e10vq
`
10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarter ended March 31, 2008
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
(Exact name of registrant as specified in its charter)
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Bermuda
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98-0355628 |
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.) |
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600 Travis, Suite 5600
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Houston, Texas 77002 |
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(Address of principal executive offices)
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(Zip Code) |
(Registrants telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
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
(Do not check if a smaller reporting company) |
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Smaller Reporting Company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ
Number of registrants common stock outstanding as of March 31, 2008 was 174,013,908 Class A common
shares that are held by the public and 29,483,752 Class A common shares and 109,620,258 Class B
common shares that are held by the issuers wholly-owned subsidiaries.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
COOPER INDUSTRIES, LTD.
CONSOLIDATED INCOME STATEMENTS
(unaudited)
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Three Months Ended |
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March 31, |
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2008 |
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2007 |
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(in millions, except per share data) |
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Revenues |
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$ |
1,546.1 |
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$ |
1,394.0 |
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Cost of sales |
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1,022.2 |
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944.9 |
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Selling and administrative expenses |
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301.5 |
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255.4 |
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Operating earnings |
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222.4 |
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193.7 |
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Interest expense, net |
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14.9 |
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12.9 |
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Income before income taxes |
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207.5 |
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180.8 |
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Income taxes |
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54.1 |
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48.9 |
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Net income |
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$ |
153.4 |
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$ |
131.9 |
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Income per common share: |
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Basic |
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$ |
.87 |
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$ |
.72 |
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Diluted |
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$ |
.86 |
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$ |
.71 |
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Cash dividends declared per common share |
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$ |
.25 |
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$ |
.21 |
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The accompanying notes are an integral part of these statements.
-2-
COOPER INDUSTRIES, LTD.
CONSOLIDATED BALANCE SHEETS
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March 31, |
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December 31, |
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2008 |
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2007 |
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(unaudited) |
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(Note 1) |
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(in millions) |
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ASSETS |
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Cash and cash equivalents |
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$ |
139.2 |
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$ |
232.8 |
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Investments |
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65.0 |
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93.7 |
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Receivables |
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1,139.2 |
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1,048.6 |
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Inventories |
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742.1 |
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643.7 |
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Deferred income taxes and other current assets |
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290.6 |
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284.2 |
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Total current assets |
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2,376.1 |
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2,303.0 |
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Restricted cash |
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5.6 |
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290.1 |
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Property, plant and equipment, less accumulated depreciation |
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763.1 |
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719.8 |
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Goodwill |
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2,736.5 |
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2,540.3 |
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Other noncurrent assets |
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386.9 |
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280.3 |
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Total assets |
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$ |
6,268.2 |
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$ |
6,133.5 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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Short-term debt |
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$ |
120.7 |
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$ |
256.1 |
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Accounts payable |
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558.0 |
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533.1 |
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Accrued liabilities |
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529.0 |
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566.7 |
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Current discontinued operations liability |
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189.1 |
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179.1 |
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Current maturities of long-term debt |
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100.1 |
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100.1 |
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Total current liabilities |
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1,496.9 |
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1,635.1 |
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Long-term debt |
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1,207.4 |
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909.9 |
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Postretirement benefits other than pensions |
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81.0 |
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81.4 |
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Long-term discontinued operations liability |
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330.0 |
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330.0 |
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Other long-term liabilities |
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426.1 |
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335.2 |
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Total liabilities |
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3,541.4 |
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3,291.6 |
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Common stock, $.01 par value |
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1.7 |
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1.8 |
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Capital in excess of par value |
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85.7 |
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Retained earnings |
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2,785.1 |
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2,835.1 |
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Accumulated other nonowner changes in equity |
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(60.0 |
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(80.7 |
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Total shareholders equity |
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2,726.8 |
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2,841.9 |
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Total liabilities and shareholders equity |
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$ |
6,268.2 |
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$ |
6,133.5 |
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The accompanying notes are an integral part of these statements.
-3-
COOPER INDUSTRIES, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
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Three Months Ended |
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March 31, |
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2008 |
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2007 |
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(in millions) |
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Cash flows from operating activities: |
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Net income |
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$ |
153.4 |
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$ |
131.9 |
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Adjustments to reconcile to net cash provided by operating activities: |
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Depreciation and amortization |
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33.5 |
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28.9 |
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Deferred income taxes |
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12.3 |
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(4.1 |
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Excess tax benefits from stock options and awards |
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(2.7 |
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(10.4 |
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Changes in assets and liabilities: (1) |
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Receivables |
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(35.3 |
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(93.2 |
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Inventories |
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(59.9 |
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(41.6 |
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Accounts payable and accrued liabilities |
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(59.3 |
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3.2 |
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Other assets and liabilities, net |
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23.2 |
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59.0 |
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Net cash provided by operating activities |
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65.2 |
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73.7 |
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Cash flows from investing activities: |
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Proceeds from short-term investments |
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29.8 |
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Proceeds from cash restricted for business acquisitions |
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284.5 |
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Capital expenditures |
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(23.6 |
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(22.1 |
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Cash paid for acquired businesses |
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(267.1 |
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(124.3 |
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Proceeds from sales of property, plant and equipment and other |
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0.3 |
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Net cash provided by (used in) investing activities |
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23.9 |
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(146.4 |
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Cash flows from financing activities: |
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Proceeds from issuance of debt |
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297.6 |
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Proceeds from debt derivatives |
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0.5 |
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Repayments of debt |
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(192.8 |
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(1.0 |
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Dividends |
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(38.2 |
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(38.9 |
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Purchase of common shares |
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(266.4 |
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(39.3 |
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Excess tax benefits from stock options and awards |
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2.7 |
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10.4 |
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Proceeds from exercise of stock options |
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6.0 |
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21.5 |
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Net cash used in financing activities |
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(190.6 |
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(47.3 |
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Effect of exchange rate changes on cash and cash equivalents |
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7.9 |
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1.3 |
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Decrease in cash and cash equivalents |
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(93.6 |
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(118.7 |
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Cash and cash equivalents, beginning of period |
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232.8 |
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423.5 |
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Cash and cash equivalents, end of period |
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$ |
139.2 |
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$ |
304.8 |
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(1) |
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Net of the effects of acquisitions and translation. |
The accompanying notes are an integral part of these statements.
-4-
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1. Accounting Policies
Basis of Presentation - The consolidated financial statements of Cooper Industries, Ltd., a
Bermuda company (Cooper), have been prepared in accordance with generally accepted accounting
principles in the United States.
The financial information presented as of any date other than December 31 has been prepared
from the books and records without audit. Financial information as of December 31 has been derived
from Coopers audited financial statements, but does not include all disclosures required by
generally accepted accounting principles. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, necessary for a fair presentation of the financial
information for the periods indicated, have been included. For further information regarding
Coopers accounting policies, refer to the Consolidated Financial Statements and related notes for
the year ended December 31, 2007 included in Part IV of Coopers 2007 Annual Report on Form 10-K.
In September 2006, the Financial Accounting Standards Board (FASB) 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. On February 12, 2008, the
FASB 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. The implementation of SFAS No. 157 as
of January 1, 2008 for assets and liabilities not subject to the deferral described above did not
have a material impact on the Companys results of operations, financial position or cash flows.
See Note 12 of the Notes to the Consolidated Financial Statements.
In February 2007, the FASB 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
otherwise required to be measured at fair value. SFAS No. 159 also establishes presentation and
disclosure requirements designed to facilitate comparisons between entities that choose different
measurement attributes for similar types of assets and liabilities. For Cooper, the Statement was
effective January 1, 2008. The implementation of SFAS No. 159 as of January 1, 2008 did not have
any impact on the Companys results of operations, financial position or cash flows as Cooper did
not elect to measure any eligible items at fair value that are not already required to be measured
at fair value.
In December 2007, the FASB 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 (IASB) 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 completed on or after January 1, 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.
-5-
In December 2007, the FASB 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 IASBs
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.
In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161,
Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No.
133 (SFAS No. 161). SFAS No. 161 requires entities to provide greater transparency about (a) how
and why an entity uses derivative instruments, (b) how derivative instruments and related hedged
items are accounted for under Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities, and (c) how derivative instruments and related
hedged items affect an entitys financial position, results of operations, and cash flows. For
Cooper, SFAS No. 161 is effective in 2009. Cooper is currently evaluating the impact of this
Statement on the disclosures to its consolidated financial statements.
Note 2. Stock-Based Compensation
Cooper has a share-based compensation plan known as the Amended and Restated Stock Incentive
Plan (the Plan). The Plan provides for the granting of stock options, performance-based share
awards and restricted stock units. The Plan was updated in April 2008 to increase by 7 million the
number of authorized shares available under the Plan, to extend the term of the Plan from November
7, 2010 to November 7, 2015 and for certain other matters. Since the original Plans inception in
1996, the aggregate number of shares authorized under the Plan is 41 million, including the 7
million shares authorized by shareholders in April 2008. As of March 31, 2008, 961,778 shares were
available for future grants under the Plan, all of which are available for grants of stock options,
performance-based shares and restricted stock units. Of the additional 7 million shares authorized
in April 2008, no more than 2.1 million shares are available for restricted stock (or restricted
stock units) and performance shares. Total compensation expense for all share-based compensation
arrangements under the Plan was $9.9 million and $8.8 million for the three months ended March 31,
2008 and 2007, respectively. The total income tax benefit recognized in the income statement for
all share-based compensation arrangements under the Plan was $3.5 million and $3.2 million for the
three months ended March 31, 2008 and 2007, respectively. During the three months ended March 31,
2008, Cooper granted 1,838,650 stock option awards, 563,440 performance-based shares and 84,150
restricted stock units.
