
|
|
2.75% - 4.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
Assumed healthcare cost trend rates: |
|
|
|
|
|
|
|
|
Healthcare cost trend rate assumed for next year |
|
|
8.00 |
% |
|
|
8.00 |
% |
Rate to which trend rate is assumed to decline (ultimate trend rate) |
|
|
5.00 |
% |
|
|
5.00 |
% |
Year that rate reaches ultimate trend rate |
|
|
2010 |
|
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-Percentage- |
|
1-Percentage- |
|
|
Point Increase |
|
Point Decrease |
|
|
(in millions) |
A one-percentage-point change in the assumed health
care cost trend rate would have the following effects: |
|
|
|
|
|
|
|
|
Effect on total of service and interest cost components |
|
$ |
0.3 |
|
|
$ |
(0.3 |
) |
Effect on the postretirement benefit obligation |
|
$ |
4.6 |
|
|
$ |
(4.1 |
) |
F-29
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Defined benefit pension plan assets consist of:
|
|
|
|
|
|
|
|
|
|
|
Percentage of Plan Assets at |
|
|
December 31, |
Asset Category |
|
2007 |
|
2006 |
Equity Securities |
|
|
60 |
% |
|
|
60 |
% |
Debt Securities |
|
|
40 |
% |
|
|
40 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
Coopers policy is to invest its pension assets in equity and fixed income investments. The
plan investments are managed by outside investment advisors and include equity futures, other
equity derivatives, fixed income futures and short to intermediate duration fixed income
securities. The allocation of plan assets is determined based on plan liabilities and funded
status.
Coopers overall expected long-term rate of return on assets assumption is based upon (i) a
long-term expected inflation rate, (ii) long-term expected stock and bond market risk premiums over
the expected inflation rate, and (iii) a target allocation of equity and fixed income securities
that will generate the overall expected long-term rate of return.
During 2008, Cooper expects to contribute approximately $4.7 million in cash to the defined
benefit pension plans. Other postretirement benefit plans are not subject to any minimum
regulatory funding requirements. Cooper funds these benefits payments as incurred.
Estimated future benefit payments for the next five fiscal years, and in the aggregate for the
five fiscal years thereafter, are $52.4 million in 2008, $52.7 million in 2009, $52.3 million in
2010, $52.5 million in 2011, $55.8 million in 2012 and $261.6 million for 2013 through 2017.
During the fourth quarter of 2003, Cooper recorded a $12.5 million restructuring charge as an
estimate of Coopers portion of unfunded benefit obligations related to the withdrawal from a
multiple-employer pension plan associated with the closing of Cooper Wiring Device manufacturing
operations in New York City. In 2005, Cooper finalized activities related to withdrawal from the
multi-employer pension plan and recorded an additional $4.0 million pre-tax charge. The
multiple-employer pension obligation was satisfied with a cash payment of $14.1 million in 2006
representing full and final payment of the withdrawal liability. Cooper participates in two other
multiple-employer plans. Obligations under these plans are insignificant.
During 2007, 2006 and 2005, expense with respect to defined contribution plans (primarily
related to various groups of hourly employees) totaled $13.1 million, $18.3 million and $17.8
million, respectively. See Note 14 of the Notes to the Consolidated Financial Statements regarding
CO-SAV contributions.
NOTE 14: RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN
All full-time domestic employees, except for certain bargaining unit employees, are eligible
to participate in the Cooper Retirement Savings and Stock Ownership Plan (CO-SAV). Under the
terms of the CO-SAV plan, employee savings deferrals are partially matched with Cooper common
stock. Compensation expense representing these common stock matches for the CO-SAV plan was $27.6
million, $20.1 million and $19.5 million in 2007, 2006 and 2005, respectively.
Also, during 2007, Cooper recognized defined contribution expense as the result of cash
contributions to the CO-SAV plan of $16.7 million. Effective January 1, 2007, Cooper announced the
F-30
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
cessation of future benefit accruals under the Cooper U.S. Salaried Pension Plan. Beginning
in 2007, Cooper makes a cash contribution to the CO-SAV plan of 3% of compensation for those
employees previously covered under the U.S. Salaried Pension Plan. Cooper further increased the
company-matching contribution under the CO-SAV plan to a dollar-for-dollar match up to 6% of
employee contributions.
See Note 13 of the Notes to the Consolidated Financial Statements regarding changes in company
contribution levels for the CO-SAV plan that became effective January 1, 2007.
NOTE 15: INDUSTRY SEGMENTS AND GEOGRAPHIC INFORMATION
Industry Segments
Coopers operations consist of two segments: Electrical Products and Tools. Markets for
Coopers products and services are worldwide, with the United States being the largest market.
The Electrical Products segment manufactures, markets and sells electrical and circuit
protection products, including fittings, support systems, enclosures, specialty connectors, wiring
devices, plugs, receptacles, lighting fixtures and controls, hazardous duty electrical equipment,
fuses, emergency lighting, fire detection and mass notification systems and security products for
use in residential, commercial and industrial construction, maintenance and repair
applications. The segment also manufactures, markets and sells products for use by utilities and
in industry for electrical power transmission and distribution.
The Tools segment manufactures, markets and sells hand tools for industrial, construction and
consumer markets; automated assembly systems for industrial markets and electric and pneumatic
industrial power tools, related electronics and software control and monitoring systems for general
industry, primarily automotive and aerospace manufacturers.
The performance of businesses is evaluated at the segment level and resources are allocated
among the segments. The Cooper executive responsible for the segments further allocates resources
among the various division operating units that compose the segments and, in international markets,
determines the integration of product lines and operations across division operating units. The
accounting policies of the segments are the same as those described in the summary of significant
accounting policies in Note 1. Cooper manages cash, debt and income taxes centrally. Accordingly,
Cooper evaluates performance of its segments and operating units based on operating earnings
exclusive of financing activities and income taxes. The segments are managed separately because
they manufacture and distribute distinct products. Intersegment sales and related receivables for
each of the years presented were insignificant.
Financial information by industry segment was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
Operating Earnings |
|
|
Total Assets |
|
|
|
Year Ended December 31, |
|
|
Year Ended December 31, |
|
|
Year Ended December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electrical Products |
|
$ |
5,108.4 |
|
|
$ |
4,426.0 |
|
|
$ |
3,997.5 |
|
|
$ |
848.2 |
|
|
$ |
703.2 |
|
|
$ |
585.0 |
|
|
$ |
4,492.6 |
|
|
$ |
3,960.8 |
|
|
$ |
3,600.9 |
|
Tools |
|
|
794.7 |
|
|
|
758.6 |
|
|
|
732.9 |
|
|
|
94.0 |
|
|
|
85.6 |
|
|
|
66.7 |
|
|
|
689.5 |
|
|
|
686.6 |
|
|
|
700.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total management reporting |
|
$ |
5,903.1 |
|
|
$ |
5,184.6 |
|
|
$ |
4,730.4 |
|
|
|
942.2 |
|
|
|
788.8 |
|
|
|
651.7 |
|
|
|
5,182.1 |
|
|
|
4,647.4 |
|
|
|
4,301.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Corporate expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(98.1 |
) |
|
|
(94.7 |
) |
|
|
(91.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Income from Belden agreement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33.1 |
|
|
|
5.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
877.2 |
|
|
|
699.2 |
|
|
|
559.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(51.0 |
) |
|
|
(51.5 |
) |
|
|
(64.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated income from
continuing operations
before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
826.2 |
|
|
$ |
647.7 |
|
|
$ |
495.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
951.4 |
|
|
|
727.4 |
|
|
|
913.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6,133.5 |
|
|
$ |
5,374.8 |
|
|
$ |
5,215.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-31
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electrical |
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
|
Products |
|
|
Tools |
|
|
Corporate |
|
|
Total |
|
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization |
|
$ |
97.4 |
|
|
$ |
20.2 |
|
|
$ |
0.6 |
|
|
$ |
118.2 |
|
Capital expenditures |
|
|
78.1 |
|
|
|
10.0 |
|
|
|
27.4 |
|
|
|
115.5 |
|
Investment in
unconsolidated affiliates |
|
|
19.5 |
|
|
|
|
|
|
|
|
|
|
|
19.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization |
|
$ |
90.4 |
|
|
$ |
20.0 |
|
|
$ |
1.3 |
|
|
$ |
111.7 |
|
Capital expenditures |
|
|
60.8 |
|
|
|
9.1 |
|
|
|
15.4 |
|
|
|
85.3 |
|
Investment in
unconsolidated affiliates |
|
|
21.3 |
|
|
|
|
|
|
|
|
|
|
|
21.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization |
|
$ |
88.7 |
|
|
$ |
20.1 |
|
|
$ |
2.2 |
|
|
$ |
111.0 |
|
Capital expenditures |
|
|
69.9 |
|
|
|
12.4 |
|
|
|
14.4 |
|
|
|
96.7 |
|
Investment in
unconsolidated affiliates |
|
|
21.6 |
|
|
|
|
|
|
|
|
|
|
|
21.6 |
|
Geographic Information
Revenues and long-lived assets by country are summarized below. Revenues are attributed to
geographic areas based on the location of the assets producing the revenues. Revenues are
generally denominated in the currency of the location of the assets producing the revenues.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
Long-Lived Assets |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
4,212.7 |
|
|
$ |
3,781.1 |
|
|
$ |
3,459.5 |
|
|
$ |
509.3 |
|
|
$ |
490.0 |
|
|
$ |
726.3 |
|
Germany |
|
|
296.1 |
|
|
|
253.5 |
|
|
|
235.0 |
|
|
|
42.8 |
|
|
|
38.7 |
|
|
|
35.0 |
|
United Kingdom |
|
|
368.4 |
|
|
|
305.3 |
|
|
|
311.3 |
|
|
|
48.6 |
|
|
|
41.1 |
|
|
|
57.2 |
|
Canada |
|
|
241.2 |
|
|
|
226.3 |
|
|
|
205.1 |
|
|
|
4.3 |
|
|
|
0.7 |
|
|
|
0.8 |
|
Mexico |
|
|
187.5 |
|
|
|
172.4 |
|
|
|
139.2 |
|
|
|
82.3 |
|
|
|
83.2 |
|
|
|
87.7 |
|
Other countries |
|
|
597.2 |
|
|
|
446.0 |
|
|
|
380.3 |
|
|
|
100.9 |
|
|
|
80.2 |
|
|
|
69.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,903.1 |
|
|
$ |
5,184.6 |
|
|
$ |
4,730.4 |
|
|
$ |
788.2 |
|
|
$ |
733.9 |
|
|
$ |
976.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International revenues by destination, based on the location products were delivered, were as
follows by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Revenues |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
(in millions) |
|
Electrical Products |
|
$ |
1,646.1 |
|
|
$ |
1,312.5 |
|
|
$ |
1,152.6 |
|
Tools |
|
|
377.4 |
|
|
|
343.0 |
|
|
|
312.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,023.5 |
|
|
$ |
1,655.5 |
|
|
$ |
1,465.5 |
|
|
|
|
|
|
|
|
|
|
|
NOTE 16: CHARGE RELATED TO DISCONTINUED OPERATIONS
In October 1998, Cooper sold its Automotive Products business to Federal-Mogul Corporation
(Federal-Mogul). These discontinued businesses (including the Abex product line obtained from
Pneumo-
F-32
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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. To the extent Cooper is obligated to Pneumo for any
asbestos-related claims arising from the Abex product line (Abex Claims), Cooper has rights,
confirmed by Pneumo, to significant insurance for such claims. Based on information provided by
representatives of Federal-Mogul and recent claims experience, from August 28, 1998 through
December 31, 2007, a total of 143,543 Abex Claims were filed, of which 114,084 claims have been
resolved leaving 29,450 Abex Claims pending at December 31, 2007, that are the responsibility of
Federal-Mogul. During the year ended December 31, 2007, 2,005 claims were filed and 3,855 claims
were resolved. Since August 28, 1998, the average indemnity payment for resolved Abex Claims was
$2,159 before insurance. A total of $129.5 million was spent on defense costs for the period
August 28, 1998 through December 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 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 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.
