<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 June 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.
X
Yes ____ No _____.
Number of shares outstanding of issuer's common stock as of June 30, 1994 was
115,399,481.
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
COOPER INDUSTRIES, INC.
CONSOLIDATED RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Second Quarter Ended
June 30,
----------------------------
(millions except per share data) 1994 1993
-------- --------
<S> <C> <C>
REVENUES . . . . . . . . . . . . . . . . . . . . . . $1,473.6 $1,611.7
-------- --------
COSTS AND EXPENSES
Cost of sales . . . . . . . . . . . . . . . . . . . 995.2 1,078.2
Depreciation and amortization . . . . . . . . . . . 66.5 81.5
Selling and administrative expenses . . . . . . . . 244.0 251.7
Interest expense . . . . . . . . . . . . . . . . . . 21.5 25.7
-------- --------
1,327.2 1,437.1
-------- --------
Income before income taxes . . . . . . . . . . . . 146.4 174.6
Income taxes . . . . . . . . . . . . . . . . . . . . 62.8 71.7
-------- --------
Net income . . . . . . . . . . . . . . . . . . . . . 83.6 102.9
Preferred dividends . . . . . . . . . . . . . . . . 13.3 13.2
-------- --------
NET INCOME APPLICABLE TO COMMON STOCK . . . . . . . $ 70.3 $ 89.7
======== ========
INCOME PER COMMON SHARE:
Primary . . . . . . . . . . . . . . . . . . . . . $ .62 $ .79
Fully diluted . . . . . . . . . . . . . . . . . . $ .62 $ .78
DIVIDENDS PER COMMON SHARE . . . . . . . . . . . . . $ .33 $ .33
</TABLE>
The accompanying notes are an integral part of these statements.
- 2 -
<PAGE> 3
COOPER INDUSTRIES, INC.
CONSOLIDATED RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------------
(millions except per share data) 1994 1993
-------- --------
<S> <C> <C>
REVENUES . . . . . . . . . . . . . . . . . . . . . . $2,790.5 $3,082.9
-------- --------
COSTS AND EXPENSES
Cost of sales . . . . . . . . . . . . . . . . . . . 1,904.1 2,083.1
Depreciation and amortization . . . . . . . . . . . 134.1 161.9
Selling and administrative expenses . . . . . . . . 478.7 504.0
Interest expense . . . . . . . . . . . . . . . . . . 42.4 52.2
-------- --------
2,559.3 2,801.2
-------- --------
Income before income taxes . . . . . . . . . . . . 231.2 281.7
Income taxes . . . . . . . . . . . . . . . . . . . . 99.2 115.7
-------- --------
Net income . . . . . . . . . . . . . . . . . . . . 132.0 166.0
Preferred dividends . . . . . . . . . . . . . . . . 26.6 26.5
-------- --------
NET INCOME APPLICABLE TO COMMON STOCK . . . . . . . $ 105.4 $ 139.5
======== ========
INCOME PER COMMON SHARE:
Primary . . . . . . . . . . . . . . . . . . . . . $ .92 $ 1.22
Fully diluted . . . . . . . . . . . . . . . . . . $ .92 $ 1.22
DIVIDENDS PER COMMON SHARE:
Cash . . . . . . . . . . . . . . . . . . . . . . . $ .66 $ .66
Stock of Gardner Denver Machinery Inc., at
equivalent net book value per
Cooper Common share . . . . . . . . . . . . . . $ 1.321 $ -
</TABLE>
The accompanying notes are an integral part of these statements.
- 3 -
<PAGE> 4
COOPER INDUSTRIES, INC.
CONSOLIDATED FINANCIAL POSITION
<TABLE>
<CAPTION>
June 30, December 31,
(millions) 1994 1993
--------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . $ 12.9 $ 13.0
Receivables . . . . . . . . . . . . . . . . . . . 1,127.7 1,105.2
Inventories . . . . . . . . . . . . . . . . . . . 1,364.7 1,247.2
Other . . . . . . . . . . . . . . . . . . . . . . 158.3 216.4
-------- --------
2,663.6 2,581.8
-------- --------
CURRENT LIABILITIES
Short-term debt . . . . . . . . . . . . . . . . . 97.5 99.7
Accounts payable and accrued liabilities . . . . 1,274.5 1,323.6
Accrued income taxes . . . . . . . . . . . . . . 15.4 117.3
Current maturities of long-term debt . . . . . . 15.6 161.9
-------- --------
1,403.0 1,702.5
-------- --------
WORKING CAPITAL . . . . . . . . . . . . . . . 1,260.6 879.3
-------- --------
Net assets of businesses held for disposition . . - 225.0
Plant & equipment, at cost, less depreciation . . 1,531.6 1,483.4
Intangibles, less amortization . . . . . . . . . 2,595.9 2,589.5
Deferred income taxes, investments and
other assets . . . . . . . . . . . . . . . . . 338.7 268.1
-------- --------
TOTAL ASSETS, LESS CURRENT LIABILITIES . . . 5,726.8 5,445.3
-------- --------
Long-term debt . . . . . . . . . . . . . . . . . 1,627.4 1,254.3
Postretirement benefits other than pensions . . . 741.8 743.1
Other long-term liabilities . . . . . . . . . . . 402.9 463.3
-------- --------
NET ASSETS . . . . . . . . . . . . . . . . . $2,954.7 $2,984.6
======== ========
SHAREHOLDERS' EQUITY
$1.60 Convertible Exchangeable
Preferred stock . . . . . . . . . . . . . . . . $ 33.3 $ 33.2
Common stock . . . . . . . . . . . . . . . . . . 579.6 571.3
Capital in excess of par value . . . . . . . . . 1,199.3 1,122.1
Retained earnings . . . . . . . . . . . . . . . . 1,405.8 1,526.5
Unearned employee stock ownership plan
compensation . . . . . . . . . . . . . . . . . (177.3) (125.2)
Minimum pension liability . . . . . . . . . . . . (73.5) (73.6)
Translation component . . . . . . . . . . . . . . (27.6) (65.8)
Unrealized gain on investments, net of taxes . . 34.2 -
Common stock held in treasury, at cost . . . . . (19.1) (3.9)
-------- --------
TOTAL SHAREHOLDERS' EQUITY . . . . . . . . . $2,954.7 $2,984.6
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
- 4 -
<PAGE> 5
COOPER INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------
(millions) 1994 1993
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income. . . . . . . . . . . . . . . . . . . . . . . $ 132.0 $ 166.0
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation . . . . . . . . . . . . . . . . . . . . 87.0 109.6
Amortization . . . . . . . . . . . . . . . . . . . . 47.1 52.3
Increase in deferred income taxes. . . . . . . . . . 39.3 21.9
Changes in assets and liabilities: (1)
Receivables . . . . . . . . . . . . . . . . . . . (6.4) (97.9)
Inventories . . . . . . . . . . . . . . . . . . . (105.1) (4.4)
Accounts payable and accrued liabilities . . . . . (57.8) (129.0)
Accrued income taxes . . . . . . . . . . . . . . . (102.2) (1.0)
Other assets and liabilities, net . . . . . . . . (44.3) 37.4
------- -------
Net cash provided by (used for) operating
activities . . . . . . . . . . . . . . . . . . (10.4) 154.9
------- -------
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . . . . . . (127.4) (128.6)
Proceeds from sales of plant and equipment . . . . . . . 18.7 9.0
Net cash from acquisitions and divestitures . . . . . . 1.5 (18.2)
Other . . . . . . . . . . . . . . . . . . . . . . . . . (.2) (.3)
------- -------
Net cash used for investing activities . . . . . (107.4) (138.1)
------- -------
Cash flows from financing activities:
Additions to debt . . . . . . . . . . . . . . . . . . . 484.5 108.5
Reductions of debt . . . . . . . . . . . . . . . . . . . (256.9) (53.4)
Dividends . . . . . . . . . . . . . . . . . . . . . . . (101.9) (101.5)
Purchase of treasury shares. . . . . . . . . . . . . . . (19.9) -
Activity under stock option and other plans . . . . . . 14.0 17.3
------- -------
Net cash provided by (used for) financing
activities . . . . . . . . . . . . . . . . . 119.8 (29.1)
------- -------
Effect of translation on cash and cash equivalents . . . . (2.1) 5.3
------- -------
Decrease in cash and cash equivalents . . . . . . . . . . (.1) (7.0)
Cash and cash equivalents, beginning of period . . . . . . 13.0 17.8
------- -------
Cash and cash equivalents, end of period . . . . . . . . . $ 12.9 $ 10.8
======= =======
</TABLE>
(1) Net of effects of acquisitions, divestitures, and translation.
The accompanying notes are an integral part of these statements, including
Notes 4 and 8, which disclose 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 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, necessary for a
fair presentation of the financial information for the periods indicated, have
been included. 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 2. Acquisitions and Divestitures
During the second half of 1993 and the first two quarters 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 was included in
the Petroleum & Industrial Equipment segment) was completed on April 15, 1994;
and (3) the sale of the Cameron Forged Products Division (which was included in
the Petroleum & Industrial Equipment segment) to Wyman-Gordon Company was
completed on May 26, 1994. The Cameron Forged Products sale was initially
accounted for in September 1993 based on an agreement between Cooper and
Wyman-Gordon. Following Wyman-Gordon shareholder approval, the transaction
closed on essentially the same terms as the original agreement. The adjustment
necessary to reflect the final terms was not material. 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 each of the businesses
that were included in Cooper's consolidated results for the periods indicated:
<TABLE>
<CAPTION>
Second Quarter Six Months
Ended Ended
June 30, June 30,
--------------------- --------------------
(millions) 1994 1993 1994 1993
------ ------ ------ ------
<S> <C> <C> <C> <C>
Belden . . . . . . . . . . . . . . $ - $ 93.9 $ - $187.2
Gardner Denver . . . . . . . . . . 8.0 40.9 46.3 76.2
Cameron Forged Products . . . . . . - 35.5 - 71.7
</TABLE>
On Cooper's accounting basis, Belden reported pretax profits of $12.6
million for the three months and $25.2 million for the six months ended June
30, 1993. Gardner Denver and Cameron Forged Products each operated at or near
breakeven levels on a Cooper basis during the periods presented above.
- 6 -
<PAGE> 7
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. An accrual related to the anticipated cost of exiting
the large power transformer business was established at the end of 1993, when
it was determined that it was probable that management action would be
necessary to deal with the lack of a profitable return from this business. The
accrual resulted from a rededication of reserves previously established to
cover various contingent liabilities that were favorably resolved during the
fourth quarter of 1993.
During the first six 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
Milano, 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. Two of these businesses have been incorporated into the
Electrical Products segment and one into the Electrical Power Equipment
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 3. 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 June 30, 1994, the
recorded fair market value of the investment in Belden was $45.6 million and
the adjustment to shareholders' equity, net of tax, was $20.0 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 June 30,
1994 of $101.1 million, with a credit to shareholders' equity, net of tax, of
$14.2 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.
- 7 -
<PAGE> 8
Note 4. Interest and Taxes Paid
Total interest paid during the first six months of 1994 and 1993
amounted to $50.4 million and $58.6 million, respectively. Cash payments for
income taxes during the first six months of 1994 and 1993 amounted to $150.5
million and $92.1 million, respectively.
Note 5. Inventories
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
------------- ------------
(millions)
<S> <C> <C>
Raw materials . . . . . . . . . . . . . . . $ 338.4 $ 323.7
Work-in-process . . . . . . . . . . . . . . 379.1 353.0
Finished goods . . . . . . . . . . . . . . 794.1 725.4
Perishable tooling and supplies . . . . . . 59.8 57.0
-------- --------
1,571.4 1,459.1
Less allowances (primarily LIFO
reserves) . . . . . . . . . . . . . . . . (206.7) (211.9)
-------- --------
$1,364.7 $1,247.2
======== ========
</TABLE>
Note 6. Long-Term Debt
At June 30, 1994, $1,216 million of commercial paper and bank loans
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.
During 1994, the Company reduced the amount of its U.S. committed
credit facilities from $1.76 billion to $1.56 billion at June 30, 1994. Of
this total, $1.25 billion expire in 1997 and $310 million expire in 1995.
Note 7. 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.
- 8 -
<PAGE> 9
Note 8. Noncash Investing and Financing Activities
<TABLE>
<CAPTION>
Six Months Ended
June 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 . . . $ 30.2 $ 14.0
Unearned ESOP compensation . . . . . . . . . . (82.3) -
Common stock issued for:
Employee stock ownership plan . . . . . . . . 82.3 -
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. . . . . . . . . . . . . . . . . (.5) -
Investment in Wyman-Gordon Company . . . . . . 14.2 -
Distribution of stock in Gardner Denver
Machinery Inc. . . . . . . . . . . . . . . . . (152.9) -
$1.60 Convertible Exchangeable Preferred
stock issued for conversions of 7%
debentures . . . . . . . . . . . . . . . . . . 3.4 2.9
</TABLE>
Note 9. Industry Segment Revenues
<TABLE>
<CAPTION>
Second Quarter Ended Six Months Ended
June 30, June 30,
--------------------------- ----------------------------
1994 1993 1994 1993
-------- -------- -------- --------
(millions)
<S> <C> <C> <C> <C>
Electrical Products . . . . . $ 345.4 $ 405.2 $ 657.0 $ 797.4
Electrical Power
Equipment . . . . . . . . . 165.3 152.2 309.0 287.4
Tools & Hardware . . . . . . 229.4 205.1 428.4 388.6
Automotive Products . . . . . 424.5 435.6 800.7 834.0
Petroleum & Industrial
Equipment . . . . . . . . . 299.4 412.6 578.1 769.0
Other . . . . . . . . . . . . 9.6 1.0 17.3 6.5
-------- -------- -------- --------
$1,473.6 $1,611.7 $2,790.5 $3,082.9
======== ======== ======== ========
</TABLE>
- 9 -
<PAGE> 10
Note 10. Income Per Common Share
Primary and fully diluted income per Common share is computed based on
the following information:
<TABLE>
<CAPTION>
Second Quarter Six Months
Ended Ended
June 30, June 30,
-------------------- --------------------
(millions) 1994 1993 (1) 1994 1993
------ ------ ------ ------
<S> <C> <C> <C> <C>
PRIMARY:
Net income . . . . . . . . . . . $ 83.6 $102.9 $132.0 $166.0
Dividends applicable to $1.60
Convertible Exchangeable
Preferred stock . . . . . . . (13.3) (13.2) (26.6) (26.5)
------ ------ ------ ------
$ 70.3 $ 89.7 $105.4 $139.5
====== ====== ====== ======
Average Common shares and
Common share equivalents . . . 114.2 114.0 114.3 114.0
====== ====== ====== ======
FULLY DILUTED:
Net income . . . . . .. . . . . $ 83.6 $102.9 $132.0 $166.0
Dividends applicable to $1.60
Convertible Exchangeable
Preferred stock . . . . . . . (13.3) - (26.6) (26.5)
------ ------ ------ ------
$ 70.3 $102.9 $105.4 $139.5
====== ====== ====== ======
Average Common shares and
Common share equivalents . . . 114.2 114.1 114.3 114.0
Shares issuable on conversion
of $1.60 Convertible
Exchangeable Preferred
stock . . . . . . . . . . . . . - 18.2 - -
Shares issuable on conversion
of 7% debentures . . . . . . . - .1 - -
------ ------ ------ ------
114.2 132.4 114.3 114.0
====== ====== ====== ======
</TABLE>
(1) Because the conversion of the Convertible Exchangeable Preferred stock
and the 7% debentures to Common is dilutive, the Preferred dividends
are not deducted in this computation. The interest on the debentures
is not material.
- 10 -
<PAGE> 11
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Results of Operations:
Second Quarter Ended June 30, 1994 Compared With Second Quarter Ended
June 30, 1993
Net income for the second quarter of 1994 declined 19% to $83.6
million on revenues of $1.47 billion, compared with 1993 net income of $102.9
million on revenues of $1.61 billion. Fully diluted share earnings for the
quarter declined 21% to 62 cents per share from 78 cents per share in 1993.
The largest single factor affecting consolidated earnings continues to
be the impact of depressed worldwide petroleum equipment markets. This factor
more than offset the effects of improvements in the domestic economy,
particularly growth in industrial and construction markets, and lower interest
expense.
Revenues:
Revenues declined 9% from $1.61 billion to $1.47 billion compared with
the second quarter of last year. Higher revenues from the ongoing operations
of all business segments except Petroleum & Industrial Equipment were more than
offset by the declines caused by the absence of revenues of several businesses
that have been divested and lower revenues from the ongoing businesses in the
Petroleum & Industrial Equipment segment due to the continued worldwide decline
in drilling and production equipment demand. The divestitures include the
Belden wire and cable business in the Electrical Products segment, the Cameron
Forged Products and Gardner-Denver Industrial Machinery businesses in the
Petroleum & Industrial Equipment segment and two small operations in the
Automotive Products segment. 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 Note 2 of the Notes to
Consolidated Financial Statements included under Item 1. for further
information.
The Tools & Hardware segment reported a 12% increase in revenues
compared with the second quarter of 1993. Sales of assembly equipment and
portable tools continued to benefit from strength in the North American
automotive market. Hand tool sales reflected strong demand from volume retail
and hardware markets. European demand for the Company's hand and air-powered
tools appears to be recovering, although the impact at present is moderate.
While home sales and housing turnover have helped some parts of the window
treatments business, competitive industry conditions have eroded performance of
this product line.
Revenues in the Electrical Products segment improved 11% over 1993.
The growing domestic economy prompted a strong increase in sales of lighting
products. The combination of several successful product introductions, recent
product-line acquisitions and modest improvements in industrial production and
housing construction also generated higher sales of electrical circuit
protection equipment.
- 11 -
<PAGE> 12
Revenues increased 9% in the Electrical Power Equipment segment
reflecting strong residential housing activity. Higher spending by utilities
on maintenance and efficiency products led to higher sales of distribution
transformers, transformer components and power management products. These
improvements more than offset the effects of the Company's decision to exit the
large power transformer business, which resulted in a significant decline in
sales of these products.
The Automotive Products segment reported a 3% increase in revenues
from the second quarter of last year. This increase was caused by improved
domestic sales of wipers, spark plugs and automotive lighting to original
equipment manufacturers as a result of the continued rise in new car production
activity and higher sales of temperature control products resulting from hot
summer weather. These effects were partially offset by competitive pricing in
the domestic automotive aftermarket, weakness in the European market for
replacement parts and disruptions from business consolidation activities.
Revenues from the Petroleum & Industrial Equipment segment's ongoing
operations fell 13% from the second quarter of 1993 due to lower shipments of
petroleum equipment compared with prior-year levels. Shipments of compressors
and large wellhead equipment to the international petroleum market declined
significantly from the prior year. Incoming orders for petroleum equipment are
below last year's levels, reflecting the oil industry's response to lower oil
prices during the past nine months.
Operating Income:
Consolidated income before interest and taxes declined from $200.3
million in the second quarter of 1993 to $167.9 million for the 1994 quarter.
This 16% decline was primarily due to the effects on earnings of the depressed
petroleum equipment markets. This, plus the general weakness in some
international markets, more than offset the impact of the moderate growth of
the U.S. economy. The absence of the results of the Belden wire and cable
business ($12.6 million in 1993) also had a negative influence on the
quarter-to-quarter performance. 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 Electrical Products segment improved
moderately in the quarter on the strength of the revenue growth discussed
above. The gross margin percentage (defined as revenues less cost of sales, as
a percentage of revenues) for this segment was slightly lower than the
prior-year quarter reflecting a less favorable sales mix, the short-term impact
of recent acquisitions and the effects of new product introductions.
The Electrical Power Equipment segment reported modestly higher
earnings compared with the prior period. This increase was primarily due to
the improvement in revenues and lower depreciation expense due to the
third-quarter 1993 asset write-downs for this segment's power transformer
businesses.
- 12 -
<PAGE> 13
Operating earnings in the Tools & Hardware segment were essentially
unchanged from the prior-year quarter. The effects of intense competition in
the window coverings markets and the impact of several plant consolidation
programs were offset by improvements associated with higher sales of hand and
power tools. Cost controls also contributed to an improved percentage of
selling and administrative expenses per sales dollar.
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.
The Petroleum & Industrial Equipment segment experienced significantly
depressed operating earnings resulting from the revenue declines discussed
above. Additionally, margins for valves and wellhead equipment continued to be
well below the prior year's levels as the effects of the revenue decline
exceeded the Company's plans to reduce costs in the near term, while retaining
the ability to participate in the next cyclical upturn for this industry.
Interest and Taxes:
Consolidated interest expense was $21.5 million in the current-year
quarter, a decline of 16% from the $25.7 million in the second quarter of 1993.
The lower interest expense was primarily due to lower debt levels, which more
than offset the effects of slightly higher rates compared with the second
quarter of last year.
The effective tax rate (income tax expense as a percentage of income
before taxes) increased from 41.1% to 42.9% in the current quarter. This
increase is partially attributable to the higher domestic statutory rate
enacted in the second half of 1993. In addition, nondeductible items, such as
goodwill amortization, have a greater effect on the rate calculation due to the
lower projected earnings for 1994.
Six Months Ended June 30, 1994 Compared With Six Months Ended June 30, 1993
Net income for the six-month period ended June 30, 1994 declined 20%
to $132.0 million from $166.0 million in the same period of 1993. Revenues
decreased from $3.08 billion in 1993 to $2.79 billion in 1994. Fully diluted
share earnings for the period declined 25% to 92 cents per share from $1.22 per
share in 1993. The earnings decline for the six months was caused by the same
factors discussed in the quarter-to-quarter comparison above.
Revenues:
Revenues declined 9% to $2.79 billion, compared with first-half
revenues of $3.08 billion in 1993. This decline in revenues was due to the
same factors discussed in the quarter comparison above. The discussion of each
segment's revenues in the paragraphs that follow relates to the performance of
the segment's ongoing operations. See Note 2 of the Notes to Consolidated
Financial Statements included under Item 1. for further information.
- 13 -
<PAGE> 14
The Tools & Hardware segment reported a 10% increase in revenues
compared with the first half 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. These
improvements were offset by soft demand in international markets compared with
the prior year and by weak demand and competitive market conditions in window
coverings markets.
Revenues in the Electrical Products segment improved 8% over the first
six months 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.
Revenues also increased 8% in the Electrical Power Equipment segment.
Improvement in neighborhood development activity and higher spending by
utilities on maintenance and efficiency products led to higher sales of
distribution transformers, transformer components and power management
products. These improvements were partially offset by the effects of the
Company's decision to exit the large power transformer business, which resulted
in lower sales of large power products compared with the 1993 period.
Revenues for the Automotive Products segment increased 1% compared
with the first two quarters of 1993. Higher domestic sales to original
equipment manufacturers was spurred by the continued rise in automotive
production activity. 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.
Revenues from the Petroleum & Industrial Equipment segment's ongoing
operations fell 14% from 1993 due to lower shipments of petroleum equipment
compared with prior-year levels. Shipments of compressors and large wellhead
equipment to the international petroleum market declined, reflecting soft
demand caused by the oil and gas industry's response to lower oil prices and
the impact of delays in several major gas compression projects worldwide.
Operating Income:
Consolidated income before interest and taxes declined $60.3 million
to $273.6 million for the first half of 1994. This decline reflected the same
factors that caused the quarter-to-quarter performance, as discussed above.
The absence of the results of the Belden wire and cable business ($25.2 million
in 1993) also had a negative influence on performance. The other divestitures
discussed above did not significantly affect the comparative performance. The
paragraphs below explain the performance of each segment's ongoing operations.
The Electrical Power Equipment segment reported moderately higher
earnings compared with the prior-year period. This increase was primarily due
to the improvement in revenues, coupled with lower depreciation expense as
discussed in the quarter-to-quarter comparison. Industry pricing for
distribution transformers appears to have stabilized, but remained weak and
resulted in a lower gross margin percentage compared with the prior period.
Selling and administrative expenses as a percentage of revenues remained
unchanged compared with the prior year.
- 14 -
<PAGE> 15
Operating earnings in the Tools & Hardware segment increased modestly
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 during the six months by the short-term impact of two recent
acquisitions, 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 segment's 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 six months of 1993. The decline was due to the effects
of lower revenues, 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.
The earnings of the Petroleum & Industrial Equipment segment declined
significantly from the prior-year period. This decrease was caused by the
revenue decline and the same factors discussed in the quarter comparison.
Interest and Taxes:
Consolidated interest expense was $42.4 million in the first six
months of 1994, a decline of 19% from the $52.2 million in the same period of
1993. The decrease was primarily attributable to lower debt levels compared
with the first half of last year as discussed in the quarter-to-quarter
comparison.
The effective tax rate (income tax expense as a percentage of income
before taxes) increased from 41.1% to 42.9% for the period. This increase
reflects the same factors discussed in the quarter-to-quarter comparison.
Financial Position and Liquidity & Capital Resources:
Cooper's "operating working capital" (defined as receivables and
inventories less accounts payable and accrued liabilities, excluding the
effects of acquisitions, divestitures, and foreign currency translation)
increased $169.3 million during the first six months of 1994. Higher
inventories and lower accounts payable and accrued liabilities were the primary
contributors to the increase. The higher inventory levels related to inventory
build-ups to improve customer service levels, support various plant
consolidations and distribution realignments, as well as the normal build-up of
costs associated with several large compression and power projects. The
decrease in accounts payable and accrued liabilities was the result of normal
operating activities, including spending with respect to the management
programs instituted in the third quarters of 1992 and 1993.
- 15 -
<PAGE> 16
"Other" under current assets declined $58.1 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. "Accrued income
taxes" declined $101.9 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. "Net assets of businesses held
for disposition" declined to zero reflecting the distribution of the stock of
Gardner Denver Machinery Inc. to Cooper's Common shareholders and the
completion of the sale of Cameron Forged Products to Wyman-Gordon Company
during the second quarter (see Note 2 of the Notes to Consolidated Financial
Statements under Item 1.). "Deferred income taxes, investments and other
assets" increased $70.6 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
$34.2 million (net of tax) credit to shareholders' equity was recorded for the
unrealized gain associated with these investments (see Note 3 of the Notes to
Consolidated Financial Statements under Item 1. for more information). The
remaining increases and decreases in the components of the Company's financial
position reflect normal operating activities.
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 June 30, 1994, approximately
625,000 shares of the Company's Common stock had been repurchased under this
program, of which approximately 108,000 shares had been reissued for the
various stock option, incentive and dividend repurchase plans.
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 $862
million at June 30, 1994, compared with $869 million at March 31, 1994. A
significant decline in the backlog for Electrical Power Equipment, due to the
pending exit from the large power transformer business, was offset by increases
for the Electrical Products, Tools & Hardware and Automotive Products segments.
The backlog for Petroleum & Industrial Equipment was relatively unchanged since
March 31, 1994. Sales backlog by segment was as follows:
<TABLE>
<CAPTION>
June 30,
(millions) 1994
--------
<S> <C>
Electrical Products . . . . . . . . . . . . . . . . $ 87.7
Electrical Power Equipment . . . . . . . . . . . . . 153.0
Tools & Hardware . . . . . . . . . . . . . . . . . . 63.0
Automotive Products . . . . . . . . . . . . . . . . 66.6
Petroleum & Industrial Equipment . . . . . . . . . . 491.6
------
$861.9
======
</TABLE>
- 16 -
<PAGE> 17
Other:
As further discussed in Note 2 of the Notes to Consolidated Financial
Statements, the Company announced at its Annual Meeting its intention to exit
the manufacture of large power transformers by the end of 1994. This action,
which affects only one of the Company's approximately 160 manufacturing
locations and approximately 775 of the Company's 49,500 employees, is not
expected to have a significant impact on the Company's liquidity or its 1994
operating results.
- 17 -
<PAGE> 18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
As previously reported, in March 1993, the Wisconsin Department of
Natural Resources (DNR) alleged violations by the Company's Pewaukee, Wisconsin
plant of air pollution control regulations concerning organic compound
emissions from two coating lines and a rotary tumble coater. In April 1994,
the Company and the State of Wisconsin entered into a settlement agreement
under which the Company agreed to test changes in processes and coating
materials to lower the amount of emissions and to cause the facility to be in
compliance no later than April 1996. The Company also agreed to pay a civil
penalty of $128,712 and $127 per day during the implementation of the
compliance schedule. The settlement was approved by the Circuit Court for
Waukesha County in April 1994. To date, the Company has paid civil
penalties of $144,769, including the per diem penalty of $127.
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of shareholders was held on April 26, 1994 in
Houston, Texas. Two proposals were submitted by shareholders as described in
the Company's Proxy Statement dated March 18, 1994 and were voted upon at the
meeting. Following is a brief description of the matters voted upon, the
number of votes cast for and against each proposal, and the number of
abstentions.
1. Shareholder Proposal regarding endorsement of the CERES
Principles:
Votes For: 6,120,767
Votes Against: 80,085,080
Abstain: 6,398,643
2. Shareholder Proposal regarding adoption of a policy for doing
business in Mexico:
Votes For: 4,897,595
Votes Against: 79,449,968
Abstain: 8,256,927
Neither proposal received sufficient votes to pass.
Item 6(b). Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which this
report is filed.
- 18 -
<PAGE> 19
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 July 29, 1994 /s/ D. Bradley McWilliams
------------------------------ ---------------------------------
D. Bradley McWilliams
Vice President, Finance
and authorized to sign on behalf
of the Registrant
Date July 29, 1994 /s/ Joseph D. Chamberlain
------------------------------ ---------------------------------
Joseph D. Chamberlain
Controller, Accounting and
Chief Accounting Officer
- 19 -