Note 3. Acquisitions
Cooper completed two acquisitions during the three months ended March 31, 2008. These
acquisitions were selected because of their strategic fit with existing Cooper businesses or were
new strategic lines that were complementary to Coopers operations. Approximately two-thirds of
the revenues of these businesses are outside of the United States.
In February 2008, Cooper completed the acquisition of MTL Instruments Group plc (MTL). MTL
is a leader in the development and supply of electronic instrumentation and protection equipment
for use in hazardous environments. The total purchase price, including assumed debt, was
approximately $332 million. The MTL acquisition resulted in the recognition of a preliminary
estimate of goodwill of $182.5 million, primarily related to the future earnings and cash flow
potential from MTLs worldwide customer base. The MTL acquisition is included in the Electrical
Products segment.
-6-
Total cash paid for the two acquisitions was $267.5 million, net of cash acquired, including
acquisition costs. The acquisitions resulted in the recognition of preliminary estimated aggregate
goodwill of $183.2 million.
Cooper makes an initial allocation of the purchase price as of the date of acquisition, based
on its understanding of the fair value of the assets and liabilities acquired. In the months after
the closing of the transaction, Cooper obtains additional information about the assets and
liabilities acquired, and finalizes allocation of the purchase price.
The following table summarizes the aggregate estimated preliminary fair values of the assets
acquired and the liabilities assumed at the acquisition date for the acquisitions completed during
the three months ended March 31, 2008:
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MTL |
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Other |
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Total |
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(in millions) |
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Receivables |
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$ |
43.0 |
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$ |
0.7 |
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$ |
43.7 |
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Inventories |
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29.9 |
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0.4 |
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30.3 |
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Property, Plant and Equipment |
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41.7 |
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1.5 |
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43.2 |
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Goodwill |
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182.5 |
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0.7 |
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183.2 |
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Other intangible assets |
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100.5 |
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0.4 |
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100.9 |
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Accounts payable |
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(12.4 |
) |
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(0.2 |
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(12.6 |
) |
Short-term debt |
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(56.6 |
) |
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(56.6 |
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Other assets and liabilities, net |
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(64.5 |
) |
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(0.1 |
) |
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(64.6 |
) |
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Net cash consideration |
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$ |
264.1 |
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$ |
3.4 |
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$ |
267.5 |
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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 these
acquired businesses are included in the Electrical Products segment.
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:
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(in millions) |
|
Receivables |
|
$ |
58.0 |
|
Inventories |
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|
48.9 |
|
Property, Plant and Equipment |
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41.7 |
|
Goodwill |
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|
174.8 |
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Other intangible assets |
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|
122.3 |
|
Accounts payable |
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|
(36.5 |
) |
Other assets and liabilities, net |
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(73.5 |
) |
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Net cash consideration |
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$ |
335.7 |
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|
Cooper continues to evaluate the fair value of the assets and liabilities acquired 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.
-7-
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 periods set
forth below gives effect to the above noted acquisitions as if they had occurred at the beginning
of the period. 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):
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|
Three Months Ended March 31, |
|
|
|
2008 |
|
|
2007 |
|
Revenues |
|
$ |
1,565.4 |
|
|
$ |
1,489.6 |
|
Net income |
|
$ |
152.6 |
|
|
$ |
127.8 |
|
Diluted earnings per share |
|
$ |
.86 |
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$ |
.69 |
|
Note 4. Inventories
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March 31, |
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December 31, |
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|
|
2008 |
|
|
2007 |
|
|
|
(in millions) |
|
Raw materials |
|
$ |
252.7 |
|
|
$ |
221.5 |
|
Work-in-process |
|
|
201.0 |
|
|
|
178.8 |
|
Finished goods |
|
|
454.0 |
|
|
|
396.2 |
|
Perishable tooling and supplies |
|
|
14.9 |
|
|
|
15.0 |
|
|
|
|
|
|
|
|
|
|
|
922.6 |
|
|
|
811.5 |
|
Allowance for excess and obsolete inventory |
|
|
(82.9 |
) |
|
|
(77.9 |
) |
Excess of current standard costs over LIFO costs |
|
|
(97.6 |
) |
|
|
(89.9 |
) |
|
|
|
|
|
|
|
Net inventories |
|
$ |
742.1 |
|
|
$ |
643.7 |
|
|
|
|
|
|
|
|
Note 5. Debt
At March 31, 2008, Cooper has $120.7 million of short-term debt, of which $42.5 million is
U.S. commercial paper. In connection with the acquisition of MTL in February 2008, Cooper assumed
short-term debt of approximately $47.8 million and issued short-term loan notes of $8.8 million.
At March 31, 2008 Cooper has $60.7 million of debt related to MTL included in short-term debt. At
March 31, 2008 Cooper has U.S.-committed credit facilities that total $567 million, of which $67
million matures in March 2009 and of which $500 million matures in November 2009.
On March 27, 2008, Cooper US, Inc., a subsidiary of Cooper, issued $300 million of 5.45%
senior unsecured notes that mature on April 1, 2015. Payment of the notes is guaranteed by Cooper
and certain of its principal operating subsidiaries. Proceeds from the financing were used to
repay outstanding commercial paper. Combined with the debt issuance discount, underwriting
commissions and interest rate hedges implemented in anticipation of the financing, the notes have
an effective annual cost to Cooper of 5.56%.
Note 6. Shareholders Equity
At March 31, 2008, 174,013,908 Class A common shares, $.01 par value were issued and
outstanding (excluding 29,483,752 Class A common shares held by wholly-owned subsidiaries) compared
to 179,453,923 Class A common shares, $.01 par value (excluding 27,195,002 Class A common shares
held by wholly-owned subsidiaries) at December 31, 2007. During the first quarter of 2008, Cooper
issued 831,185 Class A common shares primarily in connection with employee incentive and benefit
plans and Coopers dividend reinvestment program. During the first quarter of 2008, Cooper and its
wholly-owned subsidiaries purchased 6,271,200 Class A common shares for $266.4 million under the
Companys share repurchase plans. The share purchases are recorded by Coopers wholly-owned
subsidiaries as an investment in its parent company that is eliminated in consolidation.
-8-
A wholly-owned subsidiary also owns all of the issued and outstanding Class B common shares.
The subsidiarys investment in the Class B common shares is eliminated in consolidation. If at any
time a dividend is declared and paid on the Class A common shares, a like dividend shall be
declared and paid on the Class B common shares in an equal amount per share.
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 12, 2008, Coopers Board of
Directors authorized the purchase of ten million shares of common stock in addition to the
remaining November 2, 2004 authorization. In the first quarter 2008, Cooper repurchased the 3
million shares intended to offset dilution from share issuances under equity compensation plans, as
well as approximately 3.3 million additional shares under the Cooper Board of Directors
authorizations 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. As of March 31,
2008, 11,167,947 shares remain available to be repurchased under the authorizations by the Board of
Directors.
Note 7. Segment Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
Operating Earnings |
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
Electrical Products |
|
$ |
1,361.6 |
|
|
$ |
1,210.6 |
|
|
$ |
223.5 |
|
|
$ |
193.5 |
|
Tools |
|
|
184.5 |
|
|
|
183.4 |
|
|
|
17.2 |
|
|
|
21.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segments |
|
$ |
1,546.1 |
|
|
$ |
1,394.0 |
|
|
|
240.7 |
|
|
|
215.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Corporate expense |
|
|
|
|
|
|
|
|
|
|
18.3 |
|
|
|
21.6 |
|
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
14.9 |
|
|
|
12.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
|
|
|
|
|
|
|
$ |
207.5 |
|
|
$ |
180.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 8. Pension and Other Postretirement Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
|
Other Postretirement Benefits |
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
Components of net periodic benefit cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
1.0 |
|
|
$ |
1.0 |
|
|
$ |
|
|
|
$ |
|
|
Interest cost |
|
|
10.5 |
|
|
|
10.2 |
|
|
|
1.3 |
|
|
|
1.3 |
|
Expected return on plan assets |
|
|
(12.5 |
) |
|
|
(12.8 |
) |
|
|
|
|
|
|
|
|
Amortization of prior service cost |
|
|
(0.5 |
) |
|
|
(0.5 |
) |
|
|
(0.5 |
) |
|
|
(0.5 |
) |
Recognized actuarial (gain) loss |
|
|
2.4 |
|
|
|
2.6 |
|
|
|
(0.6 |
) |
|
|
(0.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
0.9 |
|
|
$ |
0.5 |
|
|
$ |
0.2 |
|
|
$ |
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-9-
Note 9. Income Taxes
The effective tax rate before discrete adjustments was 28.3% for the three months ended March
31, 2008 and 27.1% for the three months ended March 31, 2007. The increase is primarily related to
increased taxable earnings in 2008 without a corresponding increase in projected tax benefits.
Cooper reduced income taxes expense by $4.6 million during the period ended March 31, 2008 for
discrete tax items primarily related to foreign taxes.
Cooper has unrecognized gross tax benefits of $55.8 million at March 31, 2008. Approximately
$44.2 million of unrecognized tax benefits, if recognized, would favorably impact the effective tax
rate. Cooper believes it is reasonably possible that additional tax benefits in the range of
approximately $10 to $20 million could be recognized during the next 12 months as audits close and
statutes expire.