F-33
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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
the Companys stock upon Federal-Moguls emergence from bankruptcy.
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 would 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 resolving Abex Claims though the tort system. If Cooper
is unable to reach a settlement to participate in the Federal-Mogul 524(g) trust, the accrual for
discontinued operations potentially may have to be adjusted 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.
F-34
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 was incorporated into Federal-Moguls Fourth Amended
Joint Plan of Reorganization 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 were filed with the Court by April
24, 2007 and hearings on confirmation of the Plan were held the week of July 9th. The Court also
held hearings on October 1 and 2, 2007 for final briefs and hearings. At the conclusion of these
hearings, the Court neither approved or rejected the revised proposed settlement agreement.
F-35
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The U.S. Bankruptcy Court for the District of Delaware confirmed Federal-Moguls plan of
reorganization on November 8, 2007, and the U.S. District Court for the District of Delaware
affirmed the Bankruptcy Courts order on November 14, 2007. As part of its ruling, the Bankruptcy
Court approved the settlement between Cooper and Federal-Mogul, which requires payment of $138
million to Cooper in the event Coopers participation in the Federal-Mogul 524(g) trust is not approved for any reason.
The Bankruptcy Court stated that it would consider approving Coopers participation in the
Federal-Mogul 524(g) trust at a later time, and that its order confirming the plan of
reorganization and approving the settlement between Cooper and Federal-Mogul does not preclude
later approval of Coopers participation in the 524(g) trust. Accordingly, in an effort to
continue working towards approval of Coopers participation in the trust and to address certain
legal issues identified by the Court, Cooper, Pneumo Abex, Federal Mogul, and other plan supporters
filed Modified Plan A Settlement Documents on December 13, 2007. The Modified Plan A Settlement
Documents are the same in all material respects as the settlement documents filed with the
Bankruptcy Court on July 7, 2006, except that the Modified Plan A Settlement Documents remove
provisions relating to insurance, to which various insurers and others had objected, and require a
final, non-appealable order before Cooper is obligated to contribute to the asbestos claims
settlement trust. If the Bankruptcy Court approves the modified settlement and that settlement is
implemented, Cooper, through Pneumo-Abex LLC, will continue to have access to Abex insurance
policies, but the settlement no longer provides for payments of insurance proceeds to the trust.
Briefing with respect to the Modified Plan A Settlement Documents was expected to be concluded by
February 11, 2008, and the Bankruptcy Court has scheduled a hearing to address the modified
settlement on February 25, 2008. There is no assurance, however, that the Court will render a
decision on that date.
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 $510.0 million at December 31,
2007 and $529.6 million at December 31, 2006.
|
|
|
NOTE 17: |
|
FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES, CONCENTRATIONS OF CREDIT RISK AND FAIR
VALUE OF FINANCIAL INSTRUMENTS |
Derivative Instruments and Hedging Activities
Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities (SFAS No. 133), as amended, requires that all derivatives be recognized as assets and
liabilities and measured at fair value. For derivative instruments that are not designated as
hedges, the gain or loss on the derivative is recognized in earnings currently. A derivative
instrument may be designated as a hedge of the exposure to changes in the fair value of an asset or
liability or variability in expected future cash flows if the hedging relationship is expected to
be highly effective in offsetting changes in fair value or cash flows attributable to the hedged
risk during the period of designation. If a derivative is designated as a fair value hedge, the
gain or loss on the derivative and the offsetting loss or gain on the hedged asset, liability or
firm commitment is recognized in earnings. For derivative instruments designated as a cash flow
hedge, the effective portion of the gain or loss on the derivative instrument is reported as a
component of accumulated nonowner changes in equity and reclassified into earnings in the same
period that the hedged transaction affects earnings. The ineffective portion of the gain or loss
is immediately recognized in earnings.
Hedge accounting is discontinued prospectively when (1) it is determined that a derivative is
no longer effective in offsetting changes in the fair value or cash flows of a hedged item; (2) the
derivative is sold, terminated or exercised; (3) the hedged item no longer meets the definition of
a firm commitment; or (4)
F-36
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
it is unlikely that a forecasted transaction will occur within two months
of the originally specified time period.
When hedge accounting is discontinued because it is determined that the derivative no longer
qualifies as an effective fair-value hedge, the derivative will continue to be carried on the
balance sheet at its fair value, and the hedged asset or liability will no longer be adjusted for
changes in fair value. When hedge accounting is discontinued because a hedged item no longer meets
the definition of a firm commitment, the
derivative will continue to be carried on the balance sheet at its fair value, and any asset
or liability that was recorded pursuant to recognition of the firm commitment will be removed from
the balance sheet and recognized as a gain or loss currently in earnings. When hedge accounting is
discontinued because it is probable that a forecasted transaction will not occur within two months
of the originally specified time period, the derivative will continue to be carried on the balance
sheet at its fair value, and gains and losses reported in accumulated nonowner changes in equity
will be recognized immediately in earnings.
Cooper enters into currency forward exchange contracts and commodity futures contracts and
swaps to reduce the risks of adverse changes in currency exchange rates and commodity prices.
Cooper entered into cross-currency interest-rate swaps in 2005 and interest-rate swaps in 2003 to
reduce the interest-rate risk associated with certain fixed-rate debt. Cooper does not enter into
speculative derivative transactions.
As a result of having sales, purchases and certain intercompany transactions denominated in
currencies other than the functional currencies of Coopers businesses, Cooper is exposed to the
effect of currency exchange rate changes on its cash flows and earnings. Cooper enters into
currency forward exchange contracts to hedge significant non-functional currency denominated
transactions for periods consistent with the terms of the underlying transactions. Contracts
generally have maturities that do not exceed one year.
Currency forward exchange contracts executed to hedge a recognized asset, liability or firm
commitment are accounted for as fair value hedges. The net gain or loss on contracts designated,
as fair value hedges was not material during 2007, 2006 or 2005. Currency forward exchange
contracts executed to hedge forecasted transactions are accounted for as cash flow hedges. The net
gain or loss on contracts designated as cash flow hedges was not material during 2007, 2006 or
2005. Cooper also enters into certain currency forward exchange contracts that are not designated
as hedges. These contracts are intended to reduce cash flow volatility related to short-term
intercompany financing transactions.
Cooper enters into commodity futures contracts and swaps to reduce the volatility of price
fluctuations on a portion of its forecasted annual material purchases. These instruments are
designated as cash flow hedges. The net gain or loss on commodity futures contracts and swaps was
not material in 2007, 2006 or 2005.
During October 2005, Cooper entered into cross-currency interest-rate swaps to effectively
convert its newly issued $325 million, 5.25% fixed-rate debt to 272.6 million of 3.55% fixed-rate
debt. The $325 million debt issuance proceeds were swapped to 272.6 million and lent through an
intercompany loan to a non-U.S. subsidiary to partially fund repayment of the 300 million Euro bond
debt that matured on October 25, 2005. The cross-currency interest-rate swaps have been designated
as cash flow hedges. Changes in the currency spot exchange rate results in reclassification of
amounts from other comprehensive income to earnings to offset transaction gains and losses on the
non-U.S.-denominated intercompany debt. The cross-currency interest-rate swaps mature in November
2012.
During August 2003, Cooper entered into interest-rate swaps to effectively convert $300
million of 5.25% long-term fixed-rate debt to variable-rate debt at the six-month LIBOR rate plus
1.91% (with semi-annual reset). The interest-rate swaps were designated as fair value hedges. The
notional principal amount
F-37
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
and maturity dates of the interest-rate swaps matched the underlying
long-term debt, which matured in July 2007. During 2007 and 2006, Cooper recognized $3.1 million
and $5.8 million, respectively, of additional interest expense, net related to the interest-rate
swaps. During the year ended December 31, 2005, Cooper recognized a $0.1 million reduction of
interest expense, net related to the interest-rate swaps.
Gains or losses on derivative instruments are reported in the same line item as the underlying
hedged transaction in the consolidated statements of income. At December 31, 2007, Cooper
estimates that approximately $0.4 million of net gains on derivative instruments designated as cash
flow hedges will be reclassified from accumulated nonowner changes in equity to earnings during the
next twelve months. The amount of discontinued cash flow hedges during 2007, 2006 and 2005 was not
material.
The table below summarizes the U. S. dollar equivalent contractual amounts of Coopers forward
exchange contracts at December 31, 2007 and 2006.
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
|
(in millions) |
|
U.S. Dollar |
|
$ |
552.6 |
|
|
$ |
224.3 |
|
Euro |
|
|
154.7 |
|
|
|
122.5 |
|
Mexican Peso |
|
|
39.1 |
|
|
|
23.2 |
|
British Pound Sterling |
|
|
25.0 |
|
|
|
8.5 |
|
Other |
|
|
14.3 |
|
|
|
0.7 |
|
|
|
|
|
|
|
|
|
|
$ |
785.7 |
|
|
$ |
379.2 |
|
|
|
|
|
|
|
|
Other Instruments
In the normal course of business, Cooper executes stand-by letters of credit, performance
bonds and other guarantees that ensure Coopers performance or payment to third parties that are
not reflected in the consolidated balance sheets. The aggregate notional value of these instruments
was $99.5 million and $118.6 million at December 31, 2007 and 2006, respectively. In the past, no
significant claims have been made against these financial instruments. Management believes the
likelihood of demand for payment under these instruments is minimal and expects no material losses
to occur in connection with these instruments.
Concentrations of Credit Risk
Concentrations of credit risk with respect to trade receivables are limited due to the wide
variety of customers as well as their dispersion across many different geographic areas with no one
customer receivable exceeding 4.7% of accounts receivable.
Fair Value of Financial Instruments Other than Derivatives
Coopers financial instruments other than derivative instruments consist primarily of cash and
cash equivalents, investments, restricted cash, trade receivables, trade payables and debt
instruments. The book values of cash and cash equivalents, investments, restricted cash, trade
receivables and trade payables are considered to be representative of their respective fair values.
Cooper had approximately $1.27 billion and $1.0 billion of debt instruments at December 31, 2007
and 2006, respectively. The book value of these instruments was approximately equal to fair value
(as represented primarily by quoted market prices) at December 31, 2007 and 2006.
F-38
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 18: NET INCOME PER COMMON SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
Diluted |
|
|
|
Year Ended December 31, |
|
|
Year Ended December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
($ in millions, shares in thousands) |
|
|
|
|
|
Income from continuing operations |
|
$ |
692.3 |
|
|
$ |
484.3 |
|
|
$ |
391.1 |
|
|
$ |
692.3 |
|
|
$ |
484.3 |
|
|
$ |
391.1 |
|
Charge from discontinued operations |
|
|
|
|
|
|
20.3 |
|
|
|
227.2 |
|
|
|
|
|
|
|
20.3 |
|
|
|
227.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common stock |
|
$ |
692.3 |
|
|
$ |
464.0 |
|
|
$ |
163.9 |
|
|
$ |
692.3 |
|
|
$ |
464.0 |
|
|
$ |
163.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
182,290 |
|
|
|
183,546 |
|
|
|
185,040 |
|
|
|
182,290 |
|
|
|
183,546 |
|
|
|
185,040 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incremental shares from assumed conversions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options, performance-based stock awards
and other employee awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,238 |
|
|
|
4,038 |
|
|
|
5,058 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares and
common share equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
185,528 |
|
|
|
187,584 |
|
|
|
190,098 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options and employee awards are not considered in the calculations if the effect would be
antidilutive.
F-39
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 19: UNAUDITED QUARTERLY OPERATING RESULTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 (by quarter) |
|
|
|
1 |
|
|
2 |
|
|
3 |
|
|
4 |
|
|
|
|
|
|
|
(in millions, except per share data) |
|
|
|
|
|
Revenues |
|
$ |
1,394.0 |
|
|
$ |
1,463.7 |
|
|
$ |
1,501.3 |
|
|
$ |
1,544.1 |
|
Cost of sales |
|
|
944.9 |
|
|
|
984.6 |
|
|
|
1,008.1 |
|
|
|
1,032.4 |
|
Selling and administrative expenses |
|
|
255.4 |
|
|
|
269.1 |
|
|
|
276.7 |
|
|
|
287.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings |
|
|
193.7 |
|
|
|
210.0 |
|
|
|
216.5 |
|
|
|
223.9 |
|
Income from Belden agreement |
|
|
|
|
|
|
3.3 |
|
|
|
23.5 |
|
|
|
6.3 |
|
Interest expense, net |
|
|
12.9 |
|
|
|
12.9 |
|
|
|
12.3 |
|
|
|
12.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes |
|
|
180.8 |
|
|
|
200.4 |
|
|
|
227.7 |
|
|
|
217.3 |
|
Income taxes |
|
|
48.9 |
|
|
|
(8.8 |
) |
|
|
55.8 |
|
|
|
38.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
131.9 |
|
|
|
209.2 |
|
|
|
171.9 |
|
|
|
179.3 |
|
Charge related to discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
131.9 |
|
|
$ |
209.2 |
|
|
$ |
171.9 |
|
|
$ |
179.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per Common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
.72 |
|
|
$ |
1.14 |
|
|
$ |
.94 |
|
|
$ |
1.00 |
|
Charge from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
.72 |
|
|
$ |
1.14 |
|
|
$ |
.94 |
|
|
$ |
1.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
.71 |
|
|
$ |
1.12 |
|
|
$ |
.93 |
|
|
$ |
.98 |
|
Charge from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
.71 |
|
|
$ |
1.12 |
|
|
$ |
.93 |
|
|
$ |
.98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 (by quarter) |
|
|
|
1 |
|
|
2 |
|
|
3 |
|
|
4 |
|
|
|
|
|
|
|
(in millions, except per share data) |
|
|
|
|
|
Revenues |
|
$ |
1,240.9 |
|
|
$ |
1,287.8 |
|
|
$ |
1,314.6 |
|
|
$ |
1,341.3 |
|
Cost of sales |
|
|
846.8 |
|
|
|
870.3 |
|
|
|
887.2 |
|
|
|
917.2 |
|
Selling and administrative expenses |
|
|
237.5 |
|
|
|
244.3 |
|
|
|
240.8 |
|
|
|
246.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings |
|
|
156.6 |
|
|
|
173.2 |
|
|
|
186.6 |
|
|
|
177.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Belden agreement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.1 |
|
Interest expense, net |
|
|
12.1 |
|
|
|
12.4 |
|
|
|
14.0 |
|
|
|
13.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes |
|
|
144.5 |
|
|
|
160.8 |
|
|
|
172.6 |
|
|
|
169.8 |
|
Income taxes |
|
|
36.8 |
|
|
|
41.0 |
|
|
|
44.4 |
|
|
|
41.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
107.7 |
|
|
|
119.8 |
|
|
|
128.2 |
|
|
|
128.6 |
|
Charge related to discontinued operations |
|
|
|
|
|
|
20.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
107.7 |
|
|
$ |
99.5 |
|
|
$ |
128.2 |
|
|
$ |
128.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per Common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
.59 |
|
|
$ |
.65 |
|
|
$ |
.70 |
|
|
$ |
.71 |
|
Charge from discontinued operations |
|
|
|
|
|
|
.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
.59 |
|
|
$ |
.54 |
|
|
$ |
.70 |
|
|
$ |
.71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
.57 |
|
|
$ |
.64 |
|
|
$ |
.69 |
|
|
$ |
.69 |
|
Charge from discontinued operations |
|
|
|
|
|
|
.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
.57 |
|
|
$ |
.53 |
|
|
$ |
.69 |
|
|
$ |
.69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-40
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 20: CONSOLIDATING FINANCIAL INFORMATION
Cooper and certain of its principal operating subsidiaries (the Guarantors) fully and
unconditionally guarantee, on a joint and several basis, the registered debt securities of Cooper
Industries, LLC and Cooper US, Inc. The following condensed consolidating financial information is
included so that separate financial statements of Cooper Industries, LLC, Cooper US, Inc. or the
Guarantors are not required to be filed with the Securities and Exchange Commission. The
consolidating financial statements present investments in subsidiaries using the equity method of
accounting. Intercompany investments in the Class A and Class B common shares are accounted for
using the cost method.
Consolidating Income Statements
Year Ended December 31, 2007
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cooper |
|
|
Cooper |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industries, |
|
|
US, |
|
|
|
|
|
|
Other |
|
|
Consolidating |
|
|
|
|
|
|
Cooper |
|
|
LLC |
|
|
Inc. |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
|
Revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3,758.4 |
|
|
$ |
2,417.9 |
|
|
$ |
(273.2 |
) |
|
$ |
5,903.1 |
|
Cost of sales |
|
|
|
|
|
|
0.2 |
|
|
|
(0.4 |
) |
|
|
2,607.0 |
|
|
|
1,636.4 |
|
|
|
(273.2 |
) |
|
|
3,970.0 |
|
Selling and administrative
expenses |
|
|
9.2 |
|
|
|
18.0 |
|
|
|
270.2 |
|
|
|
556.2 |
|
|
|
434.4 |
|
|
|
(199.0 |
) |
|
|
1,089.0 |
|
Income from Belden
agreement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33.1 |
|
|
|
|
|
|
|
33.1 |
|
Interest expense, net |
|
|
(1.3 |
) |
|
|
33.6 |
|
|
|
25.2 |
|
|
|
|
|
|
|
(6.5 |
) |
|
|
|
|
|
|
51.0 |
|
Equity in earnings of
subsidiaries, net of tax |
|
|
649.3 |
|
|
|
40.4 |
|
|
|
486.3 |
|
|
|
76.9 |
|
|
|
330.0 |
|
|
|
(1,582.9 |
) |
|
|
|
|
Intercompany income
(expense) |
|
|
(33.3 |
) |
|
|
(27.3 |
) |
|
|
|
|
|
|
(168.8 |
) |
|
|
344.1 |
|
|
|
(114.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
continuing operations
before income taxes |
|
|
608.0 |
|
|
|
(38.7 |
) |
|
|
191.4 |
|
|
|
503.3 |
|
|
|
1,060.8 |
|
|
|
(1,498.6 |
) |
|
|
826.2 |
|
Income tax expense
(benefit) |
|
|
|
|
|
|
(30.2 |
) |
|
|
(138.6 |
) |
|
|
147.9 |
|
|
|
154.8 |
|
|
|
|
|
|
|
133.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations |
|
|
608.0 |
|
|
|
(8.5 |
) |
|
|
330.0 |
|
|
|
355.4 |
|
|
|
906.0 |
|
|
|
(1,498.6 |
) |
|
|
692.3 |
|
Charge related to
discontinued operations,
net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
608.0 |
|
|
$ |
(8.5 |
) |
|
$ |
330.0 |
|
|
$ |
355.4 |
|
|
$ |
906.0 |
|
|
$ |
(1,498.6 |
) |
|
$ |
692.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-41
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Consolidating Income Statements
Year Ended December 31, 2006
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cooper |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cooper |
|
|
US, |
|
|
|
|
|
|
Other |
|
|
Consolidating |
|
|
|
|
|
|
Cooper |
|
|
Industries, LLC |
|
|
Inc. |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3,367.1 |
|
|
$ |
2,055.2 |
|
|
$ |
(237.7 |
) |
|
$ |
5,184.6 |
|
Cost of sales |
|
|
(5.1 |
) |
|
|
(1.0 |
) |
|
|
0.6 |
|
|
|
2,358.1 |
|
|
|
1,406.6 |
|
|
|
(237.7 |
) |
|
|
3,521.5 |
|
Selling and administrative
expenses |
|
|
9.6 |
|
|
|
19.7 |
|
|
|
64.9 |
|
|
|
509.1 |
|
|
|
365.7 |
|
|
|
|
|
|
|
969.0 |
|
Income from Belden
agreement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.1 |
|
|
|
|
|
|
|
5.1 |
|
Interest expense, net |
|
|
(0.8 |
) |
|
|
45.0 |
|
|
|
12.2 |
|
|
|
|
|
|
|
(4.9 |
) |
|
|
|
|
|
|
51.5 |
|
Equity in earnings of
subsidiaries, net of tax |
|
|
584.5 |
|
|
|
(105.3 |
) |
|
|
337.9 |
|
|
|
96.4 |
|
|
|
338.5 |
|
|
|
(1,252.0 |
) |
|
|
|
|
Intercompany income
(expense) |
|
|
(18.2 |
) |
|
|
133.8 |
|
|
|
22.4 |
|
|
|
(369.7 |
) |
|
|
330.4 |
|
|
|
(98.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
continuing operations
before income taxes |
|
|
562.6 |
|
|
|
(35.2 |
) |
|
|
282.6 |
|
|
|
226.6 |
|
|
|
961.8 |
|
|
|
(1,350.7 |
) |
|
|
647.7 |
|
Income tax expense
(benefit) |
|
|
|
|
|
|
(29.9 |
) |
|
|
(56.0 |
) |
|
|
48.4 |
|
|
|
200.9 |
|
|
|
|
|
|
|
163.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations |
|
|
562.6 |
|
|
|
(5.3 |
) |
|
|
338.6 |
|
|
|
178.2 |
|
|
|
760.9 |
|
|
|
(1,350.7 |
) |
|
|
484.3 |
|
Charge related to
discontinued operations,
net of tax |
|
|
|
|
|
|
20.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
562.6 |
|
|
$ |
(25.6 |
) |
|
$ |
338.6 |
|
|
$ |
178.2 |
|
|
$ |
760.9 |
|
|
$ |
(1,350.7 |
) |
|
$ |
464.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating Income Statements
Year Ended December 31, 2005
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cooper |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cooper |
|
|
US, |
|
|
|
|
|
|
Other |
|
|
Consolidating |
|
|
|
|
|
|
Cooper |
|
|
Industries, LLC |
|
|
Inc. |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3,124.2 |
|
|
$ |
1,745.7 |
|
|
$ |
(139.5 |
) |
|
$ |
4,730.4 |
|
Cost of sales |
|
|
0.2 |
|
|
|
0.4 |
|
|
|
1.1 |
|
|
|
2,203.4 |
|
|
|
1,178.2 |
|
|
|
(139.5 |
) |
|
|
3,243.8 |
|
Selling and administrative
expenses |
|
|
8.9 |
|
|
|
9.8 |
|
|
|
70.4 |
|
|
|
495.8 |
|
|
|
341.9 |
|
|
|
|
|
|
|
926.8 |
|
Interest expense, net |
|
|
(1.1 |
) |
|
|
51.3 |
|
|
|
(1.3 |
) |
|
|
|
|
|
|
15.9 |
|
|
|
|
|
|
|
64.8 |
|
Equity in earnings of
subsidiaries, net of tax |
|
|
259.1 |
|
|
|
55.9 |
|
|
|
100.7 |
|
|
|
117.5 |
|
|
|
39.9 |
|
|
|
(573.1 |
) |
|
|
|
|
Intercompany income
(expense) |
|
|
(6.7 |
) |
|
|
(59.0 |
) |
|
|
(73.7 |
) |
|
|
(373.6 |
) |
|
|
593.5 |
|
|
|
(80.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
continuing operations
before income taxes |
|
|
244.4 |
|
|
|
(64.6 |
) |
|
|
(43.2 |
) |
|
|
168.9 |
|
|
|
843.1 |
|
|
|
(653.6 |
) |
|
|
495.0 |
|
Income tax expense
(benefit) |
|
|
|
|
|
|
(44.7 |
) |
|
|
(82.9 |
) |
|
|
15.1 |
|
|
|
216.4 |
|
|
|
|
|
|
|
103.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations |
|
|
244.4 |
|
|
|
(19.9 |
) |
|
|
39.7 |
|
|
|
153.8 |
|
|
|
626.7 |
|
|
|
(653.6 |
) |
|
|
391.1 |
|
Charge related to
discontinued operations,
net of taxes |
|
|
|
|
|
|
227.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
227.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
244.4 |
|
|
$ |
(247.1 |
) |
|
$ |
39.7 |
|
|
$ |
153.8 |
|
|
$ |
626.7 |
|
|
$ |
(653.6 |
) |
|
$ |
163.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-42
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Consolidating Balance Sheets
December 31, 2007
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cooper |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cooper |
|
|
US, |
|
|
|
|
|
|
Other |
|
|
Consolidating |
|
|
|
|
|
|
Cooper |
|
|
Industries, LLC |
|
|
Inc. |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
1.3 |
|
|
$ |
|
|
|
$ |
23.1 |
|
|
$ |
(1.1 |
) |
|
$ |
209.5 |
|
|
$ |
|
|
|
$ |
232.8 |
|
Investments |
|
|
|
|
|
|
|
|
|
|
93.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93.7 |
|
Receivables |
|
|
1.1 |
|
|
|
|
|
|
|
0.3 |
|
|
|
539.3 |
|
|
|
507.9 |
|
|
|
|
|
|
|
1,048.6 |
|
Inventories |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
346.2 |
|
|
|
297.5 |
|
|
|
|
|
|
|
643.7 |
|
Deferred income taxes and
other current assets |
|
|
0.7 |
|
|
|
119.2 |
|
|
|
64.3 |
|
|
|
44.8 |
|
|
|
55.2 |
|
|
|
|
|
|
|
284.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
3.1 |
|
|
|
119.2 |
|
|
|
181.4 |
|
|
|
929.2 |
|
|
|
1,070.1 |
|
|
|
|
|
|
|
2,303.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
290.1 |
|
|
|
|
|
|
|
290.1 |
|
Property, plant and
equipment, less
accumulated depreciation |
|
|
|
|
|
|
|
|
|
|
63.9 |
|
|
|
326.9 |
|
|
|
329.0 |
|
|
|
|
|
|
|
719.8 |
|
Goodwill |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,249.7 |
|
|
|
1,290.6 |
|
|
|
|
|
|
|
2,540.3 |
|
Investment in subsidiaries |
|
|
5,158.1 |
|
|
|
620.3 |
|
|
|
4,779.5 |
|
|
|
1,030.8 |
|
|
|
3,785.5 |
|
|
|
(15,374.2 |
) |
|
|
|
|
Investment in parent |
|
|
|
|
|
|
|
|
|
|
2,872.2 |
|
|
|
|
|
|
|
312.7 |
|
|
|
(3,184.9 |
) |
|
|
|
|
Intercompany accounts
Receivable |
|
|
|
|
|
|
787.4 |
|
|
|
|
|
|
|
1,337.0 |
|
|
|
737.7 |
|
|
|
(2,862.1 |
) |
|
|
|
|
Intercompany notes
Receivable |
|
|
162.4 |
|
|
|
25.8 |
|
|
|
1,155.2 |
|
|
|
0.3 |
|
|
|
4,422.1 |
|
|
|
(5,765.8 |
) |
|
|
|
|
Deferred income taxes and
other noncurrent assets |
|
|
|
|
|
|
14.5 |
|
|
|
8.0 |
|
|
|
48.9 |
|
|
|
208.9 |
|
|
|
|
|
|
|
280.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
5,323.6 |
|
|
$ |
1,567.2 |
|
|
$ |
9,060.2 |
|
|
$ |
4,922.8 |
|
|
$ |
12,446.7 |
|
|
$ |
(27,187.0 |
) |
|
$ |
6,133.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt |
|
$ |
|
|
|
$ |
|
|
|
$ |
228.7 |
|
|
$ |
|
|
|
$ |
27.4 |
|
|
$ |
|
|
|
$ |
256.1 |
|
Accounts payable |
|
|
37.8 |
|
|
|
5.1 |
|
|
|
19.1 |
|
|
|
218.2 |
|
|
|
252.9 |
|
|
|
|
|
|
|
533.1 |
|
Accrued liabilities |
|
|
6.2 |
|
|
|
39.0 |
|
|
|
72.2 |
|
|
|
261.5 |
|
|
|
187.8 |
|
|
|
|
|
|
|
566.7 |
|
Current discontinued
operations liability |
|
|
|
|
|
|
179.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
179.1 |
|
Current maturities of
long-term debt |
|
|
|
|
|
|
100.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
44.0 |
|
|
|
323.3 |
|
|
|
320.0 |
|
|
|
479.7 |
|
|
|
468.1 |
|
|
|
|
|
|
|
1,635.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
|
|
|
|
277.2 |
|
|
|
624.1 |
|
|
|
8.0 |
|
|
|
0.6 |
|
|
|
|
|
|
|
909.9 |
|
Intercompany accounts
payable |
|
|
34.8 |
|
|
|
|
|
|
|
2,826.1 |
|
|
|
|
|
|
|
|
|
|
|
(2,860.9 |
) |
|
|
|
|
Intercompany notes
payable |
|
|
815.0 |
|
|
|
692.6 |
|
|
|
1,869.0 |
|
|
|
1,741.8 |
|
|
|
647.2 |
|
|
|
(5,765.6 |
) |
|
|
|
|
Long-term discontinued
operations liability |
|
|
|
|
|
|
330.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
330.0 |
|
Other long-term
Liabilities |
|
|
|
|
|
|
(86.1 |
) |
|
|
155.6 |
|
|
|
187.8 |
|
|
|
159.3 |
|
|
|
|
|
|
|
416.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
893.8 |
|
|
|
1,537.0 |
|
|
|
5,794.8 |
|
|
|
2,417.3 |
|
|
|
1,275.2 |
|
|
|
(8,626.5 |
) |
|
|
3,291.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common stock |
|
|
2.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.3 |
) |
|
|
1.8 |
|
Class B common stock |
|
|
1.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.1 |
) |
|
|
|
|
Subsidiary common stock |
|
|
|
|
|
|
|
|
|
|
170.0 |
|
|
|
|
|
|
|
371.4 |
|
|
|
(541.4 |
) |
|
|
|
|
Capital in excess of
par value |
|
|
3,458.5 |
|
|
|
|
|
|
|
743.7 |
|
|
|
1,427.0 |
|
|
|
7,496.1 |
|
|
|
(13,039.6 |
) |
|
|
85.7 |
|
Retained earnings |
|
|
916.4 |
|
|
|
116.2 |
|
|
|
2,468.7 |
|
|
|
1,055.3 |
|
|
|
3,335.9 |
|
|
|
(5,057.4 |
) |
|
|
2,835.1 |
|
Accumulated other non-
owner changes in equity |
|
|
51.7 |
|
|
|
(86.0 |
) |
|
|
(117.0 |
) |
|
|
23.2 |
|
|
|
(31.9 |
) |
|
|
79.3 |
|
|
|
(80.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
4,429.8 |
|
|
|
30.2 |
|
|
|
3,265.4 |
|
|
|
2,505.5 |
|
|
|
11,171.5 |
|
|
|
(18,560.5 |
) |
|
|
2,841.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders equity |
|
$ |
5,323.6 |
|
|
$ |
1,567.2 |
|
|
$ |
9,060.2 |
|
|
$ |
4,922.8 |
|
|
$ |
12,446.7 |
|
|
$ |
(27,187.0 |
) |
|
$ |
6,133.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-43
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Consolidating Balance Sheets
December 31, 2006
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cooper |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cooper |
|
|
US, |
|
|
|
|
|
|
Other |
|
|
Consolidating |
|
|
|
|
|
|
Cooper |
|
|
Industries, LLC |
|
|
Inc. |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
11.5 |
|
|
$ |
|
|
|
$ |
204.9 |
|
|
$ |
(2.8 |
) |
|
$ |
209.9 |
|
|
$ |
|
|
|
$ |
423.5 |
|
Receivables |
|
|
0.2 |
|
|
|
|
|
|
|
0.4 |
|
|
|
469.3 |
|
|
|
426.1 |
|
|
|
|
|
|
|
896.0 |
|
Inventories |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
348.6 |
|
|
|
259.0 |
|
|
|
|
|
|
|
607.6 |
|
Deferred income taxes and
other current assets |
|
|
1.1 |
|
|
|
141.4 |
|
|
|
51.9 |
|
|
|
25.6 |
|
|
|
46.6 |
|
|
|
|
|
|
|
266.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
12.8 |
|
|
|
141.4 |
|
|
|
257.2 |
|
|
|
840.7 |
|
|
|
941.6 |
|
|
|
|
|
|
|
2,193.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and
equipment, less
accumulated depreciation |
|
|
|
|
|
|
|
|
|
|
49.8 |
|
|
|
320.0 |
|
|
|
295.6 |
|
|
|
|
|
|
|
665.4 |
|
Goodwill |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,025.0 |
|
|
|
1,311.9 |
|
|
|
|
|
|
|
2,336.9 |
|
Investment in subsidiaries |
|
|
3,554.6 |
|
|
|
570.0 |
|
|
|
4,081.8 |
|
|
|
1,219.2 |
|
|
|
1,346.2 |
|
|
|
(10,771.8 |
) |
|
|
|
|
Investment in parent |
|
|
|
|
|
|
|
|
|
|
2,811.2 |
|
|
|
|
|
|
|
312.8 |
|
|
|
(3,124.0 |
) |
|
|
|
|
Intercompany accounts
receivable |
|
|
686.3 |
|
|
|
806.5 |
|
|
|
|
|
|
|
1,289.0 |
|
|
|
598.6 |
|
|
|
(3,380.4 |
) |
|
|
|
|
Intercompany notes
receivable |
|
|
91.8 |
|
|
|
24.9 |
|
|
|
758.5 |
|
|
|
0.7 |
|
|
|
4,067.3 |
|
|
|
(4,943.2 |
) |
|
|
|
|
Deferred income taxes and
other noncurrent assets |
|
|
|
|
|
|
20.0 |
|
|
|
2.0 |
|
|
|
23.0 |
|
|
|
133.8 |
|
|
|
|
|
|
|
178.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
4,345.5 |
|
|
$ |
1,562.8 |
|
|
$ |
7,960.5 |
|
|
$ |
4,717.6 |
|
|
$ |
9,007.8 |
|
|
$ |
(22,219.4 |
) |
|
$ |
5,374.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
5.0 |
|
|
$ |
|
|
|
$ |
5.0 |
|
Accounts payable |
|
|
32.1 |
|
|
|
17.2 |
|
|
|
4.5 |
|
|
|
225.9 |
|
|
|
192.0 |
|
|
|
|
|
|
|
471.7 |
|
Accrued liabilities |
|
|
5.2 |
|
|
|
43.4 |
|
|
|
84.5 |
|
|
|
230.0 |
|
|
|
159.2 |
|
|
|
|
|
|
|
522.3 |
|
Current discontinued
operations liability |
|
|
|
|
|
|
199.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
199.6 |
|
Current maturities of
long-term debt |
|
|
|
|
|
|
300.0 |
|
|
|
|
|
|
|
|
|
|
|
0.7 |
|
|
|
|
|
|
|
300.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
37.3 |
|
|
|
560.2 |
|
|
|
89.0 |
|
|
|
455.9 |
|
|
|
356.9 |
|
|
|
|
|
|
|
1,499.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
|
|
|
|
370.5 |
|
|
|
323.9 |
|
|
|
8.0 |
|
|
|
0.4 |
|
|
|
|
|
|
|
702.8 |
|
Intercompany accounts
payable |
|
|
|
|
|
|
|
|
|
|
3,380.4 |
|
|
|
|
|
|
|
|
|
|
|
(3,380.4 |
) |
|
|
|
|
Intercompany notes
payable |
|
|
552.3 |
|
|
|
329.9 |
|
|
|
1,901.4 |
|
|
|
1,707.3 |
|
|
|
452.3 |
|
|
|
(4,943.2 |
) |
|
|
|
|
Long-term discontinued
operations liability |
|
|
|
|
|
|
330.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
330.0 |
|
Other long-term
liabilities |
|
|
|
|
|
|
(57.7 |
) |
|
|
119.2 |
|
|
|
172.9 |
|
|
|
133.0 |
|
|
|
|
|
|
|
367.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
589.6 |
|
|
|
1,532.9 |
|
|
|
5,813.9 |
|
|
|
2,344.1 |
|
|
|
942.6 |
|
|
|
(8,323.6 |
) |
|
|
2,899.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common stock |
|
|
1.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.1 |
) |
|
|
0.9 |
|
Class B common stock |
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.5 |
) |
|
|
|
|
Subsidiary common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500.3 |
|
|
|
(500.3 |
) |
|
|
|
|
Capital in excess of
par value |
|
|
3,392.0 |
|
|
|
|
|
|
|
56.2 |
|
|
|
1,431.5 |
|
|
|
5,174.7 |
|
|
|
(9,776.0 |
) |
|
|
278.4 |
|
Retained earnings |
|
|
358.4 |
|
|
|
128.3 |
|
|
|
2,230.1 |
|
|
|
943.3 |
|
|
|
2,485.6 |
|
|
|
(3,821.3 |
) |
|
|
2,324.4 |
|
Accumulated other 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-44
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Consolidating Statements of Cash Flows
Year Ended December 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 |
|
$ |
(33.5 |
) |
|
$ |
(80.8 |
) |
|
$ |
(192.8 |
) |
|
$ |
329.1 |
|
|
$ |
773.3 |
|
|
$ |
|
|
|
$ |
795.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments |
|
|
|
|
|
|
|
|
|
|
(93.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(93.7 |
) |
Cash restricted for business
acquisition |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(290.1 |
) |
|
|
|
|
|
|
(290.1 |
) |
Capital expenditures |
|
|
|
|
|
|
|
|
|
|
(27.1 |
) |
|
|
(52.5 |
) |
|
|
(35.9 |
) |
|
|
|
|
|
|
(115.5 |
) |
Cash paid for acquired
businesses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(75.0 |
) |
|
|
(261.1 |
) |
|
|
|
|
|
|
(336.1 |
) |
Investment in affiliates |
|
|
|
|
|
|
|
|
|
|
(356.0 |
) |
|
|
(16.1 |
) |
|
|
|
|
|
|
372.1 |
|
|
|
|
|
Loans to affiliates |
|
|
(222.4 |
) |
|
|
|
|
|
|
(417.4 |
) |
|
|
|
|
|
|
(1,070.6 |
) |
|
|
1,710.4 |
|
|
|
|
|
Repayments of loans from
affiliates |
|
|
151.9 |
|
|
|
|
|
|
|
|
|
|
|
0.5 |
|
|
|
1,045.3 |
|
|
|
(1,197.7 |
) |
|
|
|
|
Dividends from affiliates |
|
|
|
|
|
|
|
|
|
|
105.8 |
|
|
|
47.1 |
|
|
|
6.7 |
|
|
|
(159.6 |
) |
|
|
|
|
Proceeds from sales of
property, plant and
equipment and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.8 |
|
|
|
|
|
|
|
1.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used
in) investing activities |
|
|
(70.5 |
) |
|
|
|
|
|
|
(788.4 |
) |
|
|
(96.0 |
) |
|
|
(603.9 |
) |
|
|
725.2 |
|
|
|
(833.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuances
of debt |
|
|
|
|
|
|
|
|
|
|
528.7 |
|
|
|
|
|
|
|
18.6 |
|
|
|
|
|
|
|
547.3 |
|
Debt issuance costs |
|
|
|
|
|
|
|
|
|
|
(2.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.7 |
) |
Proceeds from debt
derivatives |
|
|
|
|
|
|
|
|
|
|
10.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.0 |
|
Repayments of debt |
|
|
|
|
|
|
(300.0 |
) |
|
|
|
|
|
|
|
|
|
|
(3.3 |
) |
|
|
|
|
|
|
(303.3 |
) |
Borrowings from affiliates |
|
|
899.7 |
|
|
|
361.8 |
|
|
|
448.9 |
|
|
|
|
|
|
|
|
|
|
|
(1,710.4 |
) |
|
|
|
|
Repayments of loans to
affiliates |
|
|
(710.3 |
) |
|
|
|
|
|
|
(485.7 |
) |
|
|
|
|
|
|
(1.7 |
) |
|
|
1,197.7 |
|
|
|
|
|
Other intercompany
financing activities |
|
|
229.7 |
|
|
|
19.0 |
|
|
|
294.7 |
|
|
|
(231.4 |
) |
|
|
(201.8 |
) |
|
|
(110.2 |
) |
|
|
|
|
Dividends |
|
|
(154.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(154.3 |
) |
Dividends paid to affiliates |
|
|
(114.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(44.9 |
) |
|
|
159.6 |
|
|
|
|
|
Purchase of common shares |
|
|
(255.3 |
) |
|
|
|
|
|
|
(88.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(343.9 |
) |
Excess tax benefits from
stock options and awards |
|
|
|
|
|
|
|
|
|
|
25.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25.8 |
|
Issuance of stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62.9 |
|
|
|
(62.9 |
) |
|
|
|
|
Employee stock plan
activity and other |
|
|
199.0 |
|
|
|
|
|
|
|
68.3 |
|
|
|
|
|
|
|
|
|
|
|
(199.0 |
) |
|
|
68.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used
in) financing activities |
|
|
93.8 |
|
|
|
80.8 |
|
|
|
799.4 |
|
|
|
(231.4 |
) |
|
|
(170.2 |
) |
|
|
(725.2 |
) |
|
|
(152.8 |
) |
Effect of exchange rate
changes on cash and cash
equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.4 |
|
|
|
|
|
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash
and cash equivalents |
|
|
(10.2 |
) |
|
|
|
|
|
|
(181.8 |
) |
|
|
1.7 |
|
|
|
(0.4 |
) |
|
|
|
|
|
|
(190.7 |
) |
Cash and cash equivalents,
beginning of period |
|
|
11.5 |
|
|
|
|
|
|
|
204.9 |
|
|
|
(2.8 |
) |
|
|
209.9 |
|
|
|
|
|
|
|
423.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents,
end of period |
|
$ |
1.3 |
|
|
$ |
|
|
|
$ |
23.1 |
|
|
$ |
(1.1 |
) |
|
$ |
209.5 |
|
|
$ |
|
|
|
$ |
232.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-45
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Consolidating Statements of Cash Flows
Year Ended December 31, 2006
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cooper |
|
|
Cooper |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industries, |
|
|
US, |
|
|
|
|
|
|
Other |
|
|
Consolidating |
|
|
|
|
|
|
Cooper |
|
|
LLC |
|
|
Inc |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used
in) operating activities |
|
$ |
(20.9 |
) |
|
$ |
(18.8 |
) |
|
$ |
(11.7 |
) |
|
$ |
129.3 |
|
|
$ |
523.5 |
|
|
$ |
|
|
|
$ |
601.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
|
|
|
|
|
|
|
|
(15.3 |
) |
|
|
(37.2 |
) |
|
|
(32.8 |
) |
|
|
|
|
|
|
(85.3 |
) |
Cash paid for acquired
businesses |
|
|
|
|
|
|
|
|
|
|
(45.0 |
) |
|
|
(229.6 |
) |
|
|
(5.8 |
) |
|
|
|
|
|
|
(280.4 |
) |
Investment in affiliates |
|
|
(12.3 |
) |
|
|
|
|
|
|
(36.7 |
) |
|
|
|
|
|
|
|
|
|
|
49.0 |
|
|
|
|
|
Loans to affiliates |
|
|
(192.0 |
) |
|
|
|
|
|
|
(44.5 |
) |
|
|
|
|
|
|
(539.1 |
) |
|
|
775.6 |
|
|
|
|
|
Repayments of loans from
affiliates |
|
|
146.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
199.3 |
|
|
|
(345.5 |
) |
|
|
|
|
Dividends from affiliates |
|
|
5.0 |
|
|
|
5.5 |
|
|
|
91.7 |
|
|
|
18.1 |
|
|
|
7.9 |
|
|
|
(128.2 |
) |
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.0 |
|
|
|
17.9 |
|
|
|
|
|
|
|
18.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used
in) investing activities |
|
|
(53.1 |
) |
|
|
5.5 |
|
|
|
(49.8 |
) |
|
|
(247.7 |
) |
|
|
(352.6 |
) |
|
|
350.9 |
|
|
|
(346.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of debt |
|
|
|
|
|
|
(11.0 |
) |
|
|
|
|
|
|
|
|
|
|
(3.8 |
) |
|
|
|
|
|
|
(14.8 |
) |
Borrowings from affiliates |
|
|
271.2 |
|
|
|
44.4 |
|
|
|
458.4 |
|
|
|
1.5 |
|
|
|
0.1 |
|
|
|
(775.6 |
) |
|
|
|
|
Repayments of loans to
affiliates |
|
|
(47.3 |
) |
|
|
|
|
|
|
(251.8 |
) |
|
|
(2.4 |
) |
|
|
(44.0 |
) |
|
|
345.5 |
|
|
|
|
|
Other intercompany
financing activities |
|
|
13.0 |
|
|
|
(20.1 |
) |
|
|
83.7 |
|
|
|
120.0 |
|
|
|
(196.6 |
) |
|
|
|
|
|
|
|
|
Dividends |
|
|
(137.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(137.0 |
) |
Dividends paid to affiliates |
|
|
(98.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29.6 |
) |
|
|
128.2 |
|
|
|
|
|
Subsidiary purchase of
parent shares |
|
|
20.1 |
|
|
|
|
|
|
|
(284.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(264.2 |
) |
Issuance of stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49.0 |
|
|
|
(49.0 |
) |
|
|
|
|
Excess tax benefits from
stock options and awards |
|
|
|
|
|
|
|
|
|
|
26.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26.8 |
|
Employee stock plan
activity and other |
|
|
|
|
|
|
|
|
|
|
89.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used
in) financing activities |
|
|
21.4 |
|
|
|
13.3 |
|
|
|
122.0 |
|
|
|
119.1 |
|
|
|
(224.9 |
) |
|
|
(350.9 |
) |
|
|
(300.0 |
) |
Effect of
exchange rate changes on cash and cash
equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16.1 |
|
|
|
|
|
|
|
16.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash
and cash equivalents |
|
|
(52.6 |
) |
|
|
|
|
|
|
60.5 |
|
|
|
0.7 |
|
|
|
(37.9 |
) |
|
|
|
|
|
|
(29.3 |
) |
Cash and cash equivalents,
beginning of period |
|
|
64.1 |
|
|
|
|
|
|
|
144.4 |
|
|
|
(3.5 |
) |
|
|
247.8 |
|
|
|
|
|
|
|
452.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents,
end of period |
|
$ |
11.5 |
|
|
$ |
|
|
|
$ |
204.9 |
|
|
$ |
(2.8 |
) |
|
$ |
209.9 |
|
|
$ |
|
|
|
$ |
423.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-46
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Consolidating Statements of Cash Flows
Year Ended December 31, 2005
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cooper |
|
|
Cooper |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industries, |
|
|
US, |
|
|
|
|
|
|
Other |
|
|
Consolidating |
|
|
|
|
|
|
Cooper |
|
|
LLC |
|
|
Inc |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
operating activities |
|
$ |
(10.4 |
) |
|
$ |
(141.6 |
) |
|
$ |
2.0 |
|
|
$ |
103.6 |
|
|
$ |
619.9 |
|
|
$ |
|
|
|
$ |
573.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
|
|
|
|
|
|
|
|
(14.4 |
) |
|
|
(40.7 |
) |
|
|
(41.6 |
) |
|
|
|
|
|
|
(96.7 |
) |
Cash paid for acquired businesses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7.1 |
) |
|
|
|
|
|
|
(7.1 |
) |
Investment in affiliates |
|
|
(11.1 |
) |
|
|
(225.0 |
) |
|
|
(49.2 |
) |
|
|
(3.4 |
) |
|
|
|
|
|
|
288.7 |
|
|
|
|
|
Sale of investment in affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
130.9 |
|
|
|
(130.9 |
) |
|
|
|
|
Loans to affiliates |
|
|
(46.0 |
) |
|
|
(23.5 |
) |
|
|
(646.7 |
) |
|
|
(0.7 |
) |
|
|
(238.3 |
) |
|
|
955.2 |
|
|
|
|
|
Repayments of loans from affiliates |
|
|
27.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46.2 |
|
|
|
(73.9 |
) |
|
|
|
|
Dividends from affiliates |
|
|
10.0 |
|
|
|
0.9 |
|
|
|
98.4 |
|
|
|
52.8 |
|
|
|
5.1 |
|
|
|
(167.2 |
) |
|
|
|
|
Other |
|
|
|
|
|
|
1.5 |
|
|
|
|
|
|
|
0.6 |
|
|
|
11.5 |
|
|
|
|
|
|
|
13.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
investing activities |
|
|
(19.4 |
) |
|
|
(246.1 |
) |
|
|
(611.9 |
) |
|
|
8.6 |
|
|
|
(93.3 |
) |
|
|
871.9 |
|
|
|
(90.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuances of debt |
|
|
|
|
|
|
|
|
|
|
325.0 |
|
|
|
|
|
|
|
1.4 |
|
|
|
|
|
|
|
326.4 |
|
Repayments of debt |
|
|
|
|
|
|
(229.0 |
) |
|
|
|
|
|
|
|
|
|
|
(481.4 |
) |
|
|
|
|
|
|
(710.4 |
) |
Borrowings from affiliates |
|
|
235.8 |
|
|
|
258.7 |
|
|
|
|
|
|
|
5.9 |
|
|
|
454.8 |
|
|
|
(955.2 |
) |
|
|
|
|
Repayments of loans to affiliates |
|
|
(46.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27.7 |
) |
|
|
73.9 |
|
|
|
|
|
Other intercompany financing
activities |
|
|
(11.7 |
) |
|
|
358.0 |
|
|
|
227.6 |
|
|
|
(100.6 |
) |
|
|
(473.3 |
) |
|
|
|
|
|
|
|
|
Dividends |
|
|
(138.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(138.1 |
) |
Dividends paid to affiliates |
|
|
(70.2 |
) |
|
|
|
|
|
|
|
|
|
|
(22.2 |
) |
|
|
(74.8 |
) |
|
|
167.2 |
|
|
|
|
|
Subsidiary
purchase of parent shares |
|
|
12.8 |
|
|
|
|
|
|
|
(113.3 |
) |
|
|
|
|
|
|
(110.5 |
) |
|
|
|
|
|
|
(211.0 |
) |
Issuance of stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
157.8 |
|
|
|
(157.8 |
) |
|
|
|
|
Employee stock plan activity and
other |
|
|
|
|
|
|
|
|
|
|
68.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
financing activities |
|
|
(17.6 |
) |
|
|
387.7 |
|
|
|
508.2 |
|
|
|
(116.9 |
) |
|
|
(553.7 |
) |
|
|
(871.9 |
) |
|
|
(664.2 |
) |
Effect of exchange rate changes on
cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19.1 |
) |
|
|
|
|
|
|
(19.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in cash and cash
equivalents |
|
|
(47.4 |
) |
|
|
|
|
|
|
(101.7 |
) |
|
|
(4.7 |
) |
|
|
(46.2 |
) |
|
|
|
|
|
|
(200.0 |
) |
Cash and cash equivalents,
beginning of period |
|
|
111.5 |
|
|
|
|
|
|
|
246.1 |
|
|
|
1.2 |
|
|
|
294.0 |
|
|
|
|
|
|
|
652.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of
period |
|
$ |
64.1 |
|
|
$ |
|
|
|
$ |
144.4 |
|
|
$ |
(3.5 |
) |
|
$ |
247.8 |
|
|
$ |
|
|
|
$ |
452.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-47
Index
to Exhibits
|
|
|
2.0
|
|
Agreement and Plan of Merger among Cooper Industries, Inc., Cooper
Mergerco, Inc. and Cooper Industries, Ltd. (incorporated herein by reference to
Annex I to Coopers Registration Statement on Form S-4, Registration No. 333-62740). |
|
|
|
3.1
|
|
Memorandum of Association of Cooper Industries, Ltd. (incorporated herein
by reference to Annex II to Coopers Registration Statement on Form S-4,
Registration No. 333-62740). |
|
|
|
3.2
|
|
Amended and Restated Bye-Laws of Cooper Industries, Ltd. (incorporated
herein by reference to Annex III to Coopers Registration Statement on Form S-4,
Registration No. 333-62740). |
|
|
|
4.1
|
|
Amended and Restated Rights Agreement dated as of August 3, 2007 between
Cooper Industries, Ltd. and Computershare Trust Company, N.A., as Rights Agent
(incorporated herein by reference to Exhibit 4.1 to Coopers Amendment No. 1 to
Registration Statement on Form 8-A, Registration No. 001-31330). |
|
|
|
4.2
|
|
Amended and Restated Voting Agreement between Cooper Industries, Ltd.,
Cooper Industries, Inc. and Cooper Bermuda Investments Ltd. (incorporated herein by
reference to Exhibit 4 to Coopers Form 10-Q for the quarter ended March 31, 2004). |
|
|
|
4.3
|
|
Indenture dated as of January 15, 1990, between Cooper Industries, Inc.
and The Chase Manhattan Bank (National Association), as Trustee (incorporated herein
by reference to Exhibit 4(a) to Coopers Registration Statement on Form S-3,
Registration No. 33-33011). |
|
|
|
4.4
|
|
First Supplemental Indenture dated as of May 15, 2002 between Cooper
Industries, Inc. and JPMorgan Chase Bank, N.A., as successor Trustee to The Chase
Manhattan Bank (National Association) (incorporated herein by reference to Exhibit
4.3 to Coopers Form 10-Q for the quarter ended June 30, 2002). |
|
|
|
4.5
|
|
Second Supplemental Indenture dated as of June 21, 2002 among Cooper
Industries, Inc., Cooper Industries, Ltd. and JPMorgan Chase Bank, N.A., as Trustee
(incorporated herein by reference to Exhibit 4.4 to Coopers Form 10-Q for the
quarter ended June 30, 2002). |
|
|
|
4.6
|
|
Third Supplemental Indenture dated as of October 28, 2002 among Cooper
Industries, Inc., Cooper Industries, Ltd. and JPMorgan Chase Bank, N.A., as Trustee
(incorporated herein by reference to Exhibit 4.1 to Coopers Form 10-Q for the
quarter ended September 30, 2002). |
|
|
|
4.7
|
|
Fourth Supplemental Indenture dated as of January 1, 2005 among Cooper
Industries, LLC, Cooper Industries, Ltd. and JPMorgan Chase Bank, N.A., as Trustee
(incorporated by reference to Exhibit 4 to Coopers Form 10-Q for the quarter ended
March 31, 2005). |
|
|
|
4.8
|
|
Indenture dated as of November 8, 2005 among Cooper US, Inc., Cooper
Industries, Ltd., Subsidiary Guarantors and JPMorgan Chase Bank, N.A., as Trustee
(incorporated by reference to Exhibit 4.1 to Coopers Form 8-K filed November 9,
2005). |
|
|
|
4.9
|
|
Registration Rights Agreement dated November 8, 2005 among Cooper US,
Inc., Cooper Industries, Ltd., Subsidiary Guarantors, and Banc of America Securities
LLC and Citigroup Global Markets, Inc. as representatives of several initial
purchasers of $325 million aggregate principal amount of debt securities
(incorporated by reference to Exhibit 4.2 to Coopers Form 8-K filed November 9,
2005). |
|
|
|
4.10
|
|
Form of Indenture among Cooper US, Inc., Cooper Industries, Ltd. and
Deutsche Bank Trust Company Americas, as Trustee (incorporated by reference to
Exhibit 4.1 to Coopers Form 8-K dated June 13, 2007). |
|
|
|
4.11
|
|
Form of First Supplemental Indenture among Cooper US, Inc., Cooper
Industries, Ltd., the Subsidiary Guarantors named therein and Deutsche Bank Trust
Company Americas, as Trustee (incorporated by reference to Exhibit 4.2 to Coopers
Form 8-K dated June 13, 2007). |
|
|
|
10.1
|
|
Cooper Industries, Inc. Directors Deferred Compensation Plan (incorporated
by reference to Exhibit 10.2 to Coopers Form 10-K for the year ended December 31,
1997). |
|
|
|
10.2
|
|
Cooper Industries, Inc. Directors Retirement Plan (incorporated by
reference to Exhibit 10.3 to Coopers Form 10-K for the year ended December 31,
1997). |
|
|
|
10.3
|
|
Cooper Industries, Inc. Supplemental Excess Defined Benefit Plan (August 1,
1998 Restatement) (incorporated by reference to Exhibit 10(iii) to Coopers Form 10-Q
for the quarter ended September 30, 1998). |
|
|
|
10.4
|
|
First Amendment to Cooper Industries, Inc. Supplemental Excess Defined
Benefit Plan (August 1, 1998 Restatement) (incorporated by reference to Exhibit 10.6
to Coopers Form 10-K for the year ended December 31, 2003). |
|
|
|
10.5
|
|
Cooper Industries, Inc. Supplemental Excess Defined Contribution Plan
(August 1, 1998 Restatement) (incorporated by reference to Exhibit 10(iv) to Coopers
Form 10-Q for the quarter ended September 30, 1998). |
|
|
|
10.6
|
|
First, Second and Third Amendments to Cooper Industries, Inc. Supplemental
Excess Defined Contribution Plan (August 1, 1998 Restatement) (incorporated by
reference to Exhibit 10.8 to Coopers Form 10-K for the year ended December 31,
2003). |
|
|
|
10.7
|
|
Description of Cooper Supplemental Executive Retirement Plan and Base
Salary Deferral Program Adopted effective January 1, 2007 (incorporated by reference
to Exhibit 10.5 to Coopers Form 10-Q for the period ended March 31, 2007). |
|
|
|
10.8
|
|
Management Incentive Compensation Deferral Plan (incorporated by reference
to Exhibit 10.7 to Coopers Form 10-K for the year ended December 31, 1997). |
|
|
|
10.9
|
|
Third and Fourth Amendments to Management Incentive Compensation Deferral
Plan (incorporated by reference to Exhibit 10.10 to Coopers Form 10-K for the year
ended December 31, 2003). |
|
|
|
10.10
|
|
Crouse-Hinds Company Officers Disability and Supplemental Pension Plan
(September 10, 1999 Restatement, as amended) (incorporated by reference to Exhibit
10.11 to Coopers Form 10-K for the year ended December 31, 2003). |
|
|
|
10.11
|
|
Cooper Industries Amended and Restated Stock Incentive Plan (February 9,
2005 Restatement) (incorporated herein by reference to Exhibit 10.4 to Coopers Form
10-Q for the quarter ended March 31, 2005). |
|
|
|
10.12
|
|
First Amendment to Cooper Industries Amended and Restated Stock Incentive
Plan (February 9, 2005 Restatement) (incorporated by reference to Exhibit 10.13 to
Coopers Form 10-K for the year ended December 31, 2006). |
|
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10.13
|
|
Second Amendment to Cooper Industries Amended and Restated Stock Incentive
Plan (February 9, 2005 Restatement) (incorporated by reference to Exhibit 10.2 to
Coopers Form 10-Q for the period ended March 31, 2007). |
|
|
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10.14
|
|
Form of Incentive Stock Option Agreement for Cooper Industries, Inc. Stock
Incentive Plan (incorporated by reference to Exhibit 10.14 to Coopers Form 10-K for
the year ended December 31, 2003). |
|
|
|
10.15
|
|
Form of Nonqualified Stock Option Agreement for Cooper Industries, Inc.
Stock Incentive Plan (incorporated by reference to Exhibit 10.15 to Coopers Form
10-K for the year ended December 31, 2003). |
|
|
|
10.16
|
|
Form of Cooper US, Inc. Executive Stock Incentive Agreement for the
performance period January 1, 2005 to December 31, 2007 (incorporated by reference to
Exhibit 10.3 to Coopers Form 10-Q for the period ended March 31, 2005). |
|
|
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10.17
|
|
Form of Cooper US, Inc. Executive Stock Incentive Agreement for the
performance period January 1, 2006 to December 31, 2008 (incorporated by reference to
Exhibit 10.1 to Coopers Form 10-Q for the period ended March 31, 2006). |
|
|
|
10.18
|
|
Form of Cooper US, Inc. Executive Stock Incentive Agreement for the
performance period January 1, 2007 to December 31, 2009 (incorporated by reference to
Exhibit 10.1 to Coopers Form 10-Q for the period ended March 31, 2007). |
|
|
|
10.19
|
|
Cooper Industries Amended and Restated Management Annual Incentive Plan
(February 13, 2006 Restatement) (incorporated herein by reference to Appendix C to
Coopers Proxy Statement for the Annual Meeting of Shareholders held on April 25,
2006). |
|
|
|
10.20
|
|
First Amendment to Cooper Industries Amended and Restated Management
Annual Incentive Plan (February 13, 2006 Restatement) (incorporated by reference to
Exhibit 10.20 to Coopers Form 10-K for the year ended December 31, 2006). |
|
|
|
10.21
|
|
Amended and Restated Cooper Industries, Ltd. Directors Stock Plan
(February 14, 2006 Restatement) (incorporated herein by reference to Appendix D to
Coopers Proxy Statement for the Annual Meeting of Shareholders held on April 25,
2006). |
|
|
|
10.22
|
|
First Amendment to Cooper Industries, Ltd. Amended and Restated Directors
Stock Plan (February 14, 2006 Restatement) (incorporated by reference to Exhibit 10.3
to Coopers Form 10-Q for the period ended March 31, 2007). |
|
|
|
10.23
|
|
Form of Directors Nonqualified Stock Option Agreement for Directors
Stock Plan (incorporated herein by reference to Exhibit 10.18 to Coopers Form 10-K
for the year ended December 31, 1997). |
|
|
|
10.24
|
|
Cooper Industries, Ltd. Amended and Restated Directors Retainer Fee Stock
Plan (April 1, 2003 Restatement) (incorporated by reference to Exhibit 10.21 to
Coopers Form 10-K for the year ended December 31, 2003). |
|
|
|
10.25
|
|
First Amendment to Cooper Industries, Ltd. Amended and Restated Directors
Retainer Fee Stock Plan (April 1, 2003 Restatement) (incorporated by reference to
Exhibit 10.4 to Coopers Form 10-Q for the period ended March 31, 2007). |
|
|
|
10.26
|
|
Form of Management Continuity Agreement between Cooper Industries, Ltd.
and key management personnel, which applies if there is a Change in Control of Cooper |
|
|
|
|
|
(incorporated herein by reference to Exhibit 10.5 to Coopers Form 10-Q for the
quarter ended March 31, 2005). |
|
|
|
10.27
|
|
Form of Indemnification Agreement between Cooper Industries, Ltd. and key
management personnel (incorporated by reference to Exhibit 10.23 to Coopers Form
10-K for the year ended December 31, 2003). |
|
|
|
10.28
|
|
Purchase and Sale Agreement between Cooper Industries, Inc. and
Federal-Mogul Corporation dated August 17, 1998 (incorporated herein by reference to
Exhibit 10(i) of Coopers Form 10-Q for the quarter ended September 30, 1998). |
|
|
|
10.29
|
|
Term Sheet Pneumo Abex Settlement Plan A and Plan B dated as of July 6,
2006 among Cooper Industries, Ltd.; Cooper Industries, LLC; Federal-Mogul
Corporation; Federal-Mogul Products, Inc.; the Future Claimants Representative for
Federal-Mogul Corporation and Federal-Mogul Products, Inc.; the Official Committee of
Asbestos Claimants for Federal-Mogul Corporation and Federal-Mogul Products, Inc.;
Pneumo Abex LLC; and PCT International Holdings, Inc. (incorporated by reference to
Exhibit 99.1 to Coopers Form 8-K dated July 20, 2006). |
|
|
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10.30
|
|
Plan B Settlement Agreement dated as of September 18, 2006 among Cooper
Industries, Ltd.; Cooper Industries, LLC; Federal-Mogul Corporation; Federal-Mogul
Products, Inc.; the Future Claimants Representative for Federal-Mogul Corporation
and Federal-Mogul Products, Inc.; the Official Committee of Asbestos Claimants for
Federal-Mogul Corporation and Federal-Mogul Products, Inc.; Pneumo Abex LLC; and PCT
International Holdings, Inc. (incorporated by reference to Exhibit 10.28 to Coopers
Form 10-K for the year ended December 31, 2006). |
|
|
|
10.31
|
|
Cooper (UK 2002) Employee Share Purchase Plan (incorporated by reference
to Exhibit 10.25 to Coopers Form 10-K for the year ended December 31, 2003). |
|
|
|
10.32
|
|
Five-Year Credit Agreement dated November 3, 2004 among Cooper Industries,
Ltd., Cooper US, Inc. and the banks named therein (incorporated by reference to
Exhibit 10.25 of Coopers Form 10-K for the year ended December 31, 2004). |
|
|
|
10.33
|
|
Form of Executive Employment Agreement for employees who received stock
option and performance share awards on February 13, 2006 (incorporated by reference
to Exhibit 10.1 to Coopers Form 8-K dated March 17, 2006). |
|
|
|
10.34
|
|
Separation and Transition Agreement dated September 1, 2006 between Cooper
Industries, Ltd. and David R. Sheil (incorporated by reference to Exhibit 10.2 to
Coopers Form 10-Q for the quarter ended September 30, 2006). |
|
|
|
10.35
|
|
Separation and Transition Agreement dated January 16, 2007 between Cooper
Industries, Ltd. and Paul M. Isabella (incorporated by reference to Exhibit 10.33 to
Coopers Form 10-K for the year ended December 31, 2006). |
|
|
|
12.0
|
|
Computation of Ratios of Earnings to Fixed Charges for the Calendar years
2003 through 2007. |
|
|
|
21.0
|
|
List of Cooper Industries, Ltd. Subsidiaries. |
|
|
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23.1
|
|
Consent of Ernst & Young LLP. |
|
|
|
23.2
|
|
Consent of Bates White, LLC. |
|
|
|
24.0
|
|
Powers of Attorney from members of the Board of Directors of Cooper Industries, Ltd. |
|
|
|
31.1
|
|
Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
31.2
|
|
Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
32.1
|
|
Certification of Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
32.2
|
|
Certification of Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |