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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the fiscal year ended December 31, 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
Cooper Industries, Ltd.
(Exact Name of Registrant as Specified in Its Charter)
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Bermuda
(State or Other Jurisdiction of
Incorporation or Organization)
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98-0355628
(I.R.S. Employer
Identification Number) |
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600 Travis, Suite 5600, Houston, Texas
(Address of Principal Executive Offices)
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77002
(Zip Code) |
713/209-8400
(Registrant’s Telephone Number, Including Area Code)
Securities
registered pursuant to Section 12(b) of the Act:
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Name of Each Exchange |
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on Which Registered |
Class A Common Shares, $0.01 par value
Rights to Purchase Preferred Shares
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The New York Stock Exchange
The New York Stock Exchange |
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Securities registered pursuant to Section 12(g) of the Act:
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None |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes þ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Exchange Act. Yes o No þ
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
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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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
The aggregate value of the registrant’s voting and non-voting common equity held by
non-affiliates of the registrant as of June 30, 2008 was $6,848,463,983 based on the closing sale
price as reported on the New York Stock Exchange.
Number of registrant’s common shares outstanding as of January 31, 2009 – 167,108,698 publicly
traded Class A common shares, 37,258,569 Class A common shares held by the issuer’s subsidiaries,
and 109,620,258 Class B common shares held by the issuer’s subsidiaries.
DOCUMENTS INCORPORATED BY REFERENCE
Cooper Industries, Ltd. Proxy Statement to be filed for the Annual Meeting of Shareholders
to be held on April 27, 2009 (Part II – Item 5(a), Part III – Items 10, 11, 12, 13 and 14)
PART I
Our internet address is www.cooperindustries.com. We make available free of charge through
our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (the “Exchange Act”) as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the Securities and Exchange Commission
(the “SEC”). In addition, documents relating to our corporate governance (such as committee
charters, governance guidelines and other internal policies) can be found on our website. The SEC
maintains an internet site (www.sec.gov) that contains reports, proxy and information statements
and other information regarding issuers that file electronically with the SEC.
FORWARD-LOOKING STATEMENTS
We often discuss expectations regarding our future markets, demand for our products and services,
and our performance in our annual and quarterly reports, press releases, and other written and oral
statements. Statements that relate to matters that are not historical facts are “forward-looking
statements” within the meaning of the safe harbor provisions of Section 27A of the Securities Act
of 1933 and Section 21E of the Exchange Act. These “forward-looking statements” are based on an
analysis of currently available competitive, financial and economic data and our operating plans.
They are inherently uncertain and investors should recognize that events and actual results could
turn out to be significantly different from our expectations. By way of illustration, when used in
this document, words such as “anticipate,” “believe,” “expect,” “plan,” “intend,” “estimate,”
“project,” “will,” “should,” “could,” “may,” “predict” and similar expressions are intended to
identify forward-looking statements.
This Annual Report on Form 10-K, including Management’s Discussion and Analysis of Financial
Condition and Results of Operations, includes forward-looking statements. Forward-looking
statements include, but are not limited to, any statements regarding future revenues, costs and
expenses, earnings, earnings per share, margins, cash flows, dividends and capital expenditures.
Important factors which may affect the actual results include, but are not limited to, 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, 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, changing legislation and regulations including changes in tax law, tax treaties or
tax regulations, and the resolution of potential liabilities and insurance recoveries resulting
from on-going Pneumo-Abex related asbestos claims.
The above description of risks and uncertainties is by no means all-inclusive, but is designed to
highlight what we believe are important factors to consider. For a more detailed description of
risk factors, please see Part I — Item 1A. — Risk Factors.
Unless the context requires otherwise, references in this Annual Report on Form 10-K to “we,” “us,”
“our,” “the Company,” or “Cooper” means Cooper Industries Ltd. and, where the context requires,
includes our subsidiaries.
ITEM 1. BUSINESS
GENERAL
The term “Cooper” refers to the registrant, Cooper Industries, Ltd., which was incorporated
under the laws of Bermuda on May 22, 2001, and became the successor-registrant to Cooper
Industries, Inc. on May 22, 2002.
Cooper operates in two business segments: Electrical Products and Tools. Cooper
manufactures, markets and sells its products and provides services throughout the world. Cooper
has manufacturing facilities in 23 countries and currently employs approximately 31,200 people.
Operations in the United
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States are conducted by wholly-owned subsidiaries of Cooper, organized by the two business
segments. Activities outside the United States contribute significantly to the revenues and
operating earnings of both segments of Cooper. These activities are conducted in major commercial
countries by wholly-owned subsidiaries and jointly-owned companies, the management of which is
structured through Cooper’s two business segments. As a result of operations outside the United
States, sales and distribution networks are maintained throughout most of the industrialized world.
Cooper generally believes that there are no substantial differences in the business risks
associated with operations outside the United States compared with United States activities,
although Cooper is subject to certain political and economic uncertainties encountered in
activities outside the United States, including trade barriers and restrictions on the exchange and
fluctuations of currency. Cooper generates the most non-U.S. revenues in the United Kingdom,
Germany, Canada, Mexico, China and France. Cooper has operations in India, Malaysia and China and
has several majority-owned joint ventures with operations in China. Investments in emerging
markets such as India, Malaysia and China are subject to greater risks related to economic and
political uncertainties as compared to most countries where Cooper has operations. Exhibit 21.0
contains a list of Cooper’s significant subsidiaries.
Financial information with respect to Cooper’s industry segments and geographic areas is
contained in Note 15 of the Notes to the Consolidated Financial Statements. A discussion of
acquisitions and divestitures is included in Notes 3 and 16 of the Notes to the Consolidated
Financial Statements.
With its two business segments, Cooper serves four major markets: the industrial, commercial,
utility and residential markets. Cooper also serves the electronics and telecommunications
markets. Markets for Cooper’s products and services are worldwide, though the United States is the
largest market. Within the United States, there is no material geographic concentration by state
or region. Cooper experiences substantial competition in both of its business segments. The number
and size of competitors vary considerably depending on the product line. Cooper cannot specify
with exactitude the number of competitors in each product category or their relative market
position. However, most operating units experience significant competition from both larger and
smaller companies with the key competitive factors being customer and end-user service, price,
quality, brand name and availability. Cooper considers its reputation as a manufacturer of a broad
line of quality products and premier brands to be an important factor in its businesses. Cooper
believes that it is among the leading manufacturers in the world of electrical distribution
equipment, wiring devices, support systems, hazardous duty electrical equipment, lighting fixtures,
emergency lighting, fuses, nonpower hand tools and industrial power tools.
Cooper’s research and development activities are for purposes of improving existing products
and services and originating new products. During 2008, approximately $141.8 million was spent for
research and development activities as compared with approximately $105.7 million in 2007 and $83.5
million in 2006. Cooper obtains and holds patents on products and designs in the United States and
many other countries where operations are conducted or products are sold. Although in the
aggregate Cooper’s patents are important in the operation of its businesses, the loss by expiration
or otherwise of any one patent or license or group of patents or licenses would not materially
affect its business.
Cooper does not presently anticipate that compliance with currently applicable environmental
regulations and controls will significantly change its competitive position, capital spending or
earnings during 2009. Cooper has been a party to administrative and legal proceedings with
governmental agencies that have arisen under statutory provisions regulating the discharge or
potential discharge of material into the environment. Orders and decrees consented to by Cooper,
or currently under negotiation with state regulatory agencies, have contained agreed-upon
timetables for fulfilling reporting or remediation obligations or maintaining specified air and
water discharge levels in connection with permits for the operations of various plants. Cooper
believes it is in compliance with the orders and decrees, and such compliance is not material to
the business or financial condition of Cooper. For additional information concerning Cooper’s
accruals for environmental liabilities, see Note 7 of the Notes to the Consolidated Financial
Statements.
Approximately 61 percent of the United States hourly production work force of Cooper is
employed in 47 manufacturing facilities, distribution centers and warehouses not covered by labor
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agreements. Numerous agreements covering approximately 39 percent of all hourly production
employees exist with 17 bargaining units at 20 operations in the United States. We also have
agreements with various unions at operations in 21 other countries. During 2008, new agreements
were concluded covering hourly production employees at 7 operations in the United States. Cooper
considers its employee relations to be excellent.
Sales backlog at December 31, 2008 was approximately $678.9 million, all of which is for
delivery during 2009, compared with backlog of approximately $722.6 million at December 31, 2007.
The following describes the business conducted by each of Cooper’s business segments.
Additional information regarding the products, markets and distribution methods for each segment is
set forth in the table at the end of this Item. Information concerning market conditions, as well
as information concerning revenues and operating earnings for each segment, is included under “Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Electrical Products
The Electrical Products segment manufactures, markets and sells electrical and circuit
protection products, including fittings, support systems, enclosures, specialty connectors, wiring
devices, plugs, receptacles, lighting fixtures and controls, hazardous duty electrical equipment,
intrinsically safe explosion proof instrumentation, fuses, emergency lighting, fire detection and
mass notification systems and security products for use in residential, commercial and industrial
construction, maintenance and repair applications. The segment also manufactures, markets and
sells products for use by utilities and in industry for electrical power transmission and
distribution, including distribution switchgear, transformers, transformer terminations and
accessories, capacitors, voltage regulators, surge arresters, energy automation solutions and other
related power systems components.
The principal raw material requirements include: steel, copper, aluminum, aluminum ingots,
brass, tin, lead, plastics, electronic components and insulating materials including transformer
oil. These raw materials are available from and supplied by numerous sources located in the United
States and other countries, although there are limited sources of supply for electrical core steel
and transformer oil that Cooper uses in electrical power transmission and distribution products.
Demand for electrical products follows general economic conditions and is generally sensitive
to activity in the commercial and residential construction markets, industrial production levels,
electronic component production and spending by utilities for replacements, expansions and
efficiency improvements. The segment’s product lines are marketed directly to original equipment
manufacturers and utilities and to a variety of end users through major distributor chains, retail
home centers, hardware outlets and thousands of independent distributors.
Tools
The Tools segment manufactures, markets and sells hand tools for industrial, construction,
electronics and consumer markets; automated assembly systems for industrial markets; and electric
and pneumatic industrial power tools, related electronics and software control and monitoring
systems for general industry, primarily automotive and aerospace manufacturers.
The principal raw material requirements include: flat and bar stock steel, brass, copper,
fiberglass, aluminum, metal castings and forgings, wood, plastic pellets and plastic sheet. These
materials are available from and supplied by numerous sources located in the United States and
other countries.
Demand for nonpowered hand tools, assembly systems and industrial power tools is driven by
employment levels and industrial activity in major industrial countries and by consumer spending.
In addition, demand for industrial power tools is influenced by automotive and aerospace production
and general industrial production. The segment’s products are sold by the company sales force,
independent distributors and retailers.
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COOPER INDUSTRIES, LTD.
PRODUCTS, MARKETS AND DISTRIBUTION METHODS BY SEGMENT
Electrical Products
- Major Products and Brands
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Access Cabinets, E2 Cabinets and Enviroshield electrical enclosures.
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Kwik Wire cable support systems. |
Arktite and eXLink plugs and receptacles.
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Kyle distribution switchgear. |
Ametrix, Corelite and Neo-Ray indirect lighting products.
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Limitron electric fuses. |
ARIES wireless communication for vacuum-interrupter, distribution switchgear.
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Low-Peak electric fuses. |
Arrow Hart industrial plugs and connectors.
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Lumière specification grade landscape lighting. |
Aspire and Siena decorative wiring devices.
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MadahCom WAVES notification solutions. |
Aspire RF radio frequency controls, switches and receptacles.
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Magnum terminal strips and disconnect blocks. |
AtLite commercial, exit and emergency lighting.
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MagneX interrupting device. |
B-Line support systems, enclosures, fasteners.
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McGraw-Edison and Lumark indoor and outdoor lighting. |
Burton undersea connectors.
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McGraw-Edison transformer components, cable accessories and fuses. |
Bussmann and Buss electrical and electronic fuses.
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MEDC signals and alarms. |
Cam-Lok electrical connectors.
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Media Sync multi-media wiring systems |
Cannon Technologies, Cybectec and Cyme software and automation technologies.
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Metalux fluorescent lighting. |
Capri cable accessories and flexible conduits.
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Mobile X-Ray specialty plugs and receptacles. |
CEAG emergency lighting systems and explosion protected electrical materials.
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Mini-Line molded-to-cable miniature connectors. |
Cent-R-Rail and Redi-Rail metal rack units and cable trays.
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MTL intrinsically safe interfacing products and instrumentation. |
Champ and Hazard-Gard HID and fluorescent lighting.
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MTL Surge Technologies and Atlantic Scientific surge protection equipment. |
Chico conduit sealing compound.
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MWS modular wiring systems. |
Clarity LED architectural lighting fixtures.
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Myers electrical hubs. |
Coiltronics inductors and transformers.
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Nortem electrical construction materials. |
Combined Technologies current-limiting fuses.
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NOVA reclosers, sectionalizers and switches. |
Condulet fittings and outlet bodies.
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Novitas occupancy sensors and switch packs. |
Cooper Fire, Fulleon and Nugelec fire detection systems.
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Omnex radio remote control products and industrial wireless networking solutions. |
Cooper Interconnect specialty connectors and cables.
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Optima fuseholders. |
Cooper Power Systems distribution transformers, power capacitors, voltage
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PCI digital lighting controls. |
regulators, surge arresters and SCADA master stations.
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Perf-O Grip plank metal grating. |
Cooper Wiring Devices sockets, connectors and wall plates.
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Polaron intelligent lighting control solutions. |
Crompton lighting fixtures.
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Portfolio architectural recessed lighting. |
Crouse-Hinds and CEAG electrical construction materials and
Crouse-Hinds aviation lighting products.
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Posi-Break electrical connectors.
Posi-Lok electrical panel units. |
CUBEFuse fuses, fuse holders and fuse boxes.
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Power-Lock wiring devices, receptacles, caps and covers. |
Domex electrical construction materials.
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PowerPlus panel boards. |
Domex Bond Rojo coated conduit system (total protection against corrosion).
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PowerStor carbon aerogel supercapacitors. |
Domex Ground (ground systems).
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Pretronica and Univel emergency lighting and power systems. |
Dura-Cooper and Dura-Green epoxy coatings.
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RCM+ cable management systems. |
Edisol fluid used in capacitors.
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Regalsafe signaling and life saving apparatus. |
Edison and Edison Pro relays and fusegear.
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Regent security lighting systems. |
Edison Series Metering residential and commercial meter bases.
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Roam Secure personal and regional alerting. |
Eletromec DIN style fuses.
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Roam Secure RSAN text-based alerting and mass notification systems. |
ELLK 92 explosion protected fluorescent light fixture.
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Royer wiring devices, sockets and switches. |
Elpro industrial wireless equipment.
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RTK process alarm equipment. |
Emerald consumer recessed and track lighting.
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Ruff-in prefabricated mounting and support systems. |
EMSA power transformers.
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SAFEPATH voice evacuation systems and accessories. |
EnviroVR voltage regulator filled with Envirotemp FR3.
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Scantronic and Menvier security systems. |
Envirotemp dielectric fluids.
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Selectcom® communications modules. |
EX® power capacitors.
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Shaper specification and commercial grade lighting fixtures. |
EX-Cell and NexT industrial enclosures.
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Shock Sentry circuit protective devices. |
Exactra panel boards.
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SMP substation modernization platform. |
Fail-Safe high abuse, clean room and vandal-resistant lighting fixtures.
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SpecOne panel boards. |
F.A.S.T. underfloor cable tray system.
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Spectra panel boards. |
Flex Station panel boards.
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Stabex explosion protected torch. |
Flextray wire mesh cable tray.
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Streetworks outdoor lighting. |
FR3 dielectric fluid.
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Subgate® mini remote terminal units. |
Fusetron electric fuses and protectors.
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Sure-Lites exit and emergency lighting. |
G&H specialty connectors.
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Sure Power DC electrical system management products. |
Gecma visualization systems.
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SurgBloc electrical voltage receptacles and surge suppressors. |
General Connectors military connectors.
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Traction Tread perforated panels. |
Grate-Lock interlocking plank grating system.
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TransX transient voltage protection devices. |
GridAdvisor remote detection of system faults.
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TrueCycle® asset monitoring. |
Grip Strut safety grating.
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UltraSIL surge arresters. |
GS Metals wire management and support systems.
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VaporGard incandescent clear globe lighting fixtures. |
Halo recessed and track lighting fixtures.
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VariGap and VariStar surge arresters. |
Hi-Tech gas analysis equipment.
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Viking miniature circular connectors. |
Hart-Lock electrical receptacles, caps, connectors and accessories.
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VSS visual substation. |
Hyundai explosion-proof electrical products.
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WAVES mass notification systems and accessories. |
INVUE outdoor architectural lighting.
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Wheelock notification appliances, devices and signals. |
io Lighting LED architectural lighting fixtures.
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Willsher & Quick electrical enclosures. |
IriS lighting systems.
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WPI connectors and cable assemblies. |
JSB, Luminox and Menvier emergency lighting and fire detection systems.
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Yukon® software platform. |
Karp, Edison, Mercury and B&S electrical fuses. |
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Tools — Major
Products and Brands
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Airetool, Automated Systems, Cleco, DGD, Dotco,Gardner-Denver*, and
Rotor Tool industrial power tools and assembly equipment.
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Kahnetics dispensing systems.
Lufkin measuring tapes. |
Apex screwdriver bits, impact sockets and universal joints.
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Master Power industrial air tools. |
Belzer pliers, wrenches, sockets, and hex keys.
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Merrill plate clamps (chain line). |
Brewer-Titchener blocks (chain line).
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Metronix servos and drive controls. |
Campbell chain products.
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Nicholson files, saws, pliers, wrenches, |
Caulkmaster caulking dispenser.
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tapes, screwdrivers, sockets, and drill bits. |
Collins machetes, shovels and axes.
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Plumb hammers. |
Crescent pliers and wrenches.
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Utica torque measuring and controls. |
Diamond farrier tools and horseshoes.
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Weller soldering equipment. |
Disston pliers.
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Wire-Wrap solderless connection equipment. |
Erem precision cutters and tweezers.
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Wiss and H.K. Porter cutting products. |
Filtronic fume extraction equipment.
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Xcelite screwdrivers and nutdrivers. |
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Gardner-Denver is a registered trademark of Gardner Denver, Inc. and is used by Cooper
Industries under license. |
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COOPER INDUSTRIES, LTD.
PRODUCTS, MARKETS AND DISTRIBUTION METHODS BY SEGMENT — (Continued)
ELECTRICAL PRODUCTS
Major Markets
Fuses and circuit protection products are utilized in products for the construction,
industrial, transportation and consumer markets and to manufacturers in the electrical, electronic,
telecommunications and transportation industries. Lighting fixtures are utilized in residential
construction, industrial, institutional and commercial building complexes, shopping centers,
parking lots, roadways, and sports facilities. Electrical power products are used by utilities and
commercial and industrial power users. Electrical construction materials are used in commercial,
residential and industrial projects, by utilities, airports and wastewater treatment plants and in
the process and energy industries. Emergency lighting, fire detection and security systems are
installed in residential, commercial and industrial applications. Support systems and enclosures
are used in industrial, commercial and telecommunications complexes. Wiring devices are used in
the construction, renovation, maintenance and repair of residential, commercial, industrial and
institutional buildings.
Principal Distribution Methods
Products are sold through distributors for use in general construction and renovation, plant
maintenance, process and energy applications, shopping centers, parking lots, sports facilities,
and data processing and telecommunications systems; through distributors and direct to utilities
and manufacturers for use in electronic equipment for consumer, industrial, government and military
applications; through distributors and direct to retail home centers and hardware outlets; and
direct to original equipment manufacturers of appliances, tools, machinery and electronic
equipment.
TOOLS
Major Markets
Power tools and assembly systems are used by general industrial manufacturers, particularly
durable goods producers and original equipment manufacturers, such as those in the aerospace and
automobile industries. Hand tools are used in a variety of industrial, electronics, agricultural,
construction and consumer applications.
Principal Distribution Methods
Products are sold through distributors and agents to general industry, particularly automotive
and aircraft; through distributors and wholesalers to hardware stores, lumberyards and department
stores; and direct to original equipment manufacturers, home centers, specialty stores, department
stores, mass merchandisers and hardware outlets.
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ITEM 1A. RISK FACTORS
Our financial condition and performance are subject to various risks and uncertainties,
including the risk factors described below. We may amend or supplement the risk factors from time
to time by other reports that we file with the SEC in the future.
Our Businesses Are Subject to Competitive Pressures.
Our businesses operate in markets that are highly competitive, and we compete on the basis of
price, quality, service, innovation and/or brand name across the industries and markets served.
Some of our competitors for certain products have greater sales, assets and financial resources
than we do. Competitive pressures could affect prices we charge our customers or demand for our
products, which could adversely affect our operating results.
Demand for Our Products Is Sensitive to the Economic Conditions in the Markets We Serve.
Demand for electrical products follows general economic conditions and is generally sensitive
to activity in the commercial and residential construction and renovation markets, industrial
production levels, electronic component production and spending by utilities for replacements,
expansions and efficiency improvements. Demand for non-powered hand tools, assembly systems and
industrial power tools is driven by employment levels, industrial activity and consumer spending.
In addition, demand for industrial power tools is influenced by automotive and aerospace
production. Reduced demand due to economic and market conditions could adversely affect our
results of operations.
Development and Introduction of New Products and Solutions Affect our Ability to Grow Revenues and
Improve Profitability.
Development and introduction of new products that increase our customer’s productivity and
efficiency, provide enhanced energy efficiency, introduce new technology solutions, enhance safety
and conform to electrical standards in regions and local countries contribute significantly to our
revenue growth and profitability. We continually invest in new products and solutions and are not
dependent upon the success of any one product or solution. However, our overall success depends on
continuous new products and solutions being introduced and accepted by our customers.
Price Increases or Significant Shortages of Raw Materials and Components Could Adversely Affect Our
Operating Costs and the Competitive Position of Our Products.
Our major requirements for raw materials include steel, copper, aluminum, electronic
components and plastics and, to a lesser degree brass, tin, lead, fiberglass, wood and insulating
materials including transformer oil. We have multiple sources of supply for each of our major
requirements, although there are limited sources of supply for electrical core steel and
transformer oil that Cooper uses in electrical power transmission and distribution products.
Significant shortages could disrupt the supply of raw materials or price increases could affect
prices we charge our customers, our product costs, and the competitive position of our products and
services, which could adversely affect our results of operations.
Operations and Supply Sources Located Outside the United States, Particularly Emerging Markets, Are
Subject to Increased Risks.
Our operating activities outside the United States contribute significantly to our revenues
and earnings. Serving a global customer base and remaining competitive in the global market place
requires that we place more production in countries other than the United States, including
emerging markets, to capitalize on market opportunities and maintain a cost-efficient structure.
In addition, we source a significant amount of raw materials and other components from third-party
suppliers or majority-owned
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joint-venture operations in low-cost countries. Our operations outside the United States
could be disrupted by a natural disaster, labor strike, war, political unrest, terrorist activity
or public health concerns. Operations outside the United States are also subject to certain
regulatory and economic uncertainties including trade barriers and restrictions on the exchange and
fluctuations of currency. We believe that our operations in emerging markets such as China, India
and Malaysia are subject to greater risks related to these political and economic uncertainties as
compared to most countries where Cooper has operations.
Our Key Strategic Initiatives Affect Our Ability to Grow Revenues, Control Costs and Improve
Productivity.
Our operating model is built on a platform of key strategic initiatives that are designed to
grow revenues, control costs and improve productivity. Our ability to execute and realize the
expected benefits from our strategic initiatives affects our revenues and operating costs. Also,
our operations could be disrupted by manufacturing rationalizations.
We Engage in Acquisitions and May Encounter Difficulties in Integrating These Businesses.
We are a company that, from time to time, seeks to grow through strategic acquisitions. The
success of these transactions depends on our ability to integrate the assets and personnel acquired
in these transactions. We may encounter difficulties in integrating acquisitions with our
operations and may not realize the degree or timing of the benefits that we anticipated from an
acquisition.
We Have Liability Exposure for Asbestos-Related Claims.
We have owned businesses that produced and sold products that contained asbestos. We,
therefore, have potential liability arising from individuals claiming illnesses from exposure to
asbestos. Insurance policies satisfy portions of the claim settlements and related legal costs.
Many of the asbestos claims arise from our former Abex Friction Products business that was sold to
Federal-Mogul Corporation and subject to Federal-Mogul Corporation’s bankruptcy plan of
reorganization. On September 30, 2008, the Bankruptcy Court issued a ruling denying the Plan A
Settlement, resulting in Cooper not participating in the Federal-Mogul 524(g) trust and instead
proceeding with the Plan B Settlement under which Cooper will resolve through the tort system the
asbestos-related claims arising from the Abex Friction product line that was sold to Federal-Mogul
in 1998.
As a result of the Bankruptcy Court ruling, Cooper adjusted its accounting in the third
quarter of 2008 to reflect the Plan B Settlement. The amounts recorded by Cooper for its asbestos
liability and related insurance receivables rely on various assumptions. The key assumptions
include the number and type of new claims filed each year, the average indemnity and defense costs
of resolving claims, the number of years these assumptions are projected into the future, and the
resolution of ongoing negotiations of additional settlement or coverage-in-place agreements with
insurance carriers. Assumptions with respect to these variables are subject to greater uncertainty
as the projection period lengthens. Other factors that may affect Cooper’s liability and ability
to recover under its insurance policies include uncertainties surrounding the litigation process
from jurisdiction to jurisdiction and from case to case, reforms that may be made by state and
federal courts, and the passage of state or federal tort reform legislation. Cooper’s actual
asbestos costs or insurance recoveries could be significantly higher or lower than those recorded
if the assumptions used in the estimation process vary significantly from actual results over time.
Cooper will review these assumptions on a periodic basis to determine whether any adjustments are
required to the estimates of its recorded asbestos liability and related insurance receivables.
Further information regarding Cooper’s asbestos liability is discussed under Item 3 – Legal
Proceedings.
8
We Are Subject To Litigation and Environmental Regulations That Could Adversely Impact Our
Operating Results.
We are, and may in the future be, a party to a number of legal proceedings and claims,
including those involving product liability, tort, employment claims, intellectual property claims,
and environmental matters, several of which claim, or may in the future claim, significant damages.
Given the inherent uncertainty of litigation, we can offer no assurance that existing litigation
or a future adverse development will not have a material adverse impact. We also are subject to
various laws and regulations relating to environmental protection and the discharge of materials
into the environment, and we could incur substantial costs as a result of the noncompliance with or
liability for cleanup or other costs or damages under environmental laws.
Our operations and facilities are subject to numerous state and federal environmental laws,
rules and regulations, including, without limitation, laws concerning the containment and disposal
of hazardous substances and other waste materials. We employ personnel responsible for monitoring
environmental compliance and arranging for remedial actions that may be required from time to time
and also use consultants to advise on and assist with our environmental compliance efforts.
Liabilities are recorded when the need for environmental assessments and/or remedial efforts become
known or probable and the cost can be reasonably estimated.
Laws protecting the environment generally have become more stringent than in the past and are
expected to continue to become more so. Violation of environmental laws and regulations can lead
to the imposition of administrative, civil or criminal penalties, remedial obligations, and in some
cases injunctive relief. Such violations could also result in liabilities for personal injuries,
property damage, and other costs and claims. Under the Comprehensive Environmental Response,
Compensation and Liability Act, also known as CERCLA or Superfund, and related state laws and
regulations, liability can be imposed jointly on the entire group of responsible parties or
separately on any one of the responsible parties, without regard to fault or the legality of the
original conduct on certain classes of persons that contributed to the release of a “hazardous
substance” into the environment. Under CERCLA, such persons may be liable for the costs of cleaning
up the hazardous substances that have been released into the environment and for damages to natural
resources.
We Could Incur a Material Amount of Taxes if There Are Unfavorable Changes in the Tax Laws or Their
Interpretation. We Have Risks Relating to Our Reorganization as a Bermuda Company.
Changes in tax laws, tax treaties or tax regulations or differing interpretation or
enforcement of applicable law by the U.S. Internal Revenue Service or other taxing jurisdiction
could have a material adverse impact on our financial statements. On May 22, 2002, we reorganized
Cooper and became a publicly traded Bermuda company. Among other benefits, the inversion
reorganization improved our worldwide effective tax rate and increased our cash flow. Recently,
and in prior years, there have been and we expect that there may continue to be legislative efforts
in Congress that would eliminate or reduce the tax benefit realized by certain companies which have
changed their country of incorporation. If enacted into law, such proposed legislation could have
a material adverse impact on our financial statements.
The U.S. Federal Government and certain states and municipalities have enacted legislation
intended to deny federal funding and government contracts to U.S. companies that reincorporate
outside the U.S. For instance, the Financial Services and General Government Appropriations Act
for fiscal year 2008 signed into law in December 2007 includes a provision that prohibits
government contracts with U.S. companies that have reincorporated outside the United States. We
cannot provide any assurance that the impact on us of any adopted or proposed legislation in this
area will not be materially adverse to our operations.
9
Inability to Maintain Access to Capital Markets May Adversely Affect Our Business and Financial
Results.
Our ability to invest in our businesses, make strategic acquisitions and refinance maturing
debt obligations may require access to the capital markets and sufficient bank credit lines to
support short-term borrowings. If we are unable to access the capital markets, we could experience
a material adverse affect on our business and financial results.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2. PROPERTIES
On December 31, 2008, the plants and other facilities used by Cooper throughout the world
contained an aggregate of approximately 21.8 million square feet of space, of which approximately
75 percent was owned and 25 percent was leased. The charts on the next page show the number of
employees, square footage of facilities owned and leased and location of manufacturing facilities
for each industry segment.
10
| |
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|
|
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|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Square Footage of |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plants and Facilities |
| |
|
Number of |
|
Number and Nature of Facilities |
|
(in millions) |
| Segment |
|
Employees |
|
Manufacturing |
|
Warehouse |
|
Sales |
|
Other |
|
Owned |
|
Leased |
Electrical Products |
|
|
25,959 |
|
|
|
111 |
|
|
|
26 |
|
|
|
99 |
|
|
|
4 |
|
|
|
12.1 |
|
|
|
5.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tools |
|
|
4,594 |
|
|
|
28 |
|
|
|
5 |
|
|
|
6 |
|
|
|
— |
|
|
|
4.3 |
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
649 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2 |
|
|
|
— |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
31,202 |
|
|
|
139 |
|
|
|
31 |
|
|
|
105 |
|
|
|
6 |
|
|
|
16.4 |
|
|
|
5.4 |
|
|
|
|
| * |
|
Multi-purpose facilities at a single location are listed in each applicable column. |
Manufacturing Plant Locations
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
United |
|
(Other |
|
United |
|
|
|
|
|
South |
|
|
|
|
|
|
|
|
|
|
|
|
|
Republic |
|
|
|
|
|
|
|
|
|
|
|
|
|
Saudi |
| Segment |
|
States |
|
Than UK) |
|
Kingdom |
|
Mexico |
|
America |
|
Australia |
|
Canada |
|
China |
|
of China |
|
India |
|
Korea |
|
Malaysia |
|
Arabia |
Electrical
Products |
|
|
48 |
|
|
|
11 |
|
|
|
18 |
|
|
|
10 |
|
|
|
2 |
|
|
|
2 |
|
|
|
3 |
|
|
|
9 |
|
|
|
1 |
|
|
|
4 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tools |
|
|
12 |
|
|
|
8 |
|
|
|
— |
|
|
|
3 |
|
|
|
2 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
60 |
|
|
|
19 |
|
|
|
18 |
|
|
|
13 |
|
|
|
4 |
|
|
|
3 |
|
|
|
4 |
|
|
|
10 |
|
|
|
1 |
|
|
|
4 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
|
| * |
|
Some facilities are shared by Electrical Products and Tools operations. |
11
ITEM 3. LEGAL PROCEEDINGS
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 Friction 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 Friction 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 confirmed Federal-Mogul’s plan of reorganization and
Federal-Mogul emerged from bankruptcy in December 2007. As part of Federal-Mogul’s Plan of
Reorganization, Cooper and Federal-Mogul reached a settlement agreement that was subject to
approval by the Bankruptcy Court resolving Federal-Mogul’s indemnification obligations to Cooper.
As discussed further below, on September 30, 2008, the Bankruptcy Court issued its final ruling
denying Cooper’s participation in the proposed Federal-Mogul 524(g) trust resulting in
implementation of the previously approved Plan B Settlement. As part of its obligation to Pneumo
for any asbestos-related claims arising from the Abex Friction product line (“Abex Claims”), Cooper
has rights, confirmed by Pneumo, to significant insurance for such claims. Based on information
provided by representatives of Federal-Mogul and recent claims experience, from August 28, 1998
through December 31, 2008, a total of 146,175 Abex Claims were filed, of which 122,487 claims have
been resolved leaving 23,688 Abex Claims pending at December 31, 2008. During the year ended
December 31, 2008, 2,641 claims were filed and 8,403 claims were resolved. Since August 28, 1998,
the average indemnity payment for resolved Abex Claims was $2,072 before insurance. A total of
$147.7 million was spent on defense costs for the period August 28, 1998 through December 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 — 2007
In December 2005, Cooper reached an initial agreement in negotiations with the representatives
of Federal-Mogul, its bankruptcy committees and the future claimants (the “Representatives”)
regarding Cooper’s participation in Federal Mogul’s proposed 524(g) asbestos trust. By
participating in this trust, Cooper would have resolved its liability for asbestos claims arising
from Cooper’s former Abex Friction Products business. The proposed settlement agreement was
subject to court approval and certain other approvals. Future claims would have been resolved
through the bankruptcy trust.
Although the final determination of whether Cooper would participate in the Federal-Mogul
524(g) trust was unknown, Cooper’s 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 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.
Throughout 2006 and 2007, Cooper continued to believe that the most likely outcome in the
range of potential outcomes was a revised settlement with Cooper resolving its asbestos obligations
through participation in the proposed Federal-Mogul 524(g) trust. While the details of the
proposed settlement agreement evolved during the on-going negotiations throughout 2006 and 2007,
the underlying principles of
the proposed settlement arrangements being negotiated principally included fixed payments to a
524(g) trust over 25 years that were subject to reduction for insurance proceeds received in the
future.
12
As a result of the then current status of settlement negotiations, 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 proposed settlement agreement at
that time. The discontinued operations accrual was $509.1 million and $529.6 million as of
December 31, 2007 and 2006, respectively, and included payments to a 524(g) trust over 25 years
that were undiscounted, and included insurance recoveries of $230 million and $239 million,
respectively, where insurance in place agreements, settlements or policy recoveries were probable.
The U.S. Bankruptcy Court for the District of Delaware confirmed Federal-Mogul’s plan of
reorganization on November 8, 2007, and the U.S. District Court for the District of Delaware
affirmed the Bankruptcy Court’s order on November 14, 2007. As part of its ruling, the Bankruptcy
Court approved the Plan B Settlement between Cooper and Federal-Mogul, which would require payment
of $138 million to Cooper in the event Cooper’s participation in the Federal-Mogul 524(g) trust is
not approved for any reason, or if Cooper elected not to participate or to pursue participation in
the trust. The Bankruptcy Court stated that it would consider approving Cooper’s 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 did not preclude later
approval of Cooper’s participation in the 524(g) trust. Accordingly, in an effort to continue
working towards approval of Cooper’s 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 would have required Cooper to make an initial payment of $248.5 million in cash to the
Federal-Mogul trust upon implementation of Plan A with additional annual payments of up to $20
million each due over 25 years. If the Bankruptcy Court had approved the modified settlement and
that settlement was implemented, Cooper, through Pneumo-Abex LLC, would have continued to have
access to Abex insurance policies.
2008
During the first quarter of 2008, the Bankruptcy Court concluded hearings on Plan A. On
September 30, 2008, the Bankruptcy Court issued its ruling denying the Modified Plan A Settlement
resulting in Cooper not participating in the Federal-Mogul 524(g) trust and instead proceeding with
the Plan B Settlement that had previously been approved by the Bankruptcy Court. As a result of
the Plan B Settlement, Cooper received in October 2008 the $138 million payment, plus interest of
$3 million, from the Federal-Mogul Bankruptcy estate and will continue to resolve through the tort
system the asbestos related claims arising from the Abex Friction product line that it had sold to
Federal-Mogul in 1998. Additionally, under Plan B, Cooper has access to Abex insurance policies.
The accrual for potential liabilities related to the Automotive Products sale and the
Federal-Mogul bankruptcy and a progression of the activity is presented in the following table
assuming resolution through participation in the Federal-Mogul 524(g) trust up until September 30,
2008 when the accounting was adjusted to reflect the Plan B Settlement.
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Nine Months Ended |
|
|
Twelve Months Ended |
|
| |
|
September 30, |
|
|
December 31, |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
| |
|
(in millions) |
|
|
(in millions) |
|
Accrual at beginning of period
(under Plan A) |
|
$ |
509.1 |
|
|
$ |
529.6 |
|
|
$ |
526.3 |
|
Indemnity and defense payments |
|
|
(16.9 |
) |
|
|
(52.9 |
) |
|
|
(36.8 |
) |
Insurance recoveries |
|
|
25.4 |
|
|
|
39.3 |
|
|
|
12.7 |
|
Discontinued operations charge |
|
|
— |
|
|
|
— |
|
|
|
31.7 |
|
Other |
|
|
(1.6 |
) |
|
|
(6.9 |
) |
|
|
(4.3 |
) |
|
|
|
|
|
|
|
|
|
|
Accrual at end of period (under Plan A) * |
|
$ |
516.0 |
|
|
$ |
509.1 |
|
|
$ |
529.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| * |
|
The $516.0 million liability reflects the estimated liability under Plan A
immediately prior to adjusting the accounting on September 30, 2008 to reflect the Plan
B Settlement. |
13
As a result of the September 30, 2008 Bankruptcy Court ruling discussed above, Cooper adjusted
its accounting in the third quarter of 2008 to reflect the separate assets and liabilities related
to the on-going activities to resolve the potential asbestos related claims through the tort
system. Cooper recorded income from discontinued operations of $16.6 million, net of a $9.4
million income tax expense, in the third quarter of 2008 to reflect the Plan B Settlement. The
following table presents the separate assets and liabilities under the Plan B settlement and the
cash activity subsequent to the September 30, 2008 Plan B Settlement date.
| |
|
|
|
|
|
|
|
|
| |
|
December |
|
|
September |
|
| |
|
31, 2008 |
|
|
30, 2008 |
|
| |
|
(in millions) |
|
Asbestos liability analysis: |
|
|
|
|
|
|
|
|
Total liability for unpaid, pending and future indemnity and
defense costs at end of period |
|
$ |
815.1 |
|
|
$ |
823.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asbestos receivable analysis |
|
|
|
|
|
|
|
|
Receivable from Federal-Mogul Bankruptcy estate (received in Oct.
2008) |
|
$ |
— |
|
|
$ |
141.0 |
|
Insurance receivable for previously paid claims and insurance
settlements |
|
|
74.6 |
|
|
|
72.7 |
|
Insurance-in-place agreements available for pending and future claims |
|
|
117.7 |
|
|
|
119.6 |
|
|
|
|
|
|
|
|
Total estimated asbestos receivable at end of period |
|
$ |
192.3 |
|
|
$ |
333.3 |
|
|
|
|
|
|
|
|
| |
|
|
|
|
| |
|
Three Months Ended |
|
| |
|
December 31, 2008 |
|
| |
|
(in millions) |
|
Cash Flow: |
|
|
|
|
Indemnity and defense payments |
|
$ |
(7.9 |
) |
Payment from Federal-Mogul Bankrupty Estate |
|
|
141.0 |
|
Other |
|
|
(0.3 |
) |
|
|
|
|
Net cash flow |
|
$ |
132.8 |
|
|
|
|
|
Asbestos Liability Estimate
As of December 31, 2008, Cooper estimates that the liability for pending and future indemnity
and defense costs for the next 45 years will be $815.1 million. The amount included for unpaid
indemnity and defense costs is not significant at December 31, 2008. The estimated liability is
before any tax benefit and is not discounted as the timing of the actual payments is not reasonably
predictable. However, a discounted value would likely be approximately 60% or less of the $815.1
million liability recorded.
The methodology used to project Cooper’s liability estimate relies upon a number of
assumptions including Cooper’s recent claims experience and declining future asbestos spending
based on past trends and publicly available epidemiological data, changes in various jurisdictions,
management’s judgment about the current and future litigation environment, and the availability to
claimants of other payment sources.
Abex discontinued using asbestos in the Abex Friction product line in the 1970’s and
epidemiological studies that are publicly available indicate the incidence of asbestos-related
disease is in decline and should continue to decline steadily. However, there can be no assurance
that these studies, or other assumptions, will not vary significantly from the estimates utilized
to project the undiscounted liability.
Although Cooper believes that its estimated liability for pending and future indemnity and
defense costs represents the best estimate of its future obligation, Cooper utilized scenarios that
it believed were reasonably possible that indicate a broader range of potential estimates from $735
to $950 million (undiscounted).
14
Asbestos Receivable Estimate
As of December 31, 2008, Cooper, through Pneumo-Abex LLC, has access to Abex insurance
policies with remaining limits on policies with solvent insurers in excess of $750 million.
Insurance recoveries reflected as receivables in the balance sheet include recoveries where
insurance-in-place agreements, settlements or policy recoveries are probable. As of December 31,
2008, Cooper’s receivable for recoveries of costs from insurers amounted to $192.3 million, of
which $74.6 million relate to costs previously paid or insurance settlements. Cooper’s
arrangements with the insurance carriers defer certain amounts of insurance and settlement proceeds
that Cooper is entitled to receive beyond twelve months. Approximately 90% of the $192.3 million
receivable from insurance companies at December 31, 2008 is due from domestic insurers whose AM
Best rating is Excellent (A-) or better. The remaining balance of the insurance receivable has
been significantly discounted to reflect management’s best estimate of the recoverable amount.
Cooper believes that it is likely that additional insurance recoveries will be recorded in the
future as new insurance-in-place agreements are consummated or settlements with insurance carriers
are completed. However, extensive litigation with the insurance carriers may be required to
receive those additional recoveries.
Critical Accounting Assumptions
The amounts recorded by Cooper for its asbestos liability and related insurance receivables
rely on assumptions that are based on currently known facts and strategy. Cooper’s actual asbestos
costs or insurance recoveries could be significantly higher or lower than those recorded if
assumptions used in the estimation process vary significantly from actual results over time. Key
variables in these assumptions include the number and type of new claims filed each year, the
average indemnity and defense costs of resolving claims, the number of years these assumptions are
projected into the future, and the resolution of on-going negotiations of additional settlement or
coverage-in-place agreements with insurance carriers. Assumptions with respect to these variables
are subject to greater uncertainty as the projection period lengthens. Other factors that may
affect Cooper’s liability and ability to recover under its insurance policies include uncertainties
surrounding the litigation process from jurisdiction to jurisdiction and from case to case, reforms
that may be made by state and federal courts, and the passage of state or federal tort reform
legislation. Cooper will review these assumptions on a periodic basis to determine whether any
adjustments are required to the estimate of its recorded asbestos liability and related insurance
receivables.
From a cash flow perspective, Cooper management believes that the annual cash outlay for its
potential asbestos liability, net of insurance recoveries, will not be material to Cooper’s
operating cash flow.
Other Matters
Cooper and its subsidiaries are defendants or otherwise involved in a number of lawsuits in
the ordinary course of business. We estimate the range of our liability related to pending
litigation when we believe the amount and range of loss can be estimated. We record our best
estimate of a loss when the loss is considered probable. When a liability is probable and there is
a range of estimated loss with no best estimate in the range, we record the minimum estimated
liability related to the lawsuits or claims. As additional information becomes available, we
assess the potential liability related to our pending litigation and claims and revise our
estimates. Due to uncertainties related to the resolution of lawsuits and claims, the ultimate
outcome may differ from our estimates. In the opinion of management and based on liability
accruals provided, our ultimate exposure with respect to these pending lawsuits and claims is not
expected to have a material adverse effect on our consolidated financial position or cash flows,
although they could have a material adverse effect on our results of operations for a particular
reporting period.
15
The U.S. Federal Government has enacted legislation intended to deny certain federal funding
and government contracts to U.S. companies that reincorporate outside the United States, including
Section 745 of the Consolidated Appropriations Act, 2008 (Public Law 110-161), Section 724(c) of
the Transportation, Treasury, Housing and Urban Development, the Judiciary, and Independent
Agencies Appropriations Act, 2006 (Public Law 109-115), and 6 U.S.C. 395(b) of The Homeland
Security Act. The Company has self-reported to the Department of Defense certain transactions
aggregating approximately $8 million with U.S. government entities which may be subject to the
legislation. At the time of this filing, it is too early to determine whether any fines or
penalties may be assessed against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this report, no matters were submitted
to a vote of the shareholders.
PART II
|
|
|
| ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Cooper Class A common shares (symbol – CBE) are listed on the New York Stock Exchange. Options
for Cooper Class A common shares are listed on the NYSE Alternext U.S. exchange. Cooper Class B
common shares are not publicly traded. The Class B common shares were issued to Cooper Industries,
Inc. in connection with the reincorporation merger in May 2002 whereby Cooper Industries, Inc.,
formerly the publicly traded parent company, became a wholly-owned subsidiary of Cooper Industries,
Ltd. Effective January 1, 2005, the Class B common shares were transferred to Cooper US, Inc.,
which is a wholly-owned Cooper subsidiary. Cooper US, Inc. is the only holder of Class B common
shares. The holders of Class B common shares are not entitled to vote, except as to matters for
which the Bermuda Companies Act specifically requires voting rights for otherwise non-voting
shares. Cooper Industries, Ltd. and Cooper subsidiaries holding Class A or Class B common shares
have entered into a voting agreement whereby any Class A or Class B common shares held by such
Cooper subsidiaries will be voted (or abstained from voting) in the same proportion as the other
holders of Class A common shares. Therefore, Class A and Class B common shares held by Cooper
subsidiaries do not dilute the voting power of the Class A common shares held by the public.
As of January 31, 2009 there were 20,284 record holders of Cooper Class A common shares and
one holder of Cooper Class B common shares.
The high and low quarterly sales prices for the past two years of Cooper Class A common shares
as reported by Dow Jones & Company, Inc., are as follows:
| |
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|
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|
| |
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|
Quarter |
|
|
| |
|
|
|
|
|
1 |
|
2 |
|
3 |
|
4 |
2008 |
|
High |
|
$ |
53.25 |
|
|
$ |
47.55 |
|
|
$ |
49.64 |
|
|
$ |
40.27 |
|
|
|
Low |
|
|
35.37 |
|
|
|
39.40 |
|
|
|
36.96 |
|
|
|
19.32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
High |
|
$ |
48.12 |
|
|
$ |
58.20 |
|
|
$ |
59.05 |
|
|
$ |
57.25 |
|
|
|
Low |
|
|
40.00 |
|
|
|
45.03 |
|
|
|
47.00 |
|
|
|
47.07 |
|
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|
Annual cash dividends declared on Cooper’s Class A and Class B common shares during 2005 and
2006 were $.74 a share ($.185 a quarter). On February 14, 2007, the Board of Directors declared an
increase in the quarterly dividend to $.21 a share (or $.84 on an annualized basis). This
represented a 14 percent increase over the prior dividend rate. On February 14, 2007, the Board of
Directors also approved a 2-for-1
16
stock split to shareholders of record as of February 28, 2007. The increase in the dividend
rate was effective for the dividend paid on April 2, 2007. On February 12, 2008, the Board of
Directors declared an increase in the quarterly dividend to $.25 per share (or $1.00 on an
annualized basis). This represents a 19 percent increase over the prior dividend rate. Based on
Cooper’s capital structure in 2008, all of the dividend distributions paid by it in 2008 are
treated as a return of capital to its shareholders. For dividends payable in 2009, Cooper
currently anticipates that based on its capital structure all or a substantial portion of its
dividend distributions will be treated as a return of capital to its shareholders. For the
dividends payable in 2006, 2007 and 2008, Cooper’s subsidiaries that held Class A and Class B
shares received dividends on such shares.
The following table reflects activity related to equity securities purchased by Cooper during
the three months ended December 31, 2008:
Purchases of Equity Securities
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|
Total Number of Shares |
|
|
Maximum Number of |
|
| |
|
Total Number of |
|
|
|
|
|
|
Purchased as Part of |
|
|
Shares that May Yet Be |
|
| |
|
Shares |
|
|
Average Price |
|
|
Publicly Announced Plans |
|
|
Purchased Under the |
|
| Period |
|
Purchased |
|
|
Paid per Share |
|
|
or Programs |
|
|
Plans or Programs(1) |
|
As of 9/30/08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,683,549 |
|
10/01/08 – 10/31/08 |
|
|
3,552,400 |
|
|
$ |
24.75 |
|
|
|
3,552,400 |
|
|
|
6,131,149 |
|
11/01/08 – 11/30/08 |
|
|
1,418,678 |
|
|
$ |
23.36 |
|
|
|
1,418,678 |
|
|
|
4,712,471 |
|
12/01/08 – 12/31/08 |
|
|
1,683,036 |
|
|
$ |
33.65 |
|
|
|
1,683,036 |
|
|
|
3,029,435 |
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
6,654,114 |
|
|
$ |
28.85 |
|
|
|
6,654,114 |
|
|
|
|
|
|
|
|
| (1) |
|
On February 12, 2008, Cooper’s Board of Directors authorized the repurchase
of ten million shares of common stock, which is reflected in the above table. On
February 9, 2009, Cooper’s Board of Directors increased the share repurchase
authorization by ten million shares, which is not 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. Cooper may continue to repurchase shares under these
authorizations from time to time during 2009. The decision whether to do so will be
dependent on the favorability of market conditions, as well as potential cash
requirements for acquisitions and debt repayments. |
| |
| (2) |
|
For 2009, Cooper’s current estimate is that one million shares will be
issued under equity compensation plans, which is not reflected in the above table. |
Further information required by this Item is set forth under the caption “Equity Compensation
Plan Information” in Cooper’s Proxy Statement to be filed pursuant to Regulation 14A under the
Securities Exchange Act of 1934 in connection with Cooper’s 2009 Annual Meeting of Shareholders
(the “Proxy Statement”) and is incorporated herein by reference.
Bermuda has exchange controls which apply to residents in respect of the Bermudian dollar. As
an exempt company, Cooper is considered to be nonresident for such controls; consequently, there
are no Bermuda governmental restrictions on the Company’s ability to make transfers and carry out
transactions in all other currencies, including currency of the United States.
Under existing Bermuda law, there is no Bermuda income or withholding tax on dividends paid by
Cooper to its shareholders. Furthermore, no Bermuda tax or other levy is payable on the sale or
other transfer (including by gift or on the death of the shareholder) of Cooper common shares
(other than by shareholders resident in Bermuda).
17
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected historical financial data for Cooper for each of the
five years in the period ended December 31, 2008. The selected historical financial information
shown below has been derived from Cooper’s audited consolidated financial statements. This
information should be read in conjunction with Cooper’s consolidated financial statements and notes
thereto.
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| |
|
Years Ending December 31, |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
| |
|
|
|
|
|
(in millions, except per share data) |
|
|
|
|
|
INCOME STATEMENT DATA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
6,521.3 |
|
|
$ |
5,903.1 |
|
|
$ |
5,184.6 |
|
|
$ |
4,730.4 |
|
|
$ |
4,462.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
615.6 |
|
|
$ |
692.3 |
|
|
$ |
484.3 |
|
|
$ |
391.1 |
|
|
$ |
339.8 |
|
Income (charge) from discontinued
operations, net of taxes |
|
|
16.6 |
|
|
|
— |
|
|
|
(20.3 |
) |
|
|
(227.2 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
632.2 |
|
|
$ |
692.3 |
|
|
$ |
464.0 |
|
|
$ |
163.9 |
|
|
$ |
339.8 |
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
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|
|
|
|
|
|
|
|
INCOME PER COMMON SHARE DATA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
3.54 |
|
|
$ |
3.80 |
|
|
$ |
2.64 |
|
|
$ |
2.12 |
|
|
$ |
1.84 |
|
Income (charge) from discontinued
operations |
|
|
.10 |
|
|
|
— |
|
|
|
(.11 |
) |
|
|
(1.23 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
3.64 |
|
|
$ |
3.80 |
|
|
$ |
2.53 |
|
|
$ |
.89 |
|
|
$ |
1.84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
3.51 |
|
|
$ |
3.73 |
|
|
$ |
2.58 |
|
|
$ |
2.06 |
|
|
$ |
1.79 |
|
Income (charge) from discontinued
operations |
|
|
.09 |
|
|
|
— |
|
|
|
(.11 |
) |
|
|
(1.19 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
3.60 |
|
|
$ |
3.73 |
|
|
$ |
2.47 |
|
|
$ |
.87 |
|
|
$ |
1.79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE SHEET DATA (at December 31): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
6,164.9 |
|
|
$ |
6,133.5 |
|
|
$ |
5,374.8 |
|
|
$ |
5,215.1 |
|
|
$ |
5,407.8 |
|
Long-term debt, excluding current maturities |
|
|
932.5 |
|
|
|
909.9 |
|
|
|
702.8 |
|
|
|
1,002.9 |
|
|
|
698.6 |
|
Shareholders’ equity |
|
|
2,607.4 |
|
|
|
2,841.9 |
|
|
|
2,475.3 |
|
|
|
2,205.2 |
|
|
|
2,286.5 |
|
CASH DIVIDENDS DECLARED PER
COMMON SHARE |
|
$ |
1.00 |
|
|
$ |
.84 |
|
|
$ |
.74 |
|
|
$ |
.74 |
|
|
$ |
.70 |
|
In October 1998, Cooper sold its Automotive Products segment for $1.9 billion in proceeds.
Discontinued operations charges of $20.3 million, net of a $11.4 million income tax benefit in 2006
and $227.2 million, net of a $127.8 million income tax benefit in 2005 were recorded for potential
liabilities related to the Automotive Products segment sale and the Federal-Mogul bankruptcy. In
2008, discontinued operations income of $16.6 million, net of a $9.4 million income tax expense,
was recorded to reflect ongoing resolution of the potential liabilities through the tort system
when the Bankruptcy Court denied Cooper’s participation in the Federal-Mogul 524(g) trust. See
Note 16 of the Notes to the Consolidated Financial Statements.
18
|
|
|
| ITEM 7. |
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS |
Critical Accounting Policies
The Consolidated Financial Statements and Notes to the Consolidated Financial Statements
contain information that is pertinent to management’s discussion and analysis. The preparation of
financial statements in conformity with United States generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities. Cooper believes the following
critical accounting policies involve additional management judgment due to the sensitivity of the
methods, assumptions and estimates necessary in determining the related asset and liability
amounts.
Cooper recognizes revenues when products are shipped and accruals for sales returns and other
allowances are provided at the time of shipment based upon past experience. If actual future
returns and allowances differ from past experience, additional allowances may be required. The
accrual for sales returns and other allowances was $89.8 million and $95.1 million at December 31,
2008 and 2007, respectively.
Allowances for excess and obsolete inventory are provided based on current assessments about
future demands, market conditions and related management initiatives. If market conditions are
less favorable than those projected by management, additional inventory allowances may be required.
The allowance for excess and obsolete inventory was $77.0 million at December 31, 2008 and $77.9
million at December 31, 2007.
Pension assets and liabilities are determined on an actuarial basis and are affected by the
market value of plan assets, estimates of the expected return on plan assets, discount rates and
estimated future employee earnings and demographics. Actual changes in the fair market value of
plan assets and differences between the actual return on plan assets and the expected return on
plan assets will affect the amount of pension expense ultimately recognized. Differences between
actuarial assumptions and estimates and actual experience are deferred in accumulated other
nonowner changes in equity as actuarial net gains and losses. Actuarial net gains and losses in
excess of a calculated minimum annual amount are amortized and recognized in net periodic pension
cost over the average remaining service period of active employees.
Total net periodic pension benefit cost was $7.6 million in 2008, $3.9 million in 2007 and
$31.0 million in 2006. During 2006, Cooper announced that effective January 1, 2007, future
benefit accruals would cease under the Cooper U.S. Salaried Pension Plan. Cooper recognized a $4.2
million curtailment loss in 2006 as a result of this action. During 2006, Cooper also recognized a
$4.1 million settlement loss primarily in connection with the retirement of senior executives.
Total net periodic pension benefit cost declined in 2007 primarily due to the elimination of
service cost on the salaried pension plan and non-recurrence of the 2006 losses discussed above.
Total net periodic pension benefit cost in 2008 includes a $3.7 million curtailment loss as a
result of ceasing future benefit accruals for two defined benefit plans in the U.K. Beginning in
2007, Cooper contributed cash equal to 3% of compensation to the Cooper Retirement Savings and
Stock-Ownership Plan (“CO-SAV”). Cooper further increased the company-matching contribution under
the CO-SAV plan to a dollar-for-dollar match up to 6% of employee contributions. The estimated net
periodic pension benefit cost of $26.1 million for 2009 has been estimated assuming a discount rate
of 6.25% and an expected return on plan assets of 8.25%. See Note 13 of the Notes to the
Consolidated Financial Statements.
The postretirement benefits other than pensions liability is also determined on an actuarial
basis and is affected by assumptions including the discount rate and expected trends in health care
costs. Changes in the discount rate and differences between actual and expected health care costs
will affect the recorded amount of postretirement benefits expense. Differences between assumptions
and actual experience are deferred in accumulated other nonowner changes in equity as actuarial net
gains and losses. Actuarial net gains and losses in excess of a minimum annual amount are
amortized and recognized in net periodic
19
postretirement benefit cost over the average remaining
life expectancy of the participants. Net periodic postretirement benefit cost was $0.7 million in
2008 and 2007. Cooper announced the elimination of postretirement life insurance for active
employees effective January 1, 2007. As a result, Cooper recognized a $3.2 million curtailment
gain in the second quarter of 2006. Excluding the curtailment gain, net periodic postretirement
benefit cost was $0.8 million in 2006. Net periodic postretirement benefit cost is expected to be
approximately ($0.4) million in 2009, assuming a discount rate of 6.25%. See Note 13 of the Notes
to the Consolidated Financial Statements.
Stock-based compensation expense is recorded for stock-option grants, performance-based and
restricted stock awards based upon fair value. The fair value of stock option awards is estimated
at the grant date using the Black-Scholes-Merton option pricing model, which includes assumptions
for volatility, expected term, risk-free interest rate and dividend yield. Expected volatility is
based on implied volatilities from traded options on Cooper stock, historical volatility of Cooper
stock and other factors. Historical data is used to estimate employee termination experience and
the expected term of the options. The risk-free interest rate is based on the U.S. Treasury yield
curve in effect at the time of grant. The fair value of performance-based and restricted stock
awards granted is measured at the market price on the grant date. Performance awards are typically
arranged in levels, with increasing number of shares earned as higher levels of growth are
achieved. If goal-level assumptions are not met, stock-based compensation expense is adjusted and
previously recognized compensation expense would be reversed. During 2006, 2007 and through the
third quarter of 2008, performance goals were assumed to be achieved at the maximum level. In the
fourth quarter of 2008, Cooper revised its assumption to lower the performance goals assumed to be
achieved to below the maximum level for performance awards granted in 2007 and 2008. The revised
achievement levels assumed for the 2007 and 2008 performance award grants considers the past
performance and current expectations of future performance in the respective three-year performance
period. As a result of lowering the performance goals assumed to be achieved, Cooper adjusted
previously recognized stock-based compensation expense by reducing expense in the fourth quarter of
2008 by $11.3 million. Total stock-based compensation expense was $23.1 million in 2008, $39.0
million in 2007 and $29.1 million in 2006. See Note 10 of the Notes to the Consolidated Financial
Statements.
Environmental liabilities are accrued based on estimates of known environmental remediation
exposures. The liabilities include accruals for sites owned by Cooper and third-party sites where
Cooper was determined to be a potentially responsible party. Third party sites frequently involve
multiple potentially responsible parties and Cooper’s potential liability is determined based on
estimates of Cooper’s proportionate responsibility for the total cleanup. The amounts accrued for
such sites are based on these estimates as well as an assessment of the financial capacity of the
other potentially responsible parties. Environmental liability estimates may be affected by
changing determinations of what constitutes an environmental liability or an acceptable level of
cleanup. To the extent that remediation procedures change or the financial condition of other
potentially responsible parties is adversely affected, Cooper’s estimate of its environmental
liabilities may change. The liability for environmental remediation was $29.4 million at December
31, 2008 and $30.2 million at December 31, 2007. See Note 7 of the Notes to the Consolidated
Financial Statements.
Cooper records current tax liabilities as well as deferred tax assets and liabilities for
those taxes incurred as a result of current operations but deferred until future periods. The
annual provision for
income taxes is the sum of both the current and deferred tax amounts. Current taxes payable
represents the liability related to Cooper’s income tax returns for the current year, while the net
deferred tax expense or benefit represents the change in the balance of deferred tax assets or
liabilities reported on Cooper’s consolidated balance sheet. Deferred tax assets or liabilities
are determined based upon differences between the book basis of assets and liabilities and their
respective tax basis as measured by the enacted tax rates that Cooper expects will be in effect
when these differences reverse. In addition to estimating the future applicable tax rates, Cooper
must also make certain assumptions regarding whether tax differences are permanent or temporary and
whether taxable operating income in future periods will be sufficient to fully recognize any gross
deferred tax assets. Cooper has established valuation allowances when it is more likely than not
that some portion or all of the deferred tax assets will not be realized.
20
Cooper is subject to income taxes in both the United States and numerous non-U.S.
jurisdictions. Cooper is regularly under examination by various tax authorities. United States
federal and state tax authorities and tax authorities in other countries have challenged the amount
of taxes due for certain tax periods. Cooper evaluates the potential exposure associated with
various filing positions and records a liability for tax contingencies. Although Cooper believes
all tax positions are reasonable and properly reported in accordance with applicable tax laws and
regulations in effect during the periods involved, the final determination of tax audits and any
related litigation could be materially different than that which is reflected in historical income
tax provisions and accruals. The resolution of tax audits and litigation could have a material
effect on Cooper’s consolidated cash flows in the period or periods for which that determination is
finalized. In 2008 and 2007, Cooper reduced income tax expense by $23.2 million ($.13 per share)
and $83.8 million ($.45 per share), respectively, as a result of the expiration of statute of
limitations, favorable audit settlements and other matters. See Note 12 of the Notes to the
Consolidated Financial Statements.
Cooper records goodwill related to business acquisitions when the purchase price exceeds the
fair value of identified assets and liabilities acquired. Under Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets (“SFAS No. 142”), goodwill is subject to an
annual impairment test. Cooper designated January 1 as the date of its annual goodwill impairment
test. If an event occurs or circumstances change that would more likely than not reduce the fair
value of a reporting unit below its carrying value, an interim impairment test would be performed
between annual tests. The first step of the SFAS No. 142 two-step goodwill impairment test
compares the fair value of a reporting unit with its carrying value. Fair value is determined
primarily by estimating the present value of future cash flows. If the carrying amount of a
reporting unit exceeds its fair value, the second step of the goodwill impairment test shall be
performed. The second step compares the implied fair value of reporting unit goodwill to the
carrying amount of the goodwill to measure the amount of impairment loss. The results of step one
of the goodwill impairment tests did not require the completion of step two of the test for any
reporting unit in 2008. Cooper has designated eight reporting units, consisting of seven units in
the Electrical Products reportable operating segment plus the Tools reportable operating segment.
There are inherent uncertainties and management judgment in estimating the fair value of each
reporting unit. If actual fair value is less than Cooper’s estimates, Cooper could be required to
record an impairment to reduce the carrying value of goodwill to its implied fair value. Cooper
had goodwill of $2.57 billion and $2.54 billion at December 31, 2008 and 2007, respectively. See
Note 6 of the Notes to the Consolidated Financial Statements.
In October 1998, Cooper sold its Automotive Products business to Federal-Mogul Corporation
(“Federal-Mogul”). These discontinued businesses (including the Abex Friction 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
Friction 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 confirmed Federal-Mogul’s plan of reorganization and Federal-Mogul emerged
from bankruptcy in December 2007. As part of Federal-Mogul’s Plan of Reorganization, Cooper and
Federal-Mogul reached a settlement agreement that was subject to approval by the Bankruptcy Court
resolving Federal-Mogul’s indemnification obligations to Cooper. As discussed further in Item 3 –
Legal Proceedings and Note 16 of the Notes to the Consolidated Financial Statements, on September
30, 2008, the Bankruptcy Court issued its final ruling denying the Modified Plan A Settlement
resulting in Cooper not participating in the Federal-Mogul 524(g) trust and instead proceeding with
the Plan B Settlement that had previously been approved by the Bankruptcy Court. As a result of
the Plan B Settlement, Cooper received in October 2008 the $141 million payment, including
interest, from the Federal-Mogul Bankruptcy estate and will continue to resolve through the tort
system the asbestos related claims arising from the Abex Friction product line that it had sold to
Federal-Mogul in 1998. As part of its obligation to Pneumo for any asbestos-related claims arising
from the Abex Friction product line (“Abex Claims”), Cooper has rights, confirmed by Pneumo, to
significant insurance for such claims.
21
As a result of the September 30, 2008 Bankruptcy Court ruling discussed above, Cooper adjusted
its accounting in the third quarter of 2008 to reflect the separate assets and liabilities related
to the on-going activities to resolve the potential asbestos related claims through the tort
system. Cooper recorded income from discontinued operations of $16.6 million, net of a $9.4
million income tax expense, in the third quarter of 2008 to reflect the Plan B Settlement.
Asbestos Liability Estimate
As of December 31, 2008, Cooper estimates that the liability for pending and future indemnity
and defense costs for the next 45 years will be $815.1 million. The amount included for unpaid
indemnity and defense costs is not significant at December 31, 2008. The estimated liability is
before any tax benefit and is not discounted as the timing of the actual payments is not reasonably
predictable. However, a discounted value would likely be approximately 60% or less of the $815.1
million liability recorded.
The methodology used to project Cooper’s liability estimate relies upon a number of
assumptions including Cooper’s recent claims experience and declining future asbestos spending
based on past trends and publicly available epidemiological data, changes in various jurisdictions,
management’s judgment about the current and future litigation environment, and the availability to
claimants of other payment sources.
Abex discontinued using asbestos in the Abex Friction product line in the 1970’s and
epidemiological studies that are publicly available indicate the incidence of asbestos-related
disease is in decline and should continue to decline steadily. However, there can be no assurance
that these studies, or other assumptions, will not vary significantly from the estimates utilized
to project the undiscounted liability.
Although Cooper believes that its estimated liability for pending and future indemnity and
defense costs represents the best estimate of its future obligation, Cooper utilized scenarios that
it believed were reasonably possible that indicate a broader range of potential estimates from $735
to $950 million (undiscounted).
Asbestos Receivable Estimate
As of December 31, 2008, Cooper, through Pneumo-Abex LLC, has access to Abex insurance
policies with remaining limits on policies with solvent insurers in excess of $750 million.
Insurance
recoveries reflected as receivables in the balance sheet include recoveries where
insurance-in-place agreements, settlements or policy recoveries are probable. As of December 31,
2008, Cooper’s receivable for recoveries of costs from insurers amounted to $192.3 million, of
which $74.6 million relate to costs previously paid or insurance settlements. Cooper’s
arrangements with the insurance carriers defer certain amounts of insurance and settlement proceeds
that Cooper is entitled to receive beyond twelve months. Approximately 90% of the $192.3 million
receivable from insurance companies at December 31, 2008 is due from domestic insurers whose AM
Best rating is Excellent (A-) or better. The remaining balance of the insurance receivable has
been significantly discounted to reflect management’s best estimate of the recoverable amount.
Cooper believes that it is likely that additional insurance recoveries will be recorded in the
future as new insurance-in-place agreements are consummated or settlements with insurance carriers
are completed. However, extensive litigation with the insurance carriers may be required to
receive those additional recoveries.
The amounts recorded by Cooper for its asbestos liability and related insurance receivables
rely on assumptions that are based on currently known facts and strategy. Cooper’s actual asbestos
costs or insurance recoveries could be significantly higher or lower than those recorded if
assumptions used in the estimation process vary significantly from actual results over time. Key
variables in these assumptions include the number and type of new claims filed each year, the
average indemnity and defense costs of resolving claims, the number of years these assumptions are
projected into the future, and the resolution of on-going negotiations of additional settlement or
coverage-in-place agreements with insurance carriers. Assumptions with respect to these variables
are subject to greater uncertainty as the projection period lengthens. Other factors that may
affect Cooper’s liability and ability to recover under its insurance policies
22
include uncertainties
surrounding the litigation process from jurisdiction to jurisdiction and from case to case, reforms
that may be made by state and federal courts, and the passage of state or federal tort reform
legislation. Cooper will review these assumptions on a periodic basis to determine whether any
adjustments are required to the estimate of its recorded asbestos liability and related insurance
receivables. As this additional information becomes available, Cooper will record a charge or
income related to the discontinued operations asbestos liability and related insurance recoveries,
which may be significant.
From a cash flow perspective, Cooper management believes that the annual cash outlay for its
potential asbestos liability, net of insurance recoveries, will not be material to Cooper’s
operating cash flow.
Results of Operations
Revenues
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
| |
|
(in millions) |
|
Electrical Products |
|
$ |
5,755.7 |
|
|
$ |
5,108.4 |
|
|
$ |
4,426.0 |
|
Tools |
|
|
765.6 |
|
|
|
794.7 |
|
|
|
758.6 |
|
|
|
|
|
|
|
|
|
|
|
Total Revenues |
|
$ |
6,521.3 |
|
|
$ |
5,903.1 |
|
|
$ |
5,184.6 |
|
|
|
|
|
|
|
|
|
|
|
See the geographic information included in Note 15 of the Notes to the Consolidated Financial
Statements for a summary of revenues by country.
2008 vs. 2007 Revenues Revenues for 2008 increased approximately 11% compared to 2007.
The impact of currency translation was less than 1%, while acquisitions added approximately 7% in
revenues.
Electrical Products segment revenues for 2008, which represent slightly more than 88% of
revenues, increased approximately 13% compared to 2007. Currency translation had a minimal impact
on revenue growth. The impact of acquisitions increased the segment revenues for 2008 by nearly 8%
over 2007 revenue levels. Six of the seven Electrical Products segment businesses reported
increased revenues for 2008. Revenue growth was a result of solid demand from energy, industrial,
international expansion and nonresidential construction markets through the first nine months of
2008. Softness in the U.S residential market throughout the year and declines in all global markets
during the fourth quarter of the year partially offset these increases.
Tools segment revenues for 2008, which represent about 12% of revenues, decreased
approximately 4% compared to 2007. Currency translation represented a 2% increase for reported
revenues with limited increase from acquisitions. Revenue declines were driven by weak retail
markets and soft demand from the motor vehicle end markets. Tools segment experienced significant
weakness in most markets and geographies during the fourth quarter of 2008, particularly in the
U.S. retail channel.
2007 vs. 2006 Revenues Revenues for 2007 increased 14% compared to 2006. The impact of
currency translation was 2%, while acquisitions added approximately 4% in revenues.
Electrical Products segment revenues for 2007, which represented 87% of revenues, increased
approximately 15% compared to 2006. Currency translation represented 2% of the revenue growth.
The impact of acquisitions increased segment revenues by approximately 4%. Six of the seven
Electrical Products segment businesses posted revenue growth during 2007. Sales growth was a
result of strong demand from the utility and industrial markets, international expansion and solid
demand from U.S. nonresidential construction. Ongoing softness in the U.S. residential markets
partially offset these increases.
23
Tools segment revenues for 2007, which represented 13% of revenues, increased approximately 5%
compared to 2006, with currency translation representing 3% of the increase. Sales increases were
driven by solid demand from aerospace, partially offset by soft demand in the motor vehicle end
markets. Retail sales compared to 2006 were down slightly in a challenging U.S. market.
Operating Results
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
| |
|
(in millions, except per share data) |
|
Electrical Products |
|
$ |
930.3 |
|
|
$ |
848.2 |
|
|
$ |
703.2 |
|
Tools |
|
|
81.1 |
|
|
|
94.0 |
|
|
|
85.6 |
|
Restructuring and asset impairment charges |
|
|
(52.4 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Total segment operating earnings |
|
|
959.0 |
|
|
|
942.2 |
|
|
|
788.8 |
|
General corporate expense |
|
|
81.4 |
|
|
|
98.1 |
|
|
|
94.7 |
|
|
|
|
|
|
|
|
|
|
|
Operating earnings |
|
|
877.6 |
|
|
|
844.1 |
|
|
|
694.1 |
|
Income from Belden agreement |
|
|
— |
|
|
|
33.1 |
|
|
|
5.1 |
|
Interest expense, net |
|
|
70.4 |
|
|
|
51.0 |
|
|
|
51.5 |
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes |
|
|
807.2 |
|
|
|
826.2 |
|
|
|
647.7 |
|
Income tax expense |
|
|
191.6 |
|
|
|
133.9 |
|
|
|
163.4 |
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
615.6 |
|
|
|
692.3 |
|
|
|
484.3 |
|
Income (charge) from discontinued operations |
|
|
16.6 |
|
|
|
— |
|
|
|
(20.3 |
) |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
632.2 |
|
|
$ |
692.3 |
|
|
$ |
464.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
3.51 |
|
|
$ |
3.73 |
|
|
$ |
2.58 |
|
Income (charge) from discontinued operations |
|
|
.09 |
|
|
|
— |
|
|
|
(.11 |
) |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
3.60 |
|
|
$ |
3.73 |
|
|
$ |
2.47 |
|
|
|
|
|
|
|
|
|
|
|
Cooper measures the performance of its businesses exclusive of restructuring, asset impairment
and financing expenses. All costs directly attributable to operating businesses are included in
segment operating earnings. Corporate overhead costs, including costs of traditional headquarters
activities, such as treasury, are not allocated to the businesses. See Note 15 of the Notes to the
Consolidated Financial Statements.
2008 vs. 2007 Segment Operating Earnings Segment Operating Earnings were $959.0 million in
2008 compared to $942.2 million in 2007.
Electrical Products segment 2008 operating earnings increased 10% to $930.3 million from
$848.2 million for 2007. Return on revenues was 16.2% for 2008 compared to 16.6% for 2007. The
decrease in earnings as a percentage of revenue was primarily due to the dilutive impact of
acquisitions and in the second half of the year inflationary costs for commodities not fully offset
by available market price increases in certain product lines. In addition, in the fourth quarter
of 2008, production volumes were curtailed to reduce inventory to meet slowing market demands.
Tools segment 2008 operating earnings decreased 14% to $81.1 million compared to $94.0 million
for 2007. Return on revenues was 10.6% for 2008 compared to 11.8% for 2007. The decrease in
earnings as a percentage of revenue was primarily due to the declining demand for Tools segment
products and the related impact of reduced production volumes.
24
2007 vs. 2006 Segment Operating Earnings Segment Operating Earnings were $942.2 million in
2007 compared to $788.8 million in 2006.
Electrical Products segment 2007 operating earnings increased 21% to $848.2 million from
$703.2 million for 2006. Return on revenues was 16.6% for 2007 compared to 15.9% for 2006. The
increase was primarily due to leverage on fixed costs due to higher sales volumes and continued
execution on productivity initiatives and lean manufacturing programs.
Tools segment 2007 operating earnings increased 10% to $94.0 million compared to $85.6 million
for 2006. Return on revenues was 11.8% compared to 11.3% in 2006. The modest core growth in sales
volume was further leveraged through focus on productivity activities and cost reductions.
Restructuring and Asset Impairment Charges In 2008, Cooper recognized a pre-tax
restructuring charge of $43.3 million and a pre-tax non-cash impairment charge of $9.1 million.
The 2008 restructuring and asset impairment charges of $52.4 million, or $38.3 million after
taxes, reduced 2008 diluted earnings per share by $.21.
In the second quarter of 2008, Cooper recorded a restructuring charge for $7.6 million in
severance costs for downsizing a Tools segment international facility. This facility downsizing
and related cash payments have been substantially completed in 2008.
As a result of the downturn in economic conditions in the latter half of 2008, Cooper
committed to employment reductions to appropriately size the Company’s workforce to current and
anticipated market conditions and to downsize a domestic Tools segment manufacturing operation.
These actions were taken as a part of Cooper management’s ongoing assessment of its hourly and
salary workforce and its required production capacity in consideration of current and anticipated
market conditions and demand levels. Cooper recorded a $35.7 million charge in the fourth quarter
of 2008 related to these actions, $25.5 million of which relates to the Electrical Products segment
and $10.2 million relates to the Tools segment. A total of 1,314 hourly and 930 salary positions
are being eliminated as a result of the fourth quarter 2008 restructuring actions to reduce
Cooper’s workforce. Of the 2,244 workforce reductions, 1,358 had exited by the end of 2008 with
the remaining reductions expected in the first half of 2009. Cooper estimates that the fourth
quarter 2008 restructuring actions will reduce annual operating costs by approximately $60 million.
At December 31, 2008, Cooper had an accrual of $29.7 million for future cash expenditures related
to the fourth quarter 2008 restructuring actions. The related cash payments will be substantially
completed in the first half of 2009.
In the fourth quarter of 2008, Cooper also recorded a non-cash impairment charge of $9.1
million related to an investment in a previously unconsolidated international joint venture in the
Electrical Products segment. In December 2008, Cooper acquired a majority interest in the
international joint venture and consolidated the joint venture’s net assets of $4.6 million in the
accompanying December 31, 2008 balance sheet.
General Corporate Expense General Corporate expense decreased $16.7 million during 2008 to
$81.4 million compared to $98.1 million for 2007. General Corporate expense in 2007 includes $8.8
million for legal and environmental costs related to businesses disposed of in prior years.
Excluding the legal and environmental costs for previously disposed businesses, General Corporate
expense decreased $8.2 million in 2008 to $81.4 million compared to $89.3 million in 2007 primarily
from the impact of lower expense for long-term performance-based stock compensation.
General Corporate expense increased $3.4 million during 2007 to $98.1 million compared to
$94.7 million for 2006. General Corporate expense includes $8.8 million and $4.8 million in 2007
and 2006, respectively, for legal and environmental costs related to businesses disposed of in
prior years. Excluding these costs, General Corporate expense decreased $0.6 million in 2007 to
$89.3 million compared to $89.9 million in 2006. The decrease in 2007 is primarily related to
continued cost containment.
25
Income from Belden Agreement Income from the Belden agreement was $33.1 million in 2007
compared to $5.1 million during 2006. There was no income from the Belden agreement in 2008. In
1993, Cooper completed an initial public offering of the stock of Belden, formerly a division of
Cooper. Under the agreement, Belden and Cooper made an election that increased the tax basis of
certain Belden assets. Belden is required to pay Cooper ninety percent of the amount by which
Belden has actually reduced tax payments that would otherwise have been payable if the increase in
the tax basis of assets had not occurred, as realized principally over fifteen years. If Belden
does not have sufficient future taxable income, it is possible that Belden will not be able to
utilize the tax deductions arising from the increase in the tax basis of the assets resulting in a
tax loss carryforward. Belden is not obligated to pay Cooper until
a tax loss carryforward is utilized. Belden can carry any loss forward twenty years to offset
future taxable income. Cooper estimates that between $40 and $45 million in future payments
potentially remain under the Belden agreement. The timing and ultimate receipt of future payments
are contingent upon the ultimate taxable income Belden reports each year.
Interest Expense, Net Net interest expense for 2008 was $70.4 million, an increase of
$19.4 million from 2007 primarily as a result of higher average debt balances from the utilization
of debt financing to partially fund acquisitions and share repurchases. Net interest expense also
includes $6.0 million and $1.3 million in 2008 and 2007, respectively for reductions in the value
of short-term investments. Average debt balances were $1.34 billion and $1.05 billion and average
interest rates were 5.22% and 5.64% for 2008 and 2007, respectively. Net interest expense for 2007
decreased $0.5 million from 2006 as a result of lower average interest rates offsetting higher
average debt balances. Average debt balances were $1.05 billion and $1.04 billion and average
interest rates were 5.64% and 5.70% for 2007 and 2006, respectively.
On March 27, 2008, Cooper’s 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 commissions and interest rate hedges implemented in anticipation of the
offering, the notes have an effective annual cost to Cooper of 5.56%.
Income Tax Expense The effective tax rate attributable to continuing operations was 23.7%
for 2008, 16.2% for 2007 and 25.2% for 2006.
Cooper reduced income tax expense by $23.2 million during 2008 for discrete tax items
primarily related to statute expirations, state tax settlements and foreign taxes. 2007 included
an $83.8 million reduction of income tax expense associated principally with finalized settlements
with the Internal Revenue Service related to the 2000 through 2004 tax years, the expiration of the
statute of limitation regarding certain potential tax exposure matters, changes to state and
international valuation allowances and tax benefits of international reorganizations. The 2007
effective tax rate was also lower due to the income from the Belden agreement being taxed in a
foreign jurisdiction at a significantly lower rate than the U.S. statutory rate. Excluding the
discrete tax items and the income from the Belden agreement, Cooper’s effective tax rate for the
year ended December 31, 2008 and 2007 was 26.6% and 27.3%, respectively.
Income (Charge) Related to Discontinued Operations In the third quarter of 2008, Cooper
recorded income from discontinued operations of $16.6 million, net of a $9.4 million income tax
expense (or $.09 per diluted share) related to its asbestos liability regarding the Automotive
Products segment, which was sold in 1998. On September 30, 2008, the Bankruptcy Court denied the
Modified Plan A Settlement resulting in Cooper not participating in the Federal-Mogul 524(g) trust.
As a result of not participating in the trust, in the third quarter of 2008, Cooper adjusted its
accrual for the Pneumo-Abex asbestos liability and related insurance recoveries based on resolution
through the tort system. In the second quarter of 2006, Cooper recorded a charge of $20.3 million,
net of an $11.4 million income tax benefit, related to potential asbestos obligations regarding the
Automotive Products segment. See Note 16 of the Notes to the Consolidated Financial Statements.
26
Diluted Earnings Per Share Diluted earnings per share from continuing operations was $3.51
in 2008, $3.73 in 2007 and $2.58 in 2006. The restructuring and asset impairment charges offset by
the income tax reduction as discussed above decreased 2008 diluted earnings per share from
continuing operations by $.08. The income from the Belden agreement and income tax reduction
partially offset by
increased legal and environmental costs on businesses disposed of in prior years as discussed
above increased 2007 diluted earnings per share from continuing operations by $.59.
Percentage of Revenues
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, |
| |
|
2008 |
|
2007 |
|
2006 |
Cost of Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
Electrical Products |
|
|
67.1 |
% |
|
|
67.0 |
% |
|
|
67.7 |
% |
Tools |
|
|
69.8 |
% |
|
|
68.8 |
% |
|
|
69.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and Administrative: |
|
|
|
|
|
|
|
|
|
|
|
|
Electrical Products |
|
|
16.8 |
% |
|
|
16.4 |
% |
|
|
16.4 |
% |
Tools |
|
|
19.6 |
% |
|
|
19.4 |
% |
|
|
19.4 |
% |
2008 vs 2007 Percentage of Revenues Electrical Products segment cost of sales, as a
percentage of revenues, was 67.1% for 2008 compared to 67.0% for 2007. The slight increase in
costs of sales as a percentage of revenue was primarily the result of material inflation not fully
offset through favorable product pricing achieved in the market in certain product lines and the
impact in the fourth quarter of 2008 from curtailing production; offset by productivity
improvements and cost reduction actions taken during 2008. Tools segment cost of sales, as a
percentage of revenue, was 69.8% for 2008 compared to 68.8% for 2007. The increase in cost of sales
as a percentage of revenue was due to the lower absorption of production costs from lower volumes
and inefficiencies associated with adjusting manufacturing levels to achieve planned inventory
reductions to match lower market demands.
Electrical Product segment selling and administrative expenses, as a percentage of revenues,
for 2008 were 16.8% compared to 16.4% for 2007. The increase in selling and administrative expense
as a percentage of revenue was favorably impacted by leverage and productivity initiatives and
lower expenses for long-term performance-based stock compensation offset by the higher average
percentage of revenue for the newly acquired organizations. Excluding the impact of acquisitions,
the Electrical Products segment selling and administrative expenses as a percentage of revenue
would have been 16.3% for 2008. Tools segment selling and administrative expenses as a percentage
of revenue for 2008 were 19.6% compared to 19.4% for 2007, as cost control actions implemented
during 2008 which reduced reported selling and administrative expenses by 3% and lower expenses for
long-term performance-based stock compensation were more than offset by the decline in revenue for
the Tools segment.
2007 vs 2006 Percentage of Revenues Electrical Products segment cost of sales, as a
percentage of revenues, was 67.0% for 2007 compared to 67.7% for 2006. The decrease in the cost of
sales percentage was primarily the result of productivity initiatives and production leverage on
higher volume, partially offset by the impact of acquisitions. Tools segment cost of sales, as a
percentage of revenues, was 68.8% for 2007 compared to 69.3% for 2006. The decrease in cost of
sales percentage reflects operating efficiency gains from productivity improvements and cost
reductions and the lower level of sales of large low margin assembly systems projects.
Electrical Products segment selling and administrative expenses, as a percentage of revenues,
for 2007 were 16.4% compared to 16.4% for 2006. The selling and administrative expenses percentage
is unchanged, but was favorably impacted by leverage and productivity initiatives, offset by the
higher average percentage of revenue for the newly acquired organizations and continued investment
in global growth initiatives. Tools segment selling and administrative expenses, as a percentage
of revenues, for 2007 were 19.4% compared to 19.4% for 2006, as productivity initiatives were
offset by inflation.
27
Cooper realizes certain costs and proceeds that are not directly attributable to the operating
segments. These items are reflected as General Corporate expenses. See the “General Corporate
Expense” section above.
Earnings Outlook
The following sets forth Cooper’s general business outlook for 2009 based on current
expectations.
Cooper expects a 9% to 14% decline in revenues for Electrical Products in 2009 from slowing
global growth in utility and industrial market demand, weakening demand in the commercial
construction markets and continued declines in the U.S. residential markets. Acquisitions
completed in 2008 are expected to add less than 1% to Electrical Products revenue. In the Tools
segment, Cooper expects revenues to decline in the 18% to 23% range due to the weakness in the
global industrial, residential and motor vehicle markets. In response to the expected decline in
overall revenue currently forecasted to be in the 10 – 15% range, Cooper recorded restructuring
charges in 2008 which are projected to reduce overall cost by approximately $60 million. Operating
earnings are expected to decline, despite these actions, more rapidly than revenues as a result of
unfavorable leverage of fixed costs and the impact on pricing from the significant decline in
commodity costs in late 2008 as the higher cost of inventory and supply chain costs move through
the sales cycle. Cooper is expecting diluted continuing earnings per share to be in the range of
$2.45 to $2.80.
Pricing and Volume
In each of Cooper’s segments, the nature of many of the products sold is such that an accurate
determination of the changes in unit volume of sales is neither practical nor, in some cases,
meaningful. Each segment produces a family of products, within which there exist considerable
variations in size, configuration and other characteristics.
It is Cooper’s judgment that unit volumes in the Electrical Products segment increased in 2008
but unit volumes in the Tools segments decreased in 2008.
During 2006, 2007 and through the first half of 2008, Cooper experienced an overall increase
in customer pricing, primarily in response to increased material, energy and components costs.
During the second half of 2008, Cooper was unable to fully offset inflationary costs for
commodities by available market price increases primarily in certain product lines with heavy
material content. Cooper has aggressively acted to control and reduce costs during the three-year
period through strategic sourcing, manufacturing improvement and rationalization efforts in order
to improve profitability in the segments.
Effect of Inflation
Over the three-year period, inflation had a relatively minor impact on Cooper’s results of
operations. However, during 2008, 2007 and 2006, there were significant increases in certain key
commodities and components, which resulted in price increases in certain businesses, on occasion,
lagging the increased costs. During 2006, 2007 and through the first half of 2008, Cooper realized
price increases and productivity improvements at least equal to material purchase cost increases.
During the second half of 2008, Cooper was unable to fully offset inflationary costs for
commodities by available market price increases primarily in certain product lines with heavy
material content. Cooper hedges selected commodities such as copper and steel through the use of
derivatives and supply agreements. The impact of changes to these commodity costs could impact
margins for several quarters as a result of this activity. Cooper’s on-going initiatives to
improve productivity and rationalize its operational base have
mitigated increases in employee compensation and benefits, as well as general inflation on
operating costs.
28
Liquidity and Capital Resources
Operating Working Capital
For purposes of this discussion, operating working capital is defined as receivables and
inventories less accounts payable.
Cooper’s operating working capital increased $1.5 million during 2008. The increase included
a $40.6 million decrease in accounts payable substantially offset by a $37.2 million decrease in
receivables and a $1.9 million decrease in inventories. The increase in operating working capital
of $80.2 million from completed acquisitions and consolidation of a now majority-owned
international joint venture was substantially offset by initiatives focused on improved inventory
turns and improved accounts receivable performance as measured by days sales outstanding.
Operating working capital turnover (defined as annualized revenues divided by average operating
working capital) for 2008 of 5.6 turns increased from 5.4 turns in 2007.
Cooper’s operating working capital increased $127.3 million during 2007. The increase
included a $152.6 million increase in receivables and a $36.1 million increase in inventories,
partially offset by a $61.4 million increase in accounts payable, which were driven primarily by
increased sales volume and actions to improve customer service, as well as working capital
increases from completed acquisitions, which accounted for $69.2 million of the overall increase in
operating working capital. The increase in inventories was partially offset by a $12.3 million
increase in the allowance for excess and obsolete inventories. Operating working capital turnover
(defined as annualized revenues divided by average operating working capital) for 2007 of 5.4 turns
increased from 5.2 turns in 2006 primarily due to initiatives focused on improved inventory turns.
Accounts receivable days sales outstanding deteriorated slightly, although this was due in part to
acquisitions closing in December and the increased sales outside of the U.S. where commercial terms
are generally longer.
Cooper’s operating working capital increased $78.6 million during 2006. The increase included
a $53.6 million increase in receivables and a $68.9 million increase in inventories, partially
offset by a $43.9 million increase in accounts payable, which were driven primarily by increased
sales volume and actions to improve customer service, as well as working capital increases from
completed acquisitions. The increase in inventories was partially offset by a $6.9 million
increase in the allowance for excess and obsolete inventories. Operating working capital turnover
(defined as annualized revenues divided by average operating working capital) for 2006 of 5.2 turns
increased from 4.9 turns in 2005 primarily due to initiatives focused on reducing days sales
outstanding and improved payables management. Inventory turns remained flat with 2005, as the
company maintained focus on improving customer service.
Cash Flows
Net cash provided by operating activities was $896.4 million during 2008. Cash provided by
operating activities in 2008 includes the $141 million payment from the Federal-Mogul bankruptcy
estate partially offset by $60 million of voluntary contributions to the U.S. defined benefit
pension plans as well as the related tax affect of these items. The cash from operating
activities, plus $297.5 million of net proceeds from issuances of debt, $290.1 million of proceeds
from cash previously restricted, $65.7 million from redemption of short-term investments, and $17.1
million of cash received from stock option exercises, was primarily used to fund capital
expenditures of $137.0 million, acquisitions of $297.0
million, dividends of $170.3 million, debt repayments of $397.2 million and share purchases of
$517.2 million.
Net cash provided by operating activities was $795.3 million during 2007. This cash, plus an
additional $190.7 million of cash and cash equivalents, net debt proceeds of $251.3 million, and
$68.3 million of cash received from employee stock option exercise activity were primarily used to
fund capital expenditures of $115.5 million, acquisitions of $336.1 million, dividends of $154.3
million, share purchases of $343.9 million, and $93.7 million in investments. In addition, Cooper
used $290.1 million to fund a
29
binding offer for all outstanding shares of MTL Instruments Group
plc, a publicly-traded company based in the United Kingdom that is expected to close in the first
quarter of 2008.
Net cash provided by operating activities was $601.4 million during 2006. This cash, plus an
additional $29.3 million of cash and cash equivalents and $89.2 million of cash received from
employee stock option exercise activity were primarily used to fund capital expenditures of $85.3
million, acquisitions of $280.4 million, dividends of $137.0 million and share purchases of $264.2
million.
As discussed in Note 16 of the Notes to the Consolidated Financial Statements, on September
30, 2008, the Bankruptcy Court denied the Modified Plan A Settlement resulting in Cooper not
participating in the Federal-Mogul 524(g) trust. As a result, Cooper received in October 2008 the
$141 million payment, including interest, from the Federal-Mogul bankruptcy estate as provided in
the previously approved Plan B settlement. Cooper anticipates that the annual cash outlay for its
potential asbestos liability, net of insurance recoveries, will average in the range of $20 to $30
million, although amounts will vary as the amount of the actual annual net cash outlay is not
reasonably predictable.
Historically, Cooper has relied on the commercial paper markets to fund its operations.
Although recent distress in the financial markets has not had a significant impact on Cooper’s
financial position or liquidity as of the date of this filing in 2009, management continues to
monitor the financial markets and general global economic conditions. If further changes in
financial markets or other areas of the economy adversely affect Cooper’s access to the commercial
paper markets, Cooper would expect to rely on available cash to provide short-term funding.
Cooper’s financial position and liquidity remained strong through the end of 2008 as the
global economic slowdown continued to deepen. It is likely that most markets that Cooper services
will experience declines over the next twelve months. While the length and depth of the recession
are not predictable, Cooper is proactively adjusting our cost structure. In this regard, in the
fourth quarter of 2008, Cooper implemented contingency plans to reduce our cost structure and
recognized a restructuring charge of $35.7 million primarily related to reductions in our workforce
in excess of 2,200 employees. Cooper anticipates that the fourth quarter 2008 restructuring
activities related to reductions in the workforce, contract terminations, and other exit costs and
the related cash payments will be substantially completed in the first half of 2009. At December
31, 2008, Cooper had a $29.7 million accrual related to these activities. Cash flows from
operating activities for the year ended December 31, 2008 is reduced by the amounts expended on the
accruals established in connection with the restructuring actions. See Note 2 of the Notes to the
Consolidated Financial Statements for further information.
The deterioration in the securities markets in 2008 impacted the value of the assets included
in Cooper’s defined benefit pension plans (“Plans”). In December 2008, Cooper made voluntary cash
contributions of $60 million to the Plans. The decline in fair value of the Plans, as partially
offset by the cash contributions and the actuarial change in the benefit obligations has been
reflected in the accompanying consolidated financial statements as of and for the year ended
December 31, 2008 based on the provisions of SFAS No. 158. The decline in fair value of the Plans’
assets and other actuarial changes will result in an increase to total pension costs for 2009 of
approximately $18.5 million as
compared to total pension costs in 2008. During 2009, Cooper expects to pay in cash
approximately $7.4 million for payment of unfunded pension plan benefits and make approximately
$2.5 million in employer contributions to certain international funded defined benefit pension
plans. Cooper does not expect to have any minimum regulatory funding requirement for its domestic
funded defined benefit pension plans in 2009.
Cooper has $275 million of long-term debt that matures in November 2009. Cooper currently
anticipates that it will annually generate in excess of $500 million in cash flow available for
acquisitions, debt repayment, dividends and common stock repurchases in 2009.
30
Debt
At December 31, 2008 and 2007, Cooper had cash and cash equivalents of $258.8 million and
$232.8 million, respectively and short-term investments of $21.9 million and $93.7 million,
respectively. At December 31, 2008 and 2007, Cooper had short-term debt of $25.6 million and
$256.1 million, respectively, including commercial paper of $228.7 million at December 31, 2007.
Cooper had no commercial paper outstanding at December 31, 2008.
Cooper’s practice is to back up its short-term debt with a combination of cash, cash
equivalents, and committed credit facilities. At December 31, 2008 and 2007, Cooper had $522
million of committed credit facilities, $22 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 Cooper’s
debt ratings or a material adverse change clause. The principal financial covenants in the
agreements limit Cooper’s 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.
Cooper is currently negotiating to renew its $500 million committed credit facility that
matures in November 2009 and anticipates that it will have a new facility in place in the first
half of 2009. However, there can be no assurance that a new facility will be negotiated in that
time, or at all, and it is likely that the terms of a new facility will not be as attractive as in
the existing facility that expires in November 2009.
Cooper’s access to the commercial paper market could be adversely affected by a change in the
credit ratings assigned to its commercial paper. Should Cooper’s 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 that make their availability to Cooper
dependent on Cooper’s credit ratings.
The distress in the financial markets since September 2008 could result in the commercial
paper markets not being conducive to the issuance of commercial paper or, if issued, the commercial
paper may not be at reasonably attractive interest rates. See further discussion above under Cash
Flows.
On November 8, 2005, Cooper US, Inc., a subsidiary of Cooper, issued $325 million of 5.25%
senior unsecured notes that mature on November 15, 2012. Payment of the notes is guaranteed by
Cooper and certain of its subsidiaries. Proceeds of the notes were swapped with cross-currency
interest-rate swaps to €272.6 million, effectively converting the seven-year U.S. notes to
seven-year Euro notes with
an annual interest rate of 3.55%. The proceeds of €272.6 million partially funded
repayment of the 6.25% Euro bonds that matured in October 2005.
Cooper’s $300 million, 5.25% senior unsecured notes, which were issued in June 2002, matured
in July 2007. On June 18, 2007, Cooper’s wholly-owned subsidiary, Cooper US, Inc. issued $300
million of senior unsecured notes due in 2017. The fixed rate notes have an interest coupon of
6.10% and are guaranteed by Cooper and certain of its principal operating subsidiaries. Proceeds
from the financing were used to repay the maturing 5.25% notes. Combined with interest rate hedges
implemented in anticipation of the offering, the 6.10% notes will have an effective annual cost to
Cooper of 5.75 %.
On March 27, 2008, Cooper’s 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 commissions and interest rate hedges implemented in anticipation of the
offering, the notes have an effective annual cost to Cooper of 5.56%.
31
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
Cooper executes stand-by letters of credit, performance bonds and other guarantees in the
normal course of business that ensure Cooper’s performance or payments to third parties. The
aggregate notional value of these instruments was $107.9 million and $99.5 million at December 31,
2008 and 2007, respectively. Eighty percent of these instruments have an expiration date within
one year. In the past, no significant claims have been made against these financial instruments.
Management believes the likelihood of demand for payment under these instruments is minimal and
expects no material cash outlays to occur in connection with these instruments.
The following table summarizes Cooper’s contractual obligations at December 31, 2008 and the
effect such obligations are expected to have on its liquidity and cash flows in future periods.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Payments Due |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Four to |
|
|
After |
|
| |
|
|
|
|
|
Less than |
|
|
One to |
|
|
Five |
|
|
Five |
|
| |
|
Total |
|
|
One Year |
|
|
Three Years |
|
|
Years |
|
|
Years |
|
| Contractual Obligations: |
|
(in millions) |
|
Long-Term Debt |
|
$ |
1,207.5 |
|
|
$ |
275.0 |
|
|
$ |
2.3 |
|
|
$ |
324.3 |
|
|
$ |
605.9 |
|
Short-Term Debt |
|
|
25.6 |
|
|
|
25.6 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Interest Payments on |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Debt |
|
|
354.8 |
|
|
|
67.2 |
|
|
|
103.5 |
|
|
|
86.4 |
|
|
|
97.7 |
|
Noncancellable Operating Leases |
|
|
124.1 |
|
|
|
32.0 |
|
|
|
47.1 |
|
|
|
21.0 |
|
|
|
24.0 |
|
Purchase Obligations |
|
|
350.8 |
|
|
|
347.9 |
|
|
|
2.9 |
|
|
|
— |
|
|
|
— |
|
Other Long-Term Liabilities (1), (2) |
|
|
289.0 |
|
|
|
20.3 |
|
|
|
39.1 |
|
|
|
37.8 |
|
|
|
191.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,351.8 |
|
|
$ |
768.0 |
|
|
$ |
194.9 |
|
|
$ |
469.5 |
|
|
$ |
919.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
Includes unfunded other postretirement benefit obligations, unfunded defined benefit
pension plan liabilities, other postemployment benefit liabilities and environmental
liabilities. Also includes liabilities for underfunded U.S. and non-U.S. defined benefit
pension plans. |
| |
| (2) |
|
Due to uncertainty with respect to the timing of future cash flows associated with
Cooper’s unrecognized tax benefits at December 31, 2008, Cooper is unable to make reliable
estimates of the period of cash settlement with the respective taxing authorities. Therefore,
$34.5 million of unrecognized tax benefits have been excluded from the contractual obligations
table above. |
Capitalization
On February 12, 2008, Cooper’s Board of Directors authorized the purchase of up to ten million
shares of common stock. At December 31, 2008, 3,029,435 shares remained available to purchase
under the authorization. On February 9, 2009, Cooper’s Board of Directors increased the share
repurchase authorization by ten million shares. Cooper has also announced that the Board
authorized the repurchase of shares issued from time to time under its equity compensation plans,
matched savings plan and dividend reinvestment plan in order to offset the dilution that results
from issuing shares under these plans. Cooper may continue to repurchase shares under these
authorizations from time to time during 2009. The decision whether to do so will be dependent on
the favorability of market conditions, as well as potential cash requirements for acquisitions and
debt repayments.
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. At December 31, 2008,
2007 and 2006, Cooper’s debt-to-total capitalization ratio was 32.1%, 30.8% and 28.9%,
respectively.
32
On February 12, 2008, Cooper announced that the Board of Directors approved an increase in the
annual dividend rate of Cooper’s common stock by $.16 per share to $1.00 per share. On February
14, 2007, Cooper announced that the Board of Directors approved a two-for-one stock split of Cooper
common stock and increased the annual dividend rate of Cooper’s common stock by $.10 cents per
share to $.84 per share. The record date for the stock split was February 28, 2007 and the
distribution date was March 15, 2007. All share and per share information presented in this Form
10-K has been retroactively restated to reflect the effect of the stock split.
Capital Expenditures and Commitments
Capital expenditures on projects to reduce product costs, improve product quality, increase
manufacturing efficiency and operating flexibility, or expand production capacity were $137 million
in 2008, $116 million in 2007, and $85 million in 2006. Capital expenditures are projected to be
approximately $110 to $120 million in 2009. Projected expenditures for 2009 will focus on capacity
expansions in key markets, development of new products and cost reduction programs.
Recently Issued Accounting Standards
See Note 1 of the Notes to the Consolidated Financial Statements.
33
Interest Rate, Currency and Commodity Price Risk
Changes in interest rates, currency exchange rates and commodity prices affect Cooper’s
earnings and cash flows. As a result of having sales, purchases and certain intercompany
transactions denominated in currencies other than the functional currencies used by Cooper’s
businesses, Cooper is exposed to the effect of exchange rate changes on its cash flows and
earnings. Cooper enters into currency forward exchange contracts to hedge significant
non-functional currency denominated transactions for periods consistent with the terms of the
underlying transactions. Contracts generally have maturities that do not exceed one year.
The table below provides information about Cooper’s derivative financial instruments and other
financial instruments at December 31, 2008 that are sensitive to changes in interest rates. For
debt obligations, the table presents principal cash flows by expected maturity dates and weighted
average interest rates in effect during the periods presented.
| |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2009 |
|
2010 |
|
2011 |
|
2012 |
|
2013 |
|
Thereafter |
|
Total |
| |
|
($ in millions) |
Long-term debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Fixed-rate (U.S. Dollar) |
|
$ |
275.0 |
|
|
$ |
2.3 |
|
|
$ |
— |
|
|
$ |
325.0 |
|
|
$ |
— |
|
|
$ |
600.0 |
|
|
$ |
1,202.3 |
|
Average interest-rate |
|
|
5.6 |
% |
|
|
5.7 |
% |
|
|
5.7 |
% |
|
|
5.7 |
% |
|
|
5.8 |
% |
|
|
5.8 |
% |
|
|
5.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable-rate (U.S. Dollar) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
8.0 |
|
|
$ |
8.0 |
|
Average interest-rate |
|
|
3.9 |
% |
|
|
3.9 |
% |
|
|
3.9 |
% |
|
|
3.9 |
% |
|
|
3.9 |
% |
|
|
3.9 |
% |
|
|
3.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross-currency swaps: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed to fixed: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional amount (1) |
|
$ |
325.0 |
|
|
$ |
325.0 |
|
|
$ |
325.0 |
|
|
$ |
325.0 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
325.0 |
|
Average pay-rate |
|
|
3.5 |
% |
|
|
3.5 |
% |
|
|
3.5 |
% |
|
|
3.5 |
% |
|
|
— |
|
|
|
— |
|
|
|
3.5 |
% |
Average receive-rate |
|
|
5.2 |
% |
|
|
5.2 |
% |
|
|
5.2 |
% |
|
|
5.2 |
% |
|
|
— |
|
|
|
— |
|
|
|
5.2 |
% |
|
|
|
| (1) |
|
Cooper entered into cross-currency swaps to effectively convert $325 million of
5.25% senior unsecured debt due in November 2012 to Euro 272.6 million with an annual interest
rate of 3.55%. |
The table below provides information about Cooper’s derivative financial instruments and other
financial instruments at December 31, 2007 that are sensitive to changes in interest rates. For
debt obligations, the table presents principal cash flows by expected maturity dates and weighted
average interest rates.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2008 |
|
2009 |
|
2010 |
|
2011 |
|
2012 |
|
Thereafter |
|
Total |
| |
|
($ in millions) |
Long-term debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Fixed-rate (U.S. Dollar) |
|
$ |
100.1 |
|
|
$ |
275.2 |
|
|
$ |
2.3 |
|
|
$ |
— |
|
|
$ |
325.0 |
|
|
$ |
300.3 |
|
|
$ |
1,002.9 |
|
Average interest-rate |
|
|
5.7 |
% |
|
|
5.6 |
% |
|
|
5.7 |
% |
|
|
5.7 |
% |
|
|
5.7 |
% |
|
|
6.1 |
% |
|
|
5.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable-rate (U.S. Dollar) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
8.0 |
|
|
$ |
8.0 |
|
Average interest-rate |
|
|
5.6 |
% |
|
|
5.6 |
% |
|
|
5.6 |
% |
|
|
5.6 |
% |
|
|
5.6 |
% |
|
|
5.6 |
% |
|
|
5.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross-currency swaps: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed to fixed: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional amount (1) |
|
$ |
325.0 |
|
|
$ |
325.0 |
|
|
$ |
325.0 |
|
|
$ |
325.0 |
|
|
$ |
325.0 |
|
|
$ |
— |
|
|
$ |
325.0 |
|
Average pay-rate |
|
|
3.5 |
% |
|
|
3.5 |
% |
|
|
3.5 |
% |
|
|
3.5 |
% |
|
|
3.5 |
% |
|
|
— |
|
|
|
3.5 |
% |
Average receive-rate |
|
|
5.2 |
% |
|
|
5.2 |
% |
|
|
5.2 |
% |
|
|
5.2 |
% |
|
|
5.2 |
% |
|
|
— |
|
|
|
5.2 |
% |
|
|
|
| (1) |
|
Cooper entered into cross-currency swaps to effectively convert $325 million of
5.25% senior unsecured debt due in November 2012 to Euro 272.6 million with an annual interest
rate of 3.55%. |
34
The table below provides information about Cooper’s currency forward exchange contracts to
purchase currencies in excess of $10 million at December 31, 2008. The notional amount is used to
calculate the contractual payments exchanged under the contracts. The notional amount represents
the U.S. dollar equivalent.
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Mature in |
|
|
| |
|
Mature in 2009 |
|
2010 – 2011 |
|
Mature in 2012 |
| |
|
(in millions, where applicable) |
U.S. Dollar Functional Currency |
|
|
|
|
|
|
|
|
|
|
|
|
Buy U.S. Dollars / Sell Great Britain Pounds |
|
|
|
|
|
|
|
|
|
|
|
|
Notional amount |
|
$ |
111.5 |
|
|
$ |
48.4 |
|
|
$ |
328.8 |
|
Average contract rate |
|
|
1.648 |
|
|
|
1.921 |
|
|
|
1.909 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Dollar Functional Currency |
|
|
|
|
|
|
|
|
|
|
|
|
Buy Great Britain Pounds / Sell U.S. Dollars |
|
|
|
|
|
|
|
|
|
|
|
|
Notional amount |
|
$ |
11.9 |
|
|
$ |
23.5 |
|
|
$ |
159.0 |
|
Average contract rate |
|
|
1.894 |
|
|
|
1.864 |
|
|
|
1.847 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Dollar Functional Currency |
|
|
|
|
|
|
|
|
|
|
|
|
Buy Euro / Sell U.S. Dollars |
|
|
|
|
|
|
|
|
|
|
|
|
Notional amount |
|
$ |
148.9 |
|
|
|
— |
|
|
|
— |
|
Average contract rate |
|
|
1.286 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Euro Functional Currency |
|
|
|
|
|
|
|
|
|
|
|
|
Buy Euro / Sell Great Britain Pounds |
|
|
|
|
|
|
|
|
|
|
|
|
Notional amount |
|
$ |
49.8 |
|
|
|
— |
|
|
|
— |
|
Average contract rate |
|
|
1.209 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Dollar Functional Currency
|
|
|
|
|
|
|
|
|
|
|
|
|
Buy Mexican Pesos / Sell U.S. Dollars |
|
|
|
|
|
|
|
|
|
|
|
|
Notional amount |
|
$ |
44.7 |
|
|
|
— |
|
|
|
— |
|
Average contract rate |
|
|
.079 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Dollar Functional Currency |
|
|
|
|
|
|
|
|
|
|
|
|
Buy Singapore Dollars / Sell U.S. Dollars |
|
|
|
|
|
|
|
|
|
|
|
|
Notional amount |
|
$ |
22.5 |
|
|
|
— |
|
|
|
— |
|
Average contract rate |
|
|
.675 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Australian Dollar Functional Currency |
|
|
|
|
|
|
|
|
|
|
|
|
Buy Australian Dollars / Sell Great Britain Pounds |
|
|
|
|
|
|
|
|
|
|
|
|
Notional amount |
|
$ |
13.5 |
|
|
|
— |
|
|
|
— |
|
Average contract rate |
|
|
1.122 |
|
|
|
— |
|
|
|
— |
|
Changes in availability and fluctuations in commodity prices for raw materials such as steel,
copper, aluminum and zinc affect Cooper’s earnings and cash flows. Cooper primarily manages this
exposure through price changes; however, in periods of significant increases in commodity
prices, the price increases in certain businesses, on occasion, lag the increased costs. Cooper
also uses commodity swaps to reduce the volatility of price fluctuations on a portion of certain
forecasted material purchases for copper, aluminum and zinc for periods up to eighteen months. At
December 31, 2008, Cooper had commodity swaps with a notional amount of approximately $68 million,
90% of which mature in 2009. At December 31, 2007, Cooper had commodity swaps with a notional
amount of approximately $57 million, all of which matured in 2008.
35
The table below provides information about Cooper’s currency forward exchange contracts to
purchase currencies in excess of $10 million at December 31, 2007. The contracts related to
funding of the MTL tender offer were excluded due to the very short terms of those contracts. The
notional amount is used to calculate the contractual payments exchanged under the contracts. The
notional amount represents the U.S. dollar equivalent.
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Mature in |
|
Mature in |
| |
|
Mature in 2008 |
|
2009 – 2010 |
|
2011 – 2012 |
| |
|
(in millions, where applicable) |
U.S. Dollar Functional Currency |
|
|
|
|
|
|
|
|
|
|
|
|
Buy U.S. Dollars / Sell Great Britain Pounds |
|
|
|
|
|
|
|
|
|
|
|
|
Notional amount |
|
$ |
13.3 |
|
|
$ |
25.1 |
|
|
$ |
182.2 |
|
Average contract rate |
|
|
2.021 |
|
|
|
1.990 |
|
|
|
1.972 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canadian Dollar Functional Currency |
|
|
|
|
|
|
|
|
|
|
|
|
Buy U.S. Dollars / Sell Canadian Dollars |
|
|
|
|
|
|
|
|
|
|
|
|
Notional amount |
|
$ |
91.5 |
|
|
|
— |
|
|
|
— |
|
Average contract rate |
|
|
1.030 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Dollar Functional Currency |
|
|
|
|
|
|
|
|
|
|
|
|
Buy Euro / Sell U.S. Dollars |
|
|
|
|
|
|
|
|
|
|
|
|
Notional amount |
|
$ |
88.8 |
|
|
|
— |
|
|
|
— |
|
Average contract rate |
|
|
1.440 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Dollar Functional Currency |
|
|
|
|
|
|
|
|
|
|
|
|
Buy Mexican Pesos / Sell U.S. Dollars |
|
|
|
|
|
|
|
|
|
|
|
|
Notional amount |
|
$ |
26.5 |
|
|
|
— |
|
|
|
— |
|
Average contract rate |
|
|
.0884 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Euro Functional Currency |
|
|
|
|
|
|
|
|
|
|
|
|
Buy Euro / Sell U.S. Dollars |
|
|
|
|
|
|
|
|
|
|
|
|
Notional amount |
|
$ |
18.5 |
|
|
|
— |
|
|
|
— |
|
Average contract rate |
|
|
1.467 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Dollar Functional Currency |
|
|
|
|
|
|
|
|
|
|
|
|
Buy U.S. Dollars / Sell Euro |
|
|
|
|
|
|
|
|
|
|
|
|
Notional amount |
|
$ |
10.7 |
|
|
|
— |
|
|
|
— |
|
Average contract rate |
|
|
1.408 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Great Britain Pound Functional Currency |
|
|
|
|
|
|
|
|
|
|
|
|
Buy Great Britain Pounds / Sell U.S. Dollars |
|
|
|
|
|
|
|
|
|
|
|
|
Notional amount |
|
$ |
14.5 |
|
|
|
— |
|
|
|
— |
|
Average contract rate |
|
|
2.007 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Dollar Functional Currency |
|
|
|
|
|
|
|
|
|
|
|
|
Buy Great Britain Pounds / Sell U.S. Dollars |
|
|
|
|
|
|
|
|
|
|
|
|
Notional amount |
|
$ |
10.6 |
|
|
|
— |
|
|
|
— |
|
Average contract rate |
|
|
1.998 |
|
|
|
— |
|
|
|
— |
|
See Note 17 of the Notes to the Consolidated Financial Statements for additional information
regarding the fair value of Cooper’s financial instruments.
36
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this Item is included under “Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations.”
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Cooper’s consolidated financial statements, together with the report thereon of Ernst & Young
LLP and the supplementary financial data are set forth on pages F-1 through F-49 hereof. (See Item
15 for Index.)
|
|
|
| ITEM 9. |
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE |
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
The Company’s management, with the participation of the Company’s Chairman and Chief Executive
Officer and Senior Vice President and Chief Financial Officer, has evaluated the effectiveness of
the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on
such evaluation, the Company’s Chairman and Chief Executive Officer and Senior Vice President and
Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure
controls and procedures are effective, at the reasonable assurance level, in recording, processing,
summarizing and reporting, on a timely basis, information required to be disclosed by the Company
in the reports that it files or submits under the Exchange Act and are effective, at the reasonable
assurance level, in ensuring that information required to be disclosed by the Company in the
reports that it files or submits under the Exchange Act is accumulated and communicated to the
Company’s management, including the Company’s Chairman and Chief Executive Officer and Senior Vice
President and Chief Financial Officer, as appropriate to allow timely decisions regarding required
disclosure.
ITEM 9B. OTHER INFORMATION
Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item is set forth under the captions “Election of Directors”,
“Executive Officers”, “Section 16(a) Beneficial Ownership Reporting Compliance”, and “Corporate
Governance” in Cooper’s Proxy Statement to be filed pursuant to Regulation 14A under the Securities
Exchange Act of 1934 in connection with Cooper’s 2009 Annual Meeting of Shareholders (the “Proxy
Statement”) and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is set forth under the caption “Executive Management
Compensation” and “Directors’ Compensation” in the Proxy Statement and, except as specified in the
following sentence, is incorporated herein by reference.
Information in Coopers’ Proxy Statement not deemed to be “soliciting material” or “filed” with
the Commission under its rules, including the Compensation Committee Report, is not deemed to be
incorporated by reference.
37
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The information required by this Item is set forth under the captions “Cooper Stock Ownership
of Certain Beneficial Owners”, “Securities Ownership of Officers and Directors” and “Equity
Compensation Plan Information” in the Proxy Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is set forth under the caption “Transactions with
Related Persons” and “Corporate Governance-Director Independence” in the Proxy Statement and is
incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item is set forth under the caption “Relationship with
Independent Auditors” in the Proxy Statement and is incorporated herein by reference.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) 1. Financial Statements and Other Financial Data.
| |
|
|
| |
|
Page |
|
|
F-1 |
|
|
F-2 |
|
|
F-3 |
|
|
F-4 |
|
|
F-5 |
|
|
F-6 |
|
|
F-7 |
|
|
F-8 |
Financial information with respect to subsidiaries not consolidated and 50 percent or less
owned entities accounted for by the equity method has not been included because in the aggregate
such subsidiaries and investments do not constitute a significant subsidiary.
2. Financial Statement Schedules
Financial statement schedules are not included in this Form 10-K Annual Report because they
are not applicable or the required information is shown in the financial statements or notes
thereto.
38
3. Exhibits
| |
2.0 |
|
Agreement and Plan of Merger among Cooper Industries, Inc., Cooper
Mergerco, Inc. and Cooper Industries, Ltd. (incorporated by reference to Annex I to
Cooper’s Registration Statement on Form S-4, Registration No. 333-62740). |
| |
| |
3.1 |
|
Memorandum of Association of Cooper Industries, Ltd. (incorporated by
reference to Annex II to Cooper’s Registration Statement on Form S-4, Registration
No. 333-62740). |
| |
| |
3.2 |
|
Amended and Restated Bye-Laws of Cooper Industries, Ltd. (incorporated by
reference to Annex III to Cooper’s Registration Statement on Form S-4, Registration
No. 333-62740). |
| |
| |
3.3 |
|
Amendment to Bye-Laws of Cooper Industries, Ltd. (incorporated by
reference to Appendix A to Cooper’s Definitive Proxy Statement on Schedule 14A filed
March 14, 2007). |
| |
| |
4.1 |
|
Amended and Restated Rights Agreement dated as of August 3, 2007
between Cooper Industries, Ltd. and Computershare Trust Company, N.A., as Rights
Agent (incorporated by reference to Exhibit 4.1 to Cooper’s Amendment No. 1 to
Registration Statement on Form 8-A, Registration No. 001-31330). |
| |
| |
4.2 |
|
Amended and Restated Voting Agreement between Cooper Industries, Ltd.,
Cooper Industries, Inc. and Cooper Bermuda Investments Ltd. (incorporated by
reference to Exhibit 4 to Cooper’s Form 10-Q for the quarter ended March 31, 2004). |
| |
| |
4.3 |
|
Indenture dated as of January 15, 1990, between Cooper Industries, Inc.
and The Chase Manhattan Bank (National Association), as Trustee (incorporated by
reference to Exhibit 4(a) to Cooper’s Registration Statement on Form S-3,
Registration No. 33-33011). |
| |
| |
4.4 |
|
First Supplemental Indenture dated as of May 15, 2002 between Cooper
Industries, Inc. and JPMorgan Chase Bank, N.A., as successor Trustee to The Chase
Manhattan Bank (National Association) (incorporated by reference to Exhibit 4.3 to
Cooper’s Form 10-Q for the quarter ended June 30, 2002). |
| |
| |
4.5 |
|
Second Supplemental Indenture dated as of June 21, 2002 among Cooper
Industries, Inc., Cooper Industries, Ltd. and JPMorgan Chase Bank, N.A., as Trustee
(incorporated by reference to Exhibit 4.4 to Cooper’s Form 10-Q for the quarter
ended June 30, 2002). |
| |
| |
4.6 |
|
Third Supplemental Indenture dated as of October 28, 2002 among Cooper
Industries, Inc., Cooper Industries, Ltd. and JPMorgan Chase Bank, N.A., as Trustee
(incorporated by reference to Exhibit 4.1 to Cooper’s Form 10-Q for the quarter
ended September 30, 2002). |
| |
| |
4.7 |
|
Fourth Supplemental Indenture dated as of January 1, 2005 among Cooper
Industries, LLC, Cooper Industries, Ltd. and JPMorgan Chase Bank, N.A., as Trustee
(incorporated by reference to Exhibit 4 to Cooper’s Form 10-Q for the quarter ended
March 31, 2005). |
| |
| |
4.8 |
|
Indenture dated as of November 8, 2005 among Cooper US, Inc., Cooper
Industries, Ltd., Subsidiary Guarantors and JPMorgan Chase Bank, N.A., as Trustee
(incorporated by reference to Exhibit 4.1 to Cooper’s Form 8-K filed November 9,
2005). |
| |
| |
4.9 |
|
Registration Rights Agreement dated November 8, 2005 among Cooper US,
Inc., Cooper Industries, Ltd., Subsidiary Guarantors, and Banc of America
Securities LLC and Citigroup Global Markets, Inc. as representatives of several
initial purchasers of |
39
| |
|
|
$325 million aggregate principal amount of debt securities
(incorporated by reference to Exhibit 4.2 to Cooper’s Form 8-K filed November 9,
2005). |
| |
| |
4.10 |
|
Form of Indenture among Cooper US, Inc., Cooper Industries, Ltd. and
Deutsche Bank Trust Company Americas, as Trustee (incorporated by reference to
Exhibit 4.1 to Cooper’s Form 8-K dated June 13, 2007). |
| |
| |
4.11 |
|
Form of First Supplemental Indenture among Cooper US, Inc., Cooper
Industries, Ltd., the Subsidiary Guarantors named therein and Deutsche Bank Trust
Company Americas, as Trustee (incorporated by reference to Exhibit 4.2 to Cooper’s
Form 8-K dated June 13, 2007). |
| |
| |
4.12 |
|
Form of Second Supplemental Indenture among Cooper US, Inc. Cooper
Industries, Ltd., the Subsidiary Guarantors named therein and Deutsche Bank Trust
Company Americas, as Trustee (incorporated by reference to Exhibit 4.1 to Cooper’s
Form 8-K dated March 24, 2008). |
| |
| |
10.1 |
|
Cooper Industries, Ltd. Directors Deferred Compensation Plan (as Amended
and Restated as of November 4, 2008). |
| |
| |
10.2 |
|
Cooper Industries, Inc. Directors Retirement Plan (incorporated by
reference to Exhibit 10.3 to Cooper’s Form 10-K for the year ended December 31,
1997). |
| |
| |
10.3 |
|
Cooper Industries, Inc. Supplemental Excess Defined Benefit Plan (August 1,
1998 Restatement) (incorporated by reference to Exhibit 10(iii) to Cooper’s Form 10-Q
for the quarter ended September 30, 1998). |
| |
| |
10.4 |
|
First Amendment to Cooper Industries, Inc. Supplemental Excess Defined
Benefit Plan (August 1, 1998 Restatement) (incorporated by reference to Exhibit 10.6
to Cooper’s Form 10-K for the year ended December 31, 2003). |
| |
| |
10.5 |
|
Cooper Industries, Inc. Supplemental Excess Defined Contribution Plan
(August 1, 1998 Restatement) (incorporated by reference to Exhibit 10(iv) to Cooper’s
Form 10-Q for the quarter ended September 30, 1998). |
| |
| |
10.6 |
|
First, Second and Third Amendments to Cooper Industries, Inc. Supplemental
Excess Defined Contribution Plan (August 1, 1998 Restatement) (incorporated by
reference to Exhibit 10.8 to Cooper’s Form 10-K for the year ended December 31,
2003). |
| |
| |
10.7 |
|
Cooper US, Inc. Supplemental Executive Retirement Plan. |
| |
| |
10.8 |
|
Cooper US, Inc. Base Salary Deferral Plan. |
| |
| |
10.9 |
|
Cooper Industries Amended and Restated Management Annual Incentive Plan (as
Amended and Restated for Non-Deferral Terms as of February 13, 2006) (as Amended and
Restated in connection with Section 409A effective January 1, 2005). |
| |
| |
10.10 |
|
Management Incentive Compensation Deferral Plan (incorporated by reference
to Exhibit 10.7 to Cooper’s Form 10-K for the year ended December 31, 1997). |
| |
| |
10.11 |
|
Third and Fourth Amendments to Management Incentive Compensation Deferral
Plan (incorporated by reference to Exhibit 10.10 to Cooper’s Form 10-K for the year
ended December 31, 2003).
|
40
| |
10.12 |
|
Management Incentive Compensation Deferral Plan Post–2004 Part (Effective
January 1, 2005). |
| |
| |
10.13 |
|
Cooper Industries Amended and Restated Stock Incentive Plan (as Amended
and Restated for Non-Deferral Terms as of February 12, 2008) (as Amended and Restated
in connection with Section 409A as of January 1, 2005). |
| |
| |
10.14 |
|
Form of Incentive Stock Option Agreement for Cooper Industries, Inc. Stock
Incentive Plan (incorporated by reference to Exhibit 10.14 to Cooper’s Form 10-K for
the year ended December 31, 2003). |
| |
| |
10.15 |
|
Form of Nonqualified Stock Option Agreement for Cooper Industries, Inc.
Stock Incentive Plan (incorporated by reference to Exhibit 10.15 to Cooper’s Form
10-K for the year ended December 31, 2003). |
| |
| |
10.16 |
|
Form of Cooper US, Inc. Executive Stock Incentive Agreement for the
performance period January 1, 2006 to December 31, 2008 (incorporated by reference to
Exhibit 10.1 to Cooper’s Form 10-Q for the period ended March 31, 2006). |
| |
| |
10.17 |
|
Form of Cooper US, Inc. Executive Stock Incentive Agreement for the
performance period January 1, 2007 to December 31, 2009 (incorporated by reference to
Exhibit 10.1 to Cooper’s Form 10-Q for the period ended March 31, 2007). |
| |
| |
10.18 |
|
Form of Cooper US, Inc. Executive Stock Incentive Agreement for the
performance period January 1, 2008 to December 31, 2010 (incorporated by reference to
Exhibit 10.1 to Cooper’s Form 10-Q for the period ended March 31, 2008). |
| |
| |
10.19 |
|
Form of Cooper US Restricted Stock Agreement. |
| |
| |
10.20 |
|
Amended and Restated Cooper Industries, Ltd. Directors’ Stock Plan (as
Amended and Restated as of November 4, 2008) (Amendments in connection with Section
409A of the Code effective January 1, 2005). |
| |
| |
10.21 |
|
Form of Directors’ Nonqualified Stock Option Agreement for Directors’
Stock Plan (incorporated herein by reference to Exhibit 10.18 to Cooper’s Form 10-K
for the year ended December 31, 1997). |
| |
| |
10.22 |
|
Cooper Industries, Ltd. Amended and Restated Directors’ Retainer Fee Stock
Plan (as Amended and Restated as of November 4, 2008) (Amendments in connection with
Section 409A of the Code effective January 1, 2005). |
| |
| |
10.23 |
|
Form of Management Continuity Agreement between Cooper Industries, Ltd.
and key management personnel (as amended pursuant to Section 409A of the Code). |
| |
| |
10.24 |
|
Form of Indemnification Agreement between Cooper Industries, Ltd. and key
management personnel (incorporated by reference to Exhibit 10.23 to Cooper’s Form
10-K for the year ended December 31, 2003). |
| |
| |
10.25 |
|
Purchase and Sale Agreement between Cooper Industries, Inc. and
Federal-Mogul Corporation dated August 17, 1998 (incorporated herein by reference to
Exhibit 10(i) of Cooper’s Form 10-Q for the quarter ended September 30, 1998). |
| |
| |
10.26 |
|
Term Sheet Pneumo Abex Settlement Plan A and Plan B dated as of July 6,
2006 among Cooper Industries, Ltd.; Cooper Industries, LLC; Federal-Mogul |
41
| |
|
|
Corporation; Federal-Mogul Products, Inc.; the Future Claimants’ Representative for
Federal-Mogul Corporation and Federal-Mogul Products, Inc.; the Official Committee of
Asbestos Claimants for Federal-Mogul Corporation and Federal-Mogul Products, Inc.;
Pneumo Abex LLC; and PCT International Holdings, Inc. (incorporated by reference to
Exhibit 99.1 to Cooper’s Form 8-K dated July 20, 2006). |
| |
| |
10.27 |
|
Plan B Settlement Agreement dated as of September 18, 2006 among Cooper
Industries, Ltd.; Cooper Industries, LLC; Federal-Mogul Corporation; Federal-Mogul
Products, Inc.; the Future Claimants’ Representative for Federal-Mogul Corporation
and Federal-Mogul Products, Inc.; the Official Committee of Asbestos Claimants for
Federal-Mogul Corporation and Federal-Mogul Products, Inc.; Pneumo Abex LLC; and PCT
International Holdings, Inc. (incorporated by reference to Exhibit 10.28 to Cooper’s
Form 10-K for the year ended December 31, 2006). |
| |
| |
10.28 |
|
Cooper (UK 2002) Employee Share Purchase Plan (incorporated by reference
to Exhibit 10.25 to Cooper’s Form 10-K for the year ended December 31, 2003). |
| |
| |
10.29 |
|
Five-Year Credit Agreement dated November 3, 2004 among Cooper Industries,
Ltd., Cooper US, Inc. and the banks named therein (incorporated by reference to
Exhibit 10.25 of Cooper’s Form 10-K for the year ended December 31, 2004). |
| |
| |
10.30 |
|
Form of Executive Employment Agreement for employees who receive stock
option and performance share awards (incorporated by reference to Exhibit 10.1 to
Cooper’s Form 8-K dated March 17, 2006). |
| |
| |
12.0 |
|
Computation of Ratios of Earnings to Fixed Charges for the Calendar years
2004 through 2008. |
| |
| |
21.0 |
|
List of Cooper Industries, Ltd. Subsidiaries. |
| |
| |
23.0 |
|
Consent of Ernst & Young LLP. |
| |
| |
24.0 |
|
Powers of Attorney from members of the Board of Directors of Cooper Industries, Ltd. |
| |
| |
31.1 |
|
Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
| |
| |
31.2 |
|
Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
| |
| |
32.1 |
|
Certification of Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
| |
| |
32.2 |
|
Certification of Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
Cooper will furnish to the Commission supplementally upon request a copy of any instrument
with respect to long-term debt of Cooper.
Copies of the above Exhibits are available to shareholders of record at a charge of $.25 per
page, minimum order of $10.00. Direct requests to:
Cooper Industries, Ltd.
Attn: Corporate Secretary
P.O. Box 4446
Houston, Texas 77210
42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
| |
|
|
|
|
| |
COOPER INDUSTRIES, LTD.
|
|
| Date: February 20, 2009 |
By: |
/s/ Kirk S. Hachigian
|
|
| |
|
Kirk S. Hachigian, Chairman, President |
|
| |
|
and Chief Executive Officer |
|
| |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the
dates indicated.
| |
|
|
|
|
| Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/ Kirk S. Hachigian
|
|
Chairman, President and
|
|
February 20, 2009 |
|
|
Chief Executive Officer |
|
|
|
|
|
|
|
/s/ Terry A. Klebe
|
|
Senior Vice President and
|
|
February 20, 2009 |
|
|
Chief Financial Officer |
|
|
|
|
|
|
|
/s/ Rick L. Johnson
|
|
Vice President, Controller
|
|
February 20, 2009 |
|
|
and Chief Accounting Officer |
|
|
|
|
|
|
|
*STEPHEN G. BUTLER
|
|
Director
|
|
February 20, 2009 |
|
|
|
|
|
|
|
|
|
|
*ROBERT M. DEVLIN
|
|
Director
|
|
February 20, 2009 |
|
|
|
|
|
| |
*IVOR J. EVANS
|
|
Director
|
|
February 20, 2009 |
|
|
|
|
|
|
|
|
|
|
*LINDA A. HILL
|
|
Director
|
|
February 20, 2009 |
|
|
|
|
|
|
|
|
|
|
*LAWRENCE D. KINGSLEY
|
|
Director
|
|
February 20, 2009 |
|
|
|
|
|
|
|
|
|
|
*JAMES J. POSTL
|
|
Director
|
|
February 20, 2009 |
|
|
|
|
|
|
|
|
|
|
*DAN F. SMITH
|
|
Director
|
|
February 20, 2009 |
|
|
|
|
|
|
|
|
|
|
*GERALD B. SMITH
|
|
Director
|
|
February 20, 2009 |
|
|
|
|
|
|
|
|
|
|
*MARK S. THOMPSON
|
|
Director
|
|
February 20, 2009 |
|
|
|
|
|
|
|
|
|
|
*JAMES R. WILSON
|
|
Director
|
|
February 20, 2009 |
|
|
|
|
|
| |
|
|
|
|
* By:
|
|
/s/ Bruce M. Taten
Bruce M. Taten, as Attorney-In-Fact
|
|
|
|
|
for each of the persons indicated |
|
|
43
REPORT OF MANAGEMENT ON
INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over
financial reporting. Our internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted accounting
principles. Our internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and that receipts and expenditures of
the Company are being made only in accordance with authorizations of management and directors of
the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the Company’s assets that could have a material
effect on the financial statements.
Internal control over financial reporting cannot provide absolute assurance of achieving
financial reporting objectives because of its inherent limitations. Internal control over
financial reporting is a process that involves human diligence and compliance and is subject to
lapses in judgment and breakdowns resulting from human failures. Internal control over financial
reporting also can be circumvented by collusion or improper management override. Because of such
limitations, there is a risk that material misstatements may not be prevented or detected on a
timely basis by internal control over financial reporting. However, these inherent limitations are
known features of the financial reporting process. Therefore, it is possible to design into the
process safeguards to reduce, though not eliminate, this risk.
Management conducted an evaluation of the effectiveness of the Company’s internal control over
financial reporting based on the framework in Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation,
management concluded that the Company’s internal control over financial reporting was effective as
of December 31, 2008.
Cooper’s independent registered public accounting firm has issued an audit report on Cooper’s
internal control over financial reporting. This report appears on Page F-2.
| |
|
|
|
|
Kirk S. Hachigian
|
|
Terry A. Klebe
|
|
Rick L. Johnson |
Chairman, President and
|
|
Senior Vice President and
|
|
Vice President, Controller |
Chief Executive Officer
|
|
Chief Financial Officer
|
|
and Chief Accounting Officer |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of Cooper Industries, Ltd.
We have audited Cooper Industries, Ltd.’s internal control over financial reporting as of December
31, 2008, based on criteria established in Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Cooper
Industries, Ltd.’s management is responsible for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal control over financial
reporting included in the accompanying Report of Management on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the company’s internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
company’s internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Cooper Industries, Ltd. maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2008 based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Cooper Industries, Ltd. as of December
31, 2008 and 2007 and the related consolidated statements of income, shareholders’ equity, and cash
flows for each of the three years in the period ended December 31, 2008, and our report dated
February 20, 2009 expressed an unqualified opinion thereon.
ERNST & YOUNG LLP
Houston, Texas
February 20, 2009
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of Cooper Industries, Ltd.
We have audited the accompanying consolidated balance sheets of Cooper Industries, Ltd. (“the
Company”), as of December 31, 2008 and 2007, and the related consolidated statements of income,
shareholders’ equity, and cash flows for each of the three years in the period ended December 31,
2008. These financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of the Company at December 31, 2008 and 2007, and the
consolidated results of its operations and its cash flows for each of the three years in the period
ended December 31, 2008, in conformity with U.S. generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company adopted FASB
Interpretation No. 48 on January 1, 2007 and Statement of Financial Accounting Standards No. 158 on
December 31, 2006.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Company’s internal control over financial reporting as of
December 31, 2008, based on criteria established in Internal Control – Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated
February 20, 2009 expressed an unqualified opinion thereon.
ERNST & YOUNG LLP
Houston, Texas
February 20, 2009
F-3
COOPER INDUSTRIES, LTD.
CONSOLIDATED INCOME STATEMENTS
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
| |
|
(in millions, except per share data) |
|
Revenues |
|
$ |
6,521.3 |
|
|
$ |
5,903.1 |
|
|
$ |
5,184.6 |
|
Cost of sales |
|
|
4,396.7 |
|
|
|
3,970.0 |
|
|
|
3,521.5 |
|
Selling and administrative expenses |
|
|
1,194.6 |
|
|
|
1,089.0 |
|
|
|
969.0 |
|
Restructuring and asset impairment charges |
|
|
52.4 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Operating earnings |
|
|
877.6 |
|
|
|
844.1 |
|
|
|
694.1 |
|
|
|
|
|
|
|
|
|
|
|
Income from Belden agreement |
|
|
— |
|
|
|
33.1 |
|
|
|
5.1 |
|
Interest expense, net |
|
|
70.4 |
|
|
|
51.0 |
|
|
|
51.5 |
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes |
|
|
807.2 |
|
|
|
826.2 |
|
|
|
647.7 |
|
Income taxes |
|
|
191.6 |
|
|
|
133.9 |
|
|
|
163.4 |
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
615.6 |
|
|
|
692.3 |
|
|
|
484.3 |
|
Income (charge) related to discontinued operations,
net of income taxes |
|
|
16.6 |
|
|
|
— |
|
|
|
(20.3 |
) |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
632.2 |
|
|
$ |
692.3 |
|
|
$ |
464.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per Common share |
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
3.54 |
|
|
$ |
3.80 |
|
|
$ |
2.64 |
|
Income (charge) from discontinued operations |
|
|
.10 |
|
|
|
— |
|
|
|
(.11 |
) |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
3.64 |
|
|
$ |
3.80 |
|
|
$ |
2.53 |
|
|
|
|
|
|
|
|
|
|
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
3.51 |
|
|
$ |
3.73 |
|
|
$ |
2.58 |
|
Income (charge) from discontinued operations |
|
|
.09 |
|
|
|
— |
|
|
|
(.11 |
) |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
3.60 |
|
|
$ |
3.73 |
|
|
$ |
2.47 |
|
|
|
|
|
|
|
|
|
|
|
| |
Cash dividends declared per Common share |
|
$ |
1.00 |
|
|
$ |
.84 |
|
|
$ |
.74 |
|
|
|
|
|
|
|
|
|
|
|
The Notes to Consolidated Financial Statements are an integral part of these statements.
F-4
COOPER INDUSTRIES, LTD.
CONSOLIDATED BALANCE SHEETS
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2008 |
|
|
2007 |
|
| |
|
(in millions) |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
258.8 |
|
|
$ |
232.8 |
|
Investments |
|
|
21.9 |
|
|
|
93.7 |
|
Receivables |
|
|
1,011.4 |
|
|
|
1,048.6 |
|
Inventories |
|
|
641.8 |
|
|
|
643.7 |
|
Current discontinued operations receivable |
|
|
17.5 |
|
|
|
— |
|
Deferred income taxes and other current assets |
|
|
246.5 |
|
|
|
284.2 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
2,197.9 |
|
|
|
2,303.0 |
|
|
|
|
|
|
|
|
Restricted cash |
|
|
— |
|
|
|
290.1 |
|
Property, plant and equipment, less accumulated depreciation |
|
|
728.2 |
|
|
|
719.8 |
|
Goodwill |
|
|
2,567.3 |
|
|
|
2,540.3 |
|
Long-term discontinued operations receivable |
|
|
174.8 |
|
|
|
— |
|
Deferred income taxes and other noncurrent assets |
|
|
496.7 |
|
|
|
280.3 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
6,164.9 |
|
|
$ |
6,133.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt |
|
$ |
25.6 |
|
|
$ |
256.1 |
|
Accounts payable |
|
|
492.5 |
|
|
|
533.1 |
|
Accrued liabilities |
|
|
618.7 |
|
|
|
566.7 |
|
Current discontinued operations liability |
|
|
50.4 |
|
|
|
179.1 |
|
Current maturities of long-term debt |
|
|
275.0 |
|
|
|
100.1 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
1,462.2 |
|
|
|
1,635.1 |
|
|
|
|
|
|
|
|
Long-term debt |
|
|
932.5 |
|
|
|
909.9 |
|
Postretirement benefits other than pensions |
|
|
71.2 |
|
|
|
81.4 |
|
Long-term discontinued operations liability |
|
|
764.7 |
|
|
|
330.0 |
|
Deferred income taxes and other long-term liabilities |
|
|
326.9 |
|
|
|
335.2 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
3,557.5 |
|
|
|
3,291.6 |
|
|
|
|
|
|
|
|
Common stock, $.01 par value |
|
|
1.7 |
|
|
|
1.8 |
|
Capital in excess of par value |
|
|
— |
|
|
|
85.7 |
|
Retained earnings |
|
|
2,935.4 |
|
|
|
2,835.1 |
|
Accumulated other nonowner changes in equity |
|
|
(329.7 |
) |
|
|
(80.7 |
) |
|
|
|
|
|
|
|
Total shareholders’ equity |
|
|
2,607.4 |
|
|
|
2,841.9 |
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity |
|
$ |
6,164.9 |
|
|
$ |
6,133.5 |
|
|
|
|
|
|
|
|
The Notes to Consolidated Financial Statements are an integral part of these statements.
F-5
COOPER INDUSTRIES, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
| |
|
(in millions) |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
632.2 |
|
|
$ |
692.3 |
|
|
$ |
464.0 |
|
Adjust: (income) charge related to discontinued operations |
|
|
(16.6 |
) |
|
|
— |
|
|
|
20.3 |
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
615.6 |
|
|
|
692.3 |
|
|
|
484.3 |
|
Adjustments to reconcile to net cash provided by
operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
143.1 |
|
|
|
118.2 |
|
|
|
111.7 |
|
Deferred income taxes |
|
|
26.0 |
|
|
|
12.4 |
|
|
|
15.4 |
|
Excess tax benefits from stock options and awards |
|
|
(10.2 |
) |
|
|
(25.8 |
) |
|
|
(26.8 |
) |
Restructuring and asset impairment charges |
|
|
52.4 |
|
|
|
— |
|
|
|
— |
|
Changes in assets and liabilities: (1) |
|
|
|
|
|
|
|
|
|
|
|
|
Receivables |
|
|
22.7 |
|
|
|
(66.1 |
) |
|
|
(16.1 |
) |
Inventories |
|
|
16.6 |
|
|
|
27.3 |
|
|
|
(43.3 |
) |
Accounts payable and accrued liabilities |
|
|
(80.4 |
) |
|
|
56.9 |
|
|
|
29.7 |
|
Discontinued operations assets and liabilities, net |
|
|
139.7 |
|
|
|
(20.5 |
) |
|
|
(28.4 |
) |
Other assets and liabilities, net |
|
|
(29.1 |
) |
|
|
0.6 |
|
|
|
74.9 |
|
|
|
|
|
|
|
|
|
|
|
| |
Net cash provided by operating activities |
|
|
896.4 |
|
|
|
795.3 |
|
|
|
601.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments |
|
|
65.7 |
|
|
|
(93.7 |
) |
|
|
— |
|
Cash restricted for business acquisition |
|
|
290.1 |
|
|
|
(290.1 |
) |
|
|
— |
|
Capital expenditures |
|
|
(137.0 |
) |
|
|
(115.5 |
) |
|
|
(85.3 |
) |
Cash paid for acquired businesses |
|
|
(297.0 |
) |
|
|
(336.1 |
) |
|
|
(280.4 |
) |
Proceeds from sales of property, plant and equipment and other |
|
|
1.8 |
|
|
|
1.8 |
|
|
|
18.9 |
|
|
|
|
|
|
|
|
|
|
|
| |
Net cash used in investing activities |
|
|
(76.4 |
) |
|
|
(833.6 |
) |
|
|
(346.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuances of debt |
|
|
297.6 |
|
|
|
547.3 |
|
|
|
— |
|
Debt issuance costs |
|
|
(0.6 |
) |
|
|
(2.7 |
) |
|
|
— |
|
Proceeds from debt derivatives |
|
|
0.5 |
|
|
|
10.0 |
|
|
|
— |
|
Repayments of debt |
|
|
(397.2 |
) |
|
|
(303.3 |
) |
|
|
(14.8 |
) |
Dividends |
|
|
(170.3 |
) |
|
|
(154.3 |
) |
|
|
(137.0 |
) |
Purchases of common shares |
|
|
(517.2 |
) |
|
|
(343.9 |
) |
|
|
(264.2 |
) |
Excess tax benefits from stock options and awards |
|
|
10.2 |
|
|
|
25.8 |
|
|
|
26.8 |
|
Proceeds from exercise of stock options and other |
|
|
17.1 |
|
|
|
68.3 |
|
|
|
89.2 |
|
|
|
|
|
|
|
|
|
|
|
| |
Net cash used in financing activities |
|
|
(759.9 |
) |
|
|
(152.8 |
) |
|
|
(300.0 |
) |
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
(34.1 |
) |
|
|
0.4 |
|
|
|
16.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
|
26.0 |
|
|
|
(190.7 |
) |
|
|
(29.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of year |
|
|
232.8 |
|
|
|
423.5 |
|
|
|
452.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year |
|
$ |
258.8 |
|
|
$ |
232.8 |
|
|
$ |
423.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
Net of the effects of acquisitions and translation. |
The Notes to Consolidated Financial Statements are an integral part of these statements.
F-6
COOPER INDUSTRIES, LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
| |
|
|
|
|
|
Capital |
|
|
|
|
|
|
Other |
|
|
|
|
| |
|
|
|
|
|
In Excess |
|
|
|
|
|
|
Nonowner |
|
|
|
|
| |
|
Common |
|
|
of Par |
|
|
Retained |
|
|
Changes in |
|
|
|
|
| |
|
Stock |
|
|
Value |
|
|
Earnings |
|
|
Equity |
|
|
Total |
|
| |
|
|
|
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
Balance December 31, 2005 |
|
$ |
0.9 |
|
|
$ |
383.2 |
|
|
$ |
1,997.4 |
|
|
$ |
(176.3 |
) |
|
$ |
2,205.2 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
464.0 |
|
|
|
|
|
|
|
464.0 |
|
Translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53.8 |
|
|
|
53.8 |
|
Change in fair value of derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.3 |
|
|
|
2.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income and other nonowner
changes in equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
520.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to initially apply SFAS No. 158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8.2 |
) |
|
|
(8.2 |
) |
Common stock dividends |
|
|
|
|
|
|
|
|
|
|
(137.0 |
) |
|
|
|
|
|
|
(137.0 |
) |
Stock-based compensation |
|
|
|
|
|
|
27.5 |
|
|
|
|
|
|
|
|
|
|
|
27.5 |
|
Purchase of common shares |
|
|
|
|
|
|
(264.2 |
) |
|
|
|
|
|
|
|
|
|
|
(264.2 |
) |
Stock issued under employee stock plans |
|
|
|
|
|
|
130.3 |
|
|
|
|
|
|
|
|
|
|
|
130.3 |
|
Other activity |
|
|
|
|
|
|
1.6 |
|
|
|
|
|
|
|
|
|
|
|
1.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2006 |
|
|
0.9 |
|
|
|
278.4 |
|
|
|
2,324.4 |
|
|
|
(128.4 |
) |
|
|
2,475.3 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
692.3 |
|
|
|
|
|
|
|
692.3 |
|
Adjustment to initially apply FIN No. 48 |
|
|
|
|
|
|
|
|
|
|
(27.2 |
) |
|
|
|
|
|
|
(27.2 |
) |
Translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20.3 |
|
|
|
20.3 |
|
Change in fair value of derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17.7 |
|
|
|
17.7 |
|
Pension and postretirement benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.7 |
|
|
|
9.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income and other nonowner
changes in equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
712.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock dividends |
|
|
|
|
|
|
|
|
|
|
(154.4 |
) |
|
|
|
|
|
|
(154.4 |
) |
Stock-based compensation |
|
|
|
|
|
|
38.8 |
|
|
|
|
|
|
|
|
|
|
|
38.8 |
|
Purchase of common shares |
|
|
|
|
|
|
(343.9 |
) |
|
|
|
|
|
|
|
|
|
|
(343.9 |
) |
Stock issued under employee stock plans |
|
|
|
|
|
|
111.5 |
|
|
|
|
|
|
|
|
|
|
|
111.5 |
|
Stock split |
|
|
0.9 |
|
|
|
(0.9 |
) |
|
|
|
|
|
|
|
|
|
|
— |
|
Other activity |
|
|
|
|
|
|
1.8 |
|
|
|
|
|
|
|
|
|
|
|
1.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2007 |
|
|
1.8 |
|
|
|
85.7 |
|
|
|
2,835.1 |
|
|
|
(80.7 |
) |
|
|
2,841.9 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
632.2 |
|
|
|
|
|
|
|
632.2 |
|
Pension and post retirement benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(88.6 |
) |
|
|
(88.6 |
) |
Translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(136.0 |
) |
|
|
(136.0 |
) |
Change in fair value of derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24.4 |
) |
|
|
(24.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income and other nonowner
changes in equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
383.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock dividends |
|
|
|
|
|
|
|
|
|
|
(174.7 |
) |
|
|
|
|
|
|
(174.7 |
) |
Stock-based compensation |
|
|
|
|
|
|
22.7 |
|
|
|
|
|
|
|
|
|
|
|
22.7 |
|
Purchase of common shares |
|
|
(0.1 |
) |
|
|
(159.9 |
) |
|
|
(357.2 |
) |
|
|
|
|
|
|
(517.2 |
) |
Stock issued under employee stock plans |
|
|
|
|
|
|
49.6 |
|
|
|
|
|
|
|
|
|
|
|
49.6 |
|
Other activity |
|
|
|
|
|
|
1.9 |
|
|
|
|
|
|
|
|
|
|
|
1.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2008 |
|
$ |
1.7 |
|
|
$ |
— |
|
|
$ |
2,935.4 |
|
|
$ |
(329.7 |
) |
|
$ |
2,607.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Notes to Consolidated Financial Statements are an integral part of these statements.
F-7
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The consolidated financial statements of Cooper Industries, Ltd., a Bermuda
company (“Cooper”), have been prepared in accordance with generally accepted accounting principles
in the United States.
Principles of Consolidation: The consolidated financial statements include the accounts of Cooper
and its majority-owned subsidiaries. Affiliated companies are accounted for on the equity method
where Cooper owns 20% to 50% of the affiliate unless significant economic, political or contractual
considerations indicate that the cost method is appropriate. As of December 31, 2008, Cooper has
one insignificant investment accounted for under the equity method.
Use of Estimates: The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Equivalents: For purposes of the consolidated statements of cash flows, Cooper considers all
investments purchased with original maturities of three months or less to be cash equivalents.
Restricted Cash: For purposes of the consolidated balance sheets and statements of cash flows,
Cooper recorded cash held at December 31, 2007 in an account for the irrevocable tender offer to
purchase all outstanding shares of MTL Instruments Group plc, a publicly-traded company based in
the United Kingdom, as restricted cash until consummation of the transaction in 2008.
Accounts Receivable: Cooper provides an allowance for doubtful trade accounts receivable,
determined under the specific identification method. The allowance was $12.7 million and $11.6
million at December 31, 2008 and 2007, respectively.
Inventories: Inventories are carried at cost or, if lower, net realizable value. On the basis of
current costs, 51% and 53% of inventories at December 31, 2008 and 2007, respectively, were carried
on the last-in, first-out (LIFO) method. The remaining inventories are carried on the first-in,
first-out (FIFO) method. Cooper records provisions for potential obsolete and excess inventories.
See Note 4 of the Notes to the Consolidated Financial Statements.
Property, Plant and Equipment: Property, plant and equipment are stated at cost. Depreciation is
provided over the estimated useful lives of the related assets using primarily the straight-line
method. This method is applied to group asset accounts, which in general have the following lives:
buildings — 10 to 40 years; machinery and equipment — 3 to 18 years; and tooling, dies, patterns
and other — 3 to 10 years.
Goodwill: Under Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible
Assets (“SFAS No. 142”), goodwill is subject to an annual impairment test. Cooper designated
January 1 as the date of its annual goodwill impairment test. If an event occurs or circumstances
change that would more likely than not reduce the fair value of a reporting unit below its carrying
value, an interim impairment test would be performed between annual tests. The first step of the
SFAS No. 142 two-step goodwill impairment test compares the fair value of a reporting unit with its
carrying value. If the carrying amount of a reporting unit exceeds its fair value, the second step
of the goodwill impairment test shall be performed. Fair value is determined primarily by
estimating the present value of future cash flows. The second step compares the implied fair value
of reporting unit goodwill to the carrying amount of the goodwill to measure the amount of
impairment loss. Cooper has designated eight reporting units, consisting of seven units in the
Electrical
F-8
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Products reportable operating segment plus the Tools reportable operating segment. See
Note 6 of the Notes to the Consolidated Financial Statements.
Revenue Recognition: Cooper recognizes revenues when products are shipped. Accruals for sales
returns and other allowances are provided at the time of shipment based upon experience. The
accrual for sales returns and other allowances was $89.8 million and $95.1 million at December 31,
2008 and 2007, respectively. Shipping and handling costs of $181.9 million, $174.3 million and
$172.7 million in 2008, 2007 and 2006, respectively, are reported as a reduction of revenues in the
consolidated income statements.
Research and Development Expenditures: Research and development expenditures are charged to
earnings as incurred. Research and development expenses were $141.8 million, $105.7 million and
$83.5 million in 2008, 2007 and 2006, respectively.
Income Taxes: Cooper uses the asset and liability method of accounting for income taxes. Under
this method, deferred tax assets or liabilities are determined based upon differences between the
book basis of assets and liabilities and their respective tax basis as measured by the enacted tax
rates that Cooper expects will be in effect when these differences reverse. In addition to
estimating the future applicable tax rates, Cooper must also make certain assumptions regarding
whether tax differences are permanent or temporary and whether taxable operating income in future
periods will be sufficient to fully recognize any gross deferred tax assets. Cooper has
established valuation allowances when it is more likely than not that some portion or all of the
deferred tax assets will not be realized.
Foreign Currency Translation: Financial statements for international subsidiaries are translated
into U.S. dollars using the exchange rate at each balance sheet date for assets and liabilities and
the exchange rates in effect during the respective period for revenues, expenses, gains and losses.
Where the local currency is the functional currency, translation adjustments are recorded in
accumulated other nonowner changes in equity. Where the U.S. dollar is the functional currency,
translation adjustments are recorded in income.
Impact of New Accounting Standards: In June 2006, the Financial Accounting Standards Board
(“FASB”) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (the
“Interpretation”). This Interpretation clarifies the accounting for uncertainty in income taxes
recognized in accordance with FASB Statement No. 109, Accounting for Income Taxes. This
Interpretation prescribes a more-likely-than not recognition threshold that a tax position will be
sustained upon examination and a measurement attribute for the financial statement recognition of a
tax position taken or expected to be taken in a tax return. This Interpretation also provides
guidance on derecognition, classification, interest and penalties, accounting in interim periods,
disclosure and transition. Cooper adopted the provisions of the Interpretation on January 1, 2007.
As a result of the implementation of the Interpretation, Cooper recognized a $27.2 million
increase in the liability for unrecognized tax benefits, which was accounted for as a reduction of
the January 1, 2007 beginning retained earnings balance.
In September 2006, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 provides
enhanced guidance for using fair value to measure assets and liabilities. SFAS No. 157 clarifies
the principle that fair value should be based on the assumptions market participants would use when
pricing 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. Cooper believes that the implementation of these deferred
provisions will not have a material impact on its results of operations, financial position or cash
flows. The implementation of SFAS No. 157 as of January 1, 2008 for assets and liabilities not
subject to the deferral
F-9
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
described above did not have a material impact on Cooper’s results of
operations, financial position or cash flows. See Note 17 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
Cooper’s results of operations, financial position or cash flows as Cooper did not elect to measure
any eligible items at fair value that were 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 Cooper. This Statement, together with the
International Accounting Standards Board’s (“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.
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
interests in a subsidiary and their effect on Cooper. This Statement, together with the IASB’s 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 January 1, 2009. Cooper believes that the implementation of this Statement will
not have a material impact 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 entity’s financial position, results of operations, and cash flows. For
Cooper, SFAS No. 161 is effective January 1, 2009. Cooper believes that the implementation of this
Statement will not have a material impact on the disclosures to its consolidated financial
statements.
Reclassification
Certain amounts in the Consolidated Statements of Cash Flows for the years ended
December 31, 2007 and 2006 have been reclassified to conform to the 2008 presentation.
F-10
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2: RESTRUCTURING AND ASSET IMPAIRMENT
In the second quarter of 2008, Cooper recorded a $7.6 million restructuring charge for
severance costs for downsizing a Tools segment international facility. This facility downsizing
and related cash payments were substantially completed in 2008.
During the fourth quarter of 2008, Cooper committed to additional employment reductions to
appropriately size Cooper’s workforce to current and anticipated market conditions and downsize a
domestic Tools segment manufacturing operation. These actions were taken as a part of Cooper
management’s ongoing assessment of its hourly and salary workforce and its required production
capacity in consideration of current and anticipated market conditions and demand levels. Cooper
recorded a $35.7 million charge in
the fourth quarter of 2008 related to these actions, $25.5 million of which relates to the
Electrical Products segment and $10.2 million relates to the Tools segment.
The following table reflects activity related to the fourth quarter 2008 restructuring charge.
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Contract |
|
| |
|
Involuntary Employee |
|
|
Termination |
|
| |
|
Termination Benefits |
|
|
and Other |
|
| |
|
|
Headcount |
|
|
Dollars |
|
Exit Costs |
|
| |
|
|
|
|
|
|
($ in millions) |
2008 fourth quarter restructuring actions |
|
|
2,244 |
|
|
$ |
33.7 |
|
|
$ |
2.0 |
|
Headcount reductions or costs incurred |
|
|
(1,358 |
) |
|
|
(5.7 |
) |
|
|
(0.3 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 |
|
|
886 |
|
|
$ |
28.0 |
|
|
$ |
1.7 |
|
|
|
|
|
|
|
|
|
|
|
A total of 1,314 hourly and 930 salaried positions are being eliminated as a result of the
fourth quarter 2008 restructuring actions to reduce Cooper’s workforce. The workforce reductions,
contract termination and other exit costs and the related cash payments will be substantially
completed in the first half of 2009.
In the fourth quarter of 2008, Cooper also recorded a non-cash impairment charge of $9.1
million related to an investment in a previously unconsolidated international joint venture in the
Electrical Products segment. In December 2008, Cooper acquired a majority interest in the
international joint venture and consolidated the joint venture’s net assets of $4.6 million in the
accompanying December 31, 2008 balance sheet. See Note 3 of the Notes to the Consolidated
Financial Statements.
NOTE 3: ACQUISITIONS AND DIVESTITURES
Cooper completed numerous acquisitions during 2008 and 2007. These acquisitions were selected
because of their strategic fit with existing Cooper businesses or were new strategic lines that
were complementary to Cooper’s operations. Cooper makes an initial allocation of the purchase
price as of the date of acquisition, based on its understanding of the fair value of the assets and
liabilities acquired. In the months after the closing of the transaction, Cooper obtains
additional information about the assets and liabilities acquired in order to finalize the purchase
price allocation.
Cooper completed four acquisitions during 2008. Approximately two-thirds of the revenues of
these businesses are generated outside of the United States.
F-11
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 $325 million. The MTL acquisition resulted in the recognition of a preliminary
estimate of goodwill of $194.4 million, primarily related to the future earnings and cash flow
potential from MTL’s worldwide customer base. The MTL acquisition is included in the Electrical
Products segment.
Cooper acquired three additional companies during 2008 for total consideration of $28.6
million. The majority of the operations of these acquired businesses are related to the Electrical
Products segment. In addition, Cooper acquired an additional 20% interest in a previously
unconsolidated 50% owned international joint venture for total consideration of $0.5 million in
December 2008. As a result, Cooper now consolidates the assets and liabilities of the venture in
its consolidated balance sheet.
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
2008:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
MTL |
|
|
Other |
|
|
Total |
|
| |
|
|
|
|
|
(in millions) |
|
|
|
|
|
Receivables |
|
$ |
45.2 |
|
|
$ |
7.2 |
|
|
$ |
52.4 |
|
Inventories |
|
|
32.2 |
|
|
|
25.1 |
|
|
|
57.3 |
|
Property, plant and equipment |
|
|
41.1 |
|
|
|
9.0 |
|
|
|
50.1 |
|
Goodwill |
|
|
194.4 |
|
|
|
20.6 |
|
|
|
215.0 |
|
Other intangible assets |
|
|
86.9 |
|
|
|
8.7 |
|
|
|
95.6 |
|
Accounts payable |
|
|
(14.4 |
) |
|
|
(24.5 |
) |
|
|
(38.9 |
) |
Short-term debt |
|
|
(56.6 |
) |
|
|
(11.1 |
) |
|
|
(67.7 |
) |
Other assets and liabilities, net |
|
|
(71.0 |
) |
|
|
(5.9 |
) |
|
|
(76.9 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash consideration |
|
$ |
257.8 |
|
|
$ |
29.1 |
|
|
$ |
286.9 |
|
|
|
|
|
|
|
|
|
|
|
Approximately $4 million of the $215.0 million of goodwill is expected to be deductible for
tax purposes.
The transactions consummated during 2008 resulted in the preliminary recognition of $95.6
million in other intangible assets consisting primarily of customer relationships, technology and
trademarks. All of the other intangibles are finite-lived intangible assets that are preliminarily
expected to be amortized over periods of 10 to 25 years with a weighted average amortization period
of approximately 20 years.
During 2007, Cooper completed thirteen acquisitions. Six of the acquisitions, representing
approximately 28% of the cash consideration, were outside of the United States. All of the
acquired businesses are included in the Electrical Products segment.
Total cash consideration was $346.2 million for the 2007 acquisitions, net of cash acquired,
including acquisition costs. Of the total consideration paid for the 2007 acquisitions, $10.1
million was paid during 2008. The acquisitions resulted in the recognition of aggregate goodwill
of $168.6 million.
F-12
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table summarizes the aggregate estimated fair values of the assets acquired and
the liabilities assumed at the date of acquisition for the acquisitions consummated during the year
ended December 31, 2007 (in millions):
| |
|
|
|
|
Receivables |
|
$ |
55.6 |
|
Inventories |
|
|
45.2 |
|
Property, plant and equipment |
|
|
41.7 |
|
Goodwill |
|
|
168.6 |
|
Other intangible assets |
|
|
152.4 |
|
Accounts payable |
|
|
(36.5 |
) |
Other assets and liabilities, net |
|
|
(80.8 |
) |
|
|
|
|
Net cash consideration |
|
$ |
346.2 |
|
|
|
|
|
Approximately $59 million of the $168.6 million of goodwill is expected to be deductible for
tax purposes.
The transactions consummated during 2007 resulted in the recognition of $152.4 million in
other intangible assets consisting primarily of customer relationships, technology and trademarks.
Approximately $31.0 million were indefinite-lived intangible assets related to trademarks and the
remainder is related to finite-lived intangible assets that will be amortized over periods of 1 to
30 years with a weighted average amortization period of approximately 17 years.
The results of operations of the acquisitions are included in the consolidated income
statement since the respective acquisition dates. The unaudited pro-forma data for the years set
forth below gives effect to the above noted acquisitions as if they had occurred at the beginning
of the year. This data is presented for informational purposes only and is not necessarily
indicative of the results of operations that would have been achieved had the acquisitions been
consummated as of that time (unaudited, in millions except per share amounts):
| |
|
|
|
|
|
|
|
|
| |
|
2008 |
|
2007 |
Revenues |
|
$ |
6,550.4 |
|
|
$ |
6,280.8 |
|
Income from continuing operations |
|
$ |
615.8 |
|
|
$ |
688.0 |
|
Net income |
|
$ |
632.4 |
|
|
$ |
688.0 |
|
Diluted earnings per share from continuing operations |
|
$ |
3.51 |
|
|
$ |
3.71 |
|
Diluted earnings per share |
|
$ |
3.60 |
|
|
$ |
3.71 |
|
NOTE 4: INVENTORIES
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2008 |
|
|
2007 |
|
| |
|
(in millions) |
|
Raw materials |
|
$ |
239.3 |
|
|
$ |
221.5 |
|
Work-in-process |
|
|
163.2 |
|
|
|
178.8 |
|
Finished goods |
|
|
405.0 |
|
|
|
396.2 |
|
Perishable tooling and supplies |
|
|
13.9 |
|
|
|
15.0 |
|
|
|
|
|
|
|
|
|
|
|
821.4 |
|
|
|
811.5 |
|
Allowance for excess and obsolete inventory |
|
|
(77.0 |
) |
|
|
(77.9 |
) |
Excess of current standard costs over LIFO costs |
|
|
(102.6 |
) |
|
|
(89.9 |
) |
|
|
|
|
|
|
|
Net inventories |
|
$ |
641.8 |
|
|
$ |
643.7 |
|
|
|
|
|
|
|
|
F-13
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 5: PROPERTY, PLANT AND EQUIPMENT
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2008 |
|
|
2007 |
|
| |
|
(in millions) |
|
Land and land improvements |
|
$ |
71.6 |
|
|
$ |
83.7 |
|
Buildings |
|
|
545.9 |
|
|
|
506.5 |
|
Machinery and equipment |
|
|
920.7 |
|
|
|
898.6 |
|
Tooling, dies and patterns |
|
|
299.3 |
|
|
|
293.1 |
|
All other |
|
|
447.8 |
|
|
|
427.0 |
|
Construction in progress |
|
|
59.8 |
|
|
|
59.3 |
|
|
|
|
|
|
|
|
|
|
|
2,345.1 |
|
|
|
2,268.2 |
|
Accumulated depreciation |
|
|
(1,616.9 |
) |
|
|
(1,548.4 |
) |
|
|
|
|
|
|
|
|
|
$ |
728.2 |
|
|
$ |
719.8 |
|
|
|
|
|
|
|
|
NOTE 6: GOODWILL AND OTHER INTANGIBLE ASSETS
Changes in the carrying amount of goodwill by segment, were as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Electrical
Products |
|
|
Tools |
|
|
Total |
|
| |
|
(in millions) |
|
Balance December 31, 2006 |
|
$ |
2,033.3 |
|
|
$ |
303.6 |
|
|
$ |
2,336.9 |
|
Additions to goodwill |
|
|
181.0 |
|
|
|
— |
|
|
|
181.0 |
|
Translation adjustments |
|
|
18.8 |
|
|
|
3.6 |
|
|
|
22.4 |
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2007 |
|
|
2,233.1 |
|
|
|
307.2 |
|
|
|
2,540.3 |
|
Additions to goodwill |
|
|
203.0 |
|
|
|
0.4 |
|
|
|
203.4 |
|
Translation adjustments |
|
|
(170.2 |
) |
|
|
(6.2 |
) |
|
|
(176.4 |
) |
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2008 |
|
$ |
2,265.9 |
|
|
$ |
301.4 |
|
|
$ |
2,567.3 |
|
|
|
|
|
|
|
|
|
|
|
Under SFAS No. 142, goodwill is subject to an annual impairment test. See Note 1 of the Notes
to the Consolidated Financial Statements. The results of step one of the goodwill impairment tests
did not require the completion of step two of the test for any reporting unit in 2008.
Other intangible assets primarily consist of customer relationships, technology and
trademarks. The gross carrying value of other intangible assets was $325.6 million and $217.0
million at December 31, 2008 and 2007, respectively. Accumulated amortization of other intangible
assets was $41.9 million and $24.7 million at December 31, 2008 and 2007, respectively. Certain
trademarks with a gross carrying value of approximately $57 million at December 31, 2008 are
considered indefinite-lived intangibles and not subject to amortization. Other intangible assets
are amortized over their estimated useful lives of periods from 1 to 30 years. Amortization
expense of other intangible assets was $17.1 million in 2008, $9.1 million in 2007, and $4.1
million in 2006. Annual amortization expense, exclusive of businesses that may be acquired in
2009, is expected to be $17.2 million in 2009, $15.0 million in 2010, $15.0 million in 2011, $15.0
million in 2012 and $14.9 million in 2013.
F-14
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 7: ACCRUED LIABILITIES
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2008 |
|
|
2007 |
|
| |
|
(in millions) |
|
Salaries, wages and employee benefit plans |
|
$ |
226.3 |
|
|
$ |
234.8 |
|
Commissions and customer incentives |
|
|
141.3 |
|
|
|
154.2 |
|
Product and environmental liability accruals |
|
|
37.6 |
|
|
|
37.4 |
|
Restructuring liability accruals |
|
|
29.7 |
|
|
|
— |
|
Other (individual items less than 5% of total current liabilities) |
|
|
183.8 |
|
|
|
140.3 |
|
|
|
|
|
|
|
|
|
|
$ |
618.7 |
|
|
$ |
566.7 |
|
|
|
|
|
|
|
|
At December 31, 2008, Cooper had accruals of $21.4 million with respect to potential product
liability claims and $29.4 million with respect to potential environmental liabilities, including
$13.2 million classified as a long-term liability, based on Cooper’s current estimate of the most
likely amount of losses that it believes will be incurred.
The product liability accrual consists of $7.6 million of known claims with respect to ongoing
operations, $1.6 million of known claims for previously divested operations and $12.2 million,
which represents an estimate of claims that have been incurred but not yet reported. While Cooper
is generally self-insured with respect to product liability claims, Cooper has insurance coverage
for individual 2008 claims above $5.0 million.
Environmental remediation costs are accrued based on estimates of known environmental
remediation exposures. Such accruals are adjusted as information develops or circumstances change.
The environmental liability accrual includes $3.9 million related to sites owned by Cooper and
$25.5 million for retained environmental liabilities related to sites previously owned by Cooper
and third-party sites where Cooper was a potentially responsible party. Third-party sites usually
involve multiple contributors where Cooper’s liability will be determined based on an estimate of
Cooper’s proportionate responsibility for the total cleanup. The amount actually accrued for such
sites is based on these estimates as well as an assessment of the financial capacity of the other
potentially responsible parties.
It has been Cooper’s consistent practice to include the entire product liability accrual and a
significant portion of the environmental liability accrual as current liabilities, although only
approximately 15-25% of the balance classified as current is normally spent on an annual basis.
The annual effect on earnings for product liability is essentially equal to the amounts disbursed.
In the case of the environmental liability, the annual expense is considerably smaller than the
disbursements, since the vast majority of Cooper’s environmental liability has been recorded in
connection with acquired companies. The change in the accrual balances from year to year reflects
the effect of acquisitions and divestitures as well as normal expensing and funding.
Cooper has not utilized any form of discounting in establishing its product or environmental
liability accruals. While both product liability and environmental liability accruals involve
estimates that can have wide ranges of potential liability, Cooper has taken a proactive approach
and has managed the costs in both of these areas over the years. Cooper does not believe that the
nature of its products, its production processes, or the materials or other factors involved in the
manufacturing process subject Cooper to unusual risks or exposures for product or environmental
liability. Cooper’s greatest exposure to inaccuracy in its estimates is with respect to the
constantly changing definitions of what constitutes an environmental liability or an acceptable
level of cleanup.
F-15
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Cooper and its subsidiaries are defendants or otherwise involved in a number of lawsuits in
the ordinary course of business. We estimate the range of our liability related to pending
litigation when we believe the amount and range of loss can be estimated. We record our best
estimate of a loss when the loss is considered probable. When a liability is probable and there is
a range of estimated loss with no best estimate in the range, we record the minimum estimated
liability related to the lawsuits or claims. As additional information becomes available, we
assess the potential liability related to our pending litigation and claims and revise our
estimates. Due to uncertainties related to the resolution of lawsuits and claims, the ultimate
outcome may differ from our estimates. In the opinion of management and based on liability
accruals provided, our ultimate exposure with respect to these pending lawsuits and claims is not
expected to have a material adverse effect on our consolidated financial position or cash flows,
although they could have a material adverse effect on our results of operations for a particular
reporting period.
The U.S. Federal Government has enacted legislation intended to deny certain federal funding
and government contracts to U.S. companies that reincorporate outside the United States, including
Section 745 of the Consolidated Appropriations Act, 2008 (Public Law 110-161), Section 724(c) of
the Transportation, Treasury, Housing and Urban Development, the Judiciary, and Independent
Agencies Appropriations Act, 2006 (Public Law 109-115), and 6 U.S.C. 395(b) of The Homeland
Security Act. The Company has self-reported to the Department of Defense certain transactions
aggregating approximately $8 million with U.S. government entities which may be subject to the
legislation. At the time of this filing, it is too early to determine whether any fines or
penalties may be assessed against the Company.
NOTE 8: DEBT AND LEASE COMMITMENTS
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2008 |
|
|
2007 |
|
| |
|
(in millions) |
|
5.50% senior unsecured notes, due November 2009 |
|
$ |
275.0 |
|
|
$ |
275.0 |
|
5.25% senior unsecured notes, due November 2012 |
|
|
325.0 |
|
|
|
325.0 |
|
5.45% senior unsecured notes, due April 2015 |
|
|
300.0 |
|
|
|
— |
|
6.10% senior unsecured notes, due July 2017 |
|
|
300.0 |
|
|
|
300.0 |
|
6.91% second series medium-term notes, due through 2010 |
|
|
2.3 |
|
|
|
2.3 |
|
6.38% third series medium-term notes, due through 2008 |
|
|
— |
|
|
|
100.0 |
|
Other |
|
|
5.2 |
|
|
|
7.7 |
|
|
|
|
|
|
|
|
Total long-term debt |
|
|
1,207.5 |
|
|
|
1,010.0 |
|
Current maturities |
|
|
(275.0 |
) |
|
|
(100.1 |
) |
|
|
|
|
|
|
|
Long-term portion |
|
$ |
932.5 |
|
|
$ |
909.9 |
|
|
|
|
|
|
|
|
Cooper has a U.S. committed credit facility of $500 million, which matures in November 2009.
At December 31, 2007, commercial paper borrowings of $228.7 million reduced the amount of
availability provided by the committed credit facility with no commercial paper borrowings
outstanding at December 31, 2008. Cooper also has a $22 million committed credit facility that
matures in March 2009. The agreements for the credit facilities require that Cooper maintain
certain financial ratios, including a prescribed limit on debt as a percentage of total
capitalization and minimum earnings before interest, income taxes, depreciation and amortization to
interest ratio. Retained earnings are unrestricted as to the payment of dividends, except to the
extent that payment would cause a violation of the prescribed limit on the debt-to-total
capitalization ratio.
On March 27, 2008, Cooper’s 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
F-16
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
commissions and interest rate hedges implemented in anticipation of the offering, the notes
have an effective annual cost to Cooper of 5.56%.
Cooper’s $300 million, 5.25% senior unsecured notes, which were issued in June 2002, matured
in July 2007. Interest-rate swaps that effectively converted this fixed-rate debt to variable-rate
debt also matured at that time (see Note 17). On June 18, 2007, Cooper’s wholly-owned subsidiary,
Cooper US, Inc. issued $300 million of senior unsecured notes due in 2017. The fixed rate notes
have an interest coupon of 6.10% and are guaranteed by Cooper and certain of its principal
operating subsidiaries. Proceeds from the financing were used to repay the maturing 5.25% notes.
Combined with interest rate hedges implemented in anticipation of the offering, the 6.10% notes
will have an effective annual cost to Cooper of 5.75%.
On November 8, 2005, Cooper US, Inc., a subsidiary of Cooper, issued $325 million of 5.25%
senior unsecured notes that mature on November 15, 2012. Payment of the notes is guaranteed by
Cooper and certain of its subsidiaries. Proceeds of the notes were swapped to €272.6 million with
cross-currency interest-rate swaps, effectively converting the seven-year U.S. notes to seven-year
Euro notes with an annual interest rate of 3.55% (see Note 17). The proceeds of €272.6 million
partially funded repayment of the 6.25% Euro bonds that matured in October 2005.
Maturities of long-term debt for the five years subsequent to December 31, 2008 are $275.0
million in 2009, $2.3 million in 2010, insignificant in 2011, $324.3 million in 2012, none in 2013
and $605.9 million thereafter. The future net minimum lease payments under capital leases are not
significant.
Total interest paid during 2008, 2007 and 2006 was $70.8 million, $58.1 million and $57
million, respectively.
Cooper has entered into various operating lease agreements, primarily for manufacturing,
warehouse and sales office facilities and equipment. Generally, the leases include renewal
provisions and rental payments may be adjusted for increases in taxes, insurance and maintenance
related to the property. Rent expense for all operating leases was $42.2 million, $36.4 million
and $33.3 million during 2008, 2007 and 2006, respectively.
At December 31, 2008, minimum annual rental commitments under noncancellable operating leases
that have an initial or remaining lease term in excess of one year were $32.0 million in 2009,
$28.3 million in 2010, $18.8 million in 2011, $12.3 million in 2012, $8.7 million in 2013 and $24.0
million thereafter.
NOTE 9: COMMON AND PREFERRED STOCK
On February 14, 2007, Cooper announced that the Board of Directors approved a two-for-one
stock split of Cooper common stock. The record date for the stock split was February 28, 2007 and
the distribution date was March 15, 2007. All share and per share information presented in this
Form 10-K has been retroactively restated to reflect the effect of the stock split.
Cooper’s authorized share capital is $7,600,000 consisting of 500,000,000 Class A common
shares, par value of $.01 per share, 250,000,000 Class B common shares, par value $.01 per share
and 10,000,000 preferred shares, par value $.01 per share, which preferred shares may be designated
and created as shares of any other classes or series of shares with the respective rights and
restrictions determined by action of the Board of Directors. No preferred shares were outstanding
at December 31, 2008, 2007 or 2006.
At December 31, 2008, 166,908,287 Class A common shares, $.01 par value were issued and
outstanding (excluding the 37,362,915 Class A common shares held by wholly-owned subsidiaries as
discussed below) compared to 179,453,923 Class A common shares, $.01 par value (excluding the
27,195,002 Class A common shares held by wholly-owned subsidiaries) at December 31, 2007. During
F-17
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2008, Cooper issued 1,864,076 Class A common shares primarily in connection with employee incentive
and benefit plans and Cooper’s dividend reinvestment program. During 2008, Cooper and its
wholly-owned
subsidiaries purchased 14,409,712 Class A common shares for $517.2 million under Cooper’s
share repurchase plan. The share purchases are recorded by Cooper’s wholly-owned subsidiaries as
an investment in its parent company that is eliminated in consolidation. During 2008, 598,482
Class A common shares held by wholly-owned subsidiaries were issued in connection with employee
incentive and benefit plans, leaving 37,362,915 Class A common shares held by wholly-owned
subsidiaries at December 31, 2008.
On February 12, 2008, Cooper’s Board of Directors authorized the purchase of ten million
shares of common stock. As of December 31, 2008, 3,029,435 shares remain available to be
repurchased under the authorization by the Board of Directors. On February 9, 2009, Cooper’s Board
of Directors increased the share repurchase authorization by ten million shares. Cooper may
continue to repurchase shares under these authorizations from time to time during 2009. The
decision whether to do so will be dependent on the favorability of market conditions, as well as
potential cash requirements for acquisitions and debt repayments.
At December 31, 2007, 179,453,923 Class A common shares, $.01 par value were issued and
outstanding (excluding the 27,195,002 Class A common shares held by wholly-owned subsidiaries as
discussed below) compared to 182,282,042 Class A common shares, $.01 par value (excluding the
25,876,802 Class A common shares held by wholly-owned subsidiaries) at December 31, 2006. During
2007, Cooper issued 4,055,234 Class A common shares primarily in connection with employee incentive
and benefit plans and Cooper’s dividend reinvestment program. During 2007, Cooper’s wholly-owned
subsidiaries purchased 6,883,353 Class A common shares for $343.9 million under Cooper’s share
repurchase plan. The share purchases are recorded by Cooper’s wholly-owned subsidiaries as an
investment in its parent company that is eliminated in consolidation.
At December 31, 2006, 182,282,042 Class A common shares, $.01 par value were issued and
outstanding (excluding the 25,876,802 Class A common shares held by wholly-owned subsidiaries as
discussed below) compared to 183,113,138 Class A common shares, $.01 par value (excluding the
19,700,202 Class A common shares held by wholly-owned subsidiaries) at December 31, 2005. During
2006, Cooper issued 5,345,504 Class A common shares primarily in connection with employee incentive
and benefit plans and Cooper’s dividend reinvestment program. During 2006, Cooper’s wholly-owned
subsidiaries purchased 6,176,600 Class A common shares for $264.2 million under Cooper’s share
repurchase plan. The share purchases are recorded by Cooper’s wholly-owned subsidiaries as an
investment in its parent company that is eliminated in consolidation.
Certain wholly-owned subsidiaries own Cooper Class A common shares and a wholly-owned
subsidiary owns all the issued and outstanding Cooper Class B common shares. The subsidiaries
investments in the Class A and Class B common shares are accounted for as investments in the parent
company that are eliminated in consolidation. The Class B common shares are not entitled to vote,
except as to matters for which Bermuda law specifically requires voting rights for otherwise
nonvoting shares. Cooper and its wholly-owned subsidiaries have entered into a voting agreement
which provides that in those limited circumstances where the Class B common shares have the right
to vote, Cooper’s wholly-owned subsidiaries shall vote the Class B common shares and any Class A
common shares that may be held by Cooper’s wholly-owned subsidiaries in the same proportion as the
holders of Class A common shares. If at any time a dividend is declared or paid on the Class A
common shares, a like dividend shall be declared and paid on Class B common shares in an equal
amount per share.
Under the terms of the Dividend Reinvestment Plan, any holder of common stock may elect to
have cash dividends and up to $24,000 per year in cash payments invested in common stock without
incurring any brokerage commissions or service charges. At December 31, 2008, Cooper had
22,325,667 shares reserved
F-18
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
for the Dividend Reinvestment Plan, grants and exercises of stock
options, performance-based stock awards, restricted stock awards and subscriptions under the
Employee Stock Purchase Plan and other plans.
The Board of Directors adopted a Shareholder Rights Plan that authorized the issuance of one
right for each common share outstanding on May 22, 2002. Each Right entitled the holder to buy one
one-
hundredth of a share of Series A Participating preferred Stock at a purchase price of $225 per
one one-hundredth of a share or, in certain circumstances common shares having a value of twice the
purchase price. Each Right became exercisable only in certain circumstances constituting a
potential change of control on a basis considered inadequate by the Board of Directors. The Rights
were scheduled to expire August 5, 2007.
On August 3, 2007, Cooper entered into an Amended and Restated Rights Agreement (“the Amended
Rights Plan”). The Amended Rights Plan extends the final expiration of the Shareholder Rights Plan
to August 1, 2017. In addition, the Amended Rights Plan increases the exercise price of each full
Right from $225 to $600 (equivalent to $300 for each one-half of a Right, which is the fraction of
a Right that is currently associated with each Class A common share following the two-for-one stock
split effective March 2007); eliminates a ten-day window to redeem the Rights after a person has
become an “Acquiring Person” (as defined in the Amended Rights Plan); adds a provision that allows
the Board of Directors to exchange the outstanding and exercisable Rights for additional common
shares (or, in certain situations, a number of Series A Participating Preferred Shares) at the rate
of one common share per Right, at anytime after a person becomes an “Acquiring Person,” and adds a
provision clarifying that Cooper is allowed to lower the acquiror ownership threshold at which
dilution is triggered to no less than 10% at anytime prior to the time any person becomes an
“Acquiring Person.”
On February 12, 2008, Cooper’s Board of Directors increased the annual dividend rate of
Cooper’s common stock by $.16 per share to $1.00. On February 14, 2007, Cooper’s Board of
Directors increased the annual dividend rate of Cooper’s common stock by $.10 per share to $.84.
NOTE 10: STOCK-BASED COMPENSATION
Effective January 1, 2006, Cooper adopted Statement of Financial Accounting Standards No.
123(R) using the modified prospective method. Recognition of compensation cost is based on the
requirements of Statement 123(R) for all share-based payments granted after January 1, 2006. SFAS
No. 123(R) requires recognizing stock-based compensation expense based on the fair value of the
award at the grant date with expense recognized over the service period, which is usually the
vesting period. Cooper uses the Black-Scholes-Merton formula to estimate the value of stock
options granted to employees, as well as the straight-line recognition method for awards subject to
graded vesting. The fair value of restricted stock and performance-based awards granted are
measured at the market price on the grant date. Cooper recognizes an estimate for forfeitures of
awards of stock options, performance-based shares and restricted stock units. These estimates are
adjusted as actual forfeitures differ from the estimate.
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 the number of
authorized shares available under the Plan by 7 million, to extend the term of the Plan from
November 7, 2010 to November 7, 2015 and for certain other matters. Since the original Plan’s
inception in 1996, the aggregate number of shares authorized under the Plan is 41 million. As of
December 31, 2008, 8,313,211 shares were available for future grants under the Plan. Of the total
shares available for future grants, 3,150,268 are available for grants of performance-based shares
and restricted stock units. Activity for each of these stock-incentive awards is discussed in more
detail below. Total compensation expense for all share-based compensation arrangements under the
Plan was $23.1 million, $39.0 million and $29.1 million during the years ended December 31, 2008,
2007 and 2006, respectively. The total income tax benefit recognized in the income
F-19
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
statement for
all share-based compensation arrangements under the Plan was $7.8 million, $13.6 million and $10.3
million during the years ended December 31, 2008, 2007 and 2006, respectively.
Stock Options
Stock option awards are granted with an exercise price no less than the market price of
Cooper’s stock at the date of grant. Stock option awards generally vest over a three-year period
with one-third vesting in each successive year so that the option is fully exercisable after three
years and generally have five-,
seven- and ten-year contractual terms. Stock option awards provide that, upon a change in
control in Cooper (as defined in the Plan), all options will be cancelled and Cooper will make a
cash payment to the employee equal to the difference in the fair market value of Cooper Class A
common shares (or the highest price actually paid for the stock in connection with the change in
control, if higher) and the option price.
The fair value of each stock option award is estimated on the date of grant using the
Black-Scholes-Merton option valuation model using the assumptions noted in the following table.
Expected volatility is based on implied volatilities from traded options on Cooper stock,
historical volatility of Cooper stock, and other factors. Cooper believes that the resulting
blended volatility represents a more accurate estimate of potential fluctuations in Cooper stock.
Cooper uses historical data to estimate employee termination experience. The expected term of
options granted is determined based on historical exercise behavior. The risk-free interest rate
for periods within the contractual life of the option is based on the U.S. Treasury yield curve in
effect at the time of grant.
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2008 |
|
2007 |
|
2006 |
Expected volatility |
|
|
23.75 |
% |
|
|
19.0 |
% |
|
|
18.0 |
% |
Expected dividends |
|
|
2.26 |
% |
|
|
1.8 |
% |
|
|
1.8 |
% |
Expected term (in years) |
|
|
4.5 |
|
|
|
4.5 |
|
|
|
4.5 |
|
Risk-free interest rate |
|
|
2.6 |
% |
|
|
4.6 |
% |
|
|
4.6 |
% |
A summary of option activity under the Plan as of December 31, 2008, and changes during the
year then ended is presented below:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
| |
|
|
|
|
|
Weighted- |
|
|
Average |
|
|
Aggregate |
|
| |
|
|
|
|
|
Average |
|
|
Remaining |
|
|
Intrinsic |
|
| |
|
|
|
|
|
Exercise |
|
|
Contractual |
|
|
Value |
|
| Options |
|
Shares |
|
|
Price |
|
|
Term |
|
|
(in millions) |
|
Outstanding at January 1, 2008 |
|
|
6,782,641 |
|
|
$ |
34.80 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
1,973,850 |
|
|
$ |
43.90 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(665,440 |
) |
|
$ |
25.69 |
|
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
(441,711 |
) |
|
$ |
43.95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008 |
|
|
7,649,340 |
|
|
$ |
37.41 |
|
|
|
4.1 |
|
|
$ |
12.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest at
December 31, 2008 |
|
|
7,253,122 |
|
|
$ |
37.03 |
|
|
|
3.6 |
|
|
$ |
12.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2008 |
|
|
4,442,238 |
|
|
$ |
32.20 |
|
|
|
3.1 |
|
|
$ |
12.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average grant date fair values of options granted during the years ended December
31, 2008, 2007 and 2006 were $8.19, $9.50 and $8.03, respectively. The total intrinsic value of
options exercised during the years ended December 31, 2008, 2007 and 2006 was $12.7 million, $75.8
million and $81.5 million, respectively. Total stock options granted were 1,973,850 shares in
2008, 1,745,700 shares in 2007 and 1,647,200 shares in 2006.
F-20
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of December 31, 2008, total unrecognized compensation expense related to nonvested stock
options was $15.7 million. This expense is expected to be recognized over a weighted-average
period of 1.8 years. The total fair value of stock options vested during the years ended December
31, 2008, 2007 and 2006 was $13.1 million, $12.5 million and $12.6 million, respectively.
Performance-Based Shares and Restricted Stock Units
Under the Plan, Cooper grants certain executives and other key employees performance-based
share awards with vesting contingent upon meeting Company-wide performance goals, typically tied to
cumulative compound growth in earnings per share over a defined multi-year performance period.
Awards under the performance-based component of the Plan are typically arranged in levels, with
increasing numbers of shares earned as higher levels of growth are achieved. In order to earn the
performance shares, participants are generally required to remain actively employed by Cooper for
the performance period. Under the Plan, Cooper also awards grants of restricted stock units to
certain executives and other key employees in order to provide financial incentive to remain in the
employ of Cooper, thereby enhancing management continuity. Cooper may also utilize restricted
stock units for new executives and other key employees to replace equity compensation forfeited
upon resignation from their former employer. Restricted stock units vest pursuant to time-based
service conditions.
The fair value of each performance-based share and restricted stock unit was calculated at the
market price on the date of grant. If goal-level assumptions are not met, compensation expense is
adjusted and previously recognized compensation expense is reversed. During 2006, 2007 and through
the third quarter of 2008, performance goals were assumed to be achieved at the maximum level. In
the fourth quarter of 2008, Cooper revised its assumption to lower the performance goals assumed to
be achieved to below the maximum level for performance awards granted in 2007 and 2008. The
revised achievement levels assumed for the 2007 and 2008 performance award grants considers the
past performance and current expectations of future performance in the respective three year
performance period. As a result of lowering the performance goals assumed to be achieved, Cooper
adjusted previously recognized stock compensation expense by reducing expense in the fourth quarter
of 2008 by $11.3 million. Upon distribution of performance-based shares, Cooper also pays the
recipient cash equal to the aggregate amount of cash dividends that the recipient would have
received had they been the owner of record from the date of grant. Dividends on restricted stock
units are payable on the dividend payment date or on the date when restrictions lapse, depending
upon the specific award. For performance-based share and restricted stock unit awards, upon a
change in control in Cooper (as defined in the Plan), all restrictions on those awards will lapse
and shares shall be issued as otherwise provided in the Plan.
A summary of the status of Cooper’s nonvested performance-based shares as of December 31, 2008
and changes during the year then ended is presented below:
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Weighted- |
| |
|
|
|
|
|
Average |
| |
|
|
|
|
|
Grant-Date |
| Nonvested Performance-Based Shares |
|
Shares |
|
Fair Value |
Nonvested at January 1, 2008 |
|
|
1,518,094 |
|
|
$ |
41.06 |
|
Granted |
|
|
598,160 |
|
|
$ |
43.87 |
|
Vested |
|
|
(472,734 |
) |
|
$ |
34.88 |
|
Forfeited |
|
|
(183,120 |
) |
|
$ |
43.99 |
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2008 |
|
|
1,460,400 |
|
|
$ |
43.84 |
|
|
|
|
|
|
|
|
|
|
The weighted-average grant-date fair value of performance-based shares granted during the
years ended December 31, 2008, 2007 and 2006 was $43.87, $46.01 and $41.55, respectively. The
total intrinsic value of performance-based shares awarded during the years ended December 31, 2008,
2007 and 2006
F-21
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
was $17.5 million, $29.4 million and $27.2 million, respectively. Total
performance-based shares vested in 2008 were 472,734 compared to 631,958 performance-based shares
that vested in 2007.
As of December 31, 2008, total unrecognized compensation expense related to nonvested
performance-based shares was $4.9 million. This expense is expected to be recognized over a
weighted-average period of 1.0 years. The total fair value of performance-based shares vested
during the year ended December 31, 2008 and 2007 was $16.5 million and $17.8 million, respectively.
A summary of the status of Cooper’s nonvested restricted stock units as of December 31, 2008,
and changes during the year then ended is presented below:
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Weighted- |
| |
|
|
|
|
|
Average |
| |
|
|
|
|
|
Grant-Date |
| Nonvested Restricted Stock Units |
|
Shares |
|
Fair Value |
Nonvested at January 1, 2008 |
|
|
488,250 |
|
|
$ |
43.07 |
|
Granted |
|
|
146,650 |
|
|
$ |
41.74 |
|
Vested |
|
|
(57,050 |
) |
|
$ |
40.44 |
|
Forfeited |
|
|
(71,750 |
) |
|
$ |
43.95 |
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2008 |
|
|
506,100 |
|
|
$ |
42.86 |
|
|
|
|
|
|
|
|
|
|
The weighted-average grant-date fair value of restricted stock units granted during the years
ended December 31, 2008, 2007 and 2006 was $41.74, $46.78 and $43.67, respectively. Total
restricted stock units granted were 146,650 in 2008, 282,900 in 2007 and 104,000 in 2006. The
total intrinsic value of restricted stock units awarded during the years ended December 31, 2008,
2007 and 2006 was $4.3 million, $15.0 million and $4.7 million, respectively.
As of December 31, 2008, total unrecognized compensation expense related to nonvested
restricted stock unit compensation arrangements was $12.9 million. This expense is expected to be
recognized over a weighted-average period of 3.3 years. The total fair value of restricted stock
units vested during the years ended December 31, 2008, 2007 and 2006 was $2.3 million, $1.9 million
and $7.0 million, respectively.
Cash received from stock option exercises during the years ended December 31, 2008, 2007 and
2006 was $17.1 million, $68.3 million and $89.2 million, respectively. The actual tax benefit
realized for the tax deductions from option exercises totaled $12.8 million, $36.4 million and
$31.7 million, respectively, during the years ended December 31, 2008, 2007 and 2006. Cash used to
settle equity instruments granted under all share-based payment arrangements during the years ended
December 31, 2008, 2007 and 2006 was immaterial in all periods.
Cooper has a practice of repurchasing shares on the open market to satisfy shares issued for
option exercises and share awards and expects to repurchase approximately one million shares during
2009, based on estimates of option exercises and share awards vesting for the year.
The impact of adopting Statement 123(R) on January 1, 2006, on Cooper’s income from continuing
operations before income taxes, net income and basic and diluted earnings per share during the year
ended December 31, 2006 was immaterial.
F-22
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 11: ACCUMULATED OTHER NONOWNER CHANGES IN EQUITY
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Pension and |
|
|
Minimum |
|
|
|
|
|
|
Cumulative |
|
|
|
|
| |
|
Postretirement |
|
|
Pension |
|
|
Derivative |
|
|
Translation |
|
|
|
|
| |
|
Benefit Plans |
|
|
Liability |
|
|
Instruments |
|
|
Adjustment |
|
|
Total |
|
| |
|
(in millions) |
|
Balance December 31, 2005 |
|
$ |
— |
|
|
$ |
(78.7 |
) |
|
$ |
6.3 |
|
|
$ |
(103.9 |
) |
|
$ |
(176.3 |
) |
Current year activity |
|
|
(86.9 |
) |
|
|
78.7 |
|
|
|
2.3 |
|
|
|
53.8 |
|
|
|
47.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2006 |
|
|
(86.9 |
) |
|
|
— |
|
|
|
8.6 |
|
|
|
(50.1 |
) |
|
|
(128.4 |
) |
Current year activity |
|
|
9.7 |
|
|
|
— |
|
|
|
17.7 |
|
|
|
20.3 |
|
|
|
47.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2007 |
|
|
(77.2 |
) |
|
|
— |
|
|
|
26.3 |
|
|
|
(29.8 |
) |
|
|
(80.7 |
) |
Current year activity |
|
|
(88.6 |
) |
|
|
— |
|
|
|
(24.4 |
) |
|
|
(136.0 |
) |
|
|
(249.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2008 |
|
$ |
(165.8 |
) |
|
$ |
— |
|
|
$ |
1.9 |
|
|
$ |
(165.8 |
) |
|
$ |
(329.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
| |
|
Before |
|
|
Tax |
|
|
|
|
|
|
Before |
|
|
Tax |
|
|
|
|
|
|
Before |
|
|
Tax |
|
|
|
|
| |
|
Tax |
|
|
(Expense) |
|
|
Net |
|
|
Tax |
|
|
(Expense) |
|
|
Net |
|
|
Tax |
|
|
(Expense) |
|
|
Net |
|
| |
|
Amount |
|
|
Benefit |
|
|
Amount |
|
|
Amount |
|
|
Benefit |
|
|
Amount |
|
|
Amount |
|
|
Benefit |
|
|
Amount |
|
| |
|
(in millions) |
|
Pension and postretirement
benefit plans |
|
$ |
(143.9 |
) |
|
$ |
55.3 |
|
|
$ |
(88.6 |
) |
|
$ |
14.9 |
|
|
$ |
(5.2 |
) |
|
$ |
9.7 |
|
|
$ |
(142.0 |
) |
|
$ |
55.1 |
|
|
$ |
(86.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum pension
liability adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
130.8 |
|
|
|
(52.1 |
) |
|
|
78.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of
derivatives |
|
|
(33.2 |
) |
|
|
13.3 |
|
|
|
(19.9 |
) |
|
|
29.9 |
|
|
|
(12.0 |
) |
|
|
17.9 |
|
|
|
15.3 |
|
|
|
(6.1 |
) |
|
|
9.2 |
|
Reclassification to
earnings |
|
|
(7.5 |
) |
|
|
3.0 |
|
|
|
(4.5 |
) |
|
|
(0.4 |
) |
|
|
0.2 |
|
|
|
(0.2 |
) |
|
|
(11.4 |
) |
|
|
4.5 |
|
|
|
(6.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(40.7 |
) |
|
|
16.3 |
|
|
|
(24.4 |
) |
|
|
29.5 |
|
|
|
(11.8 |
) |
|
|
17.7 |
|
|
|
3.9 |
|
|
|
(1.6 |
) |
|
|
2.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustment |
|
|
(209.2 |
) |
|
|
73.2 |
|
|
|
(136.0 |
) |
|
|
31.3 |
|
|
|
(11.0 |
) |
|
|
20.3 |
|
|
|
82.8 |
|
|
|
(29.0 |
) |
|
|
53.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other nonowner
changes in equity |
|
$ |
(393.8 |
) |
|
$ |
144.8 |
|
|
$ |
(249.0 |
) |
|
$ |
75.7 |
|
|
$ |
(28.0 |
) |
|
$ |
47.7 |
|
|
$ |
75.5 |
|
|
$ |
(27.6 |
) |
|
$ |
47.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-23
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 12: INCOME TAXES
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
| |
|
($ in millions) |
|
Components of income from continuing operations
before income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. operations |
|
$ |
325.3 |
|
|
$ |
317.3 |
|
|
$ |
234.0 |
|
Non-U.S. operations |
|
|
481.9 |
|
|
|
508.9 |
|
|
|
413.7 |
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before
income taxes |
|
$ |
807.2 |
|
|
$ |
826.2 |
|
|
$ |
647.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of income tax expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal |
|
$ |
75.6 |
|
|
$ |
17.3 |
|
|
$ |
67.6 |
|
U.S. state and local |
|
|
11.7 |
|
|
|
10.1 |
|
|
|
11.6 |
|
Non-U.S |
|
|
78.3 |
|
|
|
94.1 |
|
|
|
68.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
165.6 |
|
|
|
121.5 |
|
|
|
148.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal |
|
|
11.8 |
|
|
|
10.7 |
|
|
|
21.1 |
|
U.S. state and local |
|
|
4.9 |
|
|
|
8.7 |
|
|
|
2.0 |
|
Non-U.S |
|
|
9.3 |
|
|
|
(7.0 |
) |
|
|
(7.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
26.0 |
|
|
|
12.4 |
|
|
|
15.4 |
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
$ |
191.6 |
|
|
$ |
133.9 |
|
|
$ |
163.4 |
|
|
|
|
|
|
|
|
|
|
|
Total income taxes paid |
|
$ |
190.3 |
|
|
$ |
158.4 |
|
|
$ |
175.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate reconciliation: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal statutory rate |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
State and local income taxes |
|
|
1.8 |
|
|
|
2.0 |
|
|
|
1.8 |
|
Non-U.S. operations |
|
|
(10.0 |
) |
|
|
(8.3 |
) |
|
|
(10.6 |
) |
Extraterritorial income exclusion |
|
|
— |
|
|
|
(1.9 |
) |
|
|
(0.3 |
) |
Tax credits |
|
|
(0.4 |
) |
|
|
(0.4 |
) |
|
|
(0.5 |
) |
Audit settlements |
|
|
(0.3 |
) |
|
|
(6.8 |
) |
|
|
— |
|
Statute expirations |
|
|
(1.7 |
) |
|
|
(2.0 |
) |
|
|
— |
|
Other |
|
|
(0.7 |
) |
|
|
(1.4 |
) |
|
|
(0.2 |
) |
|
|
|
|
|
|
|
|
|
|
Effective tax rate attributable to
continuing operations |
|
|
23.7 |
% |
|
|
16.2 |
% |
|
|
25.2 |
% |
|
|
|
|
|
|
|
|
|
|
F-24
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2008 |
|
|
2007 |
|
| |
|
(in millions) |
|
Components of deferred tax assets and liabilities: |
|
|
|
|
|
|
|
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Postretirement and other employee welfare benefits |
|
$ |
30.6 |
|
|
$ |
45.2 |
|
Inventories |
|
|
0.9 |
|
|
|
— |
|
Accrued liabilities |
|
|
418.9 |
|
|
|
340.5 |
|
Pension plans |
|
|
43.5 |
|
|
|
19.1 |
|
Net operating loss carryforward |
|
|
13.7 |
|
|
|
20.8 |
|
Other |
|
|
70.3 |
|
|
|
— |
|
|
|
|
|
|
|
|
Gross deferred tax assets |
|
|
577.9 |
|
|
|
425.6 |
|
Valuation allowance |
|
|
(36.3 |
) |
|
|
(7.7 |
) |
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
541.6 |
|
|
|
417.9 |
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Property, plant and equipment and intangibles |
|
|
(281.8 |
) |
|
|
(269.1 |
) |
Inventories |
|
|
— |
|
|
|
(3.7 |
) |
Pension plans |
|
|
— |
|
|
|
(12.2 |
) |
Other |
|
|
(74.6 |
) |
|
|
(25.7 |
) |
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
(356.4 |
) |
|
|
(310.7 |
) |
|
|
|
|
|
|
|
Net deferred tax asset |
|
$ |
185.2 |
|
|
$ |
107.2 |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2008 |
|
|
2007 |
|
| |
|
(in millions) |
|
Deferred tax assets and liabilities recognized in the balance sheet consist of: |
|
|
|
|
|
|
|
|
Current deferred tax assets |
|
$ |
104.9 |
|
|
$ |
193.2 |
|
Noncurrent deferred tax assets |
|
|
80.3 |
|
|
|
— |
|
Long-term deferred tax liabilities |
|
|
— |
|
|
|
(86.0 |
) |
|
|
|
|
|
|
|
|
|
$ |
185.2 |
|
|
$ |
107.2 |
|
|
|
|
|
|
|
|
Generally, Cooper provides United States income tax that would be imposed on the repatriation
of the earnings of its non-U.S. operations. However, as of December 31, 2008 and 2007, United
States income taxes have not been provided on approximately $112 million and $99 million,
respectively, of undistributed non-U.S. earnings that are expected to be permanently reinvested
outside the United States.
The effective tax rate was 23.7% for the year ended December 31, 2008 and 16.2% for the year
ended December 31, 2007. Cooper reduced income tax expense by $23.2 million during the year ended
December 31, 2008 for discrete tax items primarily related to statute expirations, state tax
settlements and foreign taxes. The 2007 effective tax rate was lower due to an $83.8 million
reduction of income tax expense as discussed below and the benefit related to the income from the
Belden agreement being taxed in a foreign jurisdiction at a significantly lower rate than the U.S.
statutory rate. Excluding the discrete tax items and the
F-25
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
income from the Belden agreement, Cooper’s
effective tax rate for the year ended December 31, 2008 and 2007 was 26.6% and 27.3%, respectively.
In June 2008, the German Tax Authorities issued a proposed audit finding related to a 2004
reorganization that was treated as a non-taxable event. Cooper believes that the reorganization was
properly reflected on its German income tax returns in accordance with applicable tax laws and
regulations in effect during the period involved. Cooper is preparing a response related to the
proposed audit finding and will challenge the proposed finding vigorously. While the outcome of the
proceedings with the German Tax Authorities cannot be predicted with certainty, management believes
that it is more likely than not that its tax position related to the 2004 reorganization will
prevail. If the proposed audit finding is upheld, it would require Cooper to pay German tax of
approximately €58 million, which would be available for credit in the United States, plus accrued
interest.
During the second quarter of 2008, the IRS completed their examination of Cooper’s 2005 and
2006 Federal income tax returns, which had no material impact on Cooper’s financial statements.
During the fourth quarter of 2008, Cooper increased state deferred tax assets to reflect certain
changes in the effective state tax rates with a corresponding increase to the state tax valuation
allowance.
The 2007 second quarter included a $63.5 million reduction of income tax expense. The United
States Internal Revenue Service (“IRS”) challenged Cooper’s treatment of gains and interest
deductions claimed on its 2000 through 2003 federal income tax returns, relating to transactions
involving government securities. If the proposed adjustments were upheld, it would have required
Cooper to pay approximately $93.7 million in taxes plus accrued interest. During the second
quarter of 2007, the IRS and Cooper finalized a settlement regarding these transactions.
On February 1, 2007, the IRS issued its examination report for the 2002 through 2004 tax
years. In addition to the finding related to transactions involving government securities
discussed above, the IRS challenged Cooper’s treatment of certain interest payments made during
these years to a subsidiary. If the proposed adjustments were upheld, it would have required
Cooper to pay approximately $140 million of federal withholding tax plus accrued interest. On May
2, 2007, the IRS issued a letter to Cooper accepting Cooper’s positions regarding treatment of
these interest payments for the 2002 through 2004 years.
As a result of the settlements discussed above, Cooper recognized $55.7 million of previously
unrecognized tax benefits in the 2007 second quarter. A change in rates for the Texas margin tax
and other developments in the 2007 second quarter represented the remaining $7.8 million of income
tax expense reduction.
The 2007 fourth quarter included a $20.3 million reduction of income taxes expense due to
expiration of the statute of limitations regarding certain potential tax exposure matters, changes
to the state and international valuation allowances and tax benefits related to certain
international reorganizations.
The Internal Revenue Service is examining Cooper’s 2007 Federal income tax return and Cooper
is under examination by various United States State and Local taxing authorities, as well as
various taxing authorities in other countries. Cooper is no longer subject to U.S. Federal income
tax examinations by tax authorities for years prior to 2007, 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 Cooper’s cash flows as
these audits are completed.
F-26
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Cooper and its subsidiaries have both non-U.S. and United States State operating losses
available to carry forward to future tax years. These losses generally have a carry forward period
of either 15 or 20 years from the date created. If unused, the losses are set to expire throughout
the period 2008 to 2026, with the most significant portion of these losses expiring during the
period 2018 through 2022.
Cooper has unrecognized gross tax benefits of $34.5 million and $57.3 million at December 31,
2008 and 2007, respectively. A reconciliation of the beginning and ending amount of unrecognized
tax benefits is as follows:
| |
|
|
|
|
|
|
|
|
| |
|
2008 |
|
|
2007 |
|
| |
|
(in millions) |
|
Balance at January 1 |
|
$ |
57.3 |
|
|
$ |
113.7 |
|
Additions for tax positions of the current year |
|
|
1.1 |
|
|
|
9.7 |
|
Reduction in tax positions for prior years |
|
|
(6.7 |
) |
|
|
— |
|
Reduction in tax positions for statute expirations |
|
|
(15.1 |
) |
|
|
(20.7 |
) |
Reduction in tax positions for audit settlements |
|
|
(2.1 |
) |
|
|
(45.4 |
) |
|
|
|
|
|
|
|
Balance at December 31 |
|
$ |
34.5 |
|
|
$ |
57.3 |
|
|
|
|
|
|
|
|
Approximately $25.9 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 $1.0 to $5.0 million could be recognized during the next 12
months as audits close and statutes expire.
Cooper recognizes interest and penalties accrued related to unrecognized tax benefits in
income tax expense. During the years ended December 31, 2008 and 2007, Cooper recognized a net
reduction of $0.9 million and $5.8 million in interest and penalties, respectively. Cooper had
$10.6 million and $11.5 million in interest and penalties accrued at December 31, 2008 and 2007,
respectively.
NOTE 13: PENSION AND OTHER POSTRETIREMENT BENEFITS
Cooper and its subsidiaries have numerous defined benefit pension plans and other
postretirement benefit plans. The benefits provided under Cooper’s various postretirement benefit
plans other than pensions, all of which are unfunded, include retiree medical care, dental care,
prescriptions and life insurance, with medical care accounting for approximately 90% of the total.
Current employees, unless grandfathered under plans assumed in acquisitions, are not provided
postretirement benefits other than pensions. The vast majority of the annual other postretirement
benefit expense is related to employees who are already retired. The measurement date for all plan
disclosures is December 31.
During June 2006, Cooper announced that, effective January 1, 2007, future benefit accruals
would cease under the Cooper U. S. Salaried Pension Plan. Benefits earned through December 31,
2006 would remain in each participant’s Salaried Pension Plan account. The account balance will
continue to earn interest credits until a participant is eligible for and elects to receive the
plan benefit. Cooper recognized a curtailment loss of $4.2 million in the second quarter of 2006 as
a result of this action. Beginning in 2007, Cooper makes a cash contribution equal to 3% of
compensation to the Cooper Retirement Savings and Stock-Ownership Plan (“CO-SAV”). Cooper further
increased the company-matching contribution under the CO-SAV plan to a dollar-for-dollar match up
to 6% of employee contributions. Cooper recognized a curtailment loss in the third quarter of 2008
as a result of ceasing future benefit accruals for two defined benefit plans in the U.K.
F-27
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Cooper also announced the elimination of postretirement life insurance for active employees,
effective January 1, 2007. As a result, Cooper recognized a curtailment gain of $3.2 million in
the second quarter of 2006.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Other |
|
| |
|
Pension Benefits |
|
|
Postretirement Benefits |
|
| |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
| |
|
(in millions) |
|
Change in benefit obligation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at January 1 |
|
$ |
738.8 |
|
|
$ |
768.2 |
|
|
$ |
93.1 |
|
|
$ |
94.8 |
|
Service cost |
|
|
4.3 |
|
|
|
4.0 |
|
|
|
— |
|
|
|
0.1 |
|
Interest cost |
|
|
43.9 |
|
|
|
41.4 |
|
|
|
5.2 |
|
|
|
5.2 |
|
Benefit payments |
|
|
(51.5 |
) |
|
|
(54.0 |
) |
|
|
(8.4 |
) |
|
|
(8.2 |
) |
Actuarial (gain) loss |
|
|
(47.2 |
) |
|
|
(29.6 |
) |
|
|
(7.8 |
) |
|
|
1.2 |
|
Exchange rate changes |
|
|
(35.5 |
) |
|
|
11.0 |
|
|
|
— |
|
|
|
— |
|
Settlements |
|
|
(3.7 |
) |
|
|
(5.0 |
) |
|
|
— |
|
|
|
— |
|
Curtailment |
|
|
(4.1 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Amendments |
|
|
— |
|
|
|
0.5 |
|
|
|
— |
|
|
|
— |
|
Acquisitions |
|
|
49.7 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Other |
|
|
1.4 |
|
|
|
2.3 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at December 31 |
|
|
696.1 |
|
|
|
738.8 |
|
|
|
82.1 |
|
|
|
93.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at January 1 |
|
|
651.6 |
|
|
|
666.7 |
|
|
|
— |
|
|
|
— |
|
Actual return on plan assets |
|
|
(162.2 |
) |
|
|
32.2 |
|
|
|
— |
|
|
|
— |
|
Employer contributions |
|
|
64.8 |
|
|
|
6.4 |
|
|
|
8.4 |
|
|
|
8.2 |
|
Benefit payments |
|
|
(51.5 |
) |
|
|
(54.0 |
) |
|
|
(8.4 |
) |
|
|
(8.2 |
) |
Exchange rate changes |
|
|
(31.3 |
) |
|
|
1.4 |
|
|
|
— |
|
|
|
— |
|
Settlements |
|
|
— |
|
|
|
(1.7 |
) |
|
|
— |
|
|
|
— |
|
Acquisitions |
|
|
38.0 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Other |
|
|
1.2 |
|
|
|
0.6 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at December 31 |
|
|
510.6 |
|
|
|
651.6 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized (funded status) |
|
$ |
(185.5 |
) |
|
$ |
(87.2 |
) |
|
$ |
(82.1 |
) |
|
$ |
(93.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Other |
|
| |
|
Pension Benefits |
|
|
Postretirement Benefits |
|
| |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
| |
|
(in millions) |
|
Assets and liabilities recognized in the balance sheet
consist of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent assets |
|
$ |
7.0 |
|
|
$ |
33.6 |
|
|
$ |
— |
|
|
$ |
— |
|
Accrued liabilities |
|
|
(7.4 |
) |
|
|
(7.6 |
) |
|
|
(10.9 |
) |
|
|
(11.6 |
) |
Long-term liabilities |
|
|
(185.1 |
) |
|
|
(113.2 |
) |
|
|
(71.2 |
) |
|
|
(81.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(185.5 |
) |
|
$ |
(87.2 |
) |
|
$ |
(82.1 |
) |
|
$ |
(93.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
F-28
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Other |
|
| |
|
Pension Benefits |
|
|
Postretirement Benefits |
|
| |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
| |
|
(in millions) |
|
Amounts recognized in accumulated other
nonowner changes in equity consist of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial (gain) loss |
|
$ |
342.7 |
|
|
$ |
196.0 |
|
|
$ |
(40.6 |
) |
|
$ |
(35.3 |
) |
Prior service cost |
|
|
(17.8 |
) |
|
|
(16.3 |
) |
|
|
(13.5 |
) |
|
|
(15.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
324.9 |
|
|
$ |
179.7 |
|
|
$ |
(54.1 |
) |
|
$ |
(50.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
The funded status of defined benefit pension plans segregated between plans with plan assets
(“Funded Plans”) and without plan assets (“Unfunded Plans”) consist of:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, 2008 |
|
|
December 31, 2007 |
|
| |
|
Funded |
|
|
Unfunded |
|
|
Funded |
|
|
Unfunded |
|
| |
|
Plans |
|
|
Plans |
|
|
Plans |
|
|
Plans |
|
| |
|
(in millions) |
|
Accumulated benefit obligation |
|
$ |
579.3 |
|
|
$ |
108.7 |
|
|
$ |
613.8 |
|
|
$ |
114.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation |
|
$ |
583.7 |
|
|
$ |
112.4 |
|
|
$ |
618.4 |
|
|
$ |
120.4 |
|
Fair value of plan assets |
|
|
510.6 |
|
|
|
— |
|
|
|
651.6 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized (funded status) |
|
$ |
(73.1 |
) |
|
$ |
(112.4 |
) |
|
$ |
33.2 |
|
|
$ |
(120.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Funded |
|
|
87.5 |
% |
|
|
— |
|
|
|
105.4 |
% |
|
|
— |
|
The projected benefit obligation, accumulated benefit obligation and fair value of plan assets
of defined benefit pension plans with accumulated benefit obligations in excess of plan assets were
$649.7 million, $641.5 million and $457.1 million, respectively as of December 31, 2008 and $131.3
million, $125.3 million and $10.6 million, respectively at December 31, 2007.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Pension Benefits |
|
|
Other Postretirement Benefits |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
| |
|
(in millions) |
|
Components of net periodic benefit cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
4.3 |
|
|
$ |
4.0 |
|
|
$ |
16.7 |
|
|
$ |
— |
|
|
$ |
0.1 |
|
|
$ |
0.1 |
|
Interest cost |
|
|
43.9 |
|
|
|
41.4 |
|
|
|
41.4 |
|
|
|
5.2 |
|
|
|
5.2 |
|
|
|
5.6 |
|
Expected return on plan assets |
|
|
(51.6 |
) |
|
|
(51.1 |
) |
|
|
(49.1 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Amortization of prior service cost |
|
|
(2.5 |
) |
|
|
(2.1 |
) |
|
|
0.5 |
|
|
|
(2.0 |
) |
|
|
(2.0 |
) |
|
|
(2.0 |
) |
Recognized actuarial (gain) loss |
|
|
9.7 |
|
|
|
10.9 |
|
|
|
13.2 |
|
|
|
(2.5 |
) |
|
|
(2.6 |
) |
|
|
(2.9 |
) |
Settlement loss |
|
|
0.1 |
|
|
|
0.7 |
|
|
|
4.1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Curtailment (gain) loss |
|
|
3.7 |
|
|
|
0.1 |
|
|
|
4.2 |
|
|
|
— |
|
|
|
— |
|
|
|
(3.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
7.6 |
|
|
$ |
3.9 |
|
|
$ |
31.0 |
|
|
$ |
0.7 |
|
|
$ |
0.7 |
|
|
$ |
(2.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost in 2009 is expected to be $26.1 million for pension benefits and
$(0.4) million for other postretirement benefits. The estimated net loss and prior service cost
credit for the defined benefit pension plans that will be amortized from accumulated other nonowner
changes in equity into net periodic benefit cost over the next fiscal year are $22.6 million and
$(2.6) million, respectively. The
F-29
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
estimated net gain and prior service credit for the other
postretirement plans that will be amortized from
accumulated other nonowner changes in equity into net periodic benefit cost over the next
fiscal year are $(3.2) million and $(2.0) million, respectively.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Other |
| |
|
Pension Benefits |
|
Postretirement Benefits |
| |
|
2008 |
|
2007 |
|
2008 |
|
2007 |
Weighted average assumptions
used to determine benefit
obligations as of December
31: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
6.00% - 6.25 |
% |
|
|
5.40% - 6.00 |
% |
|
|
6.25 |
% |
|
|
6.00 |
% |
Rate of compensation increase |
|
|
2.75% - 3.50 |
% |
|
|
2.75% - 3.50 |
% |
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Other |
| |
|
Pension Benefits |
|
Postretirement Benefits |
| |
|
2008 |
|
2007 |
|
2008 |
|
2007 |
Weighted average assumptions
used to determine net costs
for the years ended December
31: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
5.40% - 6.00 |
% |
|
|
4.50% - 5.75 |
% |
|
|
6.00 |
% |
|
|
5.75 |
% |
Expected return on plan assets |
|
|
6.00% - 8.25 |
% |
|
|
6.00% - 8.25 |
% |
|
|
— |
|
|
|
— |
|
Rate of compensation increase |
|
|
2.75% - 3.50 |
% |
|
|
2.75% - 3.50 |
% |
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
| |
|
2008 |
|
2007 |
Assumed healthcare cost trend rates: |
|
|
|
|
|
|
|
|
Healthcare cost trend rate assumed for next year |
|
|
9.00 |
% |
|
|
8.00 |
% |
Rate to which trend rate is assumed to decline (ultimate trend rate) |
|
|
5.00 |
% |
|
|
5.00 |
% |
Year that rate reaches ultimate trend rate |
|
|
2012 |
|
|
|
2010 |
|
| |
|
|
|
|
|
|
|
|
| |
|
1-Percentage- |
|
1-Percentage- |
| |
|
Point Increase |
|
Point Decrease |
| |
|
(in millions) |
A one-percentage-point change in the assumed health care cost
trend rate would have the following effects: |
|
|
|
|
|
|
|
|
Effect on total of service and interest cost components |
|
$ |
0.3 |
|
|
$ |
(0.3 |
) |
Effect on the postretirement benefit obligation |
|
$ |
4.0 |
|
|
$ |
(3.6 |
) |
Defined benefit pension plan assets consist of:
| |
|
|
|
|
|
|
|
|
| |
|
Percentage of Plan Assets at |
| |
|
December 31, |
| Asset Category |
|
2008 |
|
2007 |
Equity Securities |
|
|
60 |
% |
|
|
60 |
% |
Debt Securities |
|
|
40 |
% |
|
|
40 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
Cooper’s policy is to invest its pension assets in equity and fixed income investments with a
target allocation of 60% and 40%, respectively. The plan investments are managed by outside
investment advisors and include equity futures, other equity derivatives, fixed income futures and
short to intermediate duration fixed income securities. The allocation of plan assets is
determined based on plan liabilities and funded status.
F-30
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Cooper’s overall expected long-term rate of return on assets assumption is based upon (i) a
long-term expected inflation rate, (ii) long-term expected stock and bond market risk premiums over
the expected
inflation rate, and (iii) a target allocation of equity and fixed income securities that will
generate the overall expected long-term rate of return.
Estimated future benefit payments by Cooper’s defined benefit pension plans for the next five
fiscal years, and in the aggregate for the five fiscal years thereafter, are $53.5 million in 2009,
$52.1 million in 2010, $51.2 million in 2011, $53.3 million in 2012, $53.5 million in 2013 and
$269.7 million for 2014 through 2018.
During 2009, Cooper expects to pay in cash approximately $7.4 million for payment of unfunded
pension plan benefits and make approximately $2.5 million in employer contributions to certain
international funded defined benefit pension plans. Cooper does not expect to have any minimum
regulatory funding requirement for its domestic funded defined benefit pension plans in 2009.
Other postretirement benefit plans are not subject to any minimum regulatory funding requirements.
Cooper funds these benefits payments as incurred. Cooper participates in two multiple-employer
benefit plans. Obligations under these plans are insignificant.
During 2008, 2007 and 2006, expense with respect to defined contribution plans (primarily
related to various groups of hourly employees) totaled $10.6 million, $13.1 million and $18.3
million, respectively. See Note 14 of the Notes to the Consolidated Financial Statements regarding
CO-SAV contributions.
NOTE 14: RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN
All full-time domestic employees, except for certain bargaining unit employees, are eligible
to participate in the Cooper Retirement Savings and Stock Ownership Plan (“CO-SAV”). Under the
terms of the CO-SAV plan, employee savings deferrals are partially matched with Cooper common
stock. Compensation expense from the common stock matches for the CO-SAV plan was $29.8 million,
$27.6 million and $20.1 million in 2008, 2007 and 2006, respectively.
Cooper also recognized defined contribution expense as the result of cash contributions to the
CO-SAV plan of $16.4 million and $16.7 million in 2008 and 2007, respectively. Effective January
1, 2007, Cooper announced the cessation of future benefit accruals under the Cooper U.S. Salaried
Pension Plan. Beginning in 2007, Cooper made a cash contribution to the CO-SAV plan of 3% of
annual compensation for those employees previously covered under the U.S. Salaried Pension Plan.
Cooper further increased the company-matching contribution under the CO-SAV plan to a
dollar-for-dollar match up to 6% of employee contributions.
See Note 13 of the Notes to the Consolidated Financial Statements regarding changes in company
contribution levels for the CO-SAV plan that became effective January 1, 2007.
F-31
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 15: INDUSTRY SEGMENTS AND GEOGRAPHIC INFORMATION
Industry Segments
Cooper’s operations consist of two segments: Electrical Products and Tools. Markets for
Cooper’s products and services are worldwide, with the United States being the largest market.
The Electrical Products segment manufactures, markets and sells electrical and circuit
protection products, including fittings, support systems, enclosures, specialty connectors, wiring
devices, plugs, receptacles, lighting fixtures and controls, hazardous duty electrical equipment,
intrinsically safe explosion proof instrumentation, fuses, emergency lighting, fire detection and
mass notification systems and security products for use in residential, commercial and industrial
construction, maintenance and repair applications. The segment also manufactures, markets and
sells products for use by utilities and in industry for electrical power transmission and
distribution, including distribution switchgear, transformers, transformer terminations and
accessories, capacitors, voltage regulators, surge arresters, energy automation solutions and other
related power systems components.
The Tools segment manufactures, markets and sells hand tools for industrial, construction,
electronics and consumer markets; automated assembly systems for industrial markets and electric
and pneumatic industrial power tools, related electronics and software control and monitoring
systems for general industry, primarily automotive and aerospace manufacturers.
The performance of businesses is evaluated at the segment level and resources are allocated
among the segments. The Cooper executive responsible for the segments further allocates resources
among the various division operating units that compose the segments and, in international markets,
determines the integration of product lines and operations across division operating units. The
accounting policies of the segments are the same as those described in the summary of significant
accounting policies in Note 1. Cooper manages cash, debt and income taxes centrally. Accordingly,
Cooper evaluates performance of its segments and operating units based on operating earnings
exclusive of financing activities and income taxes. The segments are managed separately because
they manufacture and distribute distinct products. Intersegment sales and related receivables for
each of the years presented were insignificant.
Financial information by industry segment was as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Revenues |
|
|
Operating Earnings |
|
|
Total Assets |
|
| |
|
Year Ended December 31, |
|
|
Year Ended December 31, |
|
|
December 31, |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
| |
|
(in millions) |
|
Electrical Products |
|
$ |
5,755.7 |
|
|
$ |
5,108.4 |
|
|
$ |
4,426.0 |
|
|
$ |
930.3 |
|
|
$ |
848.2 |
|
|
$ |
703.2 |
|
|
$ |
4,626.8 |
|
|
$ |
4,492.6 |
|
|
$ |
3,960.8 |
|
Tools |
|
|
765.6 |
|
|
|
794.7 |
|
|
|
758.6 |
|
|
|
81.1 |
|
|
|
94.0 |
|
|
|
85.6 |
|
|
|
619.0 |
|
|
|
689.5 |
|
|
|
686.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total management reporting |
|
$ |
6,521.3 |
|
|
$ |
5,903.1 |
|
|
$ |
5,184.6 |
|
|
|
1,011.4 |
|
|
|
942.2 |
|
|
|
788.8 |
|
|
|
5,245.8 |
|
|
|
5,182.1 |
|
|
|
4,647.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and asset
impairment charges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(52.4 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
General Corporate expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(81.4 |
) |
|
|
(98.1 |
) |
|
|
(94.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Income from Belden agreement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
33.1 |
|
|
|
5.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
877.6 |
|
|
|
877.2 |
|
|
|
699.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(70.4 |
) |
|
|
(51.0 |
) |
|
|
(51.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated income from
continuing operations
before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
807.2 |
|
|
$ |
826.2 |
|
|
$ |
647.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
919.1 |
|
|
|
951.4 |
|
|
|
727.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6,164.9 |
|
|
$ |
6,133.5 |
|
|
$ |
5,374.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-32
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Electrical |
|
|
|
|
|
|
|
|
|
Consolidated |
| |
|
Products |
|
Tools |
|
Corporate |
|
Total |
| |
|
(in millions) |
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
$ |
121.0 |
|
|
$ |
20.0 |
|
|
$ |
2.1 |
|
|
$ |
143.1 |
|
Capital expenditures |
|
|
108.0 |
|
|
|
10.6 |
|
|
|
18.4 |
|
|
|
137.0 |
|
| |
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
$ |
97.4 |
|
|
$ |
20.2 |
|
|
$ |
0.6 |
|
|
$ |
118.2 |
|
Capital expenditures |
|
|
78.1 |
|
|
|
10.0 |
|
|
|
27.4 |
|
|
|
115.5 |
|
Investment in
unconsolidated affiliates |
|
|
19.5 |
|
|
|
— |
|
|
|
— |
|
|
|
19.5 |
|
| |
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
$ |
90.4 |
|
|
$ |
20.0 |
|
|
$ |
1.3 |
|
|
$ |
111.7 |
|
Capital expenditures |
|
|
60.8 |
|
|
|
9.1 |
|
|
|
15.4 |
|
|
|
85.3 |
|
Investment in
unconsolidated affiliates |
|
|
21.3 |
|
|
|
— |
|
|
|
— |
|
|
|
21.3 |
|
Geographic Information
Revenues and long-lived assets by country are summarized below. Revenues are attributed to
geographic areas based on the location of the assets producing the revenues. Revenues are
generally denominated in the currency of the location of the assets producing the revenues.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Revenues |
|
|
Long-Lived Assets |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
| |
|
(in millions) |
|
United States |
|
$ |
4,480.6 |
|
|
$ |
4,212.7 |
|
|
$ |
3,781.1 |
|
|
$ |
472.2 |
|
|
$ |
509.3 |
|
|
$ |
490.0 |
|
Germany |
|
|
322.8 |
|
|
|
296.1 |
|
|
|
253.5 |
|
|
|
40.6 |
|
|
|
42.8 |
|
|
|
38.7 |
|
United Kingdom |
|
|
403.8 |
|
|
|
368.4 |
|
|
|
305.3 |
|
|
|
80.1 |
|
|
|
48.6 |
|
|
|
41.1 |
|
Canada |
|
|
284.0 |
|
|
|
241.2 |
|
|
|
226.3 |
|
|
|
5.1 |
|
|
|
4.3 |
|
|
|
0.7 |
|
Mexico |
|
|
206.5 |
|
|
|
187.5 |
|
|
|
172.4 |
|
|
|
62.6 |
|
|
|
82.3 |
|
|
|
83.2 |
|
China |
|
|
173.4 |
|
|
|
88.9 |
|
|
|
42.2 |
|
|
|
60.5 |
|
|
|
47.3 |
|
|
|
33.8 |
|
Other countries |
|
|
650.2 |
|
|
|
508.3 |
|
|
|
403.8 |
|
|
|
48.5 |
|
|
|
53.6 |
|
|
|
46.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6,521.3 |
|
|
$ |
5,903.1 |
|
|
$ |
5,184.6 |
|
|
$ |
769.6 |
|
|
$ |
788.2 |
|
|
$ |
733.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International revenues by destination, based on the location products were delivered, were as
follows by segment:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
International Revenues |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
| |
|
(in millions) |
|
Electrical Products |
|
$ |
2,039.5 |
|
|
$ |
1,646.1 |
|
|
$ |
1,312.5 |
|
Tools |
|
|
401.9 |
|
|
|
377.4 |
|
|
|
343.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,441.4 |
|
|
$ |
2,023.5 |
|
|
$ |
1,655.5 |
|
|
|
|
|
|
|
|
|
|
|
F-33
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 16: DISCONTINUED OPERATIONS RECEIVABLE AND LIABILITY
Discontinued Operations Liability
In October 1998, Cooper sold its Automotive Products business to Federal-Mogul Corporation
(“Federal-Mogul”). These discontinued businesses (including the Abex Friction 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 Friction 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 confirmed Federal-Mogul’s plan of reorganization and
Federal-Mogul emerged from bankruptcy in December 2007. As part of Federal-Mogul’s Plan of
Reorganization, Cooper and Federal-Mogul reached a settlement agreement that was subject to
approval by the Bankruptcy Court resolving Federal-Mogul’s indemnification obligations to Cooper.
As discussed further below, on September 30, 2008, the Bankruptcy Court issued its final ruling
denying Cooper’s participation in the proposed Federal-Mogul 524(g) trust resulting in
implementation of the previously approved Plan B Settlement. As part of its obligation to Pneumo
for any asbestos-related claims arising from the Abex Friction product line (“Abex Claims”), Cooper
has rights, confirmed by Pneumo, to significant insurance for such claims. Based on information
provided by representatives of Federal-Mogul and recent claims experience, from August 28, 1998
through December 31, 2008, a total of 146,175 Abex Claims were filed, of which 122,487 claims have
been resolved leaving 23,688 Abex Claims pending at December 31, 2008. During the year ended
December 31, 2008, 2,641 claims were filed and 8,403 claims were resolved. Since August 28, 1998,
the average indemnity payment for resolved Abex Claims was $2,072 before insurance. A total of
$147.7 million was spent on defense costs for the period August 28, 1998 through December 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 - 2007
In December 2005, Cooper reached an initial agreement in negotiations with the representatives
of Federal-Mogul, its bankruptcy committees and the future claimants (the “Representatives”)
regarding Cooper’s participation in Federal Mogul’s proposed 524(g) asbestos trust. By
participating in this trust, Cooper would have resolved its liability for asbestos claims arising
from Cooper’s former Abex Friction Products business. The proposed settlement agreement was
subject to court approval and certain other approvals. Future claims would have been resolved
through the bankruptcy trust.
Although the final determination of whether Cooper would participate in the Federal-Mogul
524(g) trust was unknown, Cooper’s 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 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.
Throughout 2006 and 2007, Cooper continued to believe that the most likely outcome in the
range of potential outcomes was a revised settlement with Cooper resolving its asbestos obligations
through participation in the proposed Federal-Mogul 524(g) trust. While the details of the
proposed settlement agreement evolved during the on-going negotiations throughout 2006 and 2007,
the underlying principles of
F-34
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
the proposed settlement arrangements being negotiated principally
included fixed payments to a 524(g) trust over 25 years that were subject to reduction for
insurance proceeds received in the future.
As a result of the then current status of settlement negotiations, 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 proposed settlement agreement at
that time. The discontinued operations accrual was $509.1 million and $529.6 million as of
December 31, 2007 and 2006, respectively, and included payments to a 524(g) trust over 25 years
that were undiscounted, and included insurance recoveries of $230 million and $239 million,
respectively, where insurance in place agreements, settlements or policy recoveries were probable.
The U.S. Bankruptcy Court for the District of Delaware confirmed Federal-Mogul’s plan of
reorganization on November 8, 2007, and the U.S. District Court for the District of Delaware
affirmed the Bankruptcy Court’s order on November 14, 2007. As part of its ruling, the Bankruptcy
Court approved the Plan B Settlement between Cooper and Federal-Mogul, which would require payment
of $138 million to Cooper in the event Cooper’s participation in the Federal-Mogul 524(g) trust is
not approved for any reason, or if Cooper elected not to participate or to pursue participation in
the trust. The Bankruptcy Court stated that it would consider approving Cooper’s 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 did not preclude later
approval of Cooper’s participation in the 524(g) trust. Accordingly, in an effort to continue
working towards approval of Cooper’s 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 would have required Cooper to make an initial payment of $248.5 million in cash to the
Federal-Mogul trust upon implementation of Plan A with additional annual payments of up to $20
million each due over 25 years. If the Bankruptcy Court had approved the modified settlement and
that settlement was implemented, Cooper, through Pneumo-Abex LLC, would have continued to have
access to Abex insurance policies.
2008
During the first quarter of 2008, the Bankruptcy Court concluded hearings on Plan A. On
September 30, 2008, the Bankruptcy Court issued its ruling denying the Modified Plan A Settlement
resulting in Cooper not participating in the Federal-Mogul 524(g) trust and instead proceeding with
the Plan B Settlement that had previously been approved by the Bankruptcy Court. As a result of
the Plan B Settlement, Cooper received the $138 million payment, plus interest of $3 million, in
October 2008 from the Federal-Mogul Bankruptcy estate and will continue to resolve through the tort
system the asbestos related claims arising from the Abex Friction product line that it had sold to
Federal-Mogul in 1998. Additionally, under Plan B, Cooper has access to Abex insurance policies.
F-35
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The accrual for potential liabilities related to the Automotive Products sale and the
Federal-Mogul bankruptcy and a progression of the activity is presented in the following table
assuming resolution through participation in the Federal-Mogul 524(g) trust up until September 30,
2008 when the accounting was adjusted to reflect the Plan B Settlement.
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Nine Months Ended |
|
|
Twelve Months Ended |
|
| |
|
September 30, |
|
|
December 31, |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
| |
|
(in millions) |
|
|
(in millions) |
|
Accrual at beginning of period
(under Plan A) |
|
$ |
509.1 |
|
|
$ |
529.6 |
|
|
$ |
526.3 |
|
Indemnity and defense payments |
|
|
(16.9 |
) |
|
|
(52.9 |
) |
|
|
(36.8 |
) |
Insurance recoveries |
|
|
25.4 |
|
|
|
39.3 |
|
|
|
12.7 |
|
Discontinued operations charge |
|
|
— |
|
|
|
— |
|
|
|
31.7 |
|
Other |
|
|
(1.6 |
) |
|
|
(6.9 |
) |
|
|
(4.3 |
) |
|
|
|
|
|
|
|
|
|
|
Accrual at end of period (under Plan A) * |
|
$ |
516.0 |
|
|
$ |
509.1 |
|
|
$ |
529.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| * |
|
The $516.0 million liability reflects the estimated liability under Plan A
immediately prior to adjusting the accounting on September 30, 2008 to reflect the
Plan B Settlement. |
As a result of the September 30, 2008 Bankruptcy Court ruling discussed above, Cooper adjusted
its accounting in the third quarter of 2008 to reflect the separate assets and liabilities related
to the on-going activities to resolve the potential asbestos related claims through the tort
system. Cooper recorded income from discontinued operations of $16.6 million, net of a $9.4
million income tax expense, in the third quarter of 2008 to reflect the Plan B Settlement.
The following table presents the separate assets and liabilities under the Plan B settlement and
the cash activity subsequent to the September 30, 2008 Plan B Settlement date.
| |
|
|
|
|
|
|
|
|
| |
|
December
31, 2008 |
|
|
September
30, 2008 |
|
| |
|
(in millions) |
|
Asbestos liability analysis: |
|
|
|
|
|
|
|
|
Total liability for unpaid, pending and future indemnity and
defense costs at end of period |
|
$ |
815.1 |
|
|
$ |
823.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asbestos receivable analysis |
|
|
|
|
|
|
|
|
Receivable from Federal-Mogul Bankruptcy estate (received
in Oct. 2008) |
|
$ |
— |
|
|
$ |
141.0 |
|
Insurance receivable for previously paid claims and
insurance settlements |
|
|
74.6 |
|
|
|
72.7 |
|
Insurance-in-place agreements available for pending and
future claims |
|
|
117.7 |
|
|
|
119.6 |
|
|
|
|
|
|
|
|
Total estimated asbestos receivable at end of period |
|
$ |
192.3 |
|
|
$ |
333.3 |
|
|
|
|
|
|
|
|
| |
|
|
|
|
| |
|
Three Months Ended |
|
| |
|
December 31, 2008 |
|
| |
|
(in millions) |
|
Cash Flow: |
|
|
|
|
Indemnity and defense payments |
|
$ |
(7.9 |
) |
Payment from Federal-Mogul Bankrupty Estate |
|
|
141.0 |
|
Other |
|
|
(0.3 |
) |
|
|
|
|
Net cash flow |
|
$ |
132.8 |
|
|
|
|
|
F- 36
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Asbestos Liability Estimate
As of December 31, 2008, Cooper estimates that the liability for pending and future indemnity
and defense costs for the next 45 years will be $815.1 million. The amount included for unpaid
indemnity and defense costs is not significant at December 31, 2008. The estimated liability is
before any tax benefit and is not discounted as the timing of the actual payments is not reasonably
predictable.
The methodology used to project Cooper’s liability estimate relies upon a number of
assumptions including Cooper’s recent claims experience and declining future asbestos spending
based on past trends and publicly available epidemiological data, changes in various jurisdictions,
management’s judgment about the current and future litigation environment, and the availability to
claimants of other payment sources.
Abex discontinued using asbestos in the Abex Friction product line in the 1970’s and
epidemiological studies that are publicly available indicate the incidence of asbestos-related
disease is in decline and should continue to decline steadily. However, there can be no assurance
that these studies, or other assumptions, will not vary significantly from the estimates utilized
to project the undiscounted liability.
Although Cooper believes that its estimated liability for pending and future indemnity and
defense costs represents the best estimate of its future obligation, Cooper utilized scenarios that
it believed were reasonably possible that indicate a broader range of potential estimates from $735
to $950 million (undiscounted).
Asbestos Receivable Estimate
As of December 31, 2008, Cooper, through Pneumo-Abex LLC, has access to Abex insurance
policies with remaining limits on policies with solvent insurers in excess of $750 million.
Insurance recoveries reflected as receivables in the balance sheet include recoveries where
insurance-in-place agreements, settlements or policy recoveries are probable. As of December 31,
2008, Cooper’s receivable for recoveries of costs from insurers amounted to $192.3 million, of
which $74.6 million relate to costs previously paid or insurance settlements. Cooper’s
arrangements with the insurance carriers defer certain amounts of insurance and settlement proceeds
that Cooper is entitled to receive beyond twelve months. Approximately 90% of the $192.3 million
receivable from insurance companies at December 31, 2008 is due from domestic insurers whose AM
Best rating is Excellent (A-) or better. The remaining balance of the insurance receivable has
been significantly discounted to reflect management’s best estimate of the recoverable amount.
Cooper believes that it is likely that additional insurance recoveries will be recorded in the
future as new insurance-in-place agreements are consummated or settlements with insurance carriers
are completed. However, extensive litigation with the insurance carriers may be required to
receive those additional recoveries.
Critical Accounting Assumptions
The amounts recorded by Cooper for its asbestos liability and related insurance receivables
rely on assumptions that are based on currently known facts and strategy. Cooper’s actual asbestos
costs or insurance recoveries could be significantly higher or lower than those recorded if
assumptions used in the estimation process vary significantly from actual results over time. Key
variables in these assumptions include the number and type of new claims filed each year, the
average indemnity and defense costs of resolving claims, the number of years these assumptions are
projected into the future, and the resolution of on-going negotiations of additional settlement or
coverage-in-place agreements with insurance carriers. Assumptions with respect to these variables
are subject to greater uncertainty as the projection period lengthens. Other factors that may
affect Cooper’s liability and ability to recover under its insurance policies include uncertainties
surrounding the litigation process from jurisdiction to jurisdiction and from case to case, reforms
that may be made by state and federal courts, and the passage of state or federal tort reform
F- 37
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
legislation. Cooper will review these assumptions on a periodic basis to determine whether
any adjustments are required to the estimate of its recorded asbestos liability and related
insurance receivables.
From a cash flow perspective, Cooper management believes that the annual cash outlay for its
potential asbestos liability, net of insurance recoveries, will not be material to Cooper’s
operating cash flow.
| |
|
|
| NOTE 17: |
|
FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES, CONCENTRATIONS OF CREDIT RISK AND FAIR
VALUE OF FINANCIAL INSTRUMENTS |
Derivative Instruments and Hedging Activities
Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities (“SFAS No. 133”), as amended, requires that all derivatives be recognized as assets and
liabilities and measured at fair value. For derivative instruments that are not designated as
hedges, the gain or loss on the derivative is recognized in earnings currently. A derivative
instrument may be designated as a hedge of the exposure to changes in the fair value of an asset or
liability or variability in expected future cash flows if the hedging relationship is expected to
be highly effective in offsetting changes in fair value or cash flows attributable to the hedged
risk during the period of designation. If a derivative is designated as a fair value hedge, the
gain or loss on the derivative and the offsetting loss or gain on the hedged asset, liability or
firm commitment is recognized in earnings. For derivative instruments designated as a cash flow
hedge, the effective portion of the gain or loss on the derivative instrument is reported as a
component of accumulated nonowner changes in equity and reclassified into earnings in the same
period that the hedged transaction affects earnings. The ineffective portion of the gain or loss
is immediately recognized in earnings.
Hedge accounting is discontinued prospectively when (1) it is determined that a derivative is
no longer effective in offsetting changes in the fair value or cash flows of a hedged item; (2) the
derivative is sold, terminated or exercised; (3) the hedged item no longer meets the definition of
a firm commitment; or (4) it is unlikely that a forecasted transaction will occur within two months
of the originally specified time period.
When hedge accounting is discontinued because it is determined that the derivative no longer
qualifies as an effective fair-value hedge, the derivative will continue to be carried on the
balance sheet at its fair value, and the hedged asset or liability will no longer be adjusted for
changes in fair value. When hedge accounting is discontinued because a hedged item no longer meets
the definition of a firm commitment, the derivative will continue to be carried on the balance
sheet at its fair value, and any asset or liability that was recorded pursuant to recognition of
the firm commitment will be removed from the balance sheet and recognized as a gain or loss
currently in earnings. When hedge accounting is discontinued because it is probable that a
forecasted transaction will not occur within two months of the originally specified time period,
the derivative will continue to be carried on the balance sheet at its fair value, and gains and
losses reported in accumulated nonowner changes in equity will be recognized immediately in
earnings.
Cooper enters into currency forward exchange contracts and commodity 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 Cooper’s 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.
F- 38
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Currency forward exchange contracts executed to hedge a recognized asset, liability or firm
commitment are accounted for as fair value hedges. The net gain or loss on contracts designated as
fair value hedges was not material during 2008, 2007 or 2006. Currency forward exchange contracts
executed to hedge forecasted transactions are accounted for as cash flow hedges. The net gain or
loss on contracts designated as cash flow hedges was not material during 2008, 2007 or 2006.
Cooper also enters into certain currency forward exchange contracts that are not designated as
hedges. These contracts are intended to reduce cash flow volatility related to short-term
intercompany financing transactions.
Cooper enters into commodity swaps to reduce the volatility of price fluctuations on a portion
of up to eighteen months of certain forecasted material purchases. These instruments are
designated as cash flow hedges. The net gain or loss on commodity swaps was not material in 2008,
2007 or 2006.
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 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. 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; |
| |
| |
(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). |
F- 39
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Assets and liabilities measured at fair value as of December 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 |
|
$ |
21.9 |
|
|
$ |
— |
|
|
|
(a |
) |
Short-term currency forward
exchange contracts |
|
|
40.0 |
|
|
|
(8.4 |
) |
|
|
(a |
) |
Long-term currency forward
exchange contracts |
|
|
91.3 |
|
|
|
(40.0 |
) |
|
|
(a |
) |
Short-term commodity swaps |
|
|
— |
|
|
|
(33.5 |
) |
|
|
(a |
) |
Long-term cross-currency swaps |
|
|
— |
|
|
|
(29.1 |
) |
|
|
(a |
) |
| |
There were no changes in the valuation techniques used to measure asset or liability fair
values on a recurring basis in 2008.
Gains or losses on derivative instruments are reported in the same line item as the underlying
hedged transaction in the consolidated statements of income. At December 31, 2008, Cooper
estimates that approximately $36 million of net losses on derivative instruments designated as cash
flow hedges will be reclassified from accumulated other nonowner changes in equity to earnings
during the next twelve months. The amount of discontinued cash flow hedges during 2008, 2007 and
2006 was not material.
The table below summarizes the U. S. dollar equivalent contractual amounts of Cooper’s forward
exchange contracts at December 31, 2008 and 2007.
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2008 |
|
|
2007 |
|
| |
|
(in millions) |
|
U.S. Dollar |
|
$ |
502.4 |
|
|
$ |
552.6 |
|
Euro |
|
|
214.6 |
|
|
|
154.7 |
|
British Pound Sterling |
|
|
151.3 |
|
|
|
25.0 |
|
Mexican Peso |
|
|
40.9 |
|
|
|
39.1 |
|
Other |
|
|
43.8 |
|
|
|
14.3 |
|
|
|
|
|
|
|
|
|
|
$ |
953.0 |
|
|
$ |
785.7 |
|
|
|
|
|
|
|
|
The contractual amounts of Cooper’s commodity swap contracts at December 31, 2008 and 2007
were approximately $68 million and $57 million, respectively.
Other Instruments
In the normal course of business, Cooper executes stand-by letters of credit, performance
bonds and other guarantees that ensure Cooper’s performance or payment to third parties that are
not reflected in the consolidated balance sheets. The aggregate notional value of these instruments
was $107.9 million and $99.5 million at December 31, 2008 and 2007, respectively. In the past, no
significant claims have been made against these financial instruments. Management believes the
likelihood of demand for payment under these instruments is minimal and expects no material losses
to occur in connection with these instruments.
F- 40
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Concentrations of Credit Risk
Concentrations of credit risk with respect to trade receivables are limited due to the wide
variety of customers as well as their dispersion across many different geographic areas with no one
customer receivable exceeding 5.5% of accounts receivable at December 31, 2008.
Fair Value of Financial Instruments Other than Derivatives
Cooper’s financial instruments other than derivative instruments consist primarily of cash and
cash equivalents, investments, restricted cash, trade receivables, insurance receivables related to
discontinued operations, trade payables and debt instruments. The book values of cash and cash
equivalents, investments, restricted cash, trade receivables, insurance receivables related to
discontinued operations and trade payables are considered to be representative of their respective
fair values. Cooper had approximately $1.23 billion and $1.27 billion of debt instruments at
December 31, 2008 and 2007, respectively. The book value of these instruments was approximately
equal to fair value (as represented primarily by quoted market prices) at December 31, 2008 and
2007.
NOTE 18: NET INCOME PER COMMON SHARE
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Basic |
|
|
Diluted |
|
| |
|
Year Ended December 31, |
|
|
Year Ended December 31, |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
| |
|
|
|
|
|
($ in millions, shares in thousands) |
|
|
|
|
|
Income from continuing operations |
|
$ |
615.6 |
|
|
$ |
692.3 |
|
|
$ |
484.3 |
|
|
$ |
615.6 |
|
|
$ |
692.3 |
|
|
$ |
484.3 |
|
Income (charge) from discontinued
operations |
|
|
16.6 |
|
|
|
— |
|
|
|
(20.3 |
) |
|
|
16.6 |
|
|
|
— |
|
|
|
(20.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common stock |
|
$ |
632.2 |
|
|
$ |
692.3 |
|
|
$ |
464.0 |
|
|
$ |
632.2 |
|
|
$ |
692.3 |
|
|
$ |
464.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding |
|
|
173,655 |
|
|
|
182,290 |
|
|
|
183,546 |
|
|
|
173,655 |
|
|
|
182,290 |
|
|
|
183,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incremental shares from assumed
conversions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options, performance-based stock
awards
and other employee awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,940 |
|
|
|
3,238 |
|
|
|
4,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares and
common share equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
175,595 |
|
|
|
185,528 |
|
|
|
187,584 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options and employee awards are not considered in the calculations if the effect would be
antidilutive. Out of the money options and employee awards of 3.9 million shares were excluded in
2008. Antidilutive options and employee awards were insignificant in 2007 and 2006.
F- 41
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 19: UNAUDITED QUARTERLY OPERATING RESULTS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2008 (by quarter) |
|
| |
|
1 |
|
|
2 |
|
|
3 |
|
|
4 |
|
| |
|
|
|
|
|
(in millions, except per share data) |
|
|
|
|
|
Revenues |
|
$ |
1,546.1 |
|
|
$ |
1,724.3 |
|
|
$ |
1,727.7 |
|
|
$ |
1,523.2 |
|
Cost of sales |
|
|
1,022.2 |
|
|
|
1,155.9 |
|
|
|
1,170.0 |
|
|
|
1,048.6 |
|
Selling and administrative expenses |
|
|
301.5 |
|
|
|
314.4 |
|
|
|
307.8 |
|
|
|
270.9 |
|
Restructuring and asset impairment charges |
|
|
— |
|
|
|
7.6 |
|
|
|
— |
|
|
|
44.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings |
|
|
222.4 |
|
|
|
246.4 |
|
|
|
249.9 |
|
|
|
158.9 |
|
Interest expense, net |
|
|
14.9 |
|
|
|
18.3 |
|
|
|
17.3 |
|
|
|
19.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before
income taxes |
|
|
207.5 |
|
|
|
228.1 |
|
|
|
232.6 |
|
|
|
139.0 |
|
Income taxes |
|
|
54.1 |
|
|
|
66.2 |
|
|
|
43.4 |
|
|
|
27.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
153.4 |
|
|
|
161.9 |
|
|
|
189.2 |
|
|
|
111.1 |
|
Charge related to discontinued operations |
|
|
— |
|
|
|
— |
|
|
|
16.6 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
153.4 |
|
|
$ |
161.9 |
|
|
$ |
205.8 |
|
|
$ |
111.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per Common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
.87 |
|
|
$ |
.93 |
|
|
$ |
1.09 |
|
|
$ |
.66 |
|
Income from
discontinued operations |
|
|
— |
|
|
|
— |
|
|
|
.10 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
.87 |
|
|
$ |
.93 |
|
|
$ |
1.19 |
|
|
$ |
.66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
.86 |
|
|
$ |
.92 |
|
|
$ |
1.08 |
|
|
$ |
.65 |
|
Income from discontinued operations |
|
|
— |
|
|
|
— |
|
|
|
.09 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
.86 |
|
|
$ |
.92 |
|
|
$ |
1.17 |
|
|
$ |
.65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2007 (by quarter) |
|
| |
|
1 |
|
|
2 |
|
|
3 |
|
|
4 |
|
| |
|
|
|
|
|
(in millions, except per share data) |
|
|
|
|
|
Revenues |
|
$ |
1,394.0 |
|
|
$ |
1,463.7 |
|
|
$ |
1,501.3 |
|
|
$ |
1,544.1 |
|
Cost of sales |
|
|
944.9 |
|
|
|
984.6 |
|
|
|
1,008.1 |
|
|
|
1,032.4 |
|
Selling and administrative expenses |
|
|
255.4 |
|
|
|
269.1 |
|
|
|
276.7 |
|
|
|
287.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings |
|
|
193.7 |
|
|
|
210.0 |
|
|
|
216.5 |
|
|
|
223.9 |
|
Income from Belden agreement |
|
|
— |
|
|
|
3.3 |
|
|
|
23.5 |
|
|
|
6.3 |
|
Interest expense, net |
|
|
12.9 |
|
|
|
12.9 |
|
|
|
12.3 |
|
|
|
12.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
before income taxes |
|
|
180.8 |
|
|
|
200.4 |
|
|
|
227.7 |
|
|
|
217.3 |
|
Income taxes |
|
|
48.9 |
|
|
|
(8.8 |
) |
|
|
55.8 |
|
|
|
38.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
131.9 |
|
|
$ |
209.2 |
|
|
$ |
171.9 |
|
|
$ |
179.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per Common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
.72 |
|
|
$ |
1.14 |
|
|
$ |
.94 |
|
|
$ |
1.00 |
|
Diluted |
|
$ |
.71 |
|
|
$ |
1.12 |
|
|
$ |
.93 |
|
|
$ |
.98 |
|
F- 42
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 20: CONSOLIDATING FINANCIAL INFORMATION
Cooper and certain of its principal operating subsidiaries (the “Guarantors”) fully and
unconditionally guarantee, on a joint and several basis, the registered debt securities of Cooper
Industries, LLC and Cooper US, Inc. The following condensed consolidating financial information is
included so that separate financial statements of Cooper Industries, LLC, Cooper US, Inc. or the
Guarantors are not required to be filed with the Securities and Exchange Commission. The
consolidating financial statements present investments in subsidiaries using the equity method of
accounting. Intercompany investments in the Class A and Class B common shares are accounted for
using the cost method.
Consolidating Income Statements
Year Ended December 31, 2008
(in millions)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Cooper |
|
|
Cooper |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Industries, |
|
|
US, |
|
|
|
|
|
|
Other |
|
|
Consolidating |
|
|
|
|
| |
|
Cooper |
|
|
LLC |
|
|
Inc. |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
Revenues |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
3,884.0 |
|
|
$ |
3,017.5 |
|
|
$ |
(380.2 |
) |
|
$ |
6,521.3 |
|
Cost of sales |
|
|
(0.1 |
) |
|
|
(0.3 |
) |
|
|
5.5 |
|
|
|
2,735.8 |
|
|
|
2,036.0 |
|
|
|
(380.2 |
) |
|
|
4,396.7 |
|
Selling and
administrative
expenses |
|
|
11.6 |
|
|
|
13.2 |
|
|
|
69.5 |
|
|
|
571.2 |
|
|
|
542.4 |
|
|
|
(13.3 |
) |
|
|
1,194.6 |
|
Restructuring and asset
impairment charges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
9.3 |
|
|
|
43.1 |
|
|
|
— |
|
|
|
52.4 |
|
Interest expense, net |
|
|
(0.1 |
) |
|
|
18.2 |
|
|
|
54.4 |
|
|
|
— |
|
|
|
(2.1 |
) |
|
|
— |
|
|
|
70.4 |
|
Equity in earnings of
subsidiaries, net of tax |
|
|
809.5 |
|
|
|
28.6 |
|
|
|
410.7 |
|
|
|
92.6 |
|
|
|
458.7 |
|
|
|
(1,800.1 |
) |
|
|
— |
|
Intercompany income
(expense) |
|
|
(40.0 |
) |
|
|
(42.5 |
) |
|
|
126.3 |
|
|
|
(171.7 |
) |
|
|
267.1 |
|
|
|
(139.2 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
continuing operations
before income taxes |
|
|
758.1 |
|
|
|
(45.0 |
) |
|
|
407.6 |
|
|
|
488.6 |
|
|
|
1,123.9 |
|
|
|
(1,926.0 |
) |
|
|
807.2 |
|
Income tax expense
(benefit) |
|
|
— |
|
|
|
(27.9 |
) |
|
|
(51.2 |
) |
|
|
158.1 |
|
|
|
112.6 |
|
|
|
— |
|
|
|
191.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
continuing operations |
|
|
758.1 |
|
|
|
(17.1 |
) |
|
|
458.8 |
|
|
|
330.5 |
|
|
|
1,011.3 |
|
|
|
(1,926.0 |
) |
|
|
615.6 |
|
Income from discontinued
operations, net of tax |
|
|
— |
|
|
|
16.6 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
16.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
758.1 |
|
|
$ |
(0.5 |
) |
|
$ |
458.8 |
|
|
$ |
330.5 |
|
|
$ |
1,011.3 |
|
|
$ |
(1,926.0 |
) |
|
$ |
632.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F- 43
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Consolidating Income Statements
Year Ended December 31, 2007
(in millions)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Cooper |
|
|
Cooper |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Industries, |
|
|
US, |
|
|
|
|
|
|
Other |
|
|
Consolidating |
|
|
|
|
| |
|
Cooper |
|
|
LLC |
|
|
Inc. |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
Revenues |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
3,758.4 |
|
|
$ |
2,417.9 |
|
|
$ |
(273.2 |
) |
|
$ |
5,903.1 |
|
Cost of sales |
|
|
— |
|
|
|
0.2 |
|
|
|
(0.4 |
) |
|
|
2,607.0 |
|
|
|
1,636.4 |
|
|
|
(273.2 |
) |
|
|
3,970.0 |
|
Selling and administrative
expenses |
|
|
9.2 |
|
|
|
18.0 |
|
|
|
270.2 |
|
|
|
556.2 |
|
|
|
434.4 |
|
|
|
(199.0 |
) |
|
|
1,089.0 |
|
Income from Belden
agreement |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
33.1 |
|
|
|
— |
|
|
|
33.1 |
|
Interest expense, net |
|
|
(1.3 |
) |
|
|
33.6 |
|
|
|
25.2 |
|
|
|
— |
|
|
|
(6.5 |
) |
|
|
— |
|
|
|
51.0 |
|
Equity in earnings of
subsidiaries, net of tax |
|
|
649.3 |
|
|
|
40.4 |
|
|
|
486.3 |
|
|
|
76.9 |
|
|
|
330.0 |
|
|
|
(1,582.9 |
) |
|
|
— |
|
Intercompany income
(expense) |
|
|
(33.3 |
) |
|
|
(27.3 |
) |
|
|
— |
|
|
|
(168.8 |
) |
|
|
344.1 |
|
|
|
(114.7 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
continuing operations
before income taxes |
|
|
608.0 |
|
|
|
(38.7 |
) |
|
|
191.4 |
|
|
|
503.3 |
|
|
|
1,060.8 |
|
|
|
(1,498.6 |
) |
|
|
826.2 |
|
Income tax expense
(benefit) |
|
|
— |
|
|
|
(30.2 |
) |
|
|
(138.6 |
) |
|
|
147.9 |
|
|
|
154.8 |
|
|
|
— |
|
|
|
133.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
608.0 |
|
|
$ |
(8.5 |
) |
|
$ |
330.0 |
|
|
$ |
355.4 |
|
|
$ |
906.0 |
|
|
$ |
(1,498.6 |
) |
|
$ |
692.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating Income Statements
Year Ended December 31, 2006
(in millions)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Cooper |
|
|
Cooper |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Industries, |
|
|
US, |
|
|
|
|
|
|
Other |
|
|
Consolidating |
|
|
|
|
| |
|
Cooper |
|
|
LLC |
|
|
Inc. |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
Revenues |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
3,367.1 |
|
|
$ |
2,055.2 |
|
|
$ |
(237.7 |
) |
|
$ |
5,184.6 |
|
Cost of sales |
|
|
(5.1 |
) |
|
|
(1.0 |
) |
|
|
0.6 |
|
|
|
2,358.1 |
|
|
|
1,406.6 |
|
|
|
(237.7 |
) |
|
|
3,521.5 |
|
Selling and
administrative
expenses |
|
|
9.6 |
|
|
|
19.7 |
|
|
|
64.9 |
|
|
|
509.1 |
|
|
|
365.7 |
|
|
|
— |
|
|
|
969.0 |
|
Income from Belden
agreement |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5.1 |
|
|
|
— |
|
|
|
5.1 |
|
Interest expense, net |
|
|
(0.8 |
) |
|
|
45.0 |
|
|
|
12.2 |
|
|
|
— |
|
|
|
(4.9 |
) |
|
|
— |
|
|
|
51.5 |
|
Equity in earnings of
subsidiaries, net of tax |
|
|
584.5 |
|
|
|
(105.3 |
) |
|
|
337.9 |
|
|
|
96.4 |
|
|
|
338.5 |
|
|
|
(1,252.0 |
) |
|
|
— |
|
Intercompany income
(expense) |
|
|
(18.2 |
) |
|
|
133.8 |
|
|
|
22.4 |
|
|
|
(369.7 |
) |
|
|
330.4 |
|
|
|
(98.7 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
continuing operations
before income taxes |
|
|
562.6 |
|
|
|
(35.2 |
) |
|
|
282.6 |
|
|
|
226.6 |
|
|
|
961.8 |
|
|
|
(1,350.7 |
) |
|
|
647.7 |
|
Income tax expense
(benefit) |
|
|
— |
|
|
|
(29.9 |
) |
|
|
(56.0 |
) |
|
|
48.4 |
|
|
|
200.9 |
|
|
|
— |
|
|
|
163.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
continuing operations |
|
|
562.6 |
|
|
|
(5.3 |
) |
|
|
338.6 |
|
|
|
178.2 |
|
|
|
760.9 |
|
|
|
(1,350.7 |
) |
|
|
484.3 |
|
Charge related to
discontinued operations,
net of tax |
|
|
— |
|
|
|
20.3 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
20.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
562.6 |
|
|
$ |
(25.6 |
) |
|
$ |
338.6 |
|
|
$ |
178.2 |
|
|
$ |
760.9 |
|
|
$ |
(1,350.7 |
) |
|
$ |
464.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F- 44
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Consolidating Balance Sheets
December 31, 2008
(in millions)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Cooper |
|
|
Cooper |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Industries, |
|
|
US, |
|
|
|
|
|
|
Other |
|
|
Consolidating |
|
|
|
|
| |
|
Cooper |
|
|
LLC |
|
|
Inc. |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
Cash and cash equivalents |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
81.6 |
|
|
$ |
1.3 |
|
|
$ |
175.9 |
|
|
$ |
— |
|
|
$ |
258.8 |
|
Investments |
|
|
— |
|
|
|
— |
|
|
|
21.9 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
21.9 |
|
Receivables |
|
|
— |
|
|
|
— |
|
|
|
0.5 |
|
|
|
521.8 |
|
|
|
489.1 |
|
|
|
— |
|
|
|
1,011.4 |
|
Inventories |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
336.2 |
|
|
|
305.6 |
|
|
|
— |
|
|
|
641.8 |
|
Current discontinued
operations receivable |
|
|
— |
|
|
|
17.5 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
17.5 |
|
Deferred income taxes and
other current assets |
|
|
10.8 |
|
|
|
24.8 |
|
|
|
79.6 |
|
|
|
33.1 |
|
|
|
98.2 |
|
|
|
— |
|
|
|
246.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
10.8 |
|
|
|
42.3 |
|
|
|
183.6 |
|
|
|
892.4 |
|
|
|
1,068.8 |
|
|
|
— |
|
|
|
2,197.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and
equipment, less
accumulated depreciation |
|
|
— |
|
|
|
— |
|
|
|
61.2 |
|
|
|
324.3 |
|
|
|
342.7 |
|
|
|
— |
|
|
|
728.2 |
|
Goodwill |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,266.4 |
|
|
|
1,300.9 |
|
|
|
— |
|
|
|
2,567.3 |
|
Investment in
subsidiaries |
|
|
2,541.5 |
|
|
|
587.4 |
|
|
|
4,438.5 |
|
|
|
1,116.9 |
|
|
|
2,734.1 |
|
|
|
(11,418.4 |
) |
|
|
— |
|
Investment in parent |
|
|
— |
|
|
|
— |
|
|
|
3,532.7 |
|
|
|
— |
|
|
|
312.7 |
|
|
|
(3,845.4 |
) |
|
|
— |
|
Intercompany accounts
receivable |
|
|
— |
|
|
|
903.8 |
|
|
|
— |
|
|
|
1,546.2 |
|
|
|
1,564.2 |
|
|
|
(4,014.2 |
) |
|
|
— |
|
Intercompany notes
receivable |
|
|
3,345.0 |
|
|
|
24.0 |
|
|
|
1,361.7 |
|
|
|
0.2 |
|
|
|
4,028.5 |
|
|
|
(8,759.4 |
) |
|
|
— |
|
Long-term discontinued
operations receivable |
|
|
— |
|
|
|
174.8 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
174.8 |
|
Deferred income taxes and
other noncurrent assets |
|
|
— |
|
|
|
248.2 |
|
|
|
(9.0 |
) |
|
|
(116.5 |
) |
|
|
374.0 |
|
|
|
— |
|
|
|
496.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
5,897.3 |
|
|
$ |
1,980.5 |
|
|
$ |
9,568.7 |
|
|
$ |
5,029.9 |
|
|
$ |
11,725.9 |
|
|
$ |
(28,037.4 |
) |
|
$ |
6,164.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Short-term debt |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
25.6 |
|
|
$ |
— |
|
|
$ |
25.6 |
|
Accounts payable |
|
|
42.5 |
|
|
|
3.1 |
|
|
|
18.9 |
|
|
|
207.8 |
|
|
|
220.2 |
|
|
|
— |
|
|
|
492.5 |
|
Accrued liabilities |
|
|
6.5 |
|
|
|
33.0 |
|
|
|
106.7 |
|
|
|
255.3 |
|
|
|
217.2 |
|
|
|
— |
|
|
|
618.7 |
|
Current discontinued
operations liability |
|
|
— |
|
|
|
50.4 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
50.4 |
|
Current maturities of
long-term debt |
|
|
— |
|
|
|
275.0 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
275.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
49.0 |
|
|
|
361.5 |
|
|
|
125.6 |
|
|
|
463.1 |
|
|
|
463.0 |
|
|
|
— |
|
|
|
1,462.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
— |
|
|
|
2.2 |
|
|
|
922.1 |
|
|
|
8.0 |
|
|
|
0.2 |
|
|
|
— |
|
|
|
932.5 |
|
Intercompany accounts
payable |
|
|
10.6 |
|
|
|
— |
|
|
|
4,003.6 |
|
|
|
— |
|
|
|
— |
|
|
|
(4,014.2 |
) |
|
|
— |
|
Intercompany notes
payable |
|
|
1,155.7 |
|
|
|
851.6 |
|
|
|
1,217.1 |
|
|
|
1,742.0 |
|
|
|
3,793.0 |
|
|
|
(8,759.4 |
) |
|
|
— |
|
Long-term discontinued
operations liability |
|
|
— |
|
|
|
764.7 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
764.7 |
|
Other long-term
Liabilities |
|
|
— |
|
|
|
49.8 |
|
|
|
62.0 |
|
|
|
70.0 |
|
|
|
216.3 |
|
|
|
— |
|
|
|
398.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
1,215.3 |
|
|
|
2,029.8 |
|
|
|
6,330.4 |
|
|
|
2,283.1 |
|
|
|
4,472.5 |
|
|
|
(12,773.6 |
) |
|
|
3,557.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common stock |
|
|
2.0 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(0.3 |
) |
|
|
1.7 |
|
Class B common stock |
|
|
1.1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1.1 |
) |
|
|
— |
|
Subsidiary preferred
stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
325.5 |
|
|
|
(325.5 |
) |
|
|
— |
|
Subsidiary common stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
348.6 |
|
|
|
(348.6 |
) |
|
|
— |
|
Capital in excess of
par value |
|
|
3,365.0 |
|
|
|
— |
|
|
|
753.9 |
|
|
|
1,455.0 |
|
|
|
2,561.0 |
|
|
|
(8,134.9 |
) |
|
|
— |
|
Retained earnings |
|
|
1,511.3 |
|
|
|
94.4 |
|
|
|
2,778.8 |
|
|
|
1,342.3 |
|
|
|
4,381.8 |
|
|
|
(7,173.2 |
) |
|
|
2,935.4 |
|
Accumulated other non-
owner changes in equity |
|
|
(197.4 |
) |
|
|
(143.7 |
) |
|
|
(294.4 |
) |
|
|
(50.5 |
) |
|
|
(363.5 |
) |
|
|
719.8 |
|
|
|
(329.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders’
equity |
|
|
4,682.0 |
|
|
|
(49.3 |
) |
|
|
3,238.3 |
|
|
|
2,746.8 |
|
|
|
7,253.4 |
|
|
|
(15,263.8 |
) |
|
|
2,607.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders’ equity |
|
$ |
5,897.3 |
|
|
$ |
1,980.5 |
|
|
$ |
9,568.7 |
|
|
$ |
5,029.9 |
|
|
$ |
11,725.9 |
|
|
$ |
(28,037.4 |
) |
|
$ |
6,164.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F- 45
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 |
) |
|
|
— |
|
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 |
|
Deferred income taxes
and other long-term
liabilities |
|
|
— |
|
|
|
(86.1 |
) |
|
|
155.6 |
|
|
|
187.8 |
|
|
|
159.3 |
|
|
|
— |
|
|
|
416.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
893.8 |
|
|
|
1,537.0 |
|
|
|
5,794.8 |
|
|
|
2,417.3 |
|
|
|
1,275.2 |
|
|
|
(8,626.5 |
) |
|
|
3,291.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common stock |
|
|
2.1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(0.3 |
) |
|
|
1.8 |
|
Class B common stock |
|
|
1.1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1.1 |
) |
|
|
— |
|
Subsidiary common stock |
|
|
— |
|
|
|
— |
|
|
|
170.0 |
|
|
|
— |
|
|
|
371.4 |
|
|
|
(541.4 |
) |
|
|
— |
|
Capital in excess of
par value |
|
|
3,458.5 |
|
|
|
— |
|
|
|
743.7 |
|
|
|
1,427.0 |
|
|
|
7,496.1 |
|
|
|
(13,039.6 |
) |
|
|
85.7 |
|
Retained earnings |
|
|
916.4 |
|
|
|
116.2 |
|
|
|
2,468.7 |
|
|
|
1,055.3 |
|
|
|
3,335.9 |
|
|
|
(5,057.4 |
) |
|
|
2,835.1 |
|
Accumulated other non-
owner changes in equity |
|
|
51.7 |
|
|
|
(86.0 |
) |
|
|
(117.0 |
) |
|
|
23.2 |
|
|
|
(31.9 |
) |
|
|
79.3 |
|
|
|
(80.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders’
equity |
|
|
4,429.8 |
|
|
|
30.2 |
|
|
|
3,265.4 |
|
|
|
2,505.5 |
|
|
|
11,171.5 |
|
|
|
(18,560.5 |
) |
|
|
2,841.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders’ equity |
|
$ |
5,323.6 |
|
|
$ |
1,567.2 |
|
|
$ |
9,060.2 |
|
|
$ |
4,922.8 |
|
|
$ |
12,446.7 |
|
|
$ |
(27,187.0 |
) |
|
$ |
6,133.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F- 46
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Consolidating Statements of Cash Flows
Year Ended December 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 |
|
$ |
(58.3 |
) |
|
$ |
53.0 |
|
|
$ |
(78.2 |
) |
|
$ |
307.3 |
|
|
$ |
672.6 |
|
|
$ |
— |
|
|
$ |
896.4 |
|
| |
Cash flows from investing
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments |
|
|
— |
|
|
|
— |
|
|
|
65.7 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
65.7 |
|
Cash restricted for business
acquisition |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
290.1 |
|
|
|
— |
|
|
|
290.1 |
|
Capital expenditures |
|
|
— |
|
|
|
— |
|
|
|
(18.1 |
) |
|
|
(52.4 |
) |
|
|
(66.5 |
) |
|
|
— |
|
|
|
(137.0 |
) |
Cash paid for acquired
businesses |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(5.2 |
) |
|
|
(291.8 |
) |
|
|
— |
|
|
|
(297.0 |
) |
Investments in affiliates |
|
|
(0.1 |
) |
|
|
— |
|
|
|
(23.1 |
) |
|
|
(7.5 |
) |
|
|
— |
|
|
|
30.7 |
|
|
|
— |
|
Loans to affiliates |
|
|
(189.8 |
) |
|
|
— |
|
|
|
(718.0 |
) |
|
|
— |
|
|
|
(1,315.2 |
) |
|
|
2,223.0 |
|
|
|
— |
|
Repayments of loans from
affiliates |
|
|
346.8 |
|
|
|
1.8 |
|
|
|
490.2 |
|
|
|
0.1 |
|
|
|
1,042.8 |
|
|
|
(1,881.7 |
) |
|
|
— |
|
Dividends from affiliates |
|
|
— |
|
|
|
— |
|
|
|
129.8 |
|
|
|
— |
|
|
|
10.6 |
|
|
|
(140.4 |
) |
|
|
— |
|
Proceeds from sales of
property, plant and
equipment and other |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.4 |
|
|
|
1.4 |
|
|
|
— |
|
|
|
1.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used
in) investing activities |
|
|
156.9 |
|
|
|
1.8 |
|
|
|
(73.5 |
) |
|
|
(64.6 |
) |
|
|
(328.6 |
) |
|
|
231.6 |
|
|
|
(76.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuances
of debt |
|
|
— |
|
|
|
— |
|
|
|
297.6 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
297.6 |
|
Debt issuance costs |
|
|
— |
|
|
|
— |
|
|
|
(0.6 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(0.6 |
) |
Proceeds from debt
derivatives |
|
|
— |
|
|
|
— |
|
|
|
0.5 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.5 |
|
Repayments of debt |
|
|
— |
|
|
|
(100.0 |
) |
|
|
(228.7 |
) |
|
|
— |
|
|
|
(68.5 |
) |
|
|
— |
|
|
|
(397.2 |
) |
Borrowings from affiliates |
|
|
1,701.4 |
|
|
|
159.1 |
|
|
|
90.3 |
|
|
|
3.2 |
|
|
|
269.0 |
|
|
|
(2,223.0 |
) |
|
|
— |
|
Repayments of loans to
affiliates |
|
|
(1,336.1 |
) |
|
|
— |
|
|
|
(159.2 |
) |
|
|
(3.0 |
) |
|
|
(383.4 |
) |
|
|
1,881.7 |
|
|
|
— |
|
Other intercompany
financing activities |
|
|
(26.2 |
) |
|
|
(113.9 |
) |
|
|
558.6 |
|
|
|
(240.5 |
) |
|
|
(191.3 |
) |
|
|
13.3 |
|
|
|
— |
|
Dividends |
|
|
(170.3 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(170.3 |
) |
Dividends paid to affiliates |
|
|
(140.4 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
140.4 |
|
|
|
— |
|
Purchases of common shares |
|
|
(141.6 |
) |
|
|
— |
|
|
|
(375.6 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(517.2 |
) |
Issuance of stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
30.7 |
|
|
|
(30.7 |
) |
|
|
— |
|
Excess tax benefits from
stock options and awards |
|
|
— |
|
|
|
— |
|
|
|
10.2 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
10.2 |
|
Proceeds from exercise of
stock options and other |
|
|
13.3 |
|
|
|
— |
|
|
|
17.1 |
|
|
|
— |
|
|
|
— |
|
|
|
(13.3 |
) |
|
|
17.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used
in) financing activities |
|
|
(99.9 |
) |
|
|
(54.8 |
) |
|
|
210.2 |
|
|
|
(240.3 |
) |
|
|
(343.5 |
) |
|
|
(231.6 |
) |
|
|
(759.9 |
) |
Effect of exchange rate
changes on cash and cash
equivalents |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(34.1 |
) |
|
|
— |
|
|
|
(34.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash
and cash equivalents |
|
|
(1.3 |
) |
|
|
— |
|
|
|
58.5 |
|
|
|
2.4 |
|
|
|
(33.6 |
) |
|
|
— |
|
|
|
26.0 |
|
Cash and cash equivalents,
beginning of period |
|
|
1.3 |
|
|
|
— |
|
|
|
23.1 |
|
|
|
(1.1 |
) |
|
|
209.5 |
|
|
|
— |
|
|
|
232.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents,
end of period |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
81.6 |
|
|
$ |
1.3 |
|
|
$ |
175.9 |
|
|
$ |
— |
|
|
$ |
258.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F- 47
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Consolidating Statements of Cash Flows
Year Ended December 31, 2007
(in millions)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Cooper |
|
|
Cooper |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Industries, |
|
|
US, |
|
|
|
|
|
|
Other |
|
|
Consolidating |
|
|
|
|
| |
|
Cooper |
|
|
LLC |
|
|
Inc |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
Net cash provided by (used
in) operating activities |
|
$ |
(33.5 |
) |
|
$ |
(80.8 |
) |
|
$ |
(192.8 |
) |
|
$ |
329.1 |
|
|
$ |
773.3 |
|
|
$ |
— |
|
|
$ |
795.3 |
|
| |
Cash flows from investing
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments |
|
|
— |
|
|
|
— |
|
|
|
(93.7 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(93.7 |
) |
Cash restricted for business
acquisition |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(290.1 |
) |
|
|
— |
|
|
|
(290.1 |
) |
Capital expenditures |
|
|
— |
|
|
|
— |
|
|
|
(27.1 |
) |
|
|
(52.5 |
) |
|
|
(35.9 |
) |
|
|
— |
|
|
|
(115.5 |
) |
Cash paid for acquired
businesses |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(75.0 |
) |
|
|
(261.1 |
) |
|
|
— |
|
|
|
(336.1 |
) |
Investments in affiliates |
|
|
— |
|
|
|
— |
|
|
|
(356.0 |
) |
|
|
(16.1 |
) |
|
|
— |
|
|
|
372.1 |
|
|
|
— |
|
Loans to affiliates |
|
|
(222.4 |
) |
|
|
— |
|
|
|
(417.4 |
) |
|
|
— |
|
|
|
(1,070.6 |
) |
|
|
1,710.4 |
|
|
|
— |
|
Repayments of loans from
affiliates |
|
|
151.9 |
|
|
|
— |
|
|
|
— |
|
|
|
0.5 |
|
|
|
1,045.3 |
|
|
|
(1,197.7 |
) |
|
|
— |
|
Dividends from affiliates |
|
|
— |
|
|
|
— |
|
|
|
105.8 |
|
|
|
47.1 |
|
|
|
6.7 |
|
|
|
(159.6 |
) |
|
|
— |
|
Proceeds from sales of
property, plant and
equipment and other |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1.8 |
|
|
|
— |
|
|
|
1.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used
in) investing activities |
|
|
(70.5 |
) |
|
|
— |
|
|
|
(788.4 |
) |
|
|
(96.0 |
) |
|
|
(603.9 |
) |
|
|
725.2 |
|
|
|
(833.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuances
of debt |
|
|
— |
|
|
|
— |
|
|
|
528.7 |
|
|
|
— |
|
|
|
18.6 |
|
|
|
— |
|
|
|
547.3 |
|
Debt issuance costs |
|
|
— |
|
|
|
— |
|
|
|
(2.7 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2.7 |
) |
Proceeds from debt
derivatives |
|
|
— |
|
|
|
— |
|
|
|
10.0 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
10.0 |
|
Repayments of debt |
|
|
— |
|
|
|
(300.0 |
) |
|
|
— |
|
|
|
— |
|
|
|
(3.3 |
) |
|
|
— |
|
|
|
(303.3 |
) |
Borrowings from affiliates |
|
|
899.7 |
|
|
|
361.8 |
|
|
|
448.9 |
|
|
|
— |
|
|
|
— |
|
|
|
(1,710.4 |
) |
|
|
— |
|
Repayments of loans to
affiliates |
|
|
(710.3 |
) |
|
|
— |
|
|
|
(485.7 |
) |
|
|
— |
|
|
|
(1.7 |
) |
|
|
1,197.7 |
|
|
|
— |
|
Other intercompany
financing activities |
|
|
229.7 |
|
|
|
19.0 |
|
|
|
294.7 |
|
|
|
(231.4 |
) |
|
|
(201.8 |
) |
|
|
(110.2 |
) |
|
|
— |
|
Dividends |
|
|
(154.3 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(154.3 |
) |
Dividends paid to affiliates |
|
|
(114.7 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(44.9 |
) |
|
|
159.6 |
|
|
|
— |
|
Purchases of common shares |
|
|
(255.3 |
) |
|
|
— |
|
|
|
(88.6 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(343.9 |
) |
Issuance of stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
62.9 |
|
|
|
(62.9 |
) |
|
|
— |
|
Excess tax benefits from
stock options and awards |
|
|
— |
|
|
|
— |
|
|
|
25.8 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
25.8 |
|
Proceeds from exercise of
stock options and other |
|
|
199.0 |
|
|
|
— |
|
|
|
68.3 |
|
|
|
— |
|
|
|
— |
|
|
|
(199.0 |
) |
|
|
68.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used
in) financing activities |
|
|
93.8 |
|
|
|
80.8 |
|
|
|
799.4 |
|
|
|
(231.4 |
) |
|
|
(170.2 |
) |
|
|
(725.2 |
) |
|
|
(152.8 |
) |
Effect of exchange rate
changes on cash and cash
equivalents |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.4 |
|
|
|
— |
|
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash
and cash equivalents |
|
|
(10.2 |
) |
|
|
— |
|
|
|
(181.8 |
) |
|
|
1.7 |
|
|
|
(0.4 |
) |
|
|
— |
|
|
|
(190.7 |
) |
Cash and cash equivalents,
beginning of period |
|
|
11.5 |
|
|
|
— |
|
|
|
204.9 |
|
|
|
(2.8 |
) |
|
|
209.9 |
|
|
|
— |
|
|
|
423.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents,
end of period |
|
$ |
1.3 |
|
|
$ |
— |
|
|
$ |
23.1 |
|
|
$ |
(1.1 |
) |
|
$ |
209.5 |
|
|
$ |
— |
|
|
$ |
232.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F- 48
COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Consolidating Statements of Cash Flows
Year Ended December 31, 2006
(in millions)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Cooper |
|
|
Cooper |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Industries, |
|
|
US, |
|
|
|
|
|
|
Other |
|
|
Consolidating |
|
|
|
|
| |
|
Cooper |
|
|
LLC |
|
|
Inc |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
Net cash provided by (used
in) operating activities |
|
$ |
(20.9 |
) |
|
$ |
(18.8 |
) |
|
$ |
(11.7 |
) |
|
$ |
129.3 |
|
|
$ |
523.5 |
|
|
$ |
— |
|
|
$ |
601.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
— |
|
|
|
— |
|
|
|
(15.3 |
) |
|
|
(37.2 |
) |
|
|
(32.8 |
) |
|
|
— |
|
|
|
(85.3 |
) |
Cash paid for acquired
businesses |
|
|
— |
|
|
|
— |
|
|
|
(45.0 |
) |
|
|
(229.6 |
) |
|
|
(5.8 |
) |
|
|
— |
|
|
|
(280.4 |
) |
Investments in affiliates |
|
|
(12.3 |
) |
|
|
— |
|
|
|
(36.7 |
) |
|
|
— |
|
|
|
— |
|
|
|
49.0 |
|
|
|
— |
|
Loans to affiliates |
|
|
(192.0 |
) |
|
|
— |
|
|
|
(44.5 |
) |
|
|
— |
|
|
|
(539.1 |
) |
|
|
775.6 |
|
|
|
— |
|
Repayments of loans from
affiliates |
|
|
146.2 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
199.3 |
|
|
|
(345.5 |
) |
|
|
— |
|
Dividends from affiliates |
|
|
5.0 |
|
|
|
5.5 |
|
|
|
91.7 |
|
|
|
18.1 |
|
|
|
7.9 |
|
|
|
(128.2 |
) |
|
|
— |
|
Other |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1.0 |
|
|
|
17.9 |
|
|
|
— |
|
|
|
18.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used
in) investing activities |
|
|
(53.1 |
) |
|
|
5.5 |
|
|
|
(49.8 |
) |
|
|
(247.7 |
) |
|
|
(352.6 |
) |
|
|
350.9 |
|
|
|
(346.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of debt |
|
|
— |
|
|
|
(11.0 |
) |
|
|
— |
|
|
|
— |
|
|
|
(3.8 |
) |
|
|
— |
|
|
|
(14.8 |
) |
Borrowings from affiliates |
|
|
271.2 |
|
|
|
44.4 |
|
|
|
458.4 |
|
|
|
1.5 |
|
|
|
0.1 |
|
|
|
(775.6 |
) |
|
|
— |
|
Repayments of loans to
affiliates |
|
|
(47.3 |
) |
|
|
— |
|
|
|
(251.8 |
) |
|
|
(2.4 |
) |
|
|
(44.0 |
) |
|
|
345.5 |
|
|
|
— |
|
Other intercompany
financing activities |
|
|
13.0 |
|
|
|
(20.1 |
) |
|
|
83.7 |
|
|
|
120.0 |
|
|
|
(196.6 |
) |
|
|
— |
|
|
|
— |
|
Dividends |
|
|
(137.0 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(137.0 |
) |
Dividends paid to affiliates |
|
|
(98.6 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(29.6 |
) |
|
|
128.2 |
|
|
|
— |
|
Purchases of common shares |
|
|
20.1 |
|
|
|
— |
|
|
|
(284.3 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(264.2 |
) |
Issuance of stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
49.0 |
|
|
|
(49.0 |
) |
|
|
— |
|
Excess tax benefits from
stock options and awards |
|
|
— |
|
|
|
— |
|
|
|
26.8 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
26.8 |
|
Proceeds from exercise of
stock options and other |
|
|
— |
|
|
|
— |
|
|
|
89.2 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
89.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used
in) financing activities |
|
|
21.4 |
|
|
|
13.3 |
|
|
|
122.0 |
|
|
|
119.1 |
|
|
|
(224.9 |
) |
|
|
(350.9 |
) |
|
|
(300.0 |
) |
Effect of exchange rate
changes on cash and cash
equivalents |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
16.1 |
|
|
|
— |
|
|
|
16.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash
and cash equivalents |
|
|
(52.6 |
) |
|
|
— |
|
|
|
60.5 |
|
|
|
0.7 |
|
|
|
(37.9 |
) |
|
|
— |
|
|
|
(29.3 |
) |
Cash and cash equivalents,
beginning of period |
|
|
64.1 |
|
|
|
— |
|
|
|
144.4 |
|
|
|
(3.5 |
) |
|
|
247.8 |
|
|
|
— |
|
|
|
452.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents,
end of period |
|
$ |
11.5 |
|
|
$ |
— |
|
|
$ |
204.9 |
|
|
$ |
(2.8 |
) |
|
$ |
209.9 |
|
|
$ |
— |
|
|
$ |
423.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-49