The Internal Revenue Service has begun an examination of Coopers 2007 Federal income tax
return and is completing their examination of Coopers 2005 and 2006 Federal income tax returns.
Also, 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.
Note 10. Net Income Per Common Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
Diluted |
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
Net income applicable to common stock |
|
$ |
153.4 |
|
|
$ |
131.9 |
|
|
$ |
153.4 |
|
|
$ |
131.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
177.1 |
|
|
|
183.0 |
|
|
|
177.1 |
|
|
|
183.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incremental shares from assumed conversions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options, performance-based stock
awards and other employee awards |
|
|
|
|
|
|
|
|
|
|
2.2 |
|
|
|
3.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
and common share equivalents |
|
|
|
|
|
|
|
|
|
|
179.3 |
|
|
|
186.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options and employee awards are not considered in the calculations if the effect would be
antidilutive.
-10-
Note 11. Net Income and Other Nonowner Changes in Equity
The components of net income and other nonowner changes in equity, net of related taxes, were
as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
(in millions) |
|
Net income |
|
$ |
153.4 |
|
|
$ |
131.9 |
|
Foreign currency translation gains (losses) |
|
|
9.7 |
|
|
|
(1.1 |
) |
Change in fair value of derivatives |
|
|
10.5 |
|
|
|
4.7 |
|
|
|
|
|
|
|
|
Net income and other nonowner changes in equity |
|
$ |
173.6 |
|
|
$ |
135.5 |
|
|
|
|
|
|
|
|
Note 12. Fair Value Measurement
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 swaps in 2005 to reduce the currency risk associated with an
intercompany financing transaction. 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. Cooper enters into commodity swaps to
reduce the volatility of price fluctuations on a portion of up to eighteen months of forecasted
material purchases.
During October 2005, Cooper entered into cross-currency 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 swaps mature in November 2012.
As described in Note 1, Cooper adopted SFAS No. 157 effective January 1, 2008. SFAS No. 157
expands disclosure for each major asset and liability category measured at fair value on either a
recurring or nonrecurring basis.
SFAS No. 157 establishes a three-tier fair value hierarchy, which prioritizes the inputs used
in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active
markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable
either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no
market data, which require the reporting entity to develop its own assumptions.
Assets and liabilities measured at fair value are based on one or more of three valuation
techniques described in SFAS No. 157. Valuation techniques utilized for each individual asset and
liability category are referenced in the tables below. Where more than one technique is noted,
individual assets or liabilities were valued using multiple techniques. The valuation techniques
are as follows:
|
(a) |
|
Market approach Prices and other relevant information generated by market
transactions involving identical or comparable assets or liabilities; |
-11-
|
(b) |
|
Income approach Techniques to convert future amounts to a single present
amount based on market expectations (including present value techniques, option-pricing
and excess earnings models); |
|
|
(c) |
|
Cost approach Amount that would be required to replace the service capacity
of an asset (replacement cost). |
Assets and liabilities measured at fair value as of March 31, 2008 on a recurring basis are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
Liabilities |
|
|
|
|
Significant other |
|
Significant other |
|
|
|
|
observable inputs |
|
observable inputs |
|
|
(in millions) |
|
(Level 2) |
|
(Level 2) |
|
Valuation Technique |
Short-term investments |
|
$ |
65.0 |
|
|
$ |
|
|
|
|
(a |
) |
Currency forward
exchange contracts |
|
|
35.3 |
|
|
|
(0.6 |
) |
|
|
|
|
Commodity swaps |
|
|
9.7 |
|
|
|
|
|
|
|
(a |
) |
Cross-currency swaps |
|
|
|
|
|
|
(68.0 |
) |
|
|
(a |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no changes in our valuation techniques used to measure asset or liability fair
values on a recurring basis in the three months ended March 31, 2008.
Note 13. Discontinued Operations Liability
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. The Bankruptcy Court for the District of
Delaware has confirmed Federal-Moguls plan of reorganization and Federal-Mogul emerged from
bankruptcy in December 2007. As part of Federal-Moguls Plan of Reorganization, Cooper and
Federal-Mogul have reached a settlement agreement, subject to approval by the Bankruptcy Court as
discussed further below, resolving Federal-Moguls indemnification obligations to Cooper. As part
of its obligation to Pneumo for any asbestos-related claims arising from the Abex product line
(Abex Claims), Cooper has rights, confirmed by Pneumo, to significant insurance for such claims.
Based on information provided by representatives of Federal-Mogul and recent claims experience,
from August 28, 1998 through March 31, 2008, a total of 144,097 Abex Claims were filed, of which
114,498 claims have been resolved leaving 29,599 Abex Claims pending at March 31, 2008. During the
three months ended March 31, 2008, 563 claims were filed and 414 claims were resolved. Since
August 28, 1998, the average indemnity payment for resolved Abex Claims was $2,168 before
insurance. A total of $133.7 million was spent on defense costs for the period August 28, 1998
through March 31, 2008. 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.
2005
In December 2005, Cooper reached an agreement in negotiations with the representatives of
Federal-Mogul, its bankruptcy committees and the future claimants (the Representatives) regarding
Coopers participation in Federal Moguls proposed 524(g) asbestos trust. By participating in this
trust, Cooper would 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 have resolved more than 38,000 pending Abex Claims as of December 2005. Future
claims would have been resolved through the
-12-
bankruptcy trust. This December 2005 proposed settlement agreement has been subsequently
renegotiated and replaced with a revised agreement in July 2006, as discussed below.
Key terms and aspects of the December 2005 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 have been due on January 15, 2007, or upon
emergence from bankruptcy, if later. Cooper would have received a total of $37.5 million during
the funding period from other parties associated with the Federal-Mogul bankruptcy. Cooper would
have further provided the trust 1.4 million shares of the Companys stock upon Federal-Moguls
emergence from bankruptcy.
The December 2005 proposed settlement agreement also provided for further payments by Cooper
subject to the amount and timing of insurance proceeds. Cooper had 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 exceeded $17 million, Cooper would have been required to
contribute $3 million with the excess insurance proceeds carried over to the next year. The trust
would have retained 10 percent of the insurance proceeds for indemnity claims paid by the trust
until Coopers obligation was satisfied and would have retained 15 percent thereafter. The
agreement had 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 was entered by the Bankruptcy Court.
Cooper would also have been 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.
A critical term of the December 2005 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, the accrual
for potential liabilities related to the Automotive Products sale and the Federal-Mogul bankruptcy
was $526.3 million at December 31, 2005.
The December 31, 2005 discontinued operations accrual included payments to a 524(g) trust over
25 years that were undiscounted, and included $215 million of insurance recoveries where insurance
in place agreements, settlements or policy recoveries were probable.
2006
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 was
subject to court approval and to certain other approvals and has been subsequently modified in
December 2007, as discussed below.
Key terms and aspects of the revised proposed settlement agreement included Cooper and another
party agreeing to pay $256 million in cash into the trust on the date Federal-Mogul would emerge
from bankruptcy, which included elimination of the previously proposed contribution of 1.4 million
common shares to the trust by increasing the cash contribution. Coopers net contribution into the
trust is $248.5 million.
As in the December 2005 agreement, Cooper had 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 was eliminated. However, Cooper has
also 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
-13-
excess funds are available in the trust or credited against the future year annual payments.
The maximum advances are $36.6 million.
Under the revised agreement, Cooper would pay all defense costs through the date Federal-Mogul
would emerge from bankruptcy and would be reimbursed for indemnity payments to the extent such
payments are eligible for payment from the trust. Cooper would retain the rights to receive the
insurance proceeds related to indemnity and defense costs paid prior to the date Federal-Mogul
would emerge from bankruptcy. For claims paid by the trust, the trust would have retained 10
percent of any reimbursed insurance proceeds for the first 25 years and thereafter would have
retained 15 percent.
As in the December 2005 proposed agreement, Cooper would forego certain claims and objections
in the Federal-Mogul bankruptcy proceedings. However, under the revised proposed agreement, which
was subject to court approval, in the event that Coopers participation in the Federal-Mogul 524(g)
trust was not approved for any reason, or if Cooper elects not to participate or to pursue
participation in the trust, Cooper and another party would receive a cash payment of $140 million
($138 million would be paid to Cooper) on the date Federal-Mogul emerged 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 would receive 12 percent of any
Wagner insurance settlements.
Cooper recorded a $20.3 million after-tax discontinued operations charge, net of an $11.4
million income tax benefit, in the second quarter of 2006 to reflect the revised terms of the
agreement.
The revised proposed settlement agreement was incorporated into Federal-Moguls Fourth Amended
Joint Plan of Reorganization filed on November 21, 2006.
2007
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.
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 would require payment of $138
million to Cooper in the event Coopers participation in the Federal-Mogul 524(g) trust is not
approved for any reason, or if Cooper elects not to participate or to pursue participation in the
trust. The Bankruptcy Court stated that it would consider approving Coopers participation in the
Federal-Mogul 524(g) trust at a later time, and that its order confirming the plan of
reorganization and approving the settlement between Cooper and Federal-Mogul 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 the 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
certain 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 the retention of insurance proceeds
by the trust.
-14-
2008
During the first quarter of 2008, the Bankruptcy Court concluded hearings on Plan A. However,
the judge presiding over the bankruptcy has not rendered a ruling on Plan A as of the date of this
filing. Cooper has notified the Representatives and other parties that Cooper would elect Plan B
if, by May 31, 2008, the judge presiding over the bankruptcy has not issued a ruling on Plan A or
the Representatives have not obtained a preliminary injunction staying Abex asbestos claims until a
ruling on Plan A is made by the Court. The Representatives have filed a brief with the Court
requesting a preliminary injunction staying Abex asbestos claims. However, there can be no
assurance that the Court will rule on the injunction or issue a ruling on Plan A during the
timeframe specified by Cooper.
The accrual for potential liabilities related to the Automotive Products sale and the
Federal-Mogul bankruptcy and a progression of the activity assuming resolution through
participation in the Federal-Mogul 524(g) trust is presented in the following table.
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
(in millions) |
|
Accrual at beginning of period |
|
$ |
509.1 |
|
|
$ |
529.6 |
|
Indemnity and defense payments |
|
|
(5.2 |
) |
|
|
(8.8 |
) |
Insurance recoveries |
|
|
15.8 |
|
|
|
39.3 |
|
Other |
|
|
(0.6 |
) |
|
|
(0.6 |
) |
|
|
|
|
|
|
|
Accrual at end of period |
|
$ |
519.1 |
|
|
$ |
559.5 |
|
|
|
|
|
|
|
|
The discontinued operations accrual includes an initial payment of $248.5 million in cash to
the Federal-Mogul 524(g) trust with additional annual payments of up to $20 million each due over
25 years, and the insurance recoveries include recoveries where insurance-in-place agreements,
settlements or policy recoveries are probable. 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 and $230 million in
the discontinued operations accrual as of March 31, 2008 and December 31, 2007, respectively.
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.
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 are not discounted on
Coopers balance sheet as the amount of the actual annual payments is not reasonably predictable.
From a cash flow perspective, Cooper management continues to believe that a settlement on the
terms of the Modified Plan A Settlement Documents 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.
If Cooper is unable to reach a settlement to participate in the Federal-Mogul 524(g) trust,
the accrual for discontinued operations may have to be adjusted to reflect the estimated liability
and related insurance recoveries through the tort system. There are numerous assumptions that are
required to project the estimated liability and related insurance recoveries in this scenario and
Cooper is currently assessing the analysis to reasonably estimate such amounts. Cooper believes
that such net amounts are unlikely to exceed the current discontinued operations accrual; however,
there can be no assurance until the analysis is completed.
-15-
Note 14. 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
Three Months Ended March 31, 2008
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cooper |
|
|
Cooper |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industries, |
|
|
US, |
|
|
|
|
|
|
Other |
|
|
Consolidating |
|
|
|
|
|
|
Cooper |
|
|
LLC |
|
|
Inc. |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
Revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
921.0 |
|
|
$ |
709.6 |
|
|
$ |
(84.5 |
) |
|
$ |
1,546.1 |
|
Cost of sales |
|
|
(0.2 |
) |
|
|
(0.1 |
) |
|
|
1.2 |
|
|
|
632.0 |
|
|
|
473.8 |
|
|
|
(84.5 |
) |
|
|
1,022.2 |
|
Selling and administrative
expenses |
|
|
2.2 |
|
|
|
2.5 |
|
|
|
22.8 |
|
|
|
144.9 |
|
|
|
133.2 |
|
|
|
(4.1 |
) |
|
|
301.5 |
|
Interest expense, net |
|
|
|
|
|
|
5.6 |
|
|
|
11.7 |
|
|
|
|
|
|
|
(2.4 |
) |
|
|
|
|
|
|
14.9 |
|
Equity in earnings of
subsidiaries, net of tax |
|
|
194.3 |
|
|
|
5.0 |
|
|
|
106.5 |
|
|
|
31.3 |
|
|
|
114.8 |
|
|
|
(451.9 |
) |
|
|
|
|
Intercompany income
(expense) |
|
|
(9.4 |
) |
|
|
(9.2 |
) |
|
|
31.7 |
|
|
|
(44.3 |
) |
|
|
64.9 |
|
|
|
(33.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before
income taxes |
|
|
182.9 |
|
|
|
(12.2 |
) |
|
|
102.5 |
|
|
|
131.1 |
|
|
|
284.7 |
|
|
|
(481.5 |
) |
|
|
207.5 |
|
Income tax expense
(benefit) |
|
|
|
|
|
|
(6.5 |
) |
|
|
(12.3 |
) |
|
|
41.1 |
|
|
|
31.8 |
|
|
|
|
|
|
|
54.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
182.9 |
|
|
$ |
(5.7 |
) |
|
$ |
114.8 |
|
|
$ |
90.0 |
|
|
$ |
252.9 |
|
|
$ |
(481.5 |
) |
|
$ |
153.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating Income Statements
Three Months Ended March 31, 2007
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cooper |
|
|
Cooper |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industries, |
|
|
US, |
|
|
|
|
|
|
Other |
|
|
Consolidating |
|
|
|
|
|
|
Cooper |
|
|
LLC |
|
|
Inc. |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
Revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
918.5 |
|
|
$ |
536.4 |
|
|
$ |
(60.9 |
) |
|
$ |
1,394.0 |
|
Cost of sales |
|
|
|
|
|
|
0.1 |
|
|
|
0.3 |
|
|
|
645.1 |
|
|
|
360.3 |
|
|
|
(60.9 |
) |
|
|
944.9 |
|
Selling and administrative
expenses |
|
|
2.4 |
|
|
|
3.5 |
|
|
|
15.7 |
|
|
|
133.3 |
|
|
|
100.5 |
|
|
|
|
|
|
|
255.4 |
|
Interest expense, net |
|
|
(0.6 |
) |
|
|
11.2 |
|
|
|
3.7 |
|
|
|
|
|
|
|
(1.4 |
) |
|
|
|
|
|
|
12.9 |
|
Equity in earnings of
subsidiaries, net of tax |
|
|
169.2 |
|
|
|
10.8 |
|
|
|
95.7 |
|
|
|
20.2 |
|
|
|
102.9 |
|
|
|
(398.8 |
) |
|
|
|
|
Intercompany income
(expense) |
|
|
(6.9 |
) |
|
|
(4.3 |
) |
|
|
15.1 |
|
|
|
(39.4 |
) |
|
|
64.0 |
|
|
|
(28.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before
income taxes |
|
|
160.5 |
|
|
|
(8.3 |
) |
|
|
91.1 |
|
|
|
120.9 |
|
|
|
243.9 |
|
|
|
(427.3 |
) |
|
|
180.8 |
|
Income tax expense
(benefit) |
|
|
|
|
|
|
(7.3 |
) |
|
|
(11.7 |
) |
|
|
38.8 |
|
|
|
29.1 |
|
|
|
|
|
|
|
48.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
160.5 |
|
|
$ |
(1.0 |
) |
|
$ |
102.8 |
|
|
$ |
82.1 |
|
|
$ |
214.8 |
|
|
$ |
(427.3 |
) |
|
$ |
131.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-16-
Consolidating Balance Sheets
March 31, 2008
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cooper |
|
|
Cooper |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industries, |
|
|
US, |
|
|
|
|
|
|
Other |
|
|
Consolidating |
|
|
|
|
|
|
Cooper |
|
|
LLC |
|
|
Inc. |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
|
|
|
$ |
26.4 |
|
|
$ |
3.7 |
|
|
$ |
109.1 |
|
|
$ |
|
|
|
$ |
139.2 |
|
Investments |
|
|
|
|
|
|
|
|
|
|
65.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65.0 |
|
Receivables |
|
|
|
|
|
|
|
|
|
|
1.4 |
|
|
|
550.8 |
|
|
|
587.0 |
|
|
|
|
|
|
|
1,139.2 |
|
Inventories |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
377.4 |
|
|
|
364.7 |
|
|
|
|
|
|
|
742.1 |
|
Deferred income taxes and
other current assets |
|
|
0.5 |
|
|
|
118.5 |
|
|
|
79.1 |
|
|
|
47.4 |
|
|
|
45.1 |
|
|
|
|
|
|
|
290.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
0.5 |
|
|
|
118.5 |
|
|
|
171.9 |
|
|
|
979.3 |
|
|
|
1,105.9 |
|
|
|
|
|
|
|
2,376.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.6 |
|
|
|
|
|
|
|
5.6 |
|
Property, plant and
equipment, less
accumulated depreciation |
|
|
|
|
|
|
|
|
|
|
61.8 |
|
|
|
325.0 |
|
|
|
376.3 |
|
|
|
|
|
|
|
763.1 |
|
Goodwill |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,263.3 |
|
|
|
1,473.2 |
|
|
|
|
|
|
|
2,736.5 |
|
Investment in subsidiaries |
|
|
5,375.9 |
|
|
|
614.6 |
|
|
|
4,886.7 |
|
|
|
1,104.6 |
|
|
|
4,199.8 |
|
|
|
(16,181.6 |
) |
|
|
|
|
Investment in parent |
|
|
|
|
|
|
|
|
|
|
2,964.8 |
|
|
|
|
|
|
|
312.7 |
|
|
|
(3,277.5 |
) |
|
|
|
|
Intercompany accounts
receivable |
|
|
|
|
|
|
786.5 |
|
|
|
|
|
|
|
1,291.8 |
|
|
|
825.5 |
|
|
|
(2,903.8 |
) |
|
|
|
|
Intercompany notes
receivable |
|
|
92.1 |
|
|
|
25.8 |
|
|
|
1,191.6 |
|
|
|
0.3 |
|
|
|
4,522.4 |
|
|
|
(5,832.2 |
) |
|
|
|
|
Deferred income taxes and
other noncurrent assets |
|
|
|
|
|
|
14.9 |
|
|
|
15.0 |
|
|
|
56.3 |
|
|
|
300.7 |
|
|
|
|
|
|
|
386.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
5,468.5 |
|
|
$ |
1,560.3 |
|
|
$ |
9,291.8 |
|
|
$ |
5,020.6 |
|
|
$ |
13,122.1 |
|
|
$ |
(28,195.1 |
) |
|
$ |
6,268.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt |
|
$ |
|
|
|
$ |
|
|
|
$ |
42.5 |
|
|
$ |
|
|
|
$ |
78.2 |
|
|
$ |
|
|
|
$ |
120.7 |
|
Accounts payable |
|
|
44.2 |
|
|
|
7.4 |
|
|
|
15.4 |
|
|
|
229.7 |
|
|
|
261.3 |
|
|
|
|
|
|
|
558.0 |
|
Accrued liabilities |
|
|
6.0 |
|
|
|
38.4 |
|
|
|
53.0 |
|
|
|
223.3 |
|
|
|
208.3 |
|
|
|
|
|
|
|
529.0 |
|
Current discontinued
operations liability |
|
|
|
|
|
|
189.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
189.1 |
|
Current maturities of
long-term debt |
|
|
|
|
|
|
100.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
50.2 |
|
|
|
335.0 |
|
|
|
110.9 |
|
|
|
453.0 |
|
|
|
547.8 |
|
|
|
|
|
|
|
1,496.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
|
|
|
|
277.2 |
|
|
|
921.7 |
|
|
|
8.0 |
|
|
|
0.5 |
|
|
|
|
|
|
|
1,207.4 |
|
Intercompany accounts
payable |
|
|
39.3 |
|
|
|
|
|
|
|
2,864.5 |
|
|
|
|
|
|
|
|
|
|
|
(2,903.8 |
) |
|
|
|
|
Intercompany notes
payable |
|
|
971.6 |
|
|
|
695.8 |
|
|
|
1,813.7 |
|
|
|
1,744.9 |
|
|
|
606.2 |
|
|
|
(5,832.2 |
) |
|
|
|
|
Long-term discontinued
operations liability |
|
|
|
|
|
|
330.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
330.0 |
|
Other long-term
liabilities |
|
|
|
|
|
|
(91.5 |
) |
|
|
189.0 |
|
|
|
181.0 |
|
|
|
228.6 |
|
|
|
|
|
|
|
507.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
1,061.1 |
|
|
|
1,546.5 |
|
|
|
5,899.8 |
|
|
|
2,386.9 |
|
|
|
1,383.1 |
|
|
|
(8,736.0 |
) |
|
|
3,541.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common stock |
|
|
2.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.3 |
) |
|
|
1.7 |
|
Class B common stock |
|
|
1.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.1 |
) |
|
|
|
|
Subsidiary common stock |
|
|
|
|
|
|
|
|
|
|
170.0 |
|
|
|
|
|
|
|
371.4 |
|
|
|
(541.4 |
) |
|
|
|
|
Capital in excess of
par value |
|
|
3,311.0 |
|
|
|
|
|
|
|
746.5 |
|
|
|
1,448.1 |
|
|
|
7,762.3 |
|
|
|
(13,267.9 |
) |
|
|
|
|
Retained earnings |
|
|
1,020.9 |
|
|
|
88.9 |
|
|
|
2,574.3 |
|
|
|
1,158.6 |
|
|
|
3,614.4 |
|
|
|
(5,672.0 |
) |
|
|
2,785.1 |
|
Accumulated other non-owner changes in equity |
|
|
72.4 |
|
|
|
(75.1 |
) |
|
|
(98.8 |
) |
|
|
27.0 |
|
|
|
(9.1 |
) |
|
|
23.6 |
|
|
|
(60.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
4,407.4 |
|
|
|
13.8 |
|
|
|
3,392.0 |
|
|
|
2,633.7 |
|
|
|
11,739.0 |
|
|
|
(19,459.1 |
) |
|
|
2,726.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders equity |
|
$ |
5,468.5 |
|
|
$ |
1,560.3 |
|
|
$ |
9,291.8 |
|
|
$ |
5,020.6 |
|
|
$ |
13,122.1 |
|
|
$ |
(28,195.1 |
) |
|
$ |
6,268.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-17-
Consolidating Balance Sheets
December 31, 2007
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cooper |
|
|
Cooper |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industries, |
|
|
US, |
|
|
|
|
|
|
Other |
|
|
Consolidating |
|
|
|
|
|
|
Cooper |
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-18-
Consolidating Statements of Cash Flows
Three Months Ended March 31, 2008
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cooper |
|
|
Cooper |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industries, |
|
|
US, |
|
|
|
|
|
|
Other |
|
|
Consolidating |
|
|
|
|
|
|
Cooper |
|
|
LLC |
|
|
Inc |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
Net cash provided by (used in)
operating activities |
|
$ |
(9.6 |
) |
|
$ |
(4.2 |
) |
|
$ |
(0.8 |
) |
|
$ |
(39.3 |
) |
|
$ |
119.1 |
|
|
$ |
|
|
|
$ |
65.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from short-term
investments |
|
|
|
|
|
|
|
|
|
|
29.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29.8 |
|
Proceeds from cash restricted for
business acquisitions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
284.5 |
|
|
|
|
|
|
|
284.5 |
|
Capital expenditures |
|
|
|
|
|
|
|
|
|
|
(2.4 |
) |
|
|
(11.0 |
) |
|
|
(10.2 |
) |
|
|
|
|
|
|
(23.6 |
) |
Cash paid for acquired businesses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(267.1 |
) |
|
|
|
|
|
|
(267.1 |
) |
Investment in affiliates |
|
|
|
|
|
|
|
|
|
|
(4.3 |
) |
|
|
(3.1 |
) |
|
|
|
|
|
|
7.4 |
|
|
|
|
|
Loans to affiliates |
|
|
(90.8 |
) |
|
|
|
|
|
|
(168.5 |
) |
|
|
|
|
|
|
(303.6 |
) |
|
|
562.9 |
|
|
|
|
|
Repayments of loans from affiliates |
|
|
162.4 |
|
|
|
|
|
|
|
161.2 |
|
|
|
|
|
|
|
150.3 |
|
|
|
(473.9 |
) |
|
|
|
|
Dividends from affiliates |
|
|
|
|
|
|
|
|
|
|
34.1 |
|
|
|
|
|
|
|
|
|
|
|
(34.1 |
) |
|
|
|
|
Proceeds from sales of property,
plant and equipment and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.2 |
|
|
|
0.1 |
|
|
|
|
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
investing activities |
|
|
71.6 |
|
|
|
|
|
|
|
49.9 |
|
|
|
(13.9 |
) |
|
|
(146.0 |
) |
|
|
62.3 |
|
|
|
23.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of debt |
|
|
|
|
|
|
|
|
|
|
297.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
297.6 |
|
Proceeds from debt derivatives |
|
|
|
|
|
|
|
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.5 |
|
Repayments of debt |
|
|
|
|
|
|
|
|
|
|
(186.2 |
) |
|
|
|
|
|
|
(6.6 |
) |
|
|
|
|
|
|
(192.8 |
) |
Borrowings from affiliates |
|
|
460.8 |
|
|
|
3.3 |
|
|
|
5.0 |
|
|
|
3.1 |
|
|
|
90.7 |
|
|
|
(562.9 |
) |
|
|
|
|
Repayments of loans to affiliates |
|
|
(304.2 |
) |
|
|
|
|
|
|
(65.4 |
) |
|
|
|
|
|
|
(104.3 |
) |
|
|
473.9 |
|
|
|
|
|
Other intercompany financing
activities |
|
|
2.0 |
|
|
|
0.9 |
|
|
|
6.6 |
|
|
|
54.9 |
|
|
|
(68.6 |
) |
|
|
4.2 |
|
|
|
|
|
Dividends |
|
|
(38.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(38.2 |
) |
Dividends paid to affiliates |
|
|
(34.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34.1 |
|
|
|
|
|
Purchase of common shares |
|
|
(153.9 |
) |
|
|
|
|
|
|
(112.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(266.4 |
) |
Excess tax benefits from stock
options and awards |
|
|
|
|
|
|
|
|
|
|
2.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.7 |
|
Issuance of stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.4 |
|
|
|
(7.4 |
) |
|
|
|
|
Proceeds from exercise of stock
options |
|
|
4.3 |
|
|
|
|
|
|
|
5.9 |
|
|
|
|
|
|
|
|
|
|
|
(4.2 |
) |
|
|
6.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
financing activities |
|
|
(63.3 |
) |
|
|
4.2 |
|
|
|
(45.8 |
) |
|
|
58.0 |
|
|
|
(81.4 |
) |
|
|
(62.3 |
) |
|
|
(190.6 |
) |
Effect of exchange rate changes on
cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.9 |
|
|
|
|
|
|
|
7.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash
equivalents |
|
|
(1.3 |
) |
|
|
|
|
|
|
3.3 |
|
|
|
4.8 |
|
|
|
(100.4 |
) |
|
|
|
|
|
|
(93.6 |
) |
Cash and cash equivalents,
beginning of period |
|
|
1.3 |
|
|
|
|
|
|
|
23.1 |
|
|
|
(1.1 |
) |
|
|
209.5 |
|
|
|
|
|
|
|
232.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of
period |
|
$ |
|
|
|
$ |
|
|
|
$ |
26.4 |
|
|
$ |
3.7 |
|
|
$ |
109.1 |
|
|
$ |
|
|
|
$ |
139.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-19-
Consolidating Statements of Cash Flows
Three Months Ended March 31, 2007
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cooper |
|
|
Cooper |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industries, |
|
|
US, |
|
|
|
|
|
|
Other |
|
|
Consolidating |
|
|
|
|
|
|
Cooper |
|
|
LLC |
|
|
Inc |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
Net cash provided by (used in)
operating activities |
|
$ |
(1.3 |
) |
|
$ |
(0.5 |
) |
|
$ |
31.2 |
|
|
$ |
(36.2 |
) |
|
$ |
80.5 |
|
|
$ |
|
|
|
$ |
73.7 |
|
|
Cash flows from investing
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
|
|
|
|
|
|
|
|
(2.8 |
) |
|
|
(12.3 |
) |
|
|
(7.0 |
) |
|
|
|
|
|
|
(22.1 |
) |
Cash paid for acquired businesses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(74.3 |
) |
|
|
(50.0 |
) |
|
|
|
|
|
|
(124.3 |
) |
Investment in affiliates |
|
|
|
|
|
|
|
|
|
|
(0.7 |
) |
|
|
|
|
|
|
|
|
|
|
0.7 |
|
|
|
|
|
Loans to affiliates |
|
|
(60.0 |
) |
|
|
|
|
|
|
(14.8 |
) |
|
|
|
|
|
|
(309.0 |
) |
|
|
383.8 |
|
|
|
|
|
Repayments of loans from affiliates |
|
|
91.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
263.6 |
|
|
|
(355.4 |
) |
|
|
|
|
Dividends from affiliates |
|
|
|
|
|
|
|
|
|
|
26.3 |
|
|
|
|
|
|
|
2.2 |
|
|
|
(28.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
investing activities |
|
|
31.8 |
|
|
|
|
|
|
|
8.0 |
|
|
|
(86.6 |
) |
|
|
(100.2 |
) |
|
|
0.6 |
|
|
|
(146.4 |
) |
Cash flows from financing
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.0 |
) |
|
|
|
|
|
|
(1.0 |
) |
Borrowings from affiliates |
|
|
241.1 |
|
|
|
14.8 |
|
|
|
127.9 |
|
|
|
|
|
|
|
|
|
|
|
(383.8 |
) |
|
|
|
|
Repayments of loans to affiliates |
|
|
(199.6 |
) |
|
|
|
|
|
|
(154.1 |
) |
|
|
|
|
|
|
(1.7 |
) |
|
|
355.4 |
|
|
|
|
|
Other intercompany financing
activities |
|
|
5.0 |
|
|
|
(14.3 |
) |
|
|
(160.7 |
) |
|
|
125.0 |
|
|
|
45.0 |
|
|
|
|
|
|
|
|
|
Dividends |
|
|
(38.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(38.9 |
) |
Dividends paid to affiliates |
|
|
(28.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28.5 |
|
|
|
|
|
Subsidiary purchase of parent shares |
|
|
7.0 |
|
|
|
|
|
|
|
(46.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39.3 |
) |
Excess tax benefits from stock
options and awards |
|
|
|
|
|
|
|
|
|
|
10.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.4 |
|
Issuance of stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.7 |
|
|
|
(0.7 |
) |
|
|
|
|
Proceeds from exercise of stock
options |
|
|
|
|
|
|
|
|
|
|
21.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
financing activities |
|
|
(13.9 |
) |
|
|
0.5 |
|
|
|
(201.3 |
) |
|
|
125.0 |
|
|
|
43.0 |
|
|
|
(0.6 |
) |
|
|
(47.3 |
) |
Effect of exchange rate changes on
cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.3 |
|
|
|
|
|
|
|
1.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash
equivalents |
|
|
16.6 |
|
|
|
|
|
|
|
(162.1 |
) |
|
|
2.2 |
|
|
|
24.6 |
|
|
|
|
|
|
|
(118.7 |
) |
Cash and cash equivalents,
beginning of period |
|
|
11.5 |
|
|
|
|
|
|
|
204.9 |
|
|
|
(2.8 |
) |
|
|
209.9 |
|
|
|
|
|
|
|
423.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of
period |
|
$ |
28.1 |
|
|
$ |
|
|
|
$ |
42.8 |
|
|
$ |
(0.6 |
) |
|
$ |
234.5 |
|
|
$ |
|
|
|
$ |
304.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-20-
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
Three Months Ended March 31, 2008 Compared With Three Months Ended March 31, 2007
Net income for the first quarter of 2008 was $153.4 million on revenues of $1,546.1 million
compared with 2007 first quarter net income of $131.9 million on revenues of $1,394.0 million.
First quarter diluted earnings per share increased 21% to $.86 from $.71 in 2007. During the first
quarter of 2008, currency related gains and discrete tax items increased earnings per share by $.05
per share.
Revenues:
Revenues for the first quarter of 2008 increased 11% compared to the first quarter of 2007.
The impact of acquisitions and currency translation increased reported revenues by approximately 9%
for the quarter.
Electrical Products segment revenues increased 12% compared to the first quarter of 2007. The
impact of acquisitions increased revenues by approximately 7% for the quarter and favorable
currency translation increased reported revenues by approximately 2% for the quarter. The increase
in revenues for Electrical Products segment reflects continued strength in the industrial and
energy markets with international market initiatives providing further growth in the first quarter
of 2008. The continued softness in the U.S. residential markets partially offset the segments
overall growth. Utility product sales remained strong in the first quarter of 2008, growing
slightly against a very strong growth in the first quarter of 2007.
Tools segment revenues for the first quarter of 2008 increased less than 1% from the first
quarter of 2007. Favorable currency translation increased revenues by approximately 6% over the
first quarter of 2007. Lower revenues from declining retail market activity, weaker demand in the
North American industrial market and lower assembly systems shipments mitigated partially by growth
in the international industrial market, substantially offset the favorable currency impact in the
quarter.
Costs and Expenses:
Cost of sales, as a percentage of revenues, was 66.1% for the first quarter of 2008 compared
to 67.8% for the comparable 2007 quarter. The decline in the cost of sales percentage resulted
from execution on productivity improvements initiatives, impact from pricing actions and mix of
products sold.
Electrical Products segment cost of sales, as a percentage of revenues, was 65.7% for the
first quarter of 2008 compared to 67.9% for the first quarter of 2007. The decrease in cost of
sales as a percentage of revenues in comparison to the prior year first quarter was due to benefits
realized through productivity initiatives, impact of pricing actions and the mix of products sold
partially offset by the dilutive impact of acquisitions. Tools segment cost of sales, as a
percentage of revenues, was 68.9% for the first quarter of 2008 compared to 67.2% for the first
quarter of 2007. The increase in the cost of sales percentage was driven by lower production
volumes, losses on assembly systems shipments as the transfer line portion of this business is
being exited offsetting benefits from productivity initiatives.
Selling and administrative expenses, as a percentage of revenues, for the first quarter of
2008 was 19.5% compared to 18.3% for the first quarter of 2007. The increase in percentage is
reflective of the impact of acquisitions, investment in resources to support international growth
and severance costs associated with various cost reduction initiatives. Currency related gains of
$5.1 million in the first quarter of 2008 reduced corporate selling and administrative expenses.
-21-
Electrical Products segment selling and administrative expenses, as a percentage of revenues
for the first quarter of 2008, were 17.9% compared to 16.1% for the first quarter of 2007. The
increase in percentage reflects the higher overall percentages seen in the newly acquired
operations, a higher mix of international sales which have a higher expense ratio than U.S. sales,
investment in resources to support international growth and the increase in costs related to
severance activities undertaken during the first quarter of 2008.
Tools segment selling and administrative expenses, as a percentage of revenues for the first
quarter of 2008, were 21.8% compared to 20.9% for the first quarter of 2007. The increase in
selling and administrative expenses, as a percentage of revenues, was driven by flat sales and
higher costs related to severance actions undertaken during the first quarter of 2008 in response
to the slowing revenue levels in certain operations.
Net interest expense in the first quarter of 2008 increased $2.0 million from the 2007 first
quarter, primarily as a result of higher average borrowings partially offset by lower average
interest rates. Average debt balances were $1.39 billion and $1.03 billion and average interest
rates were 5.05% and 5.85% for the first quarter of 2008 and 2007, respectively.
Operating Earnings:
Electrical Products segment first quarter 2008 operating earnings increased 15.5% to $223.5
million from $193.5 million for the same quarter of last year. The increase resulted from the
incremental earnings from acquisitions, execution on productivity improvement initiatives, and
favorable product mix.
Tools segment first quarter 2008 operating earnings were $17.2 million compared to $21.8
million in the first quarter of 2007. The decrease resulted from the impact of lower unit volumes,
losses on assembly systems as an international factory is downsized and costs associated with
actions taken during the period to reduce segment cost structures.
Income Taxes:
The effective tax rate was 26.1% for the three months ended March 31, 2008 and 27.1% for the
three months ended March 31, 2007. The decrease is related to a $4.6 million reduction to income
taxes expense in the first quarter of 2008 primarily related to foreign taxes. Excluding the
impacts of these discrete items, Coopers effective tax rate for the first quarter of 2008 would
have been 28.3%. This increase compared to the same period in 2007 is primarily related to
increased taxable earnings in 2008 without a corresponding increase in projected tax benefits.
Liquidity and Capital Resources
Liquidity:
Coopers operating working capital (defined as receivables and inventories less accounts
payable) increased $164.1 million during the first quarter of 2008. A $90.6 million increase in
receivables and a $98.4 million increase in inventories, partially offset by a $24.9 increase in
accounts payable, were driven by increased sales, currency translation and the impact from
acquisitions completed in the 2008 first quarter. The increase in inventories was partially offset
by a $5 million increase in the allowance for excess and obsolete inventory. Inventories increased
as a result of acquisition activity, currency translation and efforts to improve customer service
metrics. Operating working capital turnover (defined as annualized revenues divided by average
quarterly operating working capital) for the 2008 first quarter of 5.0 turns was relatively flat
with the 5.1 turns reported for the same period of 2007.
Cash provided by operating activities was $65.2 million during the 2008 first quarter. This
cash, plus $298.1 million of proceeds from a debt issuance, $284.5 million of proceeds from cash
previously restricted, $29.8 million from redemption of short-term investments, $6.0 million of
cash received from stock
-22-
option exercises and an additional $93.6 million of cash and cash equivalents, was primarily
used to fund capital expenditures of $23.6 million, acquisitions of $267.1 million, dividends of
$38.2 million, debt repayments of $192.8 million and share purchases of $266.4 million.
Cash provided by operating activities was $73.7 million during the 2007 first quarter. This
cash, plus an additional $118.7 million of cash and cash equivalents and $21.5 million of cash
received from stock option exercises, was primarily used to fund capital expenditures of $22.1
million, acquisitions of $124.3 million, dividends of $38.9 million and share purchases of $39.3
million.
Cooper currently anticipates that it will annually generate in excess of $400 million in cash
flow available for acquisitions, debt repayments and common stock repurchases.
As discussed in Note 13 of Notes to the Consolidated Financial Statements, Cooper has reached
a revised agreement with the Representatives of Federal-Mogul, its bankruptcy committees and the
future claimants regarding settlement of Coopers contingent liabilities related to the Automotive
Products sale to Federal-Mogul. Cooper anticipates that any settlement would be funded from
operating cash flows, existing cash, and commercial paper proceeds.
Capital Resources:
Cooper targets a 30% to 40% debt-to-total capitalization ratio. Excess cash flows are
utilized to fund acquisitions or to purchase shares of Cooper common stock. Coopers debt-to-total
capitalization ratio was 34.4% at March 31, 2008, 30.8% at December 31, 2007 and 28.4% at March 31,
2007.
At March 31, 2008 and December 31, 2007, Cooper had cash and cash equivalents of $139.2
million and $232.8 million, respectively and short-term investments of $65.0 million and $93.7
million, respectively. At March 31, 2008 and December 31, 2007, Cooper had short-term debt of
$120.7 million and $256.1 million, respectively, including commercial paper of $42.5 million and
$228.7 million, respectively. In connection with the acquisition of MTL in February 2008, Cooper
assumed short-term debt of $47.8 million and issued short-term loan notes of $8.8 million. At
March 31, 2008, Cooper has $60.7 million of debt related to MTL included in short-term debt.
Coopers practice is to back up its short-term debt balance with a combination of cash, cash
equivalents, and committed credit facilities. At March 31, 2008, Cooper had $567 million of
committed credit facilities, $67 million of which matures in March 2009 and $500 million of which
matures in November 2009. Short-term debt, to the extent not backed up by cash or short-term
investments, reduces the amount of additional liquidity provided by the committed credit
facilities.
The credit facility agreements are not subject to termination based on a decrease in Coopers
debt ratings or a material adverse change clause. The principal financial covenants in the
agreements 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
agreements.
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 facilities to provide short-term funding.
The committed credit facilities do not contain any provision, which makes their availability to
Cooper dependent on Coopers credit ratings.
On March 27, 2008, Coopers wholly-owned subsidiary, Cooper US, Inc. issued $300 million of
senior unsecured notes due in 2015. The fixed rate notes have an interest coupon of 5.45% and are
guaranteed by Cooper and certain of its principal operating subsidiaries. Proceeds from the
financing were used to repay outstanding commercial paper. Combined with the debt issuance
discount, underwriting
-23-
commissions and interest rate hedges implemented in anticipation of the offering, the notes
have an effective annual cost to Cooper of 5.56%.
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
As of March 31, 2008, there have been no material changes to Coopers off-balance sheet
arrangements and contractual obligations as described in its Annual Report on Form 10-K for the
year ended December 31, 2007.
Backlog
Sales backlog represents the dollar amount of all firm open orders for which all terms and
conditions pertaining to the sale have been approved such that a future sale is reasonably
expected. Sales backlog by segment was as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
(in millions) |
|
Electrical Products |
|
$ |
804.2 |
|
|
$ |
738.3 |
|
Tools |
|
|
71.3 |
|
|
|
59.8 |
|
|
|
|
|
|
|
|
|
|
$ |
875.5 |
|
|
$ |
798.1 |
|
|
|
|
|
|
|
|
Private Securities Litigation Reform Act Safe Harbor Statement
This Form 10-Q includes certain forward-looking statements. The forward-looking statements
reflect Coopers expectations, objectives and goals with respect to future events and financial
performance, and are based on assumptions and estimates which Cooper believes are reasonable.
Forward-looking statements include, but are not limited to, any statements regarding future
revenues, cost and expenses, earnings, earnings per share, margins, cash flows, dividends and
capital expenditures. Cooper wishes to caution readers not to put undue reliance on these
statements and that actual results could differ materially from anticipated results. Important
factors which may affect the actual results include, but are not limited to, the resolution of
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.
Item 4. Controls and Procedures
As of the end of the period covered by this report, Coopers management, under the supervision
and with the participation of the Chief Executive Officer and Chief Financial Officer, performed an
evaluation of the effectiveness of the design and operation of Coopers disclosure controls and
procedures. Based on that evaluation, Coopers management, including the Chief Executive Officer
and Chief Financial Officer, concluded that the disclosure controls and procedures are effective.
There have been no significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of this evaluation.
Cooper is executing a multi-year process of implementing an Enterprise Business System (EBS)
globally. Implementing an EBS system on a global basis involves significant changes in business
processes. The implementation is phased, which reduces the risks associated with making these
changes. In addition,
-24-
Cooper is taking the necessary steps to monitor and maintain appropriate internal controls
during the implementations. As of March 31, 2008, approximately 85% of Coopers revenues are on
the global system.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Discontinued Operations Liability
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. The Bankruptcy Court for the District of
Delaware has confirmed Federal-Moguls plan of reorganization and Federal-Mogul emerged from
bankruptcy in December 2007. As part of Federal-Moguls Plan of Reorganization, Cooper and
Federal-Mogul have reached a settlement agreement, subject to approval by the Bankruptcy Court as
discussed further below, resolving Federal-Moguls indemnification obligations to Cooper. As part
of its obligation to Pneumo for any asbestos-related claims arising from the Abex product line
(Abex Claims), Cooper has rights, confirmed by Pneumo, to significant insurance for such claims.
Based on information provided by representatives of Federal-Mogul and recent claims experience,
from August 28, 1998 through March 31, 2008, a total of 144,097 Abex Claims were filed, of which
114,498 claims have been resolved leaving 29,599 Abex Claims pending at March 31, 2008. During the
three months ended March 31, 2008, 563 claims were filed and 414 claims were resolved. Since
August 28, 1998, the average indemnity payment for resolved Abex Claims was $2,168 before
insurance. A total of $133.7 million was spent on defense costs for the period August 28, 1998
through March 31, 2008. 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.
2005
In December 2005, Cooper reached an agreement in negotiations with the representatives of
Federal-Mogul, its bankruptcy committees and the future claimants (the Representatives) regarding
Coopers participation in Federal Moguls proposed 524(g) asbestos trust. By participating in this
trust, Cooper would 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 have resolved more than 38,000 pending Abex Claims as of December 2005. Future
claims would have been resolved through the bankruptcy trust. This December 2005 proposed
settlement agreement has been subsequently renegotiated and replaced with a revised agreement in
July 2006, as discussed below.
Key terms and aspects of the December 2005 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 have been due on January 15, 2007, or upon
emergence from bankruptcy, if later. Cooper would have received a total of $37.5 million during
the funding period from other parties associated with the Federal-Mogul bankruptcy. Cooper would
have further provided the trust 1.4 million shares of the Companys stock upon Federal-Moguls
emergence from bankruptcy.
The December 2005 proposed settlement agreement also provided for further payments by Cooper
subject to the amount and timing of insurance proceeds. Cooper had 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 exceeded $17 million, Cooper would have been required to
contribute $3 million with the excess insurance proceeds carried over to the next year. The trust
would have retained 10 percent of the
-25-
insurance proceeds for indemnity claims paid by the trust until Coopers obligation was
satisfied and would have retained 15 percent thereafter. The agreement had 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 was entered by the Bankruptcy Court. Cooper would also have been
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.
A critical term of the December 2005 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, the accrual
for potential liabilities related to the Automotive Products sale and the Federal-Mogul bankruptcy
was $526.3 million at December 31, 2005.
The December 31, 2005 discontinued operations accrual included payments to a 524(g) trust over
25 years that were undiscounted, and included $215 million of insurance recoveries where insurance
in place agreements, settlements or policy recoveries were probable.
2006
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 was
subject to court approval and to certain other approvals and has been subsequently modified in
December 2007, as discussed below.
Key terms and aspects of the revised proposed settlement agreement included Cooper and another
party agreeing to pay $256 million in cash into the trust on the date Federal-Mogul would emerge
from bankruptcy, which included elimination of the previously proposed contribution of 1.4 million
common shares to the trust by increasing the cash contribution. Coopers net contribution into the
trust is $248.5 million.
As in the December 2005 agreement, Cooper had 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 was eliminated. However, Cooper has
also 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.
Under the revised agreement, Cooper would pay all defense costs through the date Federal-Mogul
would emerge from bankruptcy and would be reimbursed for indemnity payments to the extent such
payments are eligible for payment from the trust. Cooper would retain the rights to receive the
insurance proceeds related to indemnity and defense costs paid prior to the date Federal-Mogul
would emerge from bankruptcy. For claims paid by the trust, the trust would have retained 10
percent of any reimbursed insurance proceeds for the first 25 years and thereafter would have
retained 15 percent.
As in the December 2005 proposed agreement, Cooper would forego certain claims and objections
in the Federal-Mogul bankruptcy proceedings. However, under the revised proposed agreement, which
was subject to court approval, in the event that Coopers participation in the Federal-Mogul 524(g)
trust was not approved for any reason, or if Cooper elects not to participate or to pursue
participation in the trust, Cooper and another party would receive a cash payment of $140 million
($138 million would be paid to Cooper) on the date Federal-Mogul emerged from bankruptcy and 20
percent of any insurance policy settlements related
-26-
to the former Wagner business purchased by Federal-Mogul in 1998. If Cooper participates in
the trust, it would receive 12 percent of any Wagner insurance settlements.
Cooper recorded a $20.3 million after-tax discontinued operations charge, net of an $11.4
million income tax benefit, in the second quarter of 2006 to reflect the revised terms of the
agreement.
The revised proposed settlement agreement was incorporated into Federal-Moguls Fourth Amended
Joint Plan of Reorganization filed on November 21, 2006.
2007
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.
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 would require payment of $138
million to Cooper in the event Coopers participation in the Federal-Mogul 524(g) trust is not
approved for any reason, or if Cooper elects not to participate or to pursue participation in the
trust. The Bankruptcy Court stated that it would consider approving Coopers participation in the
Federal-Mogul 524(g) trust at a later time, and that its order confirming the plan of
reorganization and approving the settlement between Cooper and Federal-Mogul 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 the 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
certain 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 the retention of insurance proceeds
by the trust.
2008
During the first quarter of 2008, the Bankruptcy Court concluded hearings on Plan A. However,
the judge presiding over the bankruptcy has not rendered a ruling on Plan A as of the date of this
filing. Cooper has notified the Representatives and other parties that Cooper would elect Plan B
if, by May 31, 2008, the judge presiding over the bankruptcy has not issued a ruling on Plan A or
the Representatives have not obtained a preliminary injunction staying Abex asbestos claims until a
ruling on Plan A is made by the Court. The Representatives have filed a brief with the Court
requesting a preliminary injunction staying Abex asbestos claims. However, there can be no
assurance that the Court will rule on the injunction or issue a ruling on Plan A during the
timeframe specified by Cooper.
-27-
The accrual for potential liabilities related to the Automotive Products sale and the
Federal-Mogul bankruptcy and a progression of the activity assuming resolution through
participation in the Federal-Mogul 524(g) trust is presented in the following table.
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
(in millions) |
|
Accrual at beginning of period |
|
$ |
509.1 |
|
|
$ |
529.6 |
|
Indemnity and defense payments |
|
|
(5.2 |
) |
|
|
(8.8 |
) |
Insurance recoveries |
|
|
15.8 |
|
|
|
39.3 |
|
Other |
|
|
(0.6 |
) |
|
|
(0.6 |
) |
|
|
|
|
|
|
|
Accrual at end of period |
|
$ |
519.1 |
|
|
$ |
559.5 |
|
|
|
|
|
|
|
|
The discontinued operations accrual includes an initial payment of $248.5 million in cash to
the Federal-Mogul 524(g) trust with additional annual payments of up to $20 million each due over
25 years, and the insurance recoveries include recoveries where insurance-in-place agreements,
settlements or policy recoveries are probable. 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 and $230 million in
the discontinued operations accrual as of March 31, 2008 and December 31, 2007, respectively.
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.
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 are not discounted on
Coopers balance sheet as the amount of the actual annual payments is not reasonably predictable.
From a cash flow perspective, Cooper management continues to believe that a settlement on the
terms of the Modified Plan A Settlement Documents 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.
If Cooper is unable to reach a settlement to participate in the Federal-Mogul 524(g) trust,
the accrual for discontinued operations may have to be adjusted to reflect the estimated liability
and related insurance recoveries through the tort system. There are numerous assumptions that are
required to project the estimated liability and related insurance recoveries in this scenario and
Cooper is currently assessing the analysis to reasonably estimate such amounts. Cooper believes
that such net amounts are unlikely to exceed the current discontinued operations accrual; however,
there can be no assurance until the analysis is completed.
Other Matters
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.
Item 1A. Risk Factors
There have been no material changes in the risk factors previously disclosed in Coopers
Annual Report on Form 10-K for the fiscal year ended December 31, 2007.
-28-
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
The following table reflects activity related to equity securities purchased by Cooper during
the three months ended March 31, 2008:
Purchases of Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of Shares |
|
|
Maximum Number of |
|
|
|
Total Number of |
|
|
Average Price |
|
|
Purchased as Part of |
|
|
Shares that May Yet Be |
|
|
|
Shares |
|
|
Paid per |
|
|
Publicly Announced Plans |
|
|
Purchased Under the |
|
Period |
|
Purchased |
|
|
Share |
|
|
or Programs(1) |
|
|
Plans or Programs(1) |
|
As of 12/31/07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,323,347 |
|
1/01/08 1/31/08 |
|
|
3,298,617 |
|
|
$ |
44.60 |
|
|
|
3,298,617 |
|
|
|
4,140,530 |
|
2/01/08 2/28/08 |
|
|
447,200 |
|
|
$ |
44.33 |
|
|
|
447,200 |
|
|
|
13,693,330 |
|
3/01/08 3/31/08 |
|
|
2,525,383 |
|
|
$ |
39.37 |
|
|
|
2,525,383 |
|
|
|
11,167,947 |
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
6,271,200 |
|
|
$ |
42.48 |
|
|
|
6,271,200 |
|
|
|
|
|
|
|
|
(1) |
|
On November 2, 2004, Coopers Board of Directors authorized the repurchase of up to
ten million additional shares of Cooper Class A common stock. On February 12, 2008, Cooper
announced that the Board of Directors authorized the repurchase of ten million shares of
common stock in addition to the remaining November 2, 2004 authorization, which is reflected
in the above table. Cooper has also announced that the Board authorized the repurchase of
shares issued from time to time under its equity compensation plans, matched savings plan and
dividend reinvestment plan in order to offset the dilution that results from issuing shares
under these plans. For 2008, Coopers current estimate is that 3 million shares will be
issued under equity compensation plans, which is reflected in the above table. |
|
(2) |
|
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 3.3 million additional shares under the Cooper Board of Directors authorizations
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. |
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 6. Exhibits
|
|
|
10.1
|
|
Form of Executive Stock Incentive Agreement for the Performance Period
2008-2010. |
|
|
|
10.2
|
|
Cooper Industries Amended and Restated Stock Incentive Plan (February 12, 2008
Restatement). |
|
|
|
10.3
|
|
Amended and Restated Directors Stock Plan (February 12, 2008 Restatement). |
|
|
|
10.4
|
|
Second Amendment to Cooper Industries, Ltd. Amended and Restated Directors
Retainer Fee Stock Plan (April 1, 2003 Restatement). |
|
|
|
12.
|
|
Computation of Ratios of Earnings to Fixed Charges for the Calendar Years 2003
through 2007 and the Three Months Ended March 31, 2008 and 2007. |
-29-
|
|
|
31.1
|
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
31.2
|
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.1
|
|
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.2
|
|
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
|
Cooper Industries, Ltd. |
|
|
|
|
(Registrant) |
|
|
Date: May 1,2008
|
|
/s/ Terry A. Klebe
Terry A. Klebe, Senior Vice President and
|
|
|
|
|
Chief Financial Officer |
|
|
|
|
|
|
|
Date: May 1,2008
|
|
/s/ Rick L. Johnson
Rick L. Johnson, Vice President, Controller and
|
|
|
|
|
Chief Accounting Officer |
|
|
-30-
Exhibit Index
Exhibit No.
|
|
|
10.1
|
|
Form of Executive Stock Incentive Agreement for the Performance Period
2008-2010. |
|
|
|
10.2
|
|
Cooper Industries Amended and Restated Stock Incentive Plan (February 12, 2008
Restatement). |
|
|
|
10.3
|
|
Amended and Restated Directors Stock Plan (February 12, 2008 Restatement). |
|
|
|
10.4
|
|
Second Amendment to Cooper Industries, Ltd. Amended and Restated Directors
Retainer Fee Stock Plan (April 1, 2003 Restatement). |
|
|
|
12.
|
|
Computation of Ratios of Earnings to Fixed Charges for the Calendar Years 2003
through 2007 and the three months ended March 31, 2008 and 2007. |
|
|
|
31.1
|
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
31.2
|
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.1
|
|
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.2
|
|
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |