<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(MARK ONE)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
OR
( ) 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 1-1175
---------------------------------------------------------
Cooper Industries, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 31-4156620
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1001 Fannin, Suite 4000 Houston, Texas 77002
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(713) 739-5400
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No .
----- -----
Number of shares outstanding of issuer's common stock as of October 31, 1994
was 115,432,298.
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
COOPER INDUSTRIES, INC.
CONSOLIDATED RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Third Quarter Ended
September 30,
-------------------------
(millions except per share data) 1994 1993
-------- --------
(restated)
(unaudited)
<S> <C> <C>
REVENUES . . . . . . . . . . . . . . . . . . . . . . $1,136.4 $1,232.7
COSTS AND EXPENSES
Cost of sales . . . . . . . . . . . . . . . . . . . 749.7 825.6
Depreciation and amortization . . . . . . . . . . . 50.2 49.2
Selling and administrative expenses. . . . . . . . . 190.0 197.7
Interest expense . . . . . . . . . . . . . . . . . . 18.8 21.0
Nonoperating gain from 1993 IPO of
Belden Inc. . . . . . . . . . . . . . . . . . . . - (273.8)
Nonrecurring expense . . . . . . . . . . . . . . . . - 273.8
-------- --------
1,008.7 1,093.5
-------- --------
Income from continuing operations before
income taxes . . . . . . . . . . . . . 127.7 139.2
Income taxes . . . . . . . . . . . . . . . . . . . . 51.9 55.9
-------- --------
Income from continuing operations . . . . . . . . . 75.8 83.3
Income (loss) from discontinued operations . . . . . (0.2) 15.6
Write-down of discontinued operations . . . . . . . (313.0) -
-------- --------
Net income (loss) . . . . . . . . . . . . . . . . . (237.4) 98.9
Preferred dividends . . . . . . . . . . . . . . . . 13.3 13.3
-------- --------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK . . . . $ (250.7) $ 85.6
======== ========
INCOME (LOSS) PER COMMON SHARE:
Primary:
Continuing operations . . . . . . . . . . . . . . $ 0.55 $ 0.61
Discontinued operations . . . . . . . . . . . . . (2.75) 0.14
-------- --------
Net income (loss) . . . . . . . . . . . . . . . . $ (2.20) $ 0.75
======== ========
Fully Diluted:
Continuing operations . . . . . . . . . . . . . . $ 0.55 $ 0.61
Discontinued operations . . . . . . . . . . . . . (2.75) 0.14
-------- --------
Net income (loss) . . . . . . . . . . . . . . . . $ (2.20) $ 0.75
======== ========
DIVIDENDS PER COMMON SHARE . . . . . . . . . . . . . $ 0.33 $ 0.33
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
-2-
<PAGE> 3
COOPER INDUSTRIES, INC.
CONSOLIDATED RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------
(millions except per share data) 1994 1993
-------- --------
(restated)
(unaudited)
<S> <C> <C>
REVENUES . . . . . . . . . . . . . . . . . . . . . . $3,348.1 $3,617.2
COSTS AND EXPENSES
Cost of sales . . . . . . . . . . . . . . . . . . . 2,211.6 2,404.5
Depreciation and amortization . . . . . . . . . . . 146.7 166.9
Selling and administrative expenses. . . . . . . . . 581.4 605.4
Interest expense . . . . . . . . . . . . . . . . . . 51.9 64.0
Nonoperating gain from 1993 IPO of
Belden Inc. . . . . . . . . . . . . . . . . . . . - (273.8)
Nonrecurring expense . . . . . . . . . . . . . . . . - 273.8
-------- --------
2,991.6 3,240.8
-------- --------
Income from continuing operations before
income taxes . . . . . . . . . . . . . . . . . . 356.5 376.4
Income taxes . . . . . . . . . . . . . . . . . . . . 149.2 152.6
-------- --------
Income from continuing operations . . . . . . . . . 207.3 223.8
Income from discontinued operations . . . . . . . . 0.3 41.1
Write-down of discontinued operations. . . . . . . . (313.0) -
-------- --------
Net income (loss) . . . . . . . . . . . . . . . . . (105.4) 264.9
Preferred dividends . . . . . . . . . . . . . . . . 39.9 39.8
-------- --------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK . . . . $ (145.3) $ 225.1
======== ========
INCOME (LOSS) PER COMMON SHARE:
Primary:
Continuing operations . . . . . . . . . . . . . . $ 1.47 $ 1.61
Discontinued operations . . . . . . . . . . . . . (2.74) 0.36
-------- --------
Net income (loss) . . . . . . . . . . . . . . . . $ (1.27) $ 1.97
======== ========
Fully Diluted:
Continuing operations . . . . . . . . . . . . . . $ 1.47 $ 1.61
Discontinued operations . . . . . . . . . . . . . (2.74) 0.36
-------- --------
Net income (loss) . . . . . . . . . . . . . . . . $ (1.27) $ 1.97
======== ========
DIVIDENDS PER COMMON SHARE:
Cash . . . . . . . . . . . . . . . . . . . . . . . $ 0.99 $ 0.99
Stock of Gardner Denver Machinery Inc. . . . . . . $ 1.321 -
</TABLE>
The accompanying notes are an integral part of these statements.
-3-
<PAGE> 4
COOPER INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September 30, December 31,
(millions) 1994 1993
------------- ------------
(unaudited) (restated)
<S> <C> <C>
ASSETS
Cash and cash equivalents . . . . . . . . . . . . $ 13.6 $ 13.0
Receivables . . . . . . . . . . . . . . . . . . . 872.7 801.3
Inventories . . . . . . . . . . . . . . . . . . . 1,017.9 904.2
Other . . . . . . . . . . . . . . . . . . . . . . 114.2 198.2
-------- --------
Total current assets. . . . . . . . . . . . . . 2,018.4 1,916.7
-------- --------
Net assets of Cameron Forged Products . . . . . . - 74.9
Net assets of discontinued operations . . . . . . 646.4 1,061.8
Plant and equipment, at cost, less accumulated
depreciation of $943.6 and $874.6 . . . . . . . 1,158.0 1,115.9
Intangibles, less accumulated amortization . . . 1,933.0 1,946.4
Deferred income taxes, investments and
other assets . . . . . . . . . . . . . . . . . 308.6 239.7
-------- --------
TOTAL ASSETS . . . . . . . . . . . . . . . . $6,064.4 $6,355.4
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term debt . . . . . . . . . . . . . . . . . $ 94.5 $ 99.7
Accounts payable and accrued liabilities . . . . 1,004.7 1,036.2
Accrued income taxes . . . . . . . . . . . . . . 10.5 107.1
Current maturities of long-term debt . . . . . . 10.2 157.8
-------- --------
Total current liabilities . . . . . . . . . . . 1,119.9 1,400.8
-------- --------
Long-term debt . . . . . . . . . . . . . . . . . 1,254.6 883.4
Postretirement benefits other than pensions . . . 632.7 634.5
Other long-term liabilities . . . . . . . . . . . 363.1 433.4
-------- --------
Total Liabilities . . . . . . . . . . . . . . 3,370.3 3,352.1
-------- --------
$1.60 Convertible Exchangeable Preferred stock . 33.3 33.2
Common stock . . . . . . . . . . . . . . . . . . 579.6 571.3
Capital in excess of par value . . . . . . . . . 1,199.4 1,122.1
Retained earnings . . . . . . . . . . . . . . . . 1,116.9 1,526.5
Unearned employee stock ownership plan
compensation . . . . . . . . . . . . . . . . . (164.1) (125.2)
Minimum pension liability . . . . . . . . . . . . (73.5) (73.6)
Translation component . . . . . . . . . . . . . . (14.6) (47.1)
Common stock held in treasury, at cost . . . . . (18.5) (3.9)
Unrealized gain on investments, net of taxes . . 35.6 -
-------- --------
Total Shareholders' Equity . . . . . . . . . 2,694.1 3,003.3
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . . $6,064.4 $6,355.4
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
-4-
<PAGE> 5
COOPER INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------
(millions) 1994 1993
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) . . . . . . . . . . . . . . . . . . . $(105.4) $ 264.9
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation . . . . . . . . . . . . . . . . . . . . 129.9 153.0
Amortization . . . . . . . . . . . . . . . . . . . . 71.1 76.6
Increase in deferred income taxes (1) . . . . . . . 33.9 36.0
Write-down of discontinued operations . . . . . . . 313.0 -
Nonoperating gain from 1993 IPO of Belden Inc. . . . - (164.3)
Nonrecurring expense . . . . . . . . . . . . . . . . - 164.3
Changes in assets and liabilities: (1)
Receivables . . . . . . . . . . . . . . . . . . . (12.5) (93.9)
Inventories . . . . . . . . . . . . . . . . . . . (122.3) 35.4
Accounts payable and accrued liabilities . . . . . (107.8) (105.2)
Accrued income taxes . . . . . . . . . . . . . . . (100.7) 25.3
Other assets and liabilities, net . . . . . . . . 6.8 21.4
------- -------
Net cash provided by operating activities . . . 106.0 413.5
------- -------
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . . . . . . (192.7) (205.1)
Proceeds from sales of plant and equipment . . . . . . . 26.1 21.5
Net cash from acquisitions and divestitures . . . . . . 1.2 (59.5)
Other . . . . . . . . . . . . . . . . . . . . . . . . . 0.1 (0.7)
------- -------
Net cash used for investing activities . . . . . (165.3) (243.8)
------- -------
Cash flows from financing activities:
Additions to debt . . . . . . . . . . . . . . . . . . . 484.8 167.8
Reductions of debt . . . . . . . . . . . . . . . . . . . (267.8) (204.7)
Dividends . . . . . . . . . . . . . . . . . . . . . . . (154.4) (152.4)
Purchase of treasury shares. . . . . . . . . . . . . . . (19.9) -
Activity under stock option and other plans . . . . . . 19.8 8.8
------- -------
Net cash provided by (used for) financing
activities . . . . . . . . . . . . . . . . . 62.5 (180.5)
------- -------
Effect of translation on cash and cash equivalents . . . . (2.6) 3.2
------- -------
Increase (decrease) in cash and cash equivalents . . . . 0.6 (7.6)
Cash and cash equivalents, beginning of period . . . . . . 13.0 17.8
------- -------
Cash and cash equivalents, end of period . . . . . . . . . $ 13.6 $ 10.2
======= =======
</TABLE>
(1) Net of effects of acquisitions, divestitures, translation and
nonrecurring income and expense items.
The statement of cash flows has been prepared for the Company's continuing and
discontinued operations before the September 30, 1994 reclassification of the
net assets of discontinued operations and before restatement of the December
31, 1993 balance sheet. Accordingly, the cash flows reflected above represent
the cash flows of both continuing and discontinued operations. The
accompanying notes are an integral part of these statements, including the
notes captioned "Interest and Taxes Paid" and "Noncash Investing and Financing
Activities."
-5-
<PAGE> 6
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Adjustments
The financial information presented as of any date other than December
31 has been prepared from the books and records without audit. Financial
information as of December 31 before any restatement has been derived from the
audited financial statements of the Company, but does not include all
disclosures required by generally accepted accounting principles. In the
opinion of management, all adjustments, consisting only of normal recurring
adjustments (see Notes 2 and 4), necessary for a fair presentation of the
financial information for the periods indicated, have been included.
Note 2. Discontinued Operations
Following a special Board of Directors meeting in mid-September 1994,
the Company announced its decision to establish its petroleum and industrial
equipment business as an independent, publicly traded company through an
exchange offer with Cooper's Common shareholders. Based on an exchange ratio
that will be determined prior to the commencement of the exchange offer,
Cooper's Common shareholders will be offered an opportunity to exchange some or
all of their Cooper Common stock for common stock of the newly formed company,
which will be called Cooper Cameron Corporation (Cooper Cameron). The exchange
is expected to be on a tax-free basis.
Because the transaction is being structured as an exchange of shares,
accounting rules required Cooper to charge its earnings for the difference
between the estimated fair market value of Cooper Cameron's equity and the
historical cost of the net assets of Cooper Cameron as reflected on Cooper's
consolidated financial statements. This charge, which amounted to $313 million
net of applicable taxes of $7.9 million ($2.74 per share), was recorded against
Cooper's third quarter 1994 reported earnings under the caption "Write-down of
discontinued operations." The charge, as required by the rules pertaining to a
"discontinued segment of a business," was computed as of the September 30, 1994
"measurement date" and included the estimated loss from the operations of the
business during the period from the measurement date until May 15, 1995, as
well as the estimated costs associated with separating Cooper Cameron from
Cooper. The Company currently estimates that the exchange offer will be
completed during the second quarter of 1995.
The operations that will comprise Cooper Cameron include Cooper Energy
Services, headquartered in Mount Vernon, Ohio; Cooper Oil Tool, headquartered
in Houston, Texas; Cooper Turbocompressor, headquartered in Buffalo, New York;
and Wheeling Machine Products, located in Pine Bluff, Arkansas. These
businesses, along with Gardner Denver Machinery Inc., Cameron Forged Products,
Gardner Denver Mining & Construction, Martin Decker and Funk Manufacturing,
constituted all of the significant operations that at one time or another were
included in the Petroleum & Industrial Equipment segment. Starting in 1989
with the sale of Funk and ending in the spring of 1994 with the spin-off of
Gardner Denver Machinery Inc. and the sale of Cameron Forged Products to Wyman-
Gordon Company, all of the operations other than those that will comprise
Cooper Cameron have been divested.
-6-
<PAGE> 7
As a consequence of treating this segment as "discontinued", the
Company's results of operations for all periods prior to September 30, 1994, as
presented herein and when presented elsewhere in the future, will exclude the
results of the Petroleum & Industrial Equipment segment from revenues and other
components of income from continuing operations. The discontinued segment
results prior to the "measurement date" will be presented separately in a
single, net-of-tax caption "Income (loss) from discontinued operations."
Results under the caption "Net income (loss)" remain unchanged.
In order to facilitate an understanding of Cooper's continuing
operations, the Company has elected to restate the Consolidated Balance Sheet
as of December 31, 1993 and the related footnote data as of that date to
segregate the net assets of the discontinued operations into the caption "Net
assets of discontinued operations."
As part of the restatement, the indebtedness allocated to the
discontinued operations (the $70 million of indebtedness that was assumed by
Gardner Denver Machinery Inc. in connection with that spin-off and the $375
million of debt that Cooper expects to include with Cooper Cameron at the time
of the exchange offer) has been considered to be fixed and to relate
historically to the discontinued operations. As a result, the income from
discontinued operations reflects interest expense on $445 million of debt at
the relevant Cooper interest rate during each period presented. The interest
rates utilized are the actual rates for borrowings specifically identifiable
with the respective businesses, with Cooper's average cost of commercial paper
borrowing applied to the residual. Actual cash provided by or utilized in the
discontinued operations, including the payment by Cooper of all U.S. Federal,
foreign and state and local income taxes related to the discontinued
operations, was provided by or used in Cooper's continuing operations such that
the indebtedness of the discontinued operations remains constant from year to
year.
In the course of restating information for 1993 in order to separate
the continuing and discontinued operations and to reflect better information
regarding certain items originally recorded on an estimated basis, the offset
to the $274-million Belden gain (see Note 2 of the Notes to Consolidated
Financial Statements in the Company's 1993 Annual Report on Form 10-K) and a
year-end reserve reclassification have been realigned as between continuing and
discontinued operations. As a result, $65 million has been utilized to cover
the loss, as finally determined, for the sale of Cameron Forged Products; $126
million relates to reserves with respect to productivity and consolidation
programs, including the accrual related to exiting the large power transformer
business; $65 million relates to the reduction in the depreciable value of the
machinery and equipment and other fixed assets related to the production of
transformers; and $18 million relates to a reduction in the carrying value of
the Company's in-house developed software associated with continuing
operations. The management programs for the discontinued operations, which
have been scaled back pending completion of the exchange offer, and software
reductions related to the discontinued operations reflect the utilization of
reserves for which the previous requirements were resolved in the fourth
quarter of 1993.
Revenues for the discontinued operations during the nine months ended
September 30, 1994, including revenues from Gardner Denver Machinery Inc.
through April 15, 1994, amounted to $861.2 million compared with $1,058.1
million in 1993, which included Gardner Denver Machinery Inc. for the entire
nine-month period. Revenues included in discontinued operations related to
Gardner Denver Machinery Inc. amounted to $46.3 million in 1994 and $114.1
million in 1993.
-7-
<PAGE> 8
Note 3. Accounting Policies
The following is an expansion of the Company's policy with respect to
Intangibles as disclosed in the Company's Annual Report on Form 10-K for the
year ended December 31, 1993.
The carrying value of the Company's goodwill is reviewed at least
annually or whenever there are indications that the goodwill may be impaired.
If this review indicates that goodwill will not be recoverable, as determined
based on undiscounted cash flows over the remaining amortization periods, the
carrying value of the goodwill will be reduced by the estimated shortfall in
cash flows. The 1994 review did not indicate any impairment.
For further information regarding the Company's accounting policies,
refer to the Consolidated Financial Statements and related notes included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1993.
Note 4. Acquisitions and Divestitures
In addition to the transaction discussed in Note 2, during the second
half of 1993 and the first half of 1994, the Company completed the following
significant transactions: (1) an initial public offering of 90.4% of the stock
of Belden Inc. (formerly the Company's Belden wire and cable business, which
was included in the Electrical Products segment) closed on October 6, 1993;
(2) a spinoff to the Company's Common shareholders of the stock of Gardner
Denver Machinery Inc. (formerly the Company's Gardner-Denver Industrial
Machinery Division, which has been included in the amounts with respect to
discontinued operations) was completed on April 15, 1994; and (3) the sale of
the Cameron Forged Products Division to Wyman-Gordon Company was completed on
May 26, 1994. Each of these transactions is described in further detail in
Note 2 of the Notes to Consolidated Financial Statements included in the
Company's 1993 Annual Report on Form 10-K.
The following table sets forth the revenues of Belden and Cameron
Forged Products that were included in Cooper's continuing operations for the
periods indicated:
<TABLE>
<CAPTION>
Third Quarter Nine Months
Ended Ended
September 30, September 30,
----------------------- ----------------------
(millions) 1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Belden . . . . . . . . . . . . . . $ - $ 92.6 $ - $ 279.8
Cameron Forged Products . . . . . . - 38.1 - 109.8
</TABLE>
On Cooper's accounting basis, Belden reported pretax profits of $14.3
million for the three months and $39.5 million for the nine months ended
September 30, 1993. Cameron Forged Products operated at or near breakeven
levels on a Cooper basis during the periods presented above.
-8-
<PAGE> 9
At the Company's Annual Meeting on April 26, 1994, the Company
announced its intention to exit the manufacture of large power transformers by
the end of 1994. This business has been underperforming in recent years
because of deteriorating market conditions and high, fixed overhead costs
associated with manufacturing these highly engineered products. In addition,
the markets with the best prospects for future growth are outside the U.S.,
while the Company's large power transformer operations primarily serve the
domestic markets. This action is not expected to have a significant impact on
the Company's other power equipment product lines, nor is it expected to have a
significant impact on the Company's 1994 operating results. The large power
transformer product line had approximately $71 million in revenues during 1993
and operated at a loss.
During the first nine months of 1994, the Company completed four small
acquisitions and one small divestiture in addition to the divestitures
discussed above. All of the acquisitions have been accounted for as purchases
and the aggregate cash paid for these businesses was approximately $26 million.
Cooper acquired the ignition components business of Magneti Marelli of
Milan, Italy. Magneti produces diesel glow plugs and spark plugs and is
included in the Automotive Products segment. Cooper also acquired three small
fuse manufacturers, one in the United Kingdom, one in Mexico and one in the
United States. These businesses have been incorporated into the Electrical
Products segment.
Cooper also completed the sale of a small operation in the Automotive
Products segment that was initially acquired as part of the Moog acquisition in
1992.
Note 5. Changes in Accounting Principles
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 115 (Accounting for Certain Investments in Debt
and Equity Securities). In accordance with the provisions of the new standard,
the Company's 9.6% investment in Belden Inc. was written up to a fair market
value of $46.6 million at January 1, 1994, with an offsetting adjustment to
shareholders' equity of $20.5 million, net of taxes. At September 30, 1994,
the recorded fair market value of the investment in Belden was $52.2 million
and the adjustment to shareholders' equity, net of tax, was $23.9 million. The
Company's investment in Wyman-Gordon Company, which is also accounted for as a
marketable equity security, is recorded at its fair market value at September
30, 1994 of $96.9 million, with a credit to shareholders' equity, net of tax,
of $11.7 million for the unrealized gain. Although the sale of both stocks is
restricted for a period of time, the Company has certain registration rights
with respect to these stocks.
Note 6. Interest and Taxes Paid
Total interest paid during the first nine months of 1994 and 1993
amounted to $80.4 million and $90.4 million, respectively. Cash payments for
income taxes during the first nine months of 1994 and 1993 amounted to $197.4
million and $119.0 million, respectively.
-9-
<PAGE> 10
Note 7. Inventories
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
------------- ------------
(millions) (restated)
<S> <C> <C>
Raw materials . . . . . . . . . . . . . . . $ 281.4 $ 264.7
Work-in-process . . . . . . . . . . . . . . 218.8 200.6
Finished goods . . . . . . . . . . . . . . 567.7 488.1
Perishable tooling and supplies . . . . . . 56.9 53.1
-------- --------
1,124.8 1,006.5
Less allowances (primarily LIFO
reserves) . . . . . . . . . . . . . . . . (106.9) (102.3)
-------- --------
$1,017.9 $ 904.2
======== ========
</TABLE>
Note 8. Long-Term Debt
At September 30, 1994, approximately $1.2 billion of commercial paper
and bank loans (including amounts allocated to discontinued operations) were
reclassified to long-term debt, reflecting the Company's intention to refinance
this amount during the twelve-month period following the balance sheet date
through either continued short-term borrowing or utilization of available
revolving bank credit facilities. A total of $375 million of indebtedness at
September 30, 1994 and $445 million at December 31, 1993 was allocated to the
discontinued operations.
In mid-1994, the Company established a new U.S. committed credit
facility totaling $600 million that expires in 1995. This facility replaced
$510 million of U.S. committed credit facilities that the Company canceled
during 1994. At September 30, 1994, the Company had U.S. committed credit
facilities of $1,250 million that expire in 1997 and $600 million that expire
in 1995. The Company also had Pounds Sterling facilities totaling 25 million
Pounds Sterling that expire in 1996 and 30 million Pounds Sterling that expire
in 1995.
Note 9. Additional Common Stock Sold to Employee Stock Ownership Plan
During the first quarter of 1994, the Company sold an additional
1,590,156 shares of Common stock to its employee stock ownership plan (ESOP) in
exchange for an $82.3 million note payable by the ESOP to the Company. This
loan is eliminated for accounting purposes.
-10-
<PAGE> 11
Note 10. Noncash Investing and Financing Activities
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------
(millions) 1994 1993
------ ------
<S> <C> <C>
Increase (decrease) in net assets:
Employee stock ownership plan:
Principal payments and difference between
Company expense and cash contribution . . . $ 43.4 $ 20.6
Unearned ESOP compensation . . . . . . . . . . (82.3) -
Common stock issued for:
Employee stock ownership plan . . . . . . . . 82.3 23.6
Executive restricted stock incentive plan . . .4 -
Acquisitions . . . . . . . . . . . . . . . . . - .3
Unrealized gain on investments, net of tax:
Adoption of SFAS No. 115 . . . . . . . . . . . 20.5 -
Change in unrealized value of investment in
Belden Inc. . . . . . . . . . . . . . . . . 3.4 -
Investment in Wyman-Gordon Company . . . . . . 11.7 -
Distribution of stock in Gardner Denver
Machinery Inc. . . . . . . . . . . . . . . . . (152.9) -
$1.60 Convertible Exchangeable Preferred
stock issued for conversions of 7%
debentures . . . . . . . . . . . . . . . . . . 3.5 2.9
</TABLE>
Note 11. Industry Segment Revenues
<TABLE>
<CAPTION>
Third Quarter Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
1994 1993 1994 1993
-------- -------- -------- --------
(millions)
<S> <C> <C> <C> <C>
Electrical Products . . . . . $ 522.1 $ 577.4 $1,488.1 $1,662.2
Tools & Hardware . . . . . . 222.8 202.8 651.2 591.4
Automotive Products . . . . . 381.7 414.0 1,182.4 1,248.1
Other . . . . . . . . . . . . 9.8 38.5 26.4 115.5
-------- -------- -------- --------
$1,136.4 $1,232.7 $3,348.1 $3,617.2
======== ======== ======== ========
</TABLE>
The Electrical Power Equipment segment has been included with the
Electrical Products segment, reflecting the manner in which the business is
managed and reported to the Company's Board of Directors. The 1993 revenues
related to Cameron Forged Products, which has not been treated as part of the
discontinued operations because of Cooper's ongoing interest in Wyman-Gordon
Company, have been included in Other above.
-11-
<PAGE> 12
Note 12. Income (Loss) Per Common Share
Primary and fully diluted income (loss) per Common share is computed
based on the following information:
<TABLE>
<CAPTION>
Third Quarter Nine Months
Ended Ended
September 30, September 30,
---------------------- --------------------
(millions) 1994 1993 1994 1993
------- ------- ------- ------
<S> <C> <C> <C> <C>
Income from continuing
operations . . . . . . . . . . $ 75.8 $ 83.3 $ 207.3 $223.8
Dividends applicable to $1.60
Convertible Exchangeable
Preferred stock . . . . . . . (13.3) (13.3) (39.9) (39.8)
------- ------- ------- ------
Income from continuing operations
applicable to Common stock . . 62.5 70.0 167.4 184.0
Income from discontinued
operations . . . . . . . . . . (0.2) 15.6 0.3 41.1
Write-down of discontinued
operations . . . . . . . . . . (313.0) - (313.0) -
------- ------- ------- ------
$(250.7) $ 85.6 $(145.3) $225.1
======= ======= ======= ======
Average Common share and
Common share equivalents . . . . 114.1 114.3 114.2 114.1
======= ======= ======= ======
</TABLE>
Note 13. Quarterly Financial Information
The following table provides restated quarterly information for the
first two quarters of 1994 and 1993.
<TABLE>
<CAPTION>
Quarterly Period
--------------------------------------------------------
First Second First Second
1994 1994 1993 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . $1,037.8 $1,173.9 $1,150.3 $1,234.2
Gross margin . . . . . . . . . . . 345.5 404.3 380.6 425.0
Income from continuing operations . 52.2 79.3 56.8 83.7
Discontinued operations . . . . . . (3.8) 4.3 6.3 19.2
Net income . . . . . . . . . . . . 48.4 83.6 63.1 102.9
Net income applicable to Common . . 35.1 70.3 49.8 89.7
Income (loss) per Common share:
Primary:
Continuing operations . . $0.34 $0.58 $0.38 $0.62
Discontinued operations . (0.03) 0.04 0.06 0.17
----- ----- ----- -----
Net income . . . . . $0.31 $0.62 $0.44 $0.79
===== ===== ===== =====
Fully diluted:
Continuing operations . . $0.34 $0.58 $0.38 $0.63
Discontinued operations . (0.03) 0.04 0.06 0.15
----- ----- ----- -----
Net income . . . . . $0.31 $0.62 $0.44 $0.78
===== ===== ===== =====
</TABLE>
-12-
<PAGE> 13
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Results of Operations:
Third Quarter Ended September 30, 1994 Compared With Third Quarter Ended
September 30, 1993
Income from continuing operations for the third quarter of 1994
declined 9% to $75.8 million (55 cents per fully diluted share) on revenues of
$1.14 billion, compared with restated 1993 income from continuing operations of
$83.3 million (61 cents per fully diluted share) on revenues of $1.23 billion.
The third quarter of 1993's results included net-of-tax earnings of $8.6
million, or 8 cents per share, and revenues of $92.6 million from the Company's
former Belden operations. Excluding the impact of Belden, the Company
benefited from further expansion of the domestic economy, a modest recovery in
some of its major international markets and lower interest expense. All
comparative 1993 amounts have been restated to separate the Company's Petroleum
& Industrial Equipment segment as a discontinued operation, except for the
Cameron Forged Products Division that was sold to Wyman-Gordon Company in May
1994. See Notes 2 and 4 of the Notes to Consolidated Financial Statements
under Item 1. for further information. In addition, the Electrical Power
Equipment segment has been combined with the Electrical Products segment.
Net income for the third quarter included a loss from the discontinued
Petroleum & Industrial Equipment businesses of $0.2 million and a $313-million,
noncash, net-of-tax earnings charge for the estimated loss on the disposition
of the segment (see Note 2 of the Notes to Consolidated Financial Statements
under Item 1. for further information). Including the earnings charge and the
results of the discontinued segment, the Company posted a third-quarter net
loss of $237.4 million, or $2.20 per share. Third-quarter 1993 net income was
$98.9 million, or 75 cents per share, which included $15.6 million of income
from the discontinued operations. The income from the discontinued operations
declined because of the impact of depressed worldwide petroleum equipment
markets.
Revenues:
Revenues from continuing operations declined 8% from a restated $1.23
billion in the third quarter of last year to $1.14 billion for the current year
quarter. Excluding the effects of several 1993 and early-1994 divestitures,
revenues were up about 6%. The divestitures include the Belden wire and cable
business in the Electrical Products segment, two small operations in the
Automotive Products segment and the Cameron Forged Products business, which is
included in Other corporate revenues in the restated 1993 period (see Note 11
of the Notes to Consolidated Financial Statements under Item 1.). The
discussion of each segment's revenues in the paragraphs that follow relates to
the performance of the segment's ongoing operations (i.e., for computation of
quarter-to-quarter changes, all numbers have been adjusted to exclude divested
businesses). See Notes 2 and 4 of the Notes to Consolidated Financial
Statements included under Item 1. for further information.
The Tools & Hardware segment reported a 10% increase in revenues
compared with the third quarter of 1993. The continued strength in residential
construction activity and industrial production has been beneficial to domestic
hand tool, power tool and drapery hardware operations. European demand for the
Company's hand and air-powered tools also appears to be recovering, although
the impact at present is moderate. While home sales and housing turnover have
helped
-13-
<PAGE> 14
some parts of the window treatments business, competitive industry conditions
have eroded performance of this product line.
The Electrical Products segment continues to benefit from relatively
steady demand for maintenance, repair and renovation needs. As a result,
revenues improved 8% over the third quarter of 1993. The growing domestic
economy led to strength in industrial production and commercial and residential
construction and prompted sales growth for lighting fixtures and electrical
circuit protection equipment. The combination of several successful product
introductions and recent product-line acquisitions also added to revenue growth
during the quarter.
Revenues in the Automotive Products segment were flat compared with
the third quarter of last year. Domestic sales of wipers, spark plugs and
automotive lighting to original equipment manufacturers (OEMs) have risen as a
result of the continued strength in new car production activity. The hot
summer weather also contributed to improved demand for temperature control
products. European OEM and aftermarket demand has also exhibited signs of
recovery, but remains at relatively low levels. These effects were partially
offset by competitive pricing in the domestic automotive aftermarket and
disruptions from business consolidation activities.
Operating Income:
Income from continuing operations before interest and taxes declined
from $160.2 million in the restated third quarter of 1993 to $146.5 million for
the 1994 quarter. Excluding $14.3 million of operating income from the Belden
operations in 1993, earnings were flat as the moderate growth of the U.S.
economy was essentially offset by the general weakness in some international
markets. The other divestitures discussed above did not significantly affect
the comparative earnings performance. The paragraphs below explain the
performance of each segment's ongoing operations.
Operating earnings in the Tools & Hardware segment were up moderately
from the prior-year quarter. Earnings were favorably affected by the effects
of sales improvements for domestic hand and power tools, which more than offset
the effects of competitive market conditions for the window treatment products
and the impact of several plant consolidation programs. Cost controls also
contributed to an improved gross margin percentage (defined as revenues less
cost of sales, as a percentage of revenues).
Operating earnings in the Electrical Products segment declined
modestly from the third quarter of 1993. The ongoing closure of the large
power transformer plant, competitive conditions in some markets and the
temporary effects of consolidation actions had a negative impact on earnings.
In addition the gross margin percentage for this segment was slightly lower
than the prior-year quarter because of a less favorable sales mix. Benefits
from the introduction of new products, strategic acquisitions and cost
realignments partially offset the earnings downturn.
Earnings from the Automotive Products segment declined moderately from
last year. The decline was due to the effects of competitive market price
levels and the near-term effects of several business consolidation actions.
-14-
<PAGE> 15
Interest and Taxes:
Interest expense was $18.8 million in the current-year quarter, a
decline of 10% from the $21.0 million in the third quarter of 1993. The lower
interest expense was due to lower debt levels during the current quarter than
during the third quarter of last year, which more than offset the effects of
slightly higher rates in the current year.
The effective tax rate for continuing operations (income tax expense
as a percentage of income from continuing operations before income taxes)
increased to 40.6% from 40.2% in the prior-year quarter. See the nine-month
discussion for explanation, which applies to both the nine-month and
third-quarter comparisons.
Nine Months Ended September 30, 1994 Compared With Nine Months Ended
September 30, 1993
Income from continuing operations was $207.3 million, or $1.47 per
share, compared with restated income from continuing operations of $223.8
million, or $1.61 per share, in 1993. Year-to-date revenues for the nine-month
period were $3.35 billion, compared with $3.62 billion in the comparable 1993
period. The 1993 period included after-tax earnings of $23.7 million (or 21
cents per share) and revenues of $279.8 million related to the Belden
operations. Excluding the impact of Belden, the earnings improvement for the
nine months was caused by the same factors discussed in the quarter-to-quarter
comparison above.
For the nine-month period, the net loss, after the $313-million
earnings charge discussed in the quarterly comparison above, was $105.4
million, or $1.27 per share. The Company reported net income of $264.9
million, or $1.97 per share, in the 1993 period.
Revenues:
Revenues from continuing operations declined 7% to $3.35 billion,
compared with restated nine-month revenues of $3.62 billion in 1993. Excluding
the effects of the divestitures noted above, revenues were up 6%.
The discussion of each segment's revenues in the paragraphs that follow
relates to the performance of the segment's ongoing operations. See Notes 2
and 4 of the Notes to Consolidated Financial Statements included under Item 1.
for further information.
The Tools & Hardware segment reported a 10% increase in revenues
compared with the first nine months of 1993. Sales of hand and power tools
continued to benefit from strength in residential construction activity and
industrial production. Recent product-line acquisitions also aided the
comparison. Demand in international markets also improved slightly compared
with the prior year. Weak demand and competitive conditions in window
coverings markets continued to provide a partial offset to these factors.
Revenues in the Electrical Products segment improved 8% over the first
three quarters of 1993. Modest improvements in industrial production and
housing construction promoted sales growth of fuses and lighting fixtures.
Several successful product introductions and product-line acquisitions also
enhanced the performance versus the prior year.
-15-
<PAGE> 16
Revenues for the Automotive Products segment were essentially
unchanged compared with the first nine months of 1993. Higher domestic sales
to original equipment manufacturers were spurred by the continued rise in
automotive production activity. The hot summer weather also led to improved
sales of temperature control products. This improvement was essentially offset
by weak demand for spark plugs and wiper products in European and Latin
American markets and competitive pricing in the domestic automotive
aftermarket.
Operating Income:
Income from continuing operations before interest and taxes declined
7% to $408.4 million for the first nine months of 1994, compared with $440.4
million in 1993. Excluding $39.5 million of operating income from the Belden
wire and cable business included in 1993's period, the Company experienced a
modest improvement, reflecting the same factors that caused the quarter-to-
quarter performance as discussed above. The other divestitures discussed above
did not significantly affect the comparative performance. The paragraphs below
explain the performance of each segment's ongoing operations.
Operating earnings in the Tools & Hardware segment increased
moderately due to the higher revenues and to cost controls that resulted in an
improved percentage of selling and administrative expenses per sales dollar.
This segment continued to focus on facility rationalization and integration of
recent acquisitions.
Operating earnings in the Electrical Products segment were flat
compared with 1993. The favorable effects of the higher sales were essentially
offset by the short-term impact of facility consolidations, competitive
conditions in some markets, increased overhead costs to support several product
promotions and the inclusion in 1993 of income from employee benefit plan
changes that do not recur in 1994. These factors had a negative effect on the
comparative gross margin percentage and on selling and administrative expenses
as a percentage of revenues.
Earnings from the Automotive Products segment declined moderately
compared with the first nine months of 1993. The decline was due to the
effects of adverse industry pricing conditions in aftermarket brakes and the
near-term effects of several business consolidation actions. As a result, the
gross margin percentage declined slightly.
Interest and Taxes:
Interest expense was $51.9 million in the first nine months of 1994,
compared with $64.0 million in the comparable 1993 period. The decrease was
attributable to lower debt levels compared with the 1993 nine-month period as
discussed in the quarter-to-quarter comparison.
The effective tax rate for continuing operations (income tax expense
as a percentage of income from continuing operations before income taxes) was
41.9%, compared with 40.5% for the first nine months of 1993. This
1.4-percentage-point increase is primarily attributable to the change in the
U.S. Federal tax rate from 34% to 35%, which entered into the effective rate
calculation beginning in the third quarter of 1993. In 1993, the rate increase
was offset by a credit related to adjusting the deferred tax balances for the
rate change, while in 1994 there is no such offset.
-16-
<PAGE> 17
Financial Position and Liquidity & Capital Resources:
"Operating working capital" for Cooper's continuing operations
(defined as receivables and inventories less accounts payable and accrued
liabilities, excluding the initial effects of acquisitions, divestitures and
foreign currency translation) increased $216.9 million during the first nine
months of 1994. Receivables and inventories increased and accounts payable and
accrued liabilities decreased in generating the additional working capital.
Receivables increased primarily in the Automotive Products segment, while the
higher inventory levels related to inventory build-ups to improve customer
service levels and temporary increases to support various plant consolidations
and distribution realignments throughout the company. The decrease in accounts
payable and accrued liabilities was the result of normal operating activities,
including spending with respect to a series of management programs commencing
in the third quarter of 1992. While the current levels of operating working
capital do not, in management's judgment, act to seriously constrain the
Company's overall liquidity or capital resources, they do represent an area of
opportunity for significant future reductions. Realization of these reductions
is a matter that will be receiving increased levels of management attention.
"Other" under current assets declined $84.0 million from the prior
year end, due primarily to utilization of certain prepaid medical and dental
amounts and the sale of a small Automotive Products operation that had been
carried in other current assets as a business held for sale. "Net assets of
Cameron Forged Products" declined from a restated $74.9 million to zero on the
completion of the sale of Cameron Forged Products Company to Wyman-Gordon
Company during the second quarter of 1994. "Net assets of discontinued
operations" declined from $1,161.8 million to $646.4 million reflecting the
distribution of the stock of Gardner Denver Machinery Inc. to Cooper's Common
shareholders and the write-down of the Petroleum & Industrial Equipment segment
to fair market value (see Notes 2 and 4 of the Notes to Consolidated Financial
Statements under Item 1.). "Deferred income taxes, investments and other
assets" increased $68.9 million primarily as a result of recording, at fair
market value, the Company's investment in the common stock of Wyman-Gordon
Company received in connection with the sale of Cameron Forged Products, and
the write-up of the investment in Belden Inc. to its fair market value. A
$35.6 million (net of tax) credit is included in shareholders' equity for the
unrealized gain associated with these investments (see Note 5 of the Notes to
Consolidated Financial Statements under Item 1. for more information).
"Accrued income taxes" declined $96.6 million from December 31, 1993 primarily
because of the payment of the tax with respect to the gain on the 1993 sale of
Belden, which was not due until the first quarter of 1994. "Other long-term
liabilities" decreased $70.3 million due to reclassifications of items that
have become current to accounts payable and accrued liabilities. The remaining
increases and decreases in the components of the Company's financial position
reflect normal operating activities.
In spite of the increase in operating working capital, the Company
generated operating cash flows of $106.0 million and proceeds from sales of
plant and equipment of $26.1 million, which allowed the funding of capital
expenditures of $192.7 million and dividends of $154.4 million with an increase
in indebtedness of $217.0 million.
-17-
<PAGE> 18
As discussed further in Note 2 of the Notes to the Consolidated
Financial Statements included under Item 1., the Company is in the process of
establishing its petroleum and industrial equipment business as an independent,
publicly traded company (Cooper Cameron Corporation). This process is expected
to be completed during the second quarter of 1995. At that time, the Company
will no longer benefit from or be the source of cash flows for the businesses
being split-off. In years prior to 1994, the businesses that will comprise
Cooper Cameron have generated significant earnings and cash flows from those
earnings, however, the majority of these cash flows were utilized within such
businesses to fund internal working capital requirements, capital additions,
major reorganizations and business realignments. In the first nine months of
1994, the petroleum and industrial equipment businesses had a small cash
utilization. Cooper does not believe that the exchange offer will have an
adverse effect on its financial position, liquidity or access to capital
resources.
In October 1993, the Company's Board of Directors approved a common
stock repurchase program to provide shares for existing employee stock
purchase, option and incentive plans; for the Company's Dividend Reinvestment
and Stock Purchase Plan; and for anticipated conversions of its $1.60
Convertible Exchangeable Preferred stock. Through September 30, 1994,
approximately 625,000 shares of the Company's Common stock had been repurchased
under this program, of which approximately 126,000 shares had been reissued for
the various stock option, incentive and dividend repurchase plans.
Earnings Outlook:
The Company's outlook for the year remains relatively unchanged.
Excluding the impact of separating the Petroleum & Industrial Equipment
operations, the Company expects earnings from continuing operations to be about
five percent lower than last year's earnings. On a restated basis, Cooper's
1993 share earnings from continuing operations were $2.15, including a 22-cent
contribution from the divested Belden Division.
Backlog:
Sales backlog, which represents the dollar amount of all firm open
orders for which all terms and conditions pertaining to the sale have been
approved such that a future sale is reasonably expected, was approximately $375
million for continuing operations at September 30, 1994, compared with $370
million at June 30, 1994. Sales backlog by segment was as follows:
<TABLE>
<CAPTION>
September 30,
(millions) 1994
-------------
<S> <C>
Electrical Products . . . . . . . . . . . . . . . . $232.5
Tools & Hardware . . . . . . . . . . . . . . . . . . 68.6
Automotive Products . . . . . . . . . . . . . . . . 73.9
------
$375.0
======
</TABLE>
-18-
<PAGE> 19
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K:
(a). Exhibits
The following document is included as an Exhibit to this
report as required by the Securities and Exchange Commission.
27. Financial Data Schedule for the quarter ended September
30, 1994.
(b). Reports on Form 8-K
The Company filed a Form 8-K on September 19, 1994 in order to file
with the Securities and Exchange Commission press releases dated that date
announcing the Company's decision to establish its petroleum and industrial
equipment business as an independent, publicly traded company through an
exchange offer with its Common shareholders and the creation of an Office of
the Chairman.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Cooper Industries, Inc.
(Registrant)
Date November 14, 1994 /s/ D. Bradley McWilliams
D. Bradley McWilliams
Vice President, Finance
and authorized to sign
on behalf of the Registrant
Date November 14, 1994 /s/ Joseph D. Chamberlain
Joseph D. Chamberlain
Controller, Accounting and
Chief Accounting Officer
-19-
<PAGE> 20
EXHIBIT INDEX
Exhibit No.
27. Financial Data Schedule for the quarter ended September
30, 1994.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 13,600
<SECURITIES> 0
<RECEIVABLES> 872,700
<ALLOWANCES> 0
<INVENTORY> 1,017,900
<CURRENT-ASSETS> 2,018,400
<PP&E> 2,101,600
<DEPRECIATION> 943,600
<TOTAL-ASSETS> 6,064,400
<CURRENT-LIABILITIES> 1,119,900
<BONDS> 1,254,600
<COMMON> 579,600
0
33,300
<OTHER-SE> 2,081,200
<TOTAL-LIABILITY-AND-EQUITY> 6,064,400
<SALES> 3,348,100
<TOTAL-REVENUES> 3,348,100
<CGS> 2,211,600
<TOTAL-COSTS> 2,211,600
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 51,900
<INCOME-PRETAX> 356,500
<INCOME-TAX> 149,200
<INCOME-CONTINUING> 207,300
<DISCONTINUED> (312,700)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (105,400)
<EPS-PRIMARY> (1.27)
<EPS-DILUTED> (1.27)
</TABLE>
