<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
Cooper Industries, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Diane K. Schumacher
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:(1)
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
- ---------------
(1) Set forth the amount on which the filing fee is calculated and state how
it was determined.
<PAGE> 2
[COOPER LOGO]
March 17, 1995
Dear Shareholder:
On behalf of the Board of Directors, I cordially invite you to attend the Annual
Shareholders' Meeting in Houston, Texas on Tuesday, April 25, 1995 at 11:00 a.m.
The meeting will be held in the Austin Room, Four Seasons Hotel, 1300 Lamar
Street, Houston, Texas.
The attached notice and proxy statement describe the business to be conducted at
the meeting, including the election of four directors. The Board of Directors
has nominated Messrs. Robert Cizik, Harold S. Hook, Frank A. Olson and John D.
Ong.
The Board of Directors appreciates and encourages shareholder participation.
Whether or not you plan to attend the meeting, it is important that your shares
be represented. Please take a moment now to sign, date and return your proxy in
the envelope provided even if you actually can be present. We hope you will be
able to attend the meeting.
Sincerely,
/s/ ROBERT CIZIK
____________________________________
Robert Cizik
Chairman and Chief Executive Officer
<PAGE> 3
COOPER INDUSTRIES, INC.
P.O. BOX 4446
HOUSTON, TEXAS 77210
---------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
<TABLE>
<S> <C>
TIME............................... 11:00 a.m. on Tuesday, April 25, 1995
PLACE.............................. Four Seasons Hotel, Austin Room, 1300 Lamar Street, Houston,
Texas
ITEMS OF BUSINESS.................. 1. To elect four directors to serve for terms of three years
expiring at the annual meeting to be held in 1998.
2. If presented at the meeting, to consider and act upon the
following two shareholder proposals described in the
accompanying Proxy Statement:
(a) endorse the CERES Principles; and
(b) review wages, benefits and environmental standards in the
Company's maquiladora operations and issue a report and
recommendations thereon.
3. To act upon any other matters properly coming before the
meeting or any adjournment thereof.
RECORD DATE........................ Holders of Common Stock of record at the close of business on
March 1, 1995 are entitled to vote at the meeting.
FINANCIAL STATEMENTS............... A summary annual report of the Company for the year 1994 was
mailed previously to all shareholders. The audited financial
statements of the Company for the year ended December 31, 1994
and the related Management's Discussion and Financial Review
are included as Appendix A to the Proxy Statement.
IMPORTANT.......................... In order to avoid additional soliciting expense to the Company,
please SIGN, DATE and MAIL your proxy PROMPTLY in the return
envelope provided, even if you plan to attend the meeting. If
you attend the meeting and wish to vote your shares in person,
arrangements will be made for you to do so.
</TABLE>
By order of the Board of Directors:
/s/ DIANE K. SCHUMACHER
__________________________________________
Diane K. Schumacher
Vice President, Administration and
Corporate Secretary
Houston, Texas
March 17, 1995
<PAGE> 4
COOPER INDUSTRIES, INC.
MARCH 17, 1995
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
APRIL 25, 1995
VOTING SECURITIES, PRINCIPAL HOLDERS AND PROXIES
Only shareholders of record as of the close of business on March 1, 1995
(the "Record Date") will be entitled to notice of and to vote at the Annual
Meeting of Shareholders or any adjournment thereof. On the Record Date, there
were outstanding 117,033,140 shares of Common Stock, which constituted the only
outstanding voting securities. Each share of Common Stock has one vote.
Shares may be voted at the meeting in person or by proxy. The accompanying
proxy is solicited by the Board of Directors of Cooper Industries, Inc.
(hereinafter referred to as "Company" or "Cooper"), and is intended to permit
each shareholder as of the Record Date to vote. All valid proxies received prior
to the meeting will be voted. Unless marked to the contrary, such proxies will
be voted for the election of the four directors and against the shareholder
proposals set forth in the attached Notice. If any other business is brought
before the meeting, the proxies will be voted in accordance with the judgment of
the persons voting the proxies. A shareholder who has given a proxy may revoke
it at any time prior to such proxy being voted at the meeting by filing with the
Secretary of the Company an instrument revoking it or a duly executed proxy
bearing a later date, or by attending the meeting and giving notice of such
revocation. Attendance at the meeting does not by itself constitute revocation
of a proxy.
Cooper has adopted a confidential voting policy which provides that
shareholder votes at Company shareholder meetings are kept confidential by an
independent inspector of election, who may be the transfer agent, except as may
be necessary to meet applicable legal requirements or to respond to written
comments on proxy cards. Each proxy solicited by the Board that identifies the
vote of a specific shareholder will be treated in accordance with this policy
unless the shareholder elects not to have such vote kept confidential. In the
event of a contested solicitation, the Company will attempt to agree with the
opposing party on mutually acceptable confidentiality procedures that would
apply to each party's solicitation. If the parties do not agree on mutually
acceptable confidentiality procedures, the Company's policy on confidential
voting shall not apply to the solicitation.
The Company's confidential voting policy shall not operate to impair free
and voluntary communication between Cooper and its shareholders, including
disclosure by shareholders of the nature of their votes.
In addition to the use of the mails, proxies may be solicited by the
directors, officers and employees of the Company without additional
compensation, by personal interview, telephone, telegram, or otherwise.
Arrangements also may be made with brokerage firms and other custodians,
nominees and fiduciaries who hold the voting securities of record for the
forwarding of solicitation material to the beneficial owners thereof. The
Company will reimburse such brokers, custodians, nominees and fiduciaries for
the reasonable out-of-pocket expenses incurred by them in connection therewith.
In addition, Georgeson & Company Inc. has been engaged to solicit proxies at a
fee of $16,000 plus out-of-pocket costs and expenses. Expenses of solicitation
will be borne by the Company.
The accompanying proxy card includes all shares of Common Stock held of
record on March 1, 1995.
If you are a participant in the Cooper Dividend Reinvestment and Stock
Purchase Plan ("DRP"), shares of Cooper stock held in your DRP account are
included on and may be voted through the proxy card accompanying this mailing.
The DRP administrator, as the shareholder of record, may only vote the DRP
shares for which it has received directions to vote from the DRP participants.
For Cooper Employees: If you are a participant in the Cooper Savings Plans
and/or Stock Ownership Plan ("CO-SAV"), the accompanying proxy card will include
the number of equivalent shares credited to your account by Citibank, N.A., as
Trustee for CO-SAV ("Trustee"). When your proxy card is returned properly
signed, it will serve as direction to the Trustee to vote the shares held in
CO-SAV for your account in accordance with your directions. If you return a
proxy card properly signed, but do not indicate your voting preference, the
shares represented by your proxy card will be voted For the election of all
nominees for director named in the Notice and Against the two shareholder
<PAGE> 5
proposals. The shares of Common Stock credited to participants' accounts for
which no directions are received ("Uninstructed Shares") and shares of Common
Stock not yet allocated to participants' accounts ("Unallocated Shares"), will
be voted by the Trustee in the same proportion (for/against) as the shares of
Common Stock for which instructions are received from CO-SAV participants.
Properly signed proxy cards from CO-SAV participants will serve as a direction
to the Trustee to vote all of the Uninstructed Shares and the Unallocated Shares
in the same manner as indicated by CO-SAV participants. If you fail to return a
proxy card properly signed, the equivalent shares of Common Stock credited to
your account will then be voted by the Trustee in the same proportion as the
shares for which instructions were received from other CO-SAV participants.
The Company knows of no person who was the beneficial owner as of the
Record Date of more than five percent (5%) of the outstanding shares of any
class of voting securities, other than the following, which have filed
statements of ownership on Schedule 13G with the Securities and Exchange
Commission:
<TABLE>
<CAPTION>
AMOUNT
AND
NATURE OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OF
TITLE OF CLASS BENEFICIAL OWNER OWNERSHIP CLASS
- ---------------------- --------------------------------------- ---------- ----
<S> <C> <C> <C>
Common Stock.......... J.P. Morgan & Co. Incorporated 10,086,053(1) 8.6%
60 Wall Street
New York, New York 10260
Common Stock.......... FMR Corp. 6,439,780(2) 5.5%
Edward C. Johnson 3d
(Chairman of FMR Corp.)
82 Devonshire Street
Boston, Massachusetts 02109
</TABLE>
In addition, Citibank, N.A., as Trustee of CO-SAV, which holds of record
7,759,552 shares of Cooper Common Stock, which is 6.6% of the outstanding shares
of Common Stock. The CO-SAV participants have voting rights with respect to all
such shares.
- ---------------
(1) Shares are held by J.P. Morgan & Co. Incorporated directly or through its
affiliates, Morgan Guaranty Trust Company of New York, J.P. Morgan
Investment Management, Inc. and Morgan Trust Company of Florida N.A.
(2) Shares are held by FMR Corp. directly or through its affiliates, Fidelity
Management & Research Company, Fidelity Management Trust Company and
Fidelity International Limited. Mr. Johnson and his family form a
controlling group with respect to FMR Corp.
2
<PAGE> 6
PROPOSAL 1
ELECTION OF DIRECTORS
The authorized number of directors is 11, divided into three classes, two
having four members and one class having three members each. Each class is
elected for a term of three years, so that the term of one class of directors
expires at every meeting.
NOMINEES
The Board of Directors has nominated four persons for election as directors
in the class whose term will expire in April 1998, or when their successors are
elected and qualified. The nominees are: Robert Cizik, Harold S. Hook, Frank A.
Olson and John D. Ong, all of whom are directors and members of the class whose
term expires at the meeting. The affirmative vote of the holders of at least a
majority of a quorum is required in order to elect each director. Under the Code
of Regulations of the Company, a quorum is constituted by the presence, in
person or by proxy, of a majority of the voting power of the Company.
Abstentions will be counted for purposes of determining whether a quorum is
present and will be counted as voting. Broker nonvotes are not counted for
purposes of voting.
If any nominee should be unable to serve as a director, an event not now
anticipated, it is intended that the shares represented by proxies will be voted
for the election of such substitute as the Board of Directors may nominate. Set
forth on the following five pages are the names of and certain information with
respect to the persons nominated as directors and the current directors of the
Company.
3
<PAGE> 7
NOMINEES FOR TERMS EXPIRING IN 1998
<TABLE>
<S> <C>
- ----------------------- Graduated with honors from the University of
ROBERT CIZIK Connecticut. Received an M.B.A. degree with High
Chairman and Chief Distinction from the Harvard Graduate School of
Executive Officer Business Administration, where he was also a Baker
[PHOTO] Scholar. Awarded an Honorary LL.D from Kenyon College.
Chairman - Executive Joined Cooper in 1961 and served in various financial,
Committee planning and management positions. Named President and
Chief Operating Officer in 1973, then elected Chief
Director since 1971 Executive Officer in 1975. Elected Chairman of the
Age 63 Board in April 1983.
Director: Air Products and Chemicals Company; Harris Corporation; Panhandle
Eastern Corporation; and Temple-Inland Inc.
Chairman of Finance Committee, National Association of Manufacturers.
Director of Board of Trustees and Chairman of 1994-95 Campaign, United Way
of the Texas Gulf Coast; Vice Chairman of Board of Trustees, Committee for
Economic Development, member of its Research and Policy Committee.
Director: Associates of Harvard Business School; Fund for Large Enterprises
in Russia; Greater Houston Partnership; National Business Committee for the
Arts; Texans for Judicial Election Reform; and The Houston Forum. Member:
Policy Committee of The Business Roundtable; National Advisory Council of
the Texas Heart Institute; and The Electrical Manufacturers Club.
- ----------------------- Received a B.S. degree in business administration, an
HAROLD S. HOOK M.A. in accounting and a Doctor of Laws from University
of Missouri, and a Doctor of Laws from Westminster
Chairman and Chief College. Also a graduate of Southern Methodist
Executive Officer, University, Institute of Insurance Marketing. Joined
American General [PHOTO] American General Corporation (insurance) in 1970 as
Corporation President and Chief Executive Officer of
California-Western States Life Insurance Co. Elected a
Member - Executive director in 1972 and then named President of American
Committee, Finance General in 1975. Elected Chairman and Chief Executive
Committee Officer in 1978.
and Management
Development and Director: American General Corporation; Chemical Banking Corporation;
Compensation Committee Chemical Bank; Panhandle Eastern Corporation; Sprint Corporation; Texas
Commerce Bancshares, Inc.; and Texas Commerce Bank National Association.
Director since 1986
Age 63 Vice Chairman and a member of Council of Overseers, Rice University (Jesse
Jones Graduate School). National Advisory Council, Boy Scouts of America
and Advisory Board, Boy Scouts of America, Sam Houston Area Council.
Director: Greater Houston Partnership; Society for the Performing Arts;
Texas Association of Taxpayers, Inc.; and Texas Research League. Board of
Trustees, Baylor College of Medicine.
</TABLE>
4
<PAGE> 8
<TABLE>
<S> <C>
- ----------------------- ------------------- Received an A.A. degree from City College of San
FRANK A. OLSON Francisco. Joined The Hertz Corporation (rental cars
Chairman, Chief and trucks) in 1964 and held various positions until
Executive and Chief 1973 when named Executive Vice President and 1974 when
Operating Officer, The [PHOTO] elected to the Board of Directors. Named President and
Hertz Corporation Chief Executive Officer of The Hertz Corporation in
1977 and Chairman in 1980. Also in 1980, was elected a
Chairman - Finance Group Executive President of RCA Corporation, then
Committee parent Company of Hertz. In 1985, after Hertz was sold
to UAL, Inc., became a director of UAL, Inc., which
Member - Management became Allegis Corporation. In June 1987, was elected Chairman and Chief
Development and Executive Officer of Allegis Corporation and President and Chief Executive
Compensation Committee Officer of United Airlines, a position he held until December 1987, after
and Committee on which he continued as Chairman, Chief Executive Officer and Chief Operating
Nominations and Officer of The Hertz Corporation, which became a wholly-owned subsidiary of
Corporate Governance Ford Motor Company in April 1994.
Director since 1989 Director: The Hertz Corporation; Becton, Dickinson & Company; The
Age 62 Commonwealth Edison Company; and Foundation Health Corporation.
Director: National Multiple Sclerosis Society and The Swedish-American
Chamber of Commerce, Inc. Trustee, National Committee Against Drunk
Driving. Member, Advisory Board of Religion in American Life. Board of
Visitors: Berry College and Duke University Fuqua School of Business.
- ----------------------- ------------------- Received B.A. and M.A. degrees in history from Ohio
JOHN D. ONG State University. Received an LL.B. degree from Harvard
Chairman and Chief Law School. Joined The BFGoodrich Company (chemicals
Executive Officer, [PHOTO] and aerospace products) in 1961 and held various
The BFGoodrich Company positions in the international division. Elected a
Group Vice President in 1972 and then Executive Vice
Chairman - Committee on President and a director in 1973. Elected Vice Chairman
Nominations and of the Board in 1974 and President in 1975. Named
Corporate Governance Chairman and Chief Executive Officer in 1979.
Member - Executive Director: The BFGoodrich Company; Ameritech Corporation; ASARCO
Committee and Finance Incorporated; The Geon Company; and The Kroger Company.
Committee
Chairman, The Ohio Business Roundtable. Trustee, University of Chicago.
Director since 1975 Member: The Business Council; The Business Roundtable; Business Committee
Age 61 for the Arts; and Senior Member of The Conference Board.
</TABLE>
5
<PAGE> 9
PRESENT DIRECTORS WHOSE TERMS EXPIRE IN 1996
<TABLE>
<S> <C>
- ----------------------- ------------------- Received a B.S. degree in electrical engineering from
WARREN L. BATTS Georgia Institute of Technology and an M.B.A. from
Harvard Business School. Joined Dart Industries in 1980
Chairman and Chief and was President in 1980 when Dart Industries merged
Executive Officer, [PHOTO] with Kraft, Inc. Became President of Dart & Kraft, Inc.
Premark International, in 1981 and Chief Operating Officer in 1983; served in
Inc. these positions until October 1986, when Premark
International, Inc. (food containers, commercial food
Chairman - Audit equipment, housewares and decorative laminates) was
Committee created by Dart & Kraft, Inc. Has been Chairman and
Chief Executive Officer and a director of Premark since 1986.
Member - Management Director: Premark International, Inc.; Allstate Corporation; Sears, Roebuck
Development and and Co.; and Sprint Corporation.
Compensation Committee Director, Children's Memorial Hospital. Trustee: Northwestern University
and Committee on and Art Institute of Chicago.
Nominations and
Corporate Governance
Director since 1986
Age 62
- ----------------------- ------------------- Received an A.B., summa cum laude in psychology, from
LINDA A. HILL Bryn Mawr College and an M.A. in educational psychology
from the University of Chicago. Earned a Ph.D in
Associate Professor, behavioral sciences at the University of Chicago. Prior
Harvard Business [PHOTO] to 1984, was a postdoctoral research fellow at the
School Harvard Business School, an advisor to the Federal
Commissioner of Education and a member of the
Director since August "Blueprint 2000" Employment Committee for the
1994 Commonwealth of Massachusetts. Joined the faculty of
Harvard Business School in 1984 as an Assistant
Age 38 Professor in organizational behavior and human resource
management. In July 1991 became an Associate Professor. Provides consulting
and executive education to Fortune 500 companies and other organizations.
Director, Human Resource Planning Society. Member, American Repertory
Theatre Advisory Board. Member of the Board of Trustees: Rockefeller
Foundation; Bryn Mawr College; The Children's Museum, Boston; and Beth
Israel Hospital, Boston.
</TABLE>
6
<PAGE> 10
<TABLE>
<S> <C>
- ----------------------- ------------------- Graduate of Ecole Des Hautes Etudes Commerciales in
CONSTANTINE S. Paris, France. Received a Juris Doctor degree and a
NICANDROS doctorate in economics from the University of Paris Law
School and an M.B.A. from Harvard Graduate School of
President and Chief Business Administration. Joined Conoco (petroleum
Executive Officer, [PHOTO] products) in 1957 and held various positions in many
Conoco Inc. areas of the Company. Named Executive Vice President
for Worldwide Supply and Transportation in 1975 and
Vice Chairman, E.I. du Group Executive Vice President, Petroleum Products in
Pont de Nemours and 1978. Named President, Petroleum Operations in 1983 and
Company elected President and Chief Executive Officer in March 1987. Named Vice
Chairman of E.I. du Pont de Nemours and Company (chemical, specialty
Chairman - Management products and energy) in 1991.
Development &
Compensation Committee Director: Conoco Inc.; E.I. du Pont de Nemours and Company; Consol Inc.;
and Texas Commerce Bank.
Member - Audit Director: American Petroleum Institute; Texas Research League; and Houston
Committee and Committee Symphony. Chairman and a Trustee, Houston Grand Opera. Trustee: Baylor
on Nominations and College of Medicine; Houston Ballet Foundation; and Houston Museum of Fine
Corporate Governance Arts. Member: Board of Governors of The Houston Forum and National
Petroleum Council.
Director since 1990
Age 61
- ----------------------- ------------------- Received a B.S. degree in industrial engineering from
H. JOHN RILEY, JR. Syracuse University. Also a graduate of the Harvard
Advanced Management Program. Joined Crouse-Hinds
President and Chief Company in 1962 and held various manufacturing
Operating Officer [PHOTO] positions before appointment as Corporate Vice
President in 1979. In 1982, after Cooper acquired
Member - Executive Crouse-Hinds Company, became Executive Vice President,
Committee Operations for Cooper. Named President and Chief
Operating Officer in September 1992.
Director since 1992
Age 54 Director, Wyman-Gordon Company.
Director and Vice Chairman, Junior Achievement of Southeast Texas.
Director: Central Houston, Inc. and Houston Symphony. Member, Corporate
Advisory Council of Syracuse University School of Management. Trustee,
Manufacturers' Alliance for Productivity Improvement.
</TABLE>
7
<PAGE> 11
PRESENT DIRECTORS WHOSE TERMS EXPIRE IN 1997
<TABLE>
<S> <C>
- ----------------------- ------------------- Received a B.A. degree from Austin College and an
CLIFFORD J. GRUM M.B.A. from University of Pennsylvania, Wharton School
of Finance. Joined Temple Industries, Inc. in 1968 as
Chairman and Chief Vice President, Finance. After a merger with Time Inc.
Executive Officer, [PHOTO] in 1973, held various positions with Time Inc.,
Temple-Inland Inc. including Treasurer, publisher of Fortune magazine and
Executive Vice President. Elected a director of Time
Member - Audit Inc. in 1980 and, after a spin-off of Temple-Inland
Committee, Executive (container and containerboard, pulp and paperboard,
Committee and Finance building products and financial services) by Time Inc.
Committee in 1983, became President and Chief Executive Officer
and a director of Temple-Inland. In 1991, became Chairman of the Board and
Director since 1982 Chief Executive Officer of Temple-Inland.
Age 60
Director: Temple-Inland Inc. and Premark International, Inc.
Secretary, Texas Association of Business. Trustee: Austin College, Sherman,
Texas; Lufkin Industrial Foundation; and Memorial Medical Center of East
Texas.
- ----------------------- ------------------- Received a B.S. degree from Imperial College, London
SIR RALPH H. ROBINS and is a Chartered Engineer. Joined Rolls-Royce
(aerospace engines and industrial power equipment) in
Chairman, Rolls-Royce 1955 as a Graduate Apprentice and held various
plc positions with the Aero Engine Division before being
[PHOTO] named Executive Vice President of Rolls-Royce Aero
Member - Audit Engines Inc. in 1972 and then Managing Director of the
Committee and Finance Rolls-Royce Industrial and Marine Division in 1973.
Committee Elected to the Board of Rolls-Royce plc in 1982 as
Commercial Director, then appointed Managing Director
Director since 1991 in 1984. Became Deputy Chairman in 1989, Chief
Age 62 Executive in 1991 and Chairman in October 1992.
Director: Rolls-Royce plc; Marks & Spencer plc; Schroders plc; Standard
Chartered plc; and Cable & Wireless plc.
Chairman, Defence Industries Council. Member, Institution of Mechanical
Engineers. Fellow: Royal Aeronautical Society and the Royal Academy of
Engineering.
- ----------------------- ------------------- Received Bachelor of Aeronautical Engineering and
A. THOMAS YOUNG Mechanical Engineering degrees from University of
Virginia and a Master of Management degree from
President and Chief Massachusetts Institute of Technology. Had a 21-year
Operating Officer, career with NASA before joining Martin Marietta
Martin Marietta [PHOTO] Corporation (aerospace, electronic and defense products
Corporation and services) in 1982 as Vice President of Aerospace
Research and Engineering. Named Senior Vice President
Member - Audit and President of Martin Marietta Electronics & Missiles
Committee and Group in 1987. Served as Executive Vice President in
Management Development 1989 until appointment as President and Chief Operating Officer in 1990.
and Compensation
Committee Director: Martin Marietta Corporation and The Dial Corp.
Director since 1990 Chairman, Business Committee for the Arts. Director: American Defense
Age 56 Preparedness Association; Council for Excellence in Government; NASA Alumni
League; and Virginia Engineering Foundation, University of Virginia.
Fellow: American Institute of Aeronautics & Astronautics and American
Astronautical Society. Member: Aerospace Industries Association; Defense
Industry Initiative on Business Ethics & Conduct; National Academy of
Engineering; Navy League of the United States; and National Space Club.
</TABLE>
8
<PAGE> 12
INFORMATION ABOUT MANAGEMENT AND ORGANIZATION
OF THE BOARD OF DIRECTORS
EXECUTIVE OFFICERS
The following sets forth certain information with respect to Cooper's
present executive officers. All executive officers are elected to terms that
expire at the organizational meeting of the Board of Directors, which follows
the Annual Meeting of Shareholders.
<TABLE>
<CAPTION>
YEARS
OF OFFICER
NAME POSITION AGE SERVICE SINCE
---- -------- --- ------- -------
<S> <C> <C> <C> <C>
Robert Cizik............. Chairman and Chief Executive Officer 63 33 1963
H. John Riley, Jr. ...... President and Chief Operating Officer 54 32 1982
Dewain K. Cross.......... Senior Vice President, Finance 57 28 1969
Ralph E. Jackson, Jr. ... Executive Vice President, Operations 53 19 1992
Larry W. McCurdy......... Executive Vice President, Operations 59 2 1994
Carl J. Plesnicher, Jr. . Senior Vice President, Human Resources 57 27 1979
Michael J. Sebastian..... Executive Vice President, Operations 64 16 1980
Nishan Teshoian.......... Executive Vice President, Operations 53 17 1993
William D. Brewer........ Vice President, Manufacturing Services 58 18 1994
Thomas W. Campbell....... Vice President, Public Affairs 64 13 1981
James A. Chokey.......... Vice President and General Counsel 51 3 1991
Walter F. DuPont......... Vice President, Information Services 61 20 1991
Alan J. Hill............. Vice President and Treasurer 50 17 1979
E. Daniel Leightman...... Vice President, Taxes 54 7 1994
D. Bradley McWilliams.... Vice President, Finance 53 23 1982
Diane K. Schumacher...... Vice President, Administration and Corporate Secretary 41 15 1988
Donald R. Sheley, Jr..... Vice President and Controller, Operations 52 14 1986
Robert W. Teets.......... Vice President, Environmental Affairs and Risk
Management 44 17 1993
David A. White, Jr. ..... Vice President, Corporate Planning and Development 53 23 1988
Joseph D. Chamberlain.... Controller, Accounting 48 15 1994
</TABLE>
All of the above executive officers have been employed by Cooper in
management positions for more than five years, except James A. Chokey and Larry
W. McCurdy. James A. Chokey was Vice President, General Counsel and Secretary of
A.O. Smith Corporation (a manufacturer of automobile structural components,
electrical motors, residential and commercial waterheaters and fiberglass pipe
and fittings) from 1988 through October 1991. Larry W. McCurdy was President and
Chief Executive Officer of Moog Automotive, Inc. (a manufacturer of automotive
parts), a subsidiary of IFINT, S.A., from 1985 through 1992, when Moog
Automotive, Inc. was acquired by Cooper.
9
<PAGE> 13
SECURITY OWNERSHIP OF MANAGEMENT
As of the Record Date, each director and executive officer named in the
Summary Compensation Table owned the number of shares of Common Stock of the
Company set forth in the following Table. Each of the named individuals and all
directors and executive officers as a group, beneficially owned less than one
percent of the Company's outstanding Common Stock.
<TABLE>
<CAPTION>
SHARES
WHICH
MAY
BE
ACQUIRED
SHARES WITHIN
OWNED 60 DAYS
NAME OF DIRECTLY OF THE
BENEFICIAL AND RECORD
OWNER INDIRECTLY DATE
---------- ---------- --------
<S> <C> <C>
Robert Cizik............................................ 254,116(1)(2) 24,999
Warren L. Batts......................................... 4,000(3) 10,000
Clifford J. Grum........................................ 8,000 8,000
Linda A. Hill........................................... -0- -0-
Harold S. Hook.......................................... 8,000 -0-
Constantine S. Nicandros................................ 2,500 -0-
Frank A. Olson.......................................... 3,000 6,000
John D. Ong............................................. 2,400(4) 2,000
H. John Riley, Jr. ..................................... 79,451(2) 13,333
Sir Ralph H. Robins..................................... 214 -0-
A. Thomas Young......................................... 200 2,000
Michael J. Sebastian.................................... 79,297(2) 8,333
Ralph E. Jackson, Jr. .................................. 7,798(2) 8,333
Larry W. McCurdy........................................ 3,938(2) 13,666
All Directors and Executive Officers as a Group......... 666,659(5) 226,506(6)
</TABLE>
- ---------------
(1) Includes 520 shares owned by a family member.
(2) Includes shares held in the Cooper Savings and Stock Ownership Plan.
(3) All of these shares are held in a trust for which Mr. Batts is the settlor
and trustee and for which a member of his family is the beneficiary. Mr.
Batts has sole voting and investment power with respect to the shares.
(4) Includes 400 shares owned by a family member.
(5) Includes shares held in the Cooper Savings and Stock Ownership Plan by
executive officers of the Company in addition to those listed for the named
executive officers.
(6) Includes 4,385 shares that may be acquired by conversion of the Company's
7.05% Convertible Subordinated Debentures due 2015.
MEETINGS OF THE COOPER BOARD AND ITS COMMITTEES
The Board of Directors of Cooper met on five occasions during 1994. All of
the directors attended 80 percent or more of the meetings of the Board and the
committees of the Board on which they served.
Cooper has five committees composed of directors:
Audit Committee
The Audit Committee consists of five nonemployee directors: Warren L.
Batts, Chairman, Clifford J. Grum, Constantine S. Nicandros, Sir Ralph H. Robins
and A. Thomas Young. Three Committee meetings were held during the year.
Activities of the Committee included conferring with management and the
independent auditors regarding the 1993 financial statements; reviewing the 1993
report of the independent auditors and management's response thereto; reviewing
fees paid to the independent auditors; reviewing the scope of the 1994 audit by
the independent auditors; and making a recommendation acted on by the Board of
Directors to appoint Ernst & Young LLP as the Company's independent auditors for
1994. During 1994, the Committee also reviewed the following matters: the 1994
internal audit program; officers' travel and entertainment expenses; the
financial organization key personnel; compliance with the Company's conflicts of
interest and ethical conduct policies; the effectiveness of the Company's
internal controls; the Company's foreign exchange and hedging activity; the
status of tax audits; the scope of the 1995 internal audit program; and the
Company's litigation and environmental matters and risk management program.
10
<PAGE> 14
Executive Committee
The Executive Committee consists of two employee directors, Robert Cizik,
Chairman, and H. John Riley, Jr., and three nonemployee directors, Clifford J.
Grum, Harold S. Hook and John D. Ong. Under the Code of Regulations of the
Company, the Executive Committee has, during the intervals between the meetings
of the directors, all of the powers of the directors in the management and
control of the business and property of the Company. The Executive Committee did
not meet in 1994.
Finance Committee
The Finance Committee consists of five nonemployee directors: Frank A.
Olson, Chairman, Clifford J. Grum, Harold S. Hook, John D. Ong and Sir Ralph H.
Robins. Two Committee meetings were held during the year. The activities of the
Committee included reviewing pension plan assets management and the Company's
capital structure, debt ratings and debt composition; and making recommendations
to the Board regarding dividends and the refinancing of certain industrial
development bonds.
Management Development and Compensation Committee
The Management Development and Compensation Committee consists of five
nonemployee directors: Constantine S. Nicandros, Chairman, Warren L. Batts,
Harold S. Hook, Frank A. Olson and A. Thomas Young. Two meetings of the
Committee were held in 1994. Actions of the Committee included determination of
performance targets and awards under the Annual Management Incentive Plan; grant
of 1994 stock options; salary action for officers; distributions under the
Deferred Compensation Plan; establishment of 1995 Salary Policy and 1995 Annual
Incentive Plan targets; amendment of the Company's form of stock option
agreement; and approval of an increase in the number of shares available under
the Company's stock option plan.
Committee on Nominations and Corporate Governance
The Committee on Nominations and Corporate Governance consists of four
nonemployee directors: John D. Ong, Chairman, Warren L. Batts, Constantine S.
Nicandros and Frank A. Olson. Three meetings of the Committee were held in 1994.
Matters reviewed and considered by the Committee included general matters of
corporate governance; quality of information provided by management to the
Board; election of members of the Board to committees; and nominations for
election or appointment of directors.
EXECUTIVE MANAGEMENT COMPENSATION
Table 1 presents information concerning compensation paid to, or accrued
for services by, the Chief Executive Officer and the four most highly
compensated executive officers of Cooper during fiscal years 1992, 1993 and
1994.
Table 2 presents information concerning the grant of options during fiscal
year 1994 to the Chief Executive Officer and the four most highly compensated
executive officers of Cooper to acquire the Company's Common Stock under the
Company's 1986 Employee Stock Option Plan.
Table 3 presents information concerning the unexercised stock options held
by the Chief Executive Officer and the four most highly compensated executive
officers of Cooper at the end of fiscal year 1994.
Table 4 compares the total shareholder return on the Company's Common Stock
for the five-year period December 31, 1989 through December 31, 1994 to the
total returns for the same period of (a) the Standard & Poors 500 Stock Index;
(b) the Standard & Poors Electrical Equipment Group; and (c) the Standard &
Poors Diversified Machinery Group. The Company chose the two industry indices
for comparison since Cooper's product offering is so diverse. Standard & Poors
assigns Cooper to its Diversified Machinery Group, while many analysts compare
Cooper to other electrical equipment manufacturers since this is a significant
part of Cooper's business. Management believes that a comparison to two
different indices is appropriate.
11
<PAGE> 15
TABLE 1
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION(3)
-------------------------
ANNUAL COMPENSATION(1) AWARDS
-------------------------- -------------------------
(a) (b) (c) (d) (f) (g) (i)
RESTRICTED SECURITIES
STOCK UNDERLYING ALL OTHER
NAME AND SALARY BONUS AWARD(S) OPTIONS/SARS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($)(2) # ($)(4)
- ------------------------------------- ---- ------- ------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Cizik, R. -- Chairman & 1994 895,000 0 0 75,000 40,275
Chief Executive Officer............ 1993 835,000 400,000 0 0 37,575
1992 798,750 0 1,332,800 0 52,500
Riley, Jr., H. J. -- President & 1994 487,500 0 0 40,000 32,063
Chief Operating Officer............ 1993 435,000 225,000 0 0 19,575
1992 343,333 0 425,600 0 20,625
Sebastian, M. J. -- Executive 1994 377,500 0 0 25,000 16,988
Vice President, Operations......... 1993 357,500 125,000 0 0 17,065
1992 335,000 0 386,400 0 20,817
Jackson, Jr., R. E. -- Executive 1994 285,938 0 0 25,000 16,917
Vice President, Operations......... 1993 250,000 100,000 0 0 11,989
1992 209,125 40,000 0 0 14,280
McCurdy, L. W. -- Executive
Vice President, Operations(5)...... 1994 275,000 0 0 25,000 499,425
</TABLE>
- ---------------
(1) Column (e) "Other Annual Compensation" has been omitted since there are no
amounts to report. The aggregate amount of perquisites and other personal
benefits for any named executive does not exceed $50,000 or 10% of the
total of annual salary and bonus for any such named executive.
(2) The figures in this column reflect the fair market value on the date of
grant of awards of restricted stock that are subject to forfeiture in the
event that the executive does not remain employed by the Company for a
period of four years. The awards shown for 1992 are valued at $56.00 a
share, which was the fair market value on the grant date, February 18,
1992. The forfeiture restrictions lapse on December 31, 1995.
The following chart shows the total number of shares of restricted stock
and performance-based restricted stock awards held as of December 31, 1994
and the value of such shares as of the end of 1994 is as follows:
<TABLE>
<CAPTION>
(a) (b) (c) (d)
MARKET
SHARES VALUE
OF OF SHARES OF PERFORMANCE-
RESTRICTED RESTRICTED BASED RESTRICTED MARKET VALUE
STOCK STOCK STOCK ("LTIP") OF LTIP
------ -------- ---------------------- ------------
<S> <C> <C> <C> <C>
Cizik....................... 23,800 $809,200 71,400 $2,427,600
Riley....................... 7,600 $258,400 22,800 $ 775,200
Sebastian................... 6,900 $234,600 20,700 $ 703,800
Jackson..................... 4,000 $136,000 12,000 $ 408,000
McCurdy..................... 0 $ 0 0 $ 0
</TABLE>
All of the shares of restricted stock [column (a)] are subject to
forfeiture in the event that the named executive does not remain employed
until December 31, 1995, which is a period of four years from the beginning
of the performance period, unless the employee sooner retires at age 65 in
accordance with corporate policy. Dividends are paid on the shares of
restricted stock at the dividend rate payable on all outstanding shares of
Company Common Stock.
The shares shown in column (c) are the maximum number of performance-based
restricted stock that may be earned. Payout of the shares is tied to
achieving performance targets that are expressed as a compound growth rate
in earnings per share over a specified target during the four-year period
from January 1, 1992 through December 31, 1995. Given that the performance
targets for the first three years of the performance cycle have not been
met, it is unlikely that any of the shares in column (c) will be earned.
12
<PAGE> 16
(3) Column (h) "LTIP Payouts" has been omitted since no LTIP payouts were
awarded to the named executives during the years shown.
(4) The figures in this column for 1994 include the Company's contributions to
the Cooper Industries, Inc. Employees' Savings and Stock Ownership Plan and
to the Cooper Industries, Inc. Supplemental Excess Defined Contribution
Plan, respectively, as follows: R. Cizik $6,750 and $33,525; H. J. Riley,
Jr. $6,750 and $25,313; M. J. Sebastian $6,750 and $10,238; R. E. Jackson,
Jr. $6,750 and $10,167; and L. W. McCurdy $6,750 and $9,675. The figure for
1994 for L. W. McCurdy also includes payments totalling $483,000 in
connection with the Company's acquisition of Moog Automotive, Inc., his
previous employer, and the termination of his employment contract with that
company.
(5) Compensation information for Mr. McCurdy is not provided for years prior to
1994, as he was not an executive officer of the Company during that period.
TABLE 2
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
----------------------------------------------------------------- ANNUAL RATES OF
NUMBER OF PERCENT OF TOTAL STOCK PRICE
SECURITIES OPTIONS/SARS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION ------------------------
NAME GRANTED(#) FISCAL YEAR ($/SH)(1) DATE(2) 5%($) 10%($)
(a) (b) (c) (d) (e) (f) (g)
---- ------------ ---------------- ------------ ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Cizik, R.................. 75,000 30 39.06 2/15/99 808,500 1,787,250
Riley, Jr., H. J.......... 40,000 16 39.06 2/15/99 431,200 953,200
Sebastian, M. J........... 25,000 10 39.06 2/15/99 269,500 595,750
Jackson, Jr., R. E........ 25,000 10 39.06 2/15/99 269,500 595,750
McCurdy, L. W............. 25,000 10 39.06 2/15/99 269,500 595,750
</TABLE>
- ---------------
(1) The exercise price of each option is equal to the fair market value of the
Company's shares on the date of grant of the option. The exercise price may
be paid in cash, or by tendering already owned Cooper Common Stock having a
fair market value on the date of exercise equal to the exercise price.
(2) Options become one-third exercisable one year after the date of grant,
two-thirds exercisable two years after the date of grant, and fully
exercisable three years after the date of grant.
TABLE 3
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION/SAR VALUES (1)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED
OPTIONS/SARS AT FISCAL
YEAR-END (#)
-----------------------------
(a) (d) (e)
NAME EXERCISABLE UNEXERCISABLE
---- ----------- -------------
<S> <C> <C>
Cizik, R................................................. 24,999 50,001
Riley, Jr., H. J......................................... 13,333 26,667
Sebastian, M. J.......................................... 8,333 16,667
Jackson, Jr., R. E....................................... 15,333 16,667
McCurdy, L. W............................................ 13,666 19,334
</TABLE>
- ---------------
(1) No options were exercised by any of the named executive officers during
1994. As of December 31, 1994, the exercise price for all options held by
the named executive officers was in excess of the market value. Accordingly,
columns (b) and (c) of the table have been omitted.
13
<PAGE> 17
TABLE 4
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL
SHAREHOLDER RETURNS
<TABLE>
<CAPTION>
S&P S&P
MEASUREMENT PERIOD ELECTRICAL DIVERSIFIED
(FISCAL YEAR COVERED) COOPER S&P 500* EQUIPMENT MACHINERY*
<S> <C> <C> <C> <C>
1989 100.0 100.0 100.0 100.0
1990 106.1 96.9 92.0 87.1
1991 151.0 126.3 121.9 103.6
1992 128.0 135.9 133.4 105.7
1993 136.7 149.5 160.9 156.5
1994 98.6 151.5 162.8 152.3
</TABLE>
*Includes Cooper
REPORT OF THE MANAGEMENT DEVELOPMENT AND COMPENSATION
COMMITTEE ON EXECUTIVE COMPENSATION
It is the policy of the Management Development and Compensation Committee
("Committee") to compensate executive officers based on their responsibilities,
achievement of annual established goals and the Company's longer-term
performance. The compensation of the Chief Executive Officer and the other
senior executive officers consists of a base salary, an annual bonus opportunity
and long-term, performance-based restricted stock or stock option awards.
BASE SALARY
A base salary range is established for each executive officer using the Hay
Job Evaluation System, which uses a comparative assessment of know-how,
problem-solving and accountability factors in the job rating process. The
competitiveness of the base salary is also considered since the Committee
believes it is critical to attract and retain the best qualified executives. The
Committee uses the annual Hay Survey of Compensation Practices to establish the
ranges of executives' salaries. In 1994, the Hay Survey of Compensation
Practices included 226 industrial companies with revenues in excess of $1
billion, which is a broader universe than the companies included in the S&P
Electrical Equipment Index and the S&P Diversified Machinery Index appearing in
the performance graph. The Committee believes that the broader group of
companies provides a more appropriate basis for establishing salary levels since
it minimizes the distortion of results that occurs when using a small sample
group.
The Committee's policy is to establish a salary range for the CEO and the
other named executives, to set the midpoint of the range between the 50th and
the 75th percentile of the Hay Survey, and to pay compensation within the
established range, depending on the individual's work experience, impact on the
business and individual performance. The Committee verifies the Hay data through
use of a separate compensation study, known as Project 777, which is compiled by
Management Compensation Services. This data bank includes 335 companies, over 50
percent of which are in the Fortune 500. During 1994, the actual base salaries
for the named executive officers generally approximated the 50th percentile of
the Hay Survey.
Salaries of senior executive officers are typically reviewed at 15-month
intervals. Base salary adjustments are primarily weighted on individual
performance with due consideration given to immediate past performance and
business decisions that impact the future growth and economic stability of the
Company.
14
<PAGE> 18
ANNUAL INCENTIVE COMPENSATION
An annual cash bonus opportunity, which is awarded at the discretion of the
Committee, is designed to tie annual incentive compensation to overall corporate
and individual performance. The awarding of the bonus is based on performance
goals established by the Committee in February of the bonus year. A bonus pool
is established by the Committee based upon an increase in earnings per share
over the prior year. The individual bonus amount awarded, if any, is tied to the
individual's job performance during the year as well as to increase in share
earnings. To date the payments of annual cash bonuses have been at the complete
discretion of the Committee. Due to the provisions of the Omnibus Budget
Reconciliation Act of 1993 ("OBRA"), the Committee is currently considering the
adoption of a formal cash bonus plan that will contain the limitations necessary
to comply with OBRA.
In February 1994, the Committee determined that there would be no annual
cash bonuses awarded to named executives based on a forecasted decline in
earnings per share, resulting from discontinued operations.
LONG-TERM INCENTIVES
It is the policy of the Committee to provide incentives to executive
officers that are tied to the long-term performance of the Company. For this
purpose, the Committee has granted share awards to the named executive officers
pursuant to the Executive Restricted Stock Incentive Plan or stock options
pursuant to the 1986 Stock Option Plan. Both Plans have been approved by the
shareholders.
Under the Executive Restricted Stock Incentive Plan ("Restricted Stock
Incentive Plan"), initial share awards are granted, subject to forfeiture if the
named executive does not remain employed by the Company for a period of four
years from January 1 in the year the award is granted, unless the Executive
sooner retires at age 65 in accordance with corporate policy. For each award,
the Committee establishes a four-year performance cycle and a range of
additional awards that may be earned based on achievement of the prescribed
performance goals. Performance goals are based on compound annual increases in
earnings over a specified target. The Committee determines the number of shares
awarded to each individual based on actual compensation, assumptions relating to
stock price and earnings growth, and recommendations and advice from Frederic W.
Cook & Co., a compensation consulting firm. The Committee generally establishes
the value of the grant at the median compensation level of large industrial
companies. Stock awards under the Restricted Stock Incentive Plan were last made
by the Committee in February 1992 for a performance period commencing on January
1, 1992 and ending on December 31, 1995. The number of shares of restricted
stock and performance-based restricted stock awards granted to each named
executive are shown in footnote 2 to the Summary Compensation Table.
In February 1994, the Committee granted stock options to each named
executive pursuant to the 1986 Stock Option Plan ("Option Plan"). The Committee
determined the number of options granted to each individual based on actual
compensation, assumptions relating to stock price and earnings growth and
recommendations from an outside compensation consulting firm. The stock options
were granted with an exercise price equal to 100 percent of fair market value on
the date of grant. The options are exercisable to the extent of one-third after
the expiration of one year following the date of grant, two-thirds after the
expiration of two years and in full after the expiration of three years. The
options expire five years after the date of grant.
The Committee believes that both the restricted stock awards and the stock
option program tie the individual executive's compensation to the Company's
performance and directly link the executive's personal interests to the
interests of the Company and its shareholders.
COMPENSATION TO CEO
During 1994, the Committee increased Mr. Cizik's base salary by $85,000
based on a review of the compensation levels of chief executive officers of
companies of comparable size and in similar businesses, using the surveys
previously discussed. The increase was in recognition of Mr. Cizik's leadership
in strengthening the international presence of the Company through acquisitions
and implementing the revitalization program, which achieved revenue and earnings
growth from Cooper's continuing operations.
The Committee granted stock options for 75,000 shares to Mr. Cizik, taking
into consideration the scope of his responsibility as well as the factors
discussed above. The Committee believes that this option award is competitive
with options granted to CEOs of the companies in the S&P Electrical Index and
the S&P Diversified Machinery Index. Through the stock option award, a
significant portion of Mr. Cizik's compensation is tied directly to corporate
performance and return to shareholders.
15
<PAGE> 19
SUMMARY
The Committee continues to believe that the total executive compensation
program appropriately links compensation to corporate and individual
performance. In 1992 the Committee engaged a compensation consultant, Frederic
W. Cook & Co., to review the Company's overall executive compensation program.
The study confirmed that the Company's total compensation levels are competitive
with those companies included in the S&P Diversified Machinery Index and the S&P
Electrical Equipment Index and the program appropriately focuses on performance
and enhancing shareholder wealth. In November 1994, the Committee engaged
Frederic W. Cook & Co. to update its evaluation and report to the Committee in
1995.
The Committee has reviewed the provisions of the Omnibus Budget
Reconciliation Act of 1993 and the regulations issued under the Act that impose
a limit, with certain exceptions, on the amount that a publicly held corporation
may deduct in any year for the compensation paid to its five most highly
compensated officers. The regulations provide certain transition rules that will
preserve the deductibility for the Company of the restricted stock awards
granted in 1992. In addition, because Mr. Cizik has elected to defer receipt of
his annual cash bonus, if any, earned during 1994 and 1995 until the year
following his retirement, all compensation paid by the Company in 1995 should be
deductible. The Committee intends to consider during 1995 the adoption of a new
cash bonus plan and a stock incentive plan that will meet the requirements of
the new tax rules so as to preserve the tax deductibility of all executive
compensation while maintaining the Committee's policy of compensating executives
based on their responsibilities, achievement of annual goals and the Company's
annual and longer-term performance.
Constantine S. Nicandros, Chairman
<TABLE>
<S> <C>
Warren L. Batts Frank A. Olson
Harold S. Hook A. Thomas Young
</TABLE>
PENSION BENEFITS
Upon retirement the executives named in the Summary Compensation Table may
be entitled to retirement benefits from the Salaried Employees' Retirement Plan
of Cooper Industries, Inc., ("Cooper Retirement Plan"), the Cooper Industries,
Inc. Supplemental Excess Defined Benefit Plan ("Supplemental Plan") and the
Crouse-Hinds Officers' Disability and Supplemental Pension Plan ("Crouse-Hinds
Officers' Plan").
Pursuant to the Cooper Retirement Plan, the Company credits to the
individual's plan account 4% of each year's total compensation up to the Social
Security wage base for the year, plus 8% of each year's total compensation that
exceeds the Social Security wage base. For this purpose, total compensation is
cash remuneration paid by the Company to or for the benefit of a member of the
Cooper Retirement Plan for services rendered while an employee. For the
executives named in the Summary Compensation Table (Table 1), the total
compensation is shown in columns (c) and (d) of the Summary Compensation Table.
However, if an executive elects to defer any compensation, his total
compensation under the Cooper Retirement Plan is reduced by the amount deferred.
The Executive Stock Plan awards shown in column (f) of Table 1 are not included
for purposes of determining the credits under the Cooper Retirement Plan. This
formula for determining benefit credits became effective on July 1, 1986.
Benefits for service through June 30, 1986, were determined based on the
retirement plan formula then in effect and converted to initial balances under
the Cooper Retirement Plan. Both initial balances and credits for benefits after
July 1, 1986 receive interest credits until the participant commences benefit
payments. The Plan's interest credit rate for 1994 was 4.25% and will be 4.75%
for 1995. Benefits at retirement are payable, as the participant elects, in the
form of an escalating annuity, a level annuity with or without survivorship, or
a lump-sum payment.
The Cooper Retirement Plan "grandfathers" prior plan benefits for
participants (including some of the executives named in the Summary Compensation
Table) who meet certain age and service requirements. Under this "grandfather"
provision, an eligible participant is assured that his or her actual pension
benefit payable from the Cooper Retirement Plan will not be less than the
benefit he or she would have received at retirement under the prior plan formula
calculated based on service and earnings through June 30, 1991.
The Supplemental Plan is an unfunded, nonqualified plan which provides to
certain employees, including those named in the Summary Compensation Table,
Cooper Retirement Plan benefits that cannot be paid from a qualified, defined
benefit plan due to Internal Revenue Code provisions. The Plan also provides
benefits equal to what would have been paid under the Cooper Retirement Plan on
amounts of deferred compensation had those amounts not been deferred. The
Crouse-Hinds Officers' Plan, an unfunded, nonqualified plan assumed by the
Company following the
16
<PAGE> 20
acquisition of Crouse-Hinds Company, may provide to one Cooper officer benefits
in addition to amounts payable under other retirement plans of the Company. In
addition, Mr. McCurdy had a Supplemental Retirement Agreement with Moog
Automotive, Inc., which agreement was assumed by the Company in connection with
the acquisition of Moog. This agreement will provide benefits to Mr. McCurdy in
addition to amounts payable under other retirement plans of the Company.
PENSION BENEFITS
<TABLE>
<CAPTION>
CREDITED
SERVICE
AS YEAR ANNUAL
OF INDIVIDUAL ESTIMATED
JANUARY REACHES BENEFIT
1, AGE AT AGE
1995 65 65
-------- ---------- ---------
<S> <C> <C> <C>
Robert Cizik............................ 33.4 1996 $491,000
H. John Riley, Jr. ..................... 32.2 2005 $284,000
Michael J. Sebastian.................... 16.3 1995 $ 88,000
Ralph E. Jackson, Jr. .................. 19.0 2006 $120,000
Larry W. McCurdy........................ 9.1 2000 $355,000
</TABLE>
For each of the individuals shown in the Summary Compensation Table, the
table above shows current credited years of service, the year each attains age
65, and the projected annual pension benefit at age 65. The projected annual
pension benefit is based on the following assumptions: benefits paid on a
straight-life annuity basis; continued compensation at the 1994 levels; and an
interest credit rate of 4.75%. Amounts payable under the Supplemental Plan, but
not the Crouse-Hinds Officers' Plan, are included in the Annual Estimated
Benefit. The amount shown for Mr. McCurdy includes the additional retirement
benefits that he will receive under his Supplemental Retirement Agreement
described above.
CHANGE IN CONTROL ARRANGEMENTS
The executives named in the Summary Compensation Table participate in the
Company's Executive Restricted Stock Incentive Plan ("Executive Stock Plan").
This Plan was approved by the shareholders on April 26, 1988. The Plan is
designed to tie executive compensation to increase in earnings per share thus
benefiting stock price appreciation and shareholder wealth. Under the Executive
Stock Plan, which is administered by the Management Development and Compensation
Committee of the Board of Directors, initial share awards are tentatively
granted, subject to forfeiture if the executive does not remain in the employ of
Cooper for a period of four years from the date of the award. Additional
incentive shares (and cash equal to the amount of dividends that would have been
paid thereon) may be earned during the four-year period in accordance with a
formula that is dependent upon the achievement of performance criteria
established by the Board Committee. At the conclusion of the four-year period,
the initial share awards plus the incentive shares earned, if any, are issued
(and cash equal to the dividends on the incentive shares is paid). Each
executive may elect during the first three years to defer receipt of shares or
dividends beyond the time when the shares are earned. With the Company's consent
an executive may elect to receive, in lieu of a portion of the incentive shares,
the fair market value cash equivalent of up to 50% of the total incentive shares
earned. This cash election was inserted by the Board Committee to assist the
executive in paying withholding tax on the fair market value of the stock
distributed. The Executive Stock Plan provides that upon a change in control of
the Company, the executive officers may receive cash in lieu of shares under the
Executive Stock Plan in amounts equal to the fair market value of all
outstanding share awards.
The executives named in the Summary Compensation Table have been granted
stock options under the Company's 1986 Stock Option Plan. The options vest over
a period of three years, one-third each year after the first year, and have a
five-year term. The 1986 Stock Option Plan provides that upon a change in
control of the Company, the Management Development and Compensation Committee of
the Board of Directors may accelerate the vesting of any outstanding options, or
cancel outstanding options and make a cash payment to the named executives equal
to the difference between the fair market value of the Company's Common Stock
and the option exercise price.
There are no circumstances presently foreseeable under which the aggregate
dollar amount payable reasonably can be estimated to have a material, adverse
effect on the operating or financial condition of the Company. The Company has
established a trust that will be used to fund its obligations under the
Executive Stock Plan, the 1986
17
<PAGE> 21
Stock Option Plan and certain otherwise unfunded benefit plans in the event of a
change in control or a potential change in control. In 1988, the Company also
established a trust that will be used to fund its obligations under otherwise
unfunded benefit plans providing deferred compensation and retirement benefits
to nonemployee directors of the Company. Presently these trusts have been
nominally funded.
COMPENSATION TO DIRECTORS
The Annual Basic Retainer of nonemployee directors is $45,000 per annum. In
addition, nonemployee directors are paid meeting attendance fees of $800 for
regular committee meetings and $2,000 for special Board or committee meetings.
An additional annual retainer of $6,000 is paid to each nonemployee chairman of
a standing committee.
In lieu of receiving the Annual Basic Retainer and meeting fees in cash,
each nonemployee director may elect, pursuant to the Directors Deferred
Compensation Plan, to defer receipt of such amounts until a date determined by a
director or until retirement from the Board. Alternatively, each nonemployee
director may elect to receive, in lieu of the Annual Basic Retainer fee, a
nonqualified stock option covering 2,000 shares of the Company's Common Stock
pursuant to the 1989 Director Stock Option Plan (the "Director Plan"). The
exercise price is determined as follows:
<TABLE>
<S> <C> <C> <C> <C>
Fair Market Value Annual Basic Retainer
of a Share of - ---------------------- = Cash Exercise
Common Stock on 2,000 Price Per Share
Date of Grant
</TABLE>
provided that the minimum Exercise Price is $5.00 per share. The maximum number
of shares to be issued under the Director Plan, the number of shares subject to
each option (including the denominator of 2,000) and the minimum price per share
are subject to adjustment in the event of stock splits or other changes in the
Cooper Common Stock or capital structure.
Any such options will be granted on the date following commencement of the
Annual Meeting of Shareholders. Options granted to nonemployee directors become
fully exercisable on the first anniversary of the date of grant of the option,
and terminate upon the expiration of five years from the date of grant, subject
to prior termination pursuant to the terms of the Director Plan.
In 1994, two nonemployee directors elected to receive a stock option in
lieu of the Annual Basic Retainer for the year April 1994 to April 1995. During
1994, options for a total of 4,000 shares of Cooper Common Stock were granted
and 8,000 shares were issued pursuant to the Director Plan. As of December 31,
1994, options were outstanding for 28,000 shares under the Director Plan.
Pursuant to the Cooper Industries, Inc. Directors Retirement Plan, any
director with at least 10 years of service as a director (counting a fractional
year as a full year), or who retires in accordance with a resolution regarding
director tenure adopted by the Board on February 17, 1975, as thereafter from
time to time amended, will be entitled to receive a benefit amount equal to the
annual basic retainer for nonemployee directors in effect at the time of
retirement, exclusive of special compensation for services as a Committee
Chairman or attendance at meetings. The benefit amount will be paid annually on
January 2, or quarterly if elected, for the number of years in which the
director has served on the Board (counting a fractional year as a full year).
Payment ceases with the death of the retired director.
SHAREHOLDER PROPOSALS
Seven shareholders have notified the Company of their intention to propose
two separate resolutions at the Annual Meeting of Shareholders. The proposals
and proponents' supporting statements have been reprinted exactly as submitted.
The affirmative vote of the majority of the voting power, in person or by proxy,
is required for approval. Abstentions will be counted for purposes of
determining whether a quorum is present and will be counted as voting. Broker
nonvotes are not counted for purposes of voting.
The Board of Directors realizes that the shareholder proposals set forth
below involve issues of concern to shareholders. The Board of Directors is
always mindful of its fiduciary obligations to all shareholders and it has spent
a substantial amount of time carefully considering each of the subjects
discussed in the following shareholder proposals.
For the reasons that are set forth below, THE BOARD OF DIRECTORS RECOMMENDS
THAT SHAREHOLDERS VOTE AGAINST BOTH SHAREHOLDER PROPOSALS, which follow as
Proposals 2 and 3.
18
<PAGE> 22
PROPOSAL 2
Three shareholders, The American Baptist Home Mission Society, P.O. Box
851, Valley Forge, Pennsylvania 19482-0851, owner of 54,060 shares of Cooper
Common Stock, The Domini Social Equity Fund, 6 St. James Avenue, Boston,
Massachusetts 02116, owner of 2,300 shares of Cooper Common Stock, and The
Domestic and Foreign Missionary Society of the Protestant Episcopal Church in
the United States of America, 815 Second Avenue, New York, New York 10017-4594,
owner of 100 shares of Cooper Common Stock, have informed the Company that they
intend to present the following proposal at the Annual Meeting.
WHEREAS WE BELIEVE:
The responsible implementation of a sound, credible environmental policy
increases long-term shareholder value by raising efficiency, decreasing clean-up
costs, reducing litigation, and enhancing public image and product
attractiveness;
Adherence to public standards for environmental performance gives a company
greater public credibility than following standards created by industry alone.
For maximum credibility and usefulness, such standards should reflect what
investors and other stakeholders want to know about the environmental records of
their companies;
Companies are increasingly being expected by investors to do meaningful,
regular, comprehensive and impartial environmental reports. These help investors
and the public to understand environmental progress and problems;
Uniform standards for environmental reports permits comparisons of
performance over time. It also allows companies to attract new capital from
investors seeking investments which are environmentally responsible and
responsive and which minimize risk of environmental liability.
WHEREAS:
The Coalition for Environmentally Responsible Economies (CERES) -- which
comprises large institutional investors (including shareholders of this Company)
with $160 billion in stockholdings, public interest representatives, and
environmental experts -- consulted with corporations and produced comprehensive
public standards for both environmental performance and reporting. Over 80
companies, including Sun (Oil), General Motors, H.B. Fuller, Polaroid, and
Arizona Public Service Company have endorsed the CERES Principles to demonstrate
their commitment to public environmental accountability. Fortune-500 endorsers
speak enthusiastically about the benefits that flow from working with CERES:
increasing public credibility; adding 'value' to the company's environmental
initiatives; and advancing the company's own environmental plans and agenda.
In endorsing the CERES Principles, a company commits to work toward:
1. Protection of the biosphere
2. Sustainable use of natural resources
3. Waste reduction and disposal
4. Energy conservation
5. Risk reduction
6. Safe products and services
7. Environmental restoration
8. Informing the public
9. Management commitment
10. Audits and reports
(Full text of the CERES Principles and accompanying CERES Report Form
obtainable from CERES, 711 Atlantic Avenue, Boston, MA 02110, telephone:
617/451-0927).
RESOLVED, Shareholders request the Company to endorse the CERES Principles
as a part of its commitment to be publicly accountable for its environmental
impact.
PROPONENT'S SUPPORTING STATEMENT
Concerned investors are asking the Company to be publicly accountable for
its environmental impact, including collaborating with this corporate-
environmental-investor-community coalition to develop: standards for
environmental performance and disclosure; methods for measuring progress toward
these goals; and a format for public reporting of progress. We believe this is
comparable to the European Community regulation for voluntary participation in
verified and publicly-reported eco-management and auditing.
19
<PAGE> 23
We invite our company to endorse the CERES Principles by (1) stating its
endorsement in a letter signed by a senior officer; (2) committing to implement
the Principles; and (3) annually publishing an environmental report in the
format of the CERES Report. This will complement -- not supplant -- internal
corporate environmental policies and procedures.
With such public scrutiny, corporate environmental policies and reports
lack the critical components of adherence to standards upheld by management and
stake holders alike. Shareholders are asked to vote FOR this resolution to
encourage our Company to demonstrate environmental leadership and
accountability.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST PROPOSAL 2
Cooper is committed to a clean environment and to compliance with federal,
state, local and foreign laws that have as their purpose the safeguarding of
human health and the environment. Cooper's Environmental Policy, which was
adopted in 1990, and its environmental management and audit program affirm this
commitment.
Cooper has a proactive environmental management program. Its objectives are
to ensure that the Company's facilities are in compliance with existing
environmental laws and to make changes in the manufacturing processes at such
facilities in an effort to eliminate or reduce the generation of pollutants at
the source. Elements of this program include a comprehensive survey at each
manufacturing facility in North America to identify problems and opportunities;
an Environmental Audit team of over 50 people to conduct environmental
compliance audits at such facilities on a regular basis; comprehensive education
and training programs, including compliance seminars and advanced technology
workshops; and a competent staff of environmental engineers and specialists who
coordinate major projects and assist the operating division managers. The
environmental management program is headed by a Vice President who reports
directly to the President and Chief Operating Officer. On an annual basis, the
Vice President presents a report on current compliance and remedial efforts to
the Company's Board of Directors.
In 1991, Cooper voluntarily joined the Environmental Protection Agency's
33/50 Program. Under this program, the EPA asked companies to reduce emissions
of 17 priority chemicals by 33 percent by the end of 1992 and by 50 percent by
the end of 1995. Cooper has surpassed both of these goals two years ahead of
schedule and has now set its own goal of 75 percent by the end of 1995.
In 1993, Cooper became a corporate partner in the EPA's Green Lights
Program, which involves a commitment to install energy-efficient lighting in the
Company's facilities. In recognition of its commitment to the program, its
innovation in lighting technologies and services to customers and its public
promotion of the Green Lights program, the Company's Cooper Lighting Division
was honored by the EPA as its 1994 "Manufacturing Ally of the Year."
During 1994, the Company's Wagner Lighting Division plant in Sparta,
Tennessee successfully eliminated leaded glass used in its manufacture of
certain miniature lamps for automobiles and other vehicles. For this, the Sparta
plant was awarded the "1994 Environmental Achievement Award" by the Tennessee
Association of Business, which selects recipients for recognition in the areas
of air quality, water quality, solid waste management and hazardous waste
management.
As in the case of any large manufacturing company that has been in business
for a long time, Cooper has environmental problems that it continues to address.
Cooper has been identified as a potentially responsible party with respect to
about 100 multi-generator sites designated for cleanup under various
environmental laws. Many of these sites came to Cooper as the result of
acquisitions and mergers over the past 10 years. At most of these sites, Cooper
and its predecessors' involvement is less than five percent. Further, in almost
every case, the activity for which remediation is now sought was lawful when
committed. Cooper is working with the applicable governmental agencies in
connection with remediation of these sites. Cooper also has faced potential
penalties from various environmental regulatory authorities. During 1993 and
1994 Cooper paid penalties in the amount of $217,600 and $239,400, respectively.
We strive to operate our facilities in compliance with the law and to work with
the regulatory authorities.
The Proponents request that the Company endorse the CERES Principles,
commit to their implementation and annually complete the CERES Report. We
strongly oppose this request. Cooper already has implemented a responsible
Environmental Policy. In addition, the Company already complies with the
numerous and varying reporting requirements imposed by federal, state and local
laws, which require more than a thousand reports to be filed each year.
20
<PAGE> 24
We believe that a pro-environment policy is a characteristic of good
management and good corporate citizenship. In the opinion of the Board, the
establishment and enforcement of environmental policy should not be ceded to a
private organization like CERES. Matters of environmental policy should be
determined by the legislators, who are responsible to the voters, and by the
Board of Directors, who are responsible to all of the Company's shareholders.
For these reasons, your Board of Directors recommends a vote AGAINST
Proposal 2.
PROPOSAL 3
Four shareholders, Sisters of Loretto, Loretto Motherhouse, Nerinx,
Kentucky 40049, owner of 458 shares of Cooper Common Stock; Benedictine Sisters,
3120 W. Ashby, San Antonio, Texas 78228, owner of 50 shares of Cooper Common
Stock, Catholic Healthcare West, 1700 Montgomery Street, Suite 300, San
Francisco, California 94111, owner of 53,500 shares of Cooper Common Stock; and
Board of Pensions, Evangelical Lutheran Church in America, 800 Marquette Avenue,
Suite 1050, Minneapolis, Minnesota 55402-2885, owner of 9,200 shares of Cooper
Common Stock, have informed the Company that they intend to present the
following proposal at the Annual Meeting:
WHEREAS NAFTA, the North American Free Trade Agreement and GATT, the
General Agreement on Trade and Tariffs, have emphasized the debate surrounding
U.S. corporations in Mexican maquiladora operations. Critics deplore marginal
survival wages paid Mexican maquiladora employees by a majority of U.S.
companies, even though those employees work productively and efficiently.
A 1994 market basket study reveals a maquiladora worker labors 69.0 minutes
to purchase 5 lbs of rice in comparison to the 13.5 minutes of a U.S. worker.
The purchasing power required by the maquiladora worker for aspirin is 153.8
minutes versus 19.3 minutes of the U.S. worker; American cheese, 214.3 to 12.6;
chicken legs, 54.5 to 5.0; bananas, 20.4 to 2.3. (Market Basket Survey, Ruth
Rosenbaum, 1994)
An MIT study declares the Ford factory in Hermosillo, Mexico has the
highest quality of any auto plant in North America. Yet it pays on average
one-tenth of U.S. wages. Even in Mexico, these wages are barely enough to feed a
family, let alone buy a refrigerator or one of the cars the workers assemble.
("Policy Advocate," The Center for Ethics and Economic Policy, Spring 1994)
In 1982, the average Mexican blue collar employee worked 8.1 hours to buy
the basic basket of food: beef, beans, tortillas, tomatoes, sugar, eggs and
milk. In 1986, it was 12.7 hours and by 1993, 21.9 hours. (Dallas Morning News,
8/14/94)
WHEREAS the U.S. and Mexico could build a healthy model of North-South
integration for the 21st century if Mexico is recognized not just as a trading
partner but as a country that contains fellow workers and global citizens with
whom we share much more than trade.
WHEREAS the socially-concerned proponents of this resolution firmly believe
there is a need for strict, enforceable standards of conduct for corporations
operating in Canada, Mexico and the United States. One expectation, based on
NAFTA, is that Mexican wages will rise, thereby raising the standard of living
of Mexican workers and their families. However, we believe this will not happen
unless corporations commit to paying wages substantially higher than marginal
survival wages paid in maquiladoras. We find it ironic that some of the same
companies that publicly committed to paying entry-level workers 50% above the
poverty datum line in South Africa in 1974, are unresponsive when challenged
with the reality of the poverty level wages they pay employees in Mexico.
It is important that our company review maquiladora operations including:
minimum and average wages paid to employees; how these compare with local cost
of living and poverty level; other methods of compensation such as profit
sharing, special trust funds to finance infrastructure improvements in nearby
neighborhoods where employees live. The religiously-affiliated proponents of
this resolution recommend the review contain a market basket survey.
RESOLVED The shareholders request management to initiate a review of wages
and benefits paid and environmental standards upheld in its Maquiladora
Operations. A summary report of findings of the review and recommendations for
changes in policy or performance in light of this survey should be available to
shareholders upon request within six months of the 1995 annual meeting.
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<PAGE> 25
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST PROPOSAL 3
The Board of Directors does not believe that it is appropriate to conduct
special reviews and adopt separate policies for its maquiladora operations.
Cooper has operations worldwide, with manufacturing plants located in 20
different countries, and employees in 37 countries. The Company has adopted
corporate policies relating to environmental, health, safety and employment
practices, which apply equally to all of these operations.
An element of the Company's Management Philosophy is to treat all employees
with dignity and respect and to pay wages and provide benefits that are
competitive in the community and the relevant industry. The wages and benefits
paid to employees of the Company's maquiladora operations in Mexico are reviewed
regularly in accordance with the Company's practices for all of its operations
worldwide.
Another element of the Company's Management Philosophy is to conduct all of
its manufacturing operations in a manner that safeguards employee health and
demonstrates respect for the environment by complying with applicable
environmental laws, reducing and striving to eliminate all environmentally
hazardous wastes or emissions from the Company's manufacturing process and
providing employee training that emphasizes personnel safety and effective
environmental management practices. During 1993, environmental audits were
conducted at five of the Company's manufacturing plants in Mexico, with audits
of the remaining facilities planned for 1995. In addition, in 1993 the
operational practices of all of the Company's Mexican facilities were reviewed
for the purpose of improving employee health and safety. In 1994, Cooper formed
an Environmental and Safety Council with representatives from each plant in
Mexico. This Council will monitor compliance with existing laws and examine ways
to eliminate or reduce the generation of pollutants. Thus, the Company has
already established a proactive environmental management program for its
maquiladora operations in Mexico.
For these reasons, your Board of Directors recommends a vote AGAINST
Proposal 3.
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
During the year ended December 31, 1994, Ernst & Young LLP was employed
principally to perform the annual audit and to render other services.
Representatives of Ernst & Young will be present at the meeting and will be
available to answer questions and discuss matters pertaining to the Report of
Independent Accountants contained in the financial statements included in
Appendix A hereto. Representatives of Ernst & Young will have the opportunity to
make a statement, if they desire to do so.
Selection of the Company's independent accountants for each year is done at
the August meeting of the Board of Directors for such year.
SHAREHOLDERS' PROPOSALS
Shareholders' proposals intended to be presented at the 1996 Annual Meeting
should be sent by certified mail, return receipt requested, and must be received
by the Company at its principal executive offices (Attention: Corporate
Secretary) on or before November 17, 1995 for inclusion in the proxy statement
and the form of proxy for that meeting. Such proposals may be made only by
persons who are shareholders, beneficially or of record, on the date the
proposal is submitted and who continue in such capacity through the meeting
date, of at least 1% or $1,000 in market value of securities entitled to be
voted at the meeting, and have held such securities for at least one year.
OTHER BUSINESS
The Board of Directors is aware of no other matter that will be presented
for action at the meeting. If any other matter requiring a vote of the
shareholders properly comes before the meeting, the persons authorized under
management proxies will vote and act according to their best judgment.
FORM 10-K
A copy of the 1994 Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 as filed with the Securities and Exchange Commission may be
obtained upon request and without charge, by writing:
Public Affairs Department
Cooper Industries, Inc.
P.O. Box 4446
Houston, Texas 77210
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<PAGE> 26
APPENDIX A
COOPER INDUSTRIES, INC.
<TABLE>
<S> <C>
Management's Discussion and Financial Review................... A-1
Consolidated Financial Statements.............................. A-12
</TABLE>
<PAGE> 27
MANAGEMENT'S DISCUSSION AND FINANCIAL REVIEW
BASIS OF PRESENTATION
As described in Note 1 -- Discontinued Operations, effective September 30,
1994, Cooper's Petroleum and Industrial Equipment segment ("P&I") has been
classified as a "discontinued operation" pending the completion of an exchange
offer to holders of Cooper Common stock ("Exchange Offer"). Under the terms of
the Exchange Offer, Cooper's Common shareholders will be offered an opportunity
to exchange some, all or none of their Cooper Common stock for common stock of
Cooper Cameron Corporation, a newly formed company that includes all of the
assets used exclusively by and all liabilities of the four divisions that
comprised the P&I segment at September 30, 1994, as well as $375 million of
allocated indebtedness. As a result of the foregoing, Cooper's results of
operations for all years presented have been restated to reflect separately
continuing and discontinued operations. In addition, the balance sheets at
December 31, 1992 (not separately presented), 1993 and 1994 have been
reclassified to reflect the net assets of the discontinued P&I segment under a
single caption "Net assets of discontinued operations". Prior to September 30,
1994 the P&I segment included other operations that have been sold or otherwise
disposed of. This classification permits the consolidated statement of cash
flows to reflect clearly the cash flows related to the continuing operations of
Cooper as distinct from discontinued operations. The consolidated footnotes,
which are an integral part of these statements, have also been revised to
reflect primarily information with respect to Cooper's continuing operations.
OVERVIEW
During the last three years, Cooper's continuing operations have completed
a total of 16 acquisitions and seven divestitures as well as the closure of the
Electrical Product's large power transformer business. The acquisitions have
been in complementary product lines that enhance known areas of strength, while
the dispositions have been of noncore or poor-performing businesses. In
addition, Cooper has invested $579 million in capital assets related to
modernization and expansion of facilities plus several hundred million dollars
in the integration of newly acquired businesses and the revitalization of
existing ones. The combined result of these efforts is a 27% improvement in the
Company's net income from continuing operations for the year 1994 as compared to
1991. More importantly, the Cooper of 1994 is a much different company than it
was in 1991, and one that is better-prepared for the increasingly competitive
world marketplace. The discussion that follows, as well as the financial
statements and related footnotes, will aid in understanding Cooper's results of
operations as well as its financial position, cash flows, indebtedness and other
key financial information.
CONTINUING OPERATIONS
Revenues
1994 Revenues Cooper's 1994 revenues from continuing operations of $4.59
billion were down 4% as compared to 1993. After excluding the effect of the
divestitures of two small Automotive businesses and Belden in 1993, a small
Automotive business during 1994 and the closure of the large transformer
business, however, revenues, including revenues generated by acquisitions, were
up 8% in 1994.
The Electrical Products segment contributed approximately 45% of Cooper's
total operating revenues during 1994. As reported, revenues decreased from $2.18
billion in 1993 to $2.03 billion in 1994. Adjusted to exclude the effect of
recent divestitures and the closure of the large transformer business, revenues
would have increased 8% from $1.83 billion in 1993 to $1.98 billion in 1994. The
Electrical Products segment continues to benefit from relatively steady demand
for maintenance, repair and renovation needs. The continued strength of
industrial production and commercial and residential construction have promoted
sales growth for electrical circuit protection products, lighting products,
fixtures and power distribution products. The combination of several successful
product introductions and recent product line acquisitions also added to revenue
growth during the year.
A-1
<PAGE> 28
Reported revenues in the Automotive Products segment were $1.62 billion or
35% of 1994 operating revenues, down from 1993's reported total of $1.67
billion. Adjusted to exclude the effect of recent divestitures, revenues would
have increased 4% from $1.54 billion in 1993 to $1.60 billion in 1994.
Aftermarket sales were essentially unchanged and sales of wipers, spark plugs
and lighting improved during the latter part of the year as a result of the
continued rise in domestic original equipment activity and recovering original
equipment sales in certain European markets. In addition, the Magneti Marelli
acquisition in Italy and the acquisition of Zanxx in the United States
contributed to revenues, while the year-end acquisition of Abex Friction
Products had no effect in 1994 but is expected to add over $175 million to
revenues in 1995.
Revenues from the Tools & Hardware segment, which were not affected by
divestitures, improved 11% to $898 million in 1994, representing 20% of total
operating revenues. Sales of hand and power tools in the United States continued
to benefit from the strength of residential construction and industrial
production augmented by some improvement in international markets. Recent
product line acquisitions also added to the year-to-year comparison. Weak demand
and competitive conditions in window coverings markets partially offset this
improvement.
1993 Revenues Revenues from continuing operations of $4.78 billion in 1993
were up 7% from the $4.47 billion in 1992. Higher revenues in the Automotive
Products segment, resulting from the inclusion of a full year's revenues of Moog
Automotive, more than offset the effects of business dispositions.
Revenues from the Electrical Products segment were $2.18 billion,
comprising 47% of Cooper's operating revenues in 1993. Sales were down 1%
compared with 1992 because of the inclusion of only nine months' revenues
related to the Belden wire and cable business, which was sold at the end of the
third quarter (see Note 3 of the Notes to Consolidated Financial Statements for
further information). After excluding the revenues of Belden from both periods,
and adjusting for the effects of 1993 acquisitions and a small 1992 divestiture,
revenues in the segment improved by 4%. All major product offerings in the
segment, except for large power transformers, reported steady revenue gains, led
by improved demand for fluorescent, industrial and airport lighting, electrical
circuit protection equipment, distribution transformers and transformer
components. Large power transformers continued to be adversely affected by lower
capital spending by utility customers.
The Automotive Products segment generated revenues of $1.67 billion in
1993, which accounted for 36% of 1993 operating revenues, compared with $1.29
billion in 1992. This 30% increase was due to the inclusion of 12 months of Moog
Automotive revenues in 1993 versus only three months in 1992. Excluding the
effects of Moog, revenues were down 1% compared with the preceding year. Sales
to domestic original equipment manufacturers improved over 1992 resulting in
higher sales of wiper and lighting products during 1993. However, declines in
domestic and Canadian sales of brake products and in European sales of spark
plugs and wiper products more than offset otherwise steady demand from the
automotive aftermarket.
The Tools & Hardware segment, which comprised 17% of 1993 operating
revenues, reported revenues of $808 million compared with $812 million in 1992.
After excluding the effects of acquisitions made during 1993 and 1992, revenues
were down 3%. The revenue decline resulted primarily from the combined effects
of weak consumer confidence and severe price competition in window coverings
markets and sluggish European and export demand for tools. These weaknesses more
than offset the modest improvement in domestic hand tool sales caused by
strengthening residential construction activity and industrial production.
1992 Revenues Cooper's 1992 revenues from continuing operations of $4.47
billion (excluding nonrecurring income items discussed below) were up 4%
compared with 1991. Improvements in demand in the Electrical Products and
Automotive Products segments, along with the acquisition of Moog Automotive,
more than offset softness in Canadian and some European markets.
The Electrical Products segment contributed 51% of Cooper's total operating
revenues, improving 3% from $2.12 billion in 1991 to $2.19 billion in 1992 (up
about 6% after adjusting both periods for divestitures). Higher levels of
housing construction activity, as well as improved industrial production and
maintenance and repair spending, favorably affected sales of lighting fixtures,
fuses and some electrical construction materials.
A-2
<PAGE> 29
Gains by electronics producers also contributed to increased sales of electronic
wire and cable compared with the prior year. Utility customers continued to
spend on maintenance and efficiency improvement projects; however, capital
spending remained at low levels. In addition, the prior-year results were
adversely affected by a third-quarter work stoppage at Cooper's large power
transformer plant in Canonsburg, Pennsylvania.
Revenues in the Automotive Products segment were $1.29 billion, or 30% of
total operating revenues during 1992, an increase of 12% over the $1.15 billion
reported in 1991. Excluding the effects of Moog Automotive, which was acquired
during the fourth quarter of 1992 (see Note 5 of the Notes to Consolidated
Financial Statements), revenues were up 2%. Aftermarket demand, which accounted
for the vast majority of this segment's sales, improved moderately in most
product areas. Demand from domestic original equipment manufacturers also
improved, reflecting increased production of trucks and minivans. These
increases were partially offset by weak European markets, primarily affecting
spark plug sales.
Revenues from the Tools & Hardware segment declined 4% to $812 million,
representing 19% of total operating revenues. Adjusted for acquisitions,
revenues decreased approximately 7% compared with the prior year. Demand for
Cooper's hand- and air-powered tools fell as durable goods manufacturing
activity slowed internationally. The rise in domestic residential construction
activity and industrial production was modestly beneficial to Cooper's domestic
hand tools operations; however, reduced spending on residential redecorating and
price competition depressed revenues in this segment's window treatments
business.
NONRECURRING ITEMS
Cooper's pretax earnings for 1992 included nonrecurring corporate income of
$6.6 million and nonrecurring expense of $50 million. The net after-tax effect
of these nonrecurring items (a $29 million expense) was partially offset by $11
million of income tax expense reductions. See Note 3 of the Notes to
Consolidated Financial Statements for additional information. The $50 million of
nonrecurring expense resulted from establishing accruals with respect to
productivity improvement, consolidation and asset disposition programs in all of
Cooper's continuing segments. These programs, which started in 1993, were
largely completed during 1994 and are expected to have a favorable effect on
earnings through reduced costs, increased efficiency and other ancillary
benefits.
Also, during the year ended December 31, 1992, Cooper elected early
adoption of Statement of Financial Accounting Standards (SFAS) No. 106
(Employer's Accounting for Postretirement Benefits Other Than Pensions), SFAS
No. 109 (Accounting for Income Taxes) and SFAS No. 112 (Employers' Accounting
for Postemployment Benefits). Applying the new provisions resulted in a one-time
charge against first-quarter 1992 net earnings of $590 million, or $5.19 per
fully diluted share. In addition, income from continuing operations was
decreased by $18 million, or 16 cents a share, to reflect the 1992 current-year
effects of the new standards. See Note 4 of the Notes to Consolidated Financial
Statements for further information.
At the end of the third quarter of 1993, Cooper commenced the final phase
of a multi-year program designed to revitalize ongoing operations and eliminate
noncore businesses. The completion of the Belden Inc. public offering provided a
$274-million pretax gain. That gain was entirely offset by a charge, as restated
and realigned to segregate continuing and discontinued operations, for a number
of management actions including the write-down of the Cameron Forged Products
division to reflect the final purchase price paid by Wyman-Gordon Company; a
write-down of internally developed capitalized software; a reduction in the
carrying value of the machinery and equipment and certain other plant and
equipment associated with Cooper's transformer product line included in the
Electrical Products segment; and accruals of $126 million for a number of
facility consolidations, shutdowns and rationalizations. The facility projects
are planned for all of Cooper's continuing segments and involve operations in
the United States, Canada and Europe. While spending for these projects
commenced during 1994, some projects will not be completed until 1997.
These actions are in addition to those provided for in the third quarter of
1992, as well as the realignment of the Champion Spark Plug operations
undertaken in connection with that acquisition. While the Champion realignments
have been completed domestically, they are still in progress in Europe and other
parts of the world. Although these projects involve significant expenditures,
the spending is over several years, and thus, the various projects will not
constitute a significant strain on Cooper's overall financial resources or
create a
A-3
<PAGE> 30
liquidity problem. Each of the projects was approved only after careful
assessment that indicated that each project, when completed, will significantly
increase productivity, operating efficiencies or other cost savings in the
future.
In late 1993, Cooper announced an agreement in principle to sell its
Cameron Forged Products Division to Wyman-Gordon Company and its intention to
spin off to its Common shareholders the Gardner-Denver Industrial Machinery
operations headquartered in Quincy, Illinois. Additional information regarding
1993 nonrecurring income and expense items is set forth in Note 3 of the Notes
to Consolidated Financial Statements.
During 1994, nearly all of the productivity improvement and consolidation
programs accrued in 1992 were completed. With respect to the 1993 accruals,
several projects were completed and others were commenced. Among the projects
completed in 1994 was the shutdown of the large power transformer business that
operated from a single manufacturing location in Canonsburg, Pennsylvania. The
accrual for this shutdown accounted for nearly 30% of the amounts accrued in
1993. Actions remaining for this project include establishment of a separate
service operation either through a third party or another Cooper operation in
order to fulfill ongoing obligations to customers of the former business and the
disposition of the Canonsburg facility. During 1995, Cooper intends to slow down
several projects scheduled to commence during the year. See "Liquidity, Capital
Resources and Financial Position" below.
OPERATING EARNINGS
For purposes of this discussion, operating earnings is defined as earnings
from continuing operations before consideration of corporate income and expense,
interest, taxes and nonrecurring items.
1994 Operating Earnings Operating earnings decreased from $640 million in
1993, to $619 million in 1994, or a 3% year-to-year reduction. After excluding
the effects of divestitures, operating earnings increased from $594 million in
1993 to $626 million in 1994, a 5% year-to-year improvement. As discussed in
greater detail below, all three of Cooper's segments contributed to the
year-to-year improvement after considering divestitures.
The Electrical Products segment generated operating earnings of $326
million (53% of total operating earnings) compared with earnings of $359 million
in 1993. Adjusted for the effects of recent divestitures and the large power
transformer shutdown, 1994's adjusted earnings would be $335 million as compared
to $326 million in 1993. While earnings benefited from the improved sales
discussed previously, the comparative return on sales percentages declined
slightly, reflecting short-term start-up costs related to several facility
relocations and continued competitive market conditions. Additionally, return on
sales was adversely affected by the closure of the large power transformer
operations discussed above. On the positive side, recent acquisitions and new
product introductions have added to profits but are not yet at return-on-sales
levels anticipated when fully integrated from both a manufacturing and marketing
perspective.
The Automotive Products segment represented 31% of Cooper's total operating
earnings for 1994, with operating earnings of $190 million compared with
earnings of $189 million in 1993. Adjusted for the effects of recent
divestitures, 1994's adjusted earnings would be $189 million as compared to $177
million in 1993. Comparative return on sales improved year to year for this
segment. Industry conditions in the aftermarket appear to have improved somewhat
after being depressed for nearly a year and a half. Additionally, the growth in
worldwide original equipment demand has been more than sufficient to offset
short-term disruptions experienced in connection with various business
consolidation actions taken by Cooper. While the acquisitions discussed under
1994 revenues have made small contributions to the profitability of this
segment, more substantial benefits are anticipated for 1995 and later years.
Operating earnings in the Tools & Hardware segment, which was not affected
by divestitures, increased by 12% to $102 million in 1994 from $92 million in
1993, and represented 16% of total operating earnings. Return on sales was
essentially unchanged year to year. While the majority of the earnings
improvement for this segment is attributable to the previously described sales
increases, consolidation projects completed over the last several years as well
as the benefits from several product line acquisitions contributed to
profitability.
A-4
<PAGE> 31
1993 Operating Earnings Operating earnings improved 11% from $576 million
in 1992 to $640 million in 1993. Significant improvement in Cooper's Automotive
Products segment, resulting from the acquisition of Moog Automotive, augmented
steady improvements in Cooper's other continuing business segments.
The Electrical Products segment continued to post steady improvement in
operating earnings, which grew 2% to $359 million, and comprised 56% of Cooper's
operating earnings, even with the inclusion of only nine months' earnings from
the Belden wire and cable business. Excluding the results of Belden and the
effects of acquisitions from both 1993 and 1992, operating earnings outpaced the
sales growth, improving 6% from the previous year. The segment's earnings also
benefited from operating efficiencies and cost-containment measures, which
resulted in a lower percentage of selling and administrative expenses per sales
dollar. These benefits were partially offset, however, by the decline in demand
for higher-margin power products and weak pricing for distribution transformers.
The Automotive Products segment generated operating earnings of $189
million in 1993, compared with $139 million in 1992, with the entire increase
being attributable to the inclusion of Moog for a full year in 1993 versus only
one quarter in 1992. This segment's earnings represented 30% of Cooper's total
operating earnings. Absent Moog's revenues and earnings, operating earnings
would have declined in line with the small decrease in revenues discussed
previously. The gross margin percentage (defined as revenues less cost of sales,
as a percentage of revenues) improved slightly, primarily due to the inclusion
of Moog. Selling and administrative expenses as a percentage of revenues were
only slightly, less favorable than the prior year despite the higher ratio of
such costs at the acquired Moog operations as compared to Cooper's existing
operations. This reflected management's emphasis on keeping such spending in
line with operating levels.
Operating earnings of the Tools & Hardware segment increased 10% to $92
million in 1993 and represented 14% of Cooper's total operating earnings.
Excluding the earnings gains from acquisitions, the segment's operating income
improved in excess of 4% despite continued sluggishness in Europe and depressed
conditions in North American window coverings markets. Profit improvement
programs over the past several years and current spending controls provided the
basis for the earnings improvement despite the small decline in revenues.
Operating earnings from continuing operations were 13.4% of revenues in
1993, compared with 12.9% in 1992.
1992 Operating Earnings The following table shows the 1992 operating
earnings of Cooper's continuing segments before and after the effects of the
accounting changes discussed above and in Note 4 of the Notes to Consolidated
Financial Statements. The discussion that follows focuses on the Comparative
Segment Totals.
1992 OPERATING EARNINGS BY SEGMENT
<TABLE>
<CAPTION>
ADD BACK
EFFECTS OF COMPARATIVE
AS REPORTED ACCOUNTING SEGMENT
IN NOTE 16 CHANGES TOTALS
----------- ----------- -----------
(MILLIONS)
<S> <C> <C> <C>
Electrical Products............ $ 353.2 $ 5.1 $ 358.3
Automotive Products............ 139.0 16.2 155.2
Tools & Hardware............... 83.4 2.2 85.6
--------- -------- ---------
$ 575.6 $23.5 $ 599.1
========= ======== =========
</TABLE>
Operating earnings of $599 million were up 4% over the $574 million in
1991. Modest improvements in earnings from the Electrical Products and
Automotive Products segments more than offset the significant decline in the
Tools & Hardware segment.
The Electrical Products segment generated operating earnings of $358
million in 1992, 60% of Cooper's total operating earnings and an 8% improvement
over the $330 million in the prior year. The improvement was primarily the
result of higher sales volumes generated by the strong demand for lighting
fixtures, electrical
A-5
<PAGE> 32
circuit protection equipment and electronic wire and cable as discussed under
"Revenues". Operating efficiencies also resulted in margin improvements and
lower selling and administrative expenses per sales dollar, which supplemented
the earnings improvement.
The Automotive Products segment represented 26% of Cooper's total operating
earnings for 1992, with operating earnings of $155 million, compared with $145
million in the prior year. This 7% increase over 1991 was attributable to the
acquisition of Moog Automotive. Excluding the effects of the Moog acquisition,
earnings for the year were flat. Lower overhead spending from cost controls
throughout this segment was essentially offset by the effect on margins of
sluggish sales of spark plugs.
Operating earnings in the Tools & Hardware segment declined from $98
million in 1991 to $86 million in 1992, and represented 14% of total operating
earnings. Earnings were affected primarily by the lower sales volumes. The gross
margin on sales improved slightly as a result of operating adjustments made in
response to the lower activity.
PRICING AND VOLUME
In each of Cooper's continuing segments, the nature of many of the products
sold is such that an accurate determination of the changes in unit volume of
sales is neither practical nor, in some cases, meaningful. Each segment produces
a family of products, within which there exist considerable variations in size,
configuration and other characteristics.
It is Cooper's best judgment that, excluding the year-to-year effects of
acquisitions and divestitures, during 1994, unit volume increased in all three
business segments; during 1993, unit volume increased in the Electrical Products
segment, was relatively unchanged in the Automotive Products segment, and
decreased in Tools & Hardware; and, during 1992, unit volume increased in the
Electrical Products and Automotive Products segments and decreased in the Tools
& Hardware segment.
During the three-year period ending in 1994, Cooper was unable to increase
prices to offset cost increases in selected product offerings in all segments.
Cooper has been able to control costs through manufacturing improvements and
other areas during this period so that the inability to increase prices has not
significantly affected profitability in the segments except for the Tools &
Hardware segment during the 1992 period and power equipment products within the
Electrical Products segment during all periods.
EFFECT OF INFLATION
During each year, inflation has had a relatively minor effect on Cooper's
continuing results of operations. This is true primarily for three reasons.
First, in recent years, the rate of inflation in Cooper's primary markets has
been fairly low. Second, Cooper makes extensive use of the LIFO method of
accounting for inventories. The LIFO method results in current inventory costs
being matched against current sales dollars, such that inflation affects
earnings on a current basis. Finally, many of the assets and liabilities
included in Cooper's Consolidated Balance Sheet were recorded in business
combinations that were accounted for as purchases. At the time of such
acquisitions, the assets and liabilities were adjusted to fair market value and,
therefore, the cumulative long-term effect of inflation is reduced.
1994 NET OF TAX EARNINGS
Net of tax earnings from continuing operations for the year 1994 increased
10% to $297.1 million compared to $270.9 million in 1993, after both years are
adjusted to exclude the effect of divestitures and the large power transformer
shutdown. This result reflects not only the improved segment operating earnings
discussed above but also the benefit of lower interest expense and a positive
combined effect from higher general Corporate expenses being more than offset by
higher Corporate other income. The lower interest expense results from lower
average outstanding debt amounts between the two years partially offset by
higher interest rates, particularly in the latter part of 1994. The higher
Corporate income is primarily attributable to a full year's benefit from the
Belden tax sharing agreement compared with only one quarter in 1993 and a gain
on the sale of a Corporate airplane. The higher general Corporate expenses are
primarily attributable to
A-6
<PAGE> 33
increased benefit costs with higher pension and ESOP matching expense being the
primary factors. These amounts were partially offset by a 1.1 percentage point
increase in Cooper's overall effective tax rate. This increase resulted from the
1% increase in the U.S. Federal tax rate that occurred in 1993. In 1993, the
rate increase was almost entirely offset by a related adjustment of deferred tax
balances, while in 1994 there was no comparable offset.
1993 NET OF TAX EARNINGS
Net of tax earnings from continuing operations for the year 1993 increased
25% to $299.0 million compared to $239.6 million in 1992. This improvement
reflects the higher operating earnings discussed previously, augmented by lower
interest and corporate general expenses partially offset by the effect of a
higher tax rate. Interest expense decreased 13% or $11.6 million primarily as a
result of lower interest rates. During 1993, Cooper's interest rate swaps
resulted in $2.8 million of higher interest expense than would have resulted if
Cooper's expense had been based on the actual floating-rate of its commercial
paper borrowings. The interest rate swaps have been considered to relate
entirely to continuing operations. See Note 11 of the Notes to Consolidated
Financial Statements for further information on Cooper's debt structure and the
statement of Consolidated Cash Flows for information regarding debt activity.
General corporate expenses declined as a result of management's focus on cost
controls during the year. The effective tax rate for continuing operations
increased 2% from 1992's rate, which was favorably impacted by a nonrecurring
tax adjustment.
1992 NET OF TAX EARNINGS
Net of tax earnings from continuing operations for the year 1992 increased
4% to $239.6 million compared with $231.2 million in 1991. Improved operating
performance was almost entirely offset by the current year effect of the
accounting principle changes such that lower interest expense (partially offset
by higher corporate general expense) and a reduction in the effective tax rate
accounted for essentially all of the year to year increase. Interest expense
declined 26% to $93 million for the year. Lower debt levels during most of the
year, largely due to strong operating cash flows, combined with lower effective
borrowing rates resulted in the decrease. General corporate expenses increased
$10 million and the effective tax rate declined by 4.3%, largely due to the
nonrecurring tax adjustment discussed previously.
DISCONTINUED OPERATIONS
Revenues and Earnings
Cooper's consolidated results for 1994 include income from the operations
of the discontinued businesses of $.3 million before the $313 million, net of
tax, charge related to the decision to discontinue the P&I segment. These
amounts are based on results of operations through September 30, 1994 and do not
include results with respect to the fourth quarter of 1994. Under rules
governing the accounting for discontinued operations, the estimated results for
the fourth quarter of 1994 were included as part of the $313 million charge.
Following the completion of the Exchange Offer, earnings estimates covering the
period from October 1, 1994 until the completion of the Exchange Offer, as well
as other estimates that comprised the $313 million, will be adjusted to actual
results. Although not included as part of Cooper's consolidated results, except
by virtue of the aforementioned estimate, the actual fourth quarter results for
the discontinued operations reflected a net of tax loss of approximately $1
million, which was in line with expectations. Revenues for the full year were
$1.11 billion, compared with 1993 revenues of $1.50 billion, representing a 26%
decline. Excluding the effects of the spin-off of Gardner Denver Machinery Inc.
during 1994, the decline in revenues was 22%. This decline resulted primarily
from the drop in oil prices in late 1993 that caused many of the customers for
products produced by the discontinued operations to delay or cancel placing
anticipated orders. The magnitude and suddenness of the downturn exceeded the
ability of the operations to reduce costs, resulting in a significant decline in
margins. In addition, competitive pricing caused margins to decline even
further.
A-7
<PAGE> 34
Income from discontinued operations was $68.1 million in 1993, compared
with $121.7 million in 1992. Revenues declined 10% to $1.50 billion in 1993,
compared with $1.67 billion in 1992. Excluding the effects attributable to the
early 1993 disposition of the mining and construction operations, the revenue
decline was 6%. Earnings declined primarily because of the decrease in revenues,
caused by the continued decline in worldwide oil and gas production and
transmission projects and augmented by the fourth-quarter drop in oil prices.
The depressed market conditions and the resulting pricing pressures caused
margins to shrink faster than management's ability to adjust short-term
operating levels. Although selling and administrative expenses declined
significantly, they were slightly higher than the previous year as a percentage
of revenues due to the severity of the revenue decline.
Revenues were $1.67 billion in 1992, compared with $1.85 billion in 1991.
Income from discontinued operations was $121.7 million in 1992, compared with
$162.0 million in the previous year. The decline in demand for domestic oil and
gas exploration and production equipment due to the general condition of the
domestic energy markets, coupled with weak markets for industrial equipment, had
a significant, unfavorable impact on the earnings of the discontinued
operations. Sales declined faster than Cooper's ability to adjust selling and
administrative expenses in the short term, further contributing to the decline.
FULLY DILUTED EARNINGS PER SHARE
Earnings per fully diluted share declined from income of $2.75 in 1993 to a
loss of $.64 in 1994. Income from continuing operations decreased from $2.15 per
share to $2.10 per share, while discontinued operations fell from income of $.60
per share to a loss of $2.74 per share. Excluding the charge for discontinued
operations of $313 million or $2.74 per share recognized in the third quarter of
1994, income from discontinued operations declined from income of $.60 per share
in 1993 to less than $.01 per share in 1994. The same factors discussed above
led to the changes in share earnings.
Earnings per fully diluted share increased to $2.75 in 1993, up 1% from
1992's income before the cumulative effect of changes in accounting principles.
Income from continuing operations improved from $1.64 per share in 1992 to $2.15
per share in 1993, while per-share earnings from discontinued operations fell
from $1.07 in 1992 to $0.60 in 1993. The same factors discussed above
contributed to the change in fully diluted share earnings, partially offset by a
higher number of shares utilized in the calculation. The number of weighted
average shares used in the fully diluted earnings per share computation was
114.2 million in 1993 compared with 113.8 million in 1992. In addition to normal
annual activity, the increase in shares reflects the issuance of 475,256 shares
in September 1993 in connection with Cooper's biennial employee stock purchase
program as further discussed in Note 15 of the Notes to Consolidated Financial
Statements.
Earnings per fully diluted share before the cumulative effect of changes in
accounting principles decreased from $3.01 in 1991 to $2.71 in 1992. Income from
continuing operations decreased from $1.78 per share to $1.64 per share, while
discontinued operations fell from $1.23 per share to $1.07 per share in 1992.
That continuing operations' fully diluted earnings per share would decline by 14
cents, while net of tax income is increasing by $8.4 million is an anomaly
created by the rules governing the computations of earnings per share when
multiple computations are involved. Under these rules all earnings per share
amounts must be computed utilizing the same computation even though one of the
computations results in an "anti-dilutive" result, which is normally not
allowed. The situation arose in 1991 when the shares issuable with respect to
the $1.60 Convertible Exchangeable Preferred Stock ("$1.60 Preferred Stock") are
more dilutive to net income than the dividend with respect to the $1.60
Preferred Stock. The cumulative effect of changes in accounting principles
during 1992 amounted to $5.19 per fully diluted share, resulting in a net loss
for the year of $2.48 per share. The same factors discussed above led to the
decline in share earnings. The assumed conversion of the 7% debentures and the
$1.60 Preferred Stock into Common stock was anti-dilutive at the net income
level in 1992; therefore, conversion was not assumed in the 1992 computation of
share earnings.
EARNINGS OUTLOOK
Assuming a reasonably stable or growing economy, Cooper currently expects
each of its segments to grow steadily during 1995. The performance of the
Electrical Products and Tools & Hardware segments should
A-8
<PAGE> 35
reflect the expected improvement in domestic and international markets and gains
from revenue-growth and cost-improvement programs. The Automotive Products
segment should continue to benefit from actions taken to make its operations
more efficient and from a renewed focus on customer service. In addition to
anticipated segment growth, the exchange of the $1.60 Preferred Stock into 7.05%
Convertible Subordinated Debentures will provide approximately $20 million of
additional income in the earnings per share calculation, while the Cooper
Cameron Exchange Offer will aid earnings per share by reducing outstanding
shares of Cooper Common stock.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL POSITION
Working Capital
For purposes of this discussion, operating working capital is defined as
receivables and inventories less accounts payable and accrued liabilities,
excluding the initial effects of acquisitions and divestitures, as well as
foreign currency translation, nonrecurring income and expense items, and the
cumulative effect of accounting changes and after the restatement to reflect
discontinued operations.
During 1994, operating working capital increased by $106 million,
reflecting increases in receivables and inventories partially offset by higher
accounts payable and accrued liabilities. The increase in receivables resulted
from the revenue growth discussed previously as well as an industry wide trend
to increased use of extended terms for receivables as a basis for competition.
The increase in inventory occurred in all three segments and resulted from
revenue growth in addition to initially higher inventory levels related to
various warehouse and other consolidation projects. While the current levels of
operating working capital will not, in management's judgment, seriously
constrain Cooper's overall liquidity or capital resources, they do represent an
area of opportunity for significant future reductions. Realization of these
reductions is receiving increased management attention.
During 1993, operating working capital decreased by $23 million. Higher
receivables at year-end 1993 were more than offset by reductions in inventories
and increases in accounts payable and accrued liabilities compared with the
previous year-end. The decrease in inventories was primarily due to effective
working capital management. The increase in receivables and accounts payable and
accrued liabilities was due to normal operating activities.
During 1992, operating working capital increased by $57 million. This
change was comprised of higher receivables and lower inventories and accounts
payable and accrued liabilities, resulting primarily from normal operating
activity.
Cash Flows
During 1994, net cash flows from the operating activities of continuing
operations totaled $321 million. These cash flows as well as the $40 million of
net cash flows generated by the discontinued operations and other miscellaneous
cash flows totaling a net of $27 million covered all but $27 million of the $415
million used for dividends and capital expenditures. This $27 million combined
with the $281 million utilized for acquisitions and the $107 million of taxes
paid with respect to the 1993 gain on sale of Belden accounts for the debt
increase of $415 million.
As discussed under "Nonrecurring Items" above, during 1992 and 1993, Cooper
accelerated consideration of a number of projects that involved additional cash
flows during 1994 and will continue to require cash for the next several years.
Since the timing of the various projects is within management's control and
discretion, the Company does not believe that the resources required for the
completion of these projects will strain Cooper's overall liquidity or capital
resources.
During 1993, net cash flows from continuing operating activities were $478
million. These cash flows were augmented by proceeds from the disposition of
businesses of $396 million (including approximately $390 million from the sale
of Belden), proceeds from sales of fixed assets of $17 million, proceeds from
stock option and other plans of $12 million, and $36 million of cash flow
provided by discontinued operations. These cash
A-9
<PAGE> 36
flows allowed Cooper to fund capital expenditures of $188 million, dividends of
$203 million and acquisitions of $101 million, and to reduce indebtedness by
$453 million.
During 1992, net cash flows from continuing operating activities totaled
$356 million. These positive cash flows, along with $39 million of proceeds from
business divestitures, $19 million from sales of plant and equipment, $45
million from stock option and other plans, and $213 million of cash flow
provided by discontinued operations allowed Cooper to expend $638 million on
acquisitions and $182 million on capital expenditures and to pay $193 million of
dividends, while only increasing outstanding indebtedness, exclusive of debt
assumed in acquisitions, by $334 million.
Debt
The ratio of continuing operations' debt to total capitalization at
December 31, 1992 was 36.2% compared with 27.5% at year-end 1993 and 36.3% at
year-end 1994. The decrease between 1992 and 1993 was primarily attributable to
the sale of Belden, while the increase between 1993 and 1994 reflects not only a
higher debt level but also a reduction in shareholders' equity. The increase in
debt was discussed above under "Cash Flows" while the notable items with respect
to the equity reduction were the $313 million net of tax charge with respect to
the discontinuance of the P&I segment and the $153 million special dividend
related to the spin-off of Gardner Denver Machinery Inc. See Notes 1 and 3 of
the Notes to Consolidated Financial Statements for additional information.
As a result of the exchange on January 1, 1995 of the $1.60 Preferred Stock
for 7.05% Convertible Subordinated Debentures, Cooper's debt to total
capitalization ratio increased to 52%. See Note 11 for further information on
the terms of the debentures. When the Exchange Offer with respect to the
split-off of P&I is completed, Cooper will reduce shareholders' equity by an
additional approximately $650 million less, as described in Note 1 to the
Consolidated Financial Statements, the effect of any shares of Cooper Cameron
Common stock retained by Cooper either through an adjustment of the 1994
earnings charge related to the discontinuance of P&I or by a direct adjustment
to shareholders' equity. If this adjustment and the exchange of the $1.60
Preferred occurred at December 31, 1994, Cooper's debt to total capitalization
ratio would have increased to 62%. As a result of these significant anticipated
changes in Cooper's debt to total capitalization ratio, meetings were held in
November 1994 with the various rating agencies that assign ratings to the short-
term and long-term debt instruments issued by public companies such as Cooper.
These meetings resulted in no change from one agency, a small downgrade by one
agency and the placement of Cooper on a "watch list" by a third agency. These
changes increased the cost of Cooper's commercial paper borrowing by 5/100ths of
one percent which will result in an increase in Cooper's interest expense of
approximately $.6 million at current borrowing levels.
As a result of the anticipated higher than normal debt ratio discussed
above, Cooper will be placing increased emphasis on maximizing the cash flows
from its operations, reducing its investment in working capital. In addition,
Cooper will take other appropriate actions to ensure that the debt ratio can be
returned to Cooper's target range of 35 to 45%.
Capital Expenditures and Commitments
Capital projects to reduce product costs, improve product quality, increase
manufacturing efficiency and operating flexibility, or expand product capacity
have increased from $182 million in 1992 to $188 million in 1993 and $209
million in 1994. At December 31, 1994, commitments for capital expenditures
amounted to $162 million, compared with $217 million at year-end 1993. This
decrease reflects the heightened emphasis on cash flows discussed above. The
commitments for 1995 include approximately $43 million for capacity expansion,
$76 million for machinery and equipment modernization and enhancement, $17
million for various computer hardware and software projects, $6 million related
to environmental matters and $20 million for other items.
A-10
<PAGE> 37
Financial Position
Cooper's financial position reflects the various factors discussed
previously under "Revenues", Nonrecurring Items", "Operating Earnings", "Working
Capital", "Cash Flows", "Debt", and "Capital Expenditures and Commitments".
The increases in plant and equipment and intangibles are primarily
attributable to the acquisitions that occurred in 1994. The decrease in other
long-term liabilities resulted from the normal movement of accruals between
long-term and current and a reduction in Cooper's minimum pension liability. The
increase in other noncurrent assets related primarily to Cooper's investments in
equity securities. Other changes in the various components of Cooper's financial
position were the result of normal operating activities.
A-11
<PAGE> 38
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Cooper Industries, Inc.
We have audited the accompanying consolidated balance sheet of Cooper
Industries, Inc. as of December 31, 1993 and 1994, and the related statements of
consolidated results of operations, changes in shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Cooper
Industries, Inc. at December 31, 1993 and 1994, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1994, in conformity with generally accepted accounting
principles.
As discussed in Note 4 of the Notes to Consolidated Financial Statements,
in 1992 the Company changed its methods of accounting for postretirement
benefits other than pensions, income taxes and postemployment benefits.
/s/ ERNST & YOUNG LLP
----------------------
Houston, Texas
January 23, 1995
A-12
<PAGE> 39
COOPER INDUSTRIES, INC.
CONSOLIDATED RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1992 1993 1994
------- ------- -------
(IN MILLIONS EXCEPT PER-SHARE
DATA)
<S> <C> <C> <C>
Revenues..................................................... $4,468.4 $4,776.4 $4,588.0
------- ------- -------
Costs and Expenses
Cost of sales.............................................. 2,969.4 3,163.0 3,026.4
Depreciation and amortization.............................. 211.8 215.9 199.0
Selling and administrative expenses........................ 759.1 810.6 784.6
Interest expense........................................... 92.5 80.9 73.3
Nonoperating gain on 1993 IPO of Belden Inc. and other..... (6.6) (273.8) --
Nonrecurring expense....................................... 50.1 273.8 --
------- ------- -------
4,076.3 4,270.4 4,083.3
------- ------- -------
Income from continuing operations before income taxes
and cumulative effect of changes in accounting
principles............................................ 392.1 506.0 504.7
Income taxes................................................. 152.5 207.0 211.9
------- ------- -------
Income from continuing operations before cumulative
effect of changes in accounting principles............ 239.6 299.0 292.8
Income from discontinued operations, net of taxes............ 121.7 68.1 .3
Charge for discontinued operations........................... -- -- (313.0)
------- ------- -------
Income (loss) before cumulative effect of changes in
accounting principles................................. 361.3 367.1 (19.9)
Cumulative effect on prior years of changes in
accounting principles................................. (590.0) -- --
------- ------- -------
Net Income (Loss).................................. $(228.7) $ 367.1 $ (19.9)
======= ======= =======
Income (Loss) Per Common Share
Primary--
Income from continuing operations before cumulative
effect of changes in accounting principles............ $ 1.64 $ 2.15 $ 2.10
Income (loss) from discontinued operations.............. 1.07 .60 (2.74)
Cumulative effect on prior years of changes in
accounting principles................................. (5.19) -- --
------- ------- -------
Net Income (Loss).................................. $ (2.48) $ 2.75 $ (.64)
======= ======= =======
Fully diluted--
Income from continuing operations before cumulative
effect of changes in accounting principles............ $ 1.64 $ 2.15 $ 2.10
Income (loss) from discontinued operations.............. 1.07 .60 (2.74)
Cumulative effect on prior years of changes in
accounting principles................................. (5.19) -- --
------- ------- -------
Net Income (Loss).................................. $ (2.48) $ 2.75 $ (.64)
======= ======= =======
Cash Dividends Per Common Share.............................. $ 1.24 $ 1.32 $ 1.32
======= ======= =======
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of
these statements. Amounts for both 1992 and 1993 have been restated to reflect
discontinued operations.
A-13
<PAGE> 40
COOPER INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1993 1994
------- -------
<S> <C> <C>
(IN MILLIONS EXCEPT
SHARE DATA)
ASSETS
Cash and cash equivalents............................................ $ 13.0 $ 25.3
Receivables.......................................................... 801.3 904.4
Inventories.......................................................... 904.2 988.5
Other................................................................ 198.2 182.0
-------- --------
Total Current Assets....................................... 1,916.7 2,100.2
-------- --------
Net assets of discontinued operations................................ 1,068.1 646.4
Net assets of Cameron Forged Products................................ 74.9 --
Plant and equipment, at cost less accumulated depreciation........... 1,115.9 1,187.5
Intangibles, less accumulated amortization........................... 1,946.4 2,153.9
Deferred income taxes, investments and other assets.................. 239.7 312.7
-------- --------
Total Assets............................................... $6,361.7 $6,400.7
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term debt...................................................... $ 99.7 $ 179.2
Accounts payable and accrued liabilities............................. 1,036.2 1,133.1
Accrued income taxes................................................. 107.1 1.7
Current maturities of long-term debt................................. 157.8 19.1
------- -------
Total Current Liabilities.................................. 1,400.8 1,333.1
------- -------
Long-term debt....................................................... 883.4 1,361.9
Postretirement benefits other than pensions.......................... 634.5 638.0
Other long-term liabilities.......................................... 433.4 326.6
------- -------
Total Liabilities.......................................... 3,352.1 3,659.6
------- -------
$1.60 Convertible Exchangeable Preferred stock, $1.00 par value;
33,376,420 shares authorized....................................... 33.2 30.6
Common stock, $5.00 par value; 250,000,000 shares authorized......... 571.3 584.6
Capital in excess of par value....................................... 1,122.1 1,176.5
Retained earnings.................................................... 1,526.5 1,153.4
Unearned employee stock ownership plan compensation.................. (125.2) (147.4)
Minimum pension liability............................................ (67.3) (55.0)
Translation component................................................ (47.1) (49.4)
Common stock held in treasury, at cost............................... (3.9) --
Unrealized gain on investments, net of taxes......................... -- 47.8
-------- --------
Total Shareholders' Equity................................. 3,009.6 2,741.1
-------- --------
Total Liabilities and Shareholders' Equity................. $6,361.7 $6,400.7
======== ========
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of
these statements. Amounts for 1993 have been reclassified to reflect
discontinued operations. The $1.60 Convertible Exchangeable Preferred stock was
converted into 7.05% Convertible Subordinated Debentures effective January 1,
1995. See Note 11 for further information.
A-14
<PAGE> 41
COOPER INDUSTRIES, INC.
CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1992 1993 1994
------- ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................... $(228.7) $367.1 $(19.9)
Less: (Income) loss from discontinued operations............ (121.7) (68.1) 312.7
------- ------ ------
Income (loss) from continuing operations.................... (350.4) 299.0 292.8
Adjustments to reconcile to net cash provided by operating
activities:
Depreciation............................................. 149.5 145.2 128.2
Amortization............................................. 62.3 70.7 70.8
Deferred income taxes.................................... 197.1 (15.5) 81.4
Postretirement benefits other than pensions.............. 14.1 (5.8) (2.1)
Nonoperating gain on 1993 IPO of Belden Inc. and other,
net of tax............................................. (15.0) (164.3) --
Nonrecurring expense, net of tax......................... 32.6 164.3 --
Cumulative effect of changes in accounting principles.... 590.0 -- --
Changes in assets and liabilities:(1)....................
Receivables............................................ (20.0) (47.4) (71.3)
Inventories............................................ 55.5 31.1 (60.4)
Accounts payable and accrued liabilities............... (92.7) 39.7 25.6
Accrued income taxes................................... 21.9 (46.8) (8.0)
Other assets and liabilities, net...................... (288.6) 8.1 (136.3)
------- ------ ------
Net cash provided by operating activities........... 356.3 478.3 320.7
------- ------ ------
Cash flows from investing activities:
Cash paid for acquired businesses........................... (637.7) (100.9) (280.6)
Taxes paid in 1994 with respect to the 1993 gain on the sale
of Belden Inc............................................ -- -- (107.0)
Capital expenditures........................................ (181.9) (188.4) (208.7)
Proceeds from sales of plant and equipment.................. 19.1 16.9 15.4
Proceeds from disposition of businesses..................... 38.9 396.1 27.7
Other....................................................... 1.5 (1.1) (2.9)
------- ------ ------
Net cash provided by (used for) investing
activities........................................ (760.1) 122.6 (556.1)
------- ------ ------
Cash flows from financing activities:
Additions to debt........................................... 749.2 257.7 722.0
Reductions of debt.......................................... (415.2) (710.7) (307.1)
Dividends................................................... (193.3) (203.4) (205.9)
Purchase of treasury shares................................. -- (4.5) (19.9)
Activity under stock option and other plans................. 44.7 16.8 21.7
------- ------ ------
Net cash provided by (used for) financing
activities........................................ 185.4 (644.1) 210.8
------- ------ ------
Cash flows provided by discontinued operations................ 213.1 35.5 40.4
Effect of translation on cash and cash equivalents............ 3.7 2.9 (3.5)
------- ------ ------
Increase (Decrease) in cash and cash equivalents.............. (1.6) (4.8) 12.3
Cash and cash equivalents, beginning of year.................. 19.4 17.8 13.0
------- ------ ------
Cash and cash equivalents, end of year........................ $ 17.8 $ 13.0 $ 25.3
======= ====== ======
</TABLE>
- ---------------
(1) Net of the effects of acquisitions, divestitures, translation, nonrecurring
items and the cumulative effect of changes in accounting principles.
The Notes to Consolidated Financial Statements are an integral part of
these statements. Amounts for both 1992 and 1993 have been restated to reflect
discontinued operations. See Note 18 for information on noncash investing and
financing activities.
A-15
<PAGE> 42
COOPER INDUSTRIES, INC.
CONSOLIDATED CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CAPITAL UNEARNED
$1.60 IN EMPLOYEE COMMON
CONVERTIBLE EXCESS STOCK STOCK
EXCHANGEABLE OF OWNERSHIP MINIMUM HELD
PREFERRED COMMON PAR RETAINED PLAN PENSION IN
STOCK STOCK VALUE EARNINGS COMPENSATION LIABILITY TREASURY OTHER(1)
---------- ------ ------- -------- ------------ --------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1991........ $32.9 $561.0 $1,035.1 $1,777.5 $(149.2) $ -- $ -- $ 61.7
Net loss....................... (228.7)
Cash dividends:
Preferred stock -- $1.60..... (52.8)
Common stock................. (140.5)
Dividend reinvestment
program...................... .3 2.4
Shares issued for:
Conversions of debentures.... .2 3.7
Exercise of stock options.... 2.3 9.3
Executive restricted stock
incentive plans............ .9 6.2
Employee stock ownership plans:
Principal payments by ESOP... 26.1
Excess of cash contributions
over expense............... (.4)
Sale of additional shares.... 2.3 23.9 (26.2)
Tax effect of:
Disqualifying stock
dispositions............... 3.4
Dividends paid to the ESOP... 3.6
Translation loss............... (87.3)
Adjustment for minimum pension
liability.................... (7.5)
Other.......................... .2 2.2
----- ------ ------- ------- ------- ------- ------ ------
BALANCE DECEMBER 31, 1992........ 33.1 567.0 1,086.2 1,359.1 (149.7) (7.5) -- (25.6)
Net income..................... 367.1
Cash dividends:
Preferred stock -- $1.60..... (53.1)
Common stock................. (150.3)
Dividend reinvestment
program...................... .3 2.2
Acquisition of treasury stock,
at cost...................... (4.5)
Shares issued for:
Conversions of debentures.... .1 2.8
Exercise of stock options.... 1.6 7.1 .6
Employee stock purchase
plan....................... 2.4 21.2
Employee stock ownership plan:
Principal payments by ESOP... 27.2
Excess of cash contributions
over expense............... (2.7)
Tax effect of:
Disqualifying stock
dispositions............... 2.3
Dividends paid to the ESOP... 3.7
Translation loss............... (21.5)
Adjustment for minimum pension
liability.................... (59.8)
Other.......................... .3
----- ------ ------- ------- ------- ------- ------ ------
</TABLE>
(Table continued on following page)
A-16
<PAGE> 43
<TABLE>
<CAPTION>
CAPITAL UNEARNED
$1.60 IN EMPLOYEE COMMON
CONVERTIBLE EXCESS STOCK STOCK
EXCHANGEABLE OF OWNERSHIP MINIMUM HELD
PREFERRED COMMON PAR RETAINED PLAN PENSION IN
STOCK STOCK VALUE EARNINGS COMPENSATION LIABILITY TREASURY OTHER(1)
---------- ------ ------- -------- ------------ --------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1993........ 33.2 571.3 1,122.1 1,526.5 (125.2) (67.3) (3.9) (47.1)
Net loss....................... (19.9)
Cash dividends:
Preferred stock -- $1.60..... (53.3)
Common stock................. (152.6)
Dividend -- stock of Gardner
Denver Machinery Inc......... (152.9)
Dividend reinvestment
program...................... .1 2.5
Acquisition of treasury stock,
at cost...................... (19.9)
Conversion of $1.60 Preferred
to Common.................... (2.7) 5.0 (20.1) 17.8
Shares issued for:
Conversions of debentures.... .1 3.4
Exercise of stock options.... .3 .4 3.5
Employee stock ownership plan:
Sale of additional shares.... 8.0 74.3 (82.3)
Difference between market
value and cost on ESOP
shares issued.............. (6.7)
Principal payments by ESOP... 53.4
Excess of cash contributions
over expense............... 6.7
Dividends paid on unallocated
shares..................... 1.9
Tax effect of:
Disqualifying stock
dispositions............... .4
Dividends paid to the ESOP... 2.6 3.7
Adjustment for minimum pension
liability.................... 12.3
Translation loss............... (2.3)
Unrealized gain on Belden
stock, net of tax............ 25.8
Unrealized gain on Wyman-Gordon
stock, net of tax............ 22.0
----- ------ ------- ------- ------- ------- ------ ------
BALANCE DECEMBER 31, 1994........ $30.6 $584.6 $1,176.5 $1,153.4 $(147.4) $ (55.0) $ -- $ (1.6)
===== ====== ======== ======== ======== ======== ====== =======
</TABLE>
- ---------------
(1) At December 31, 1994, "Other" included ($49.4) million for translation
component, $25.8 million, net of tax, for the unrealized gain associated
with Cooper's investment in Belden, and $22.0 million, net of tax, for the
unrealized gain associated with Cooper's investment in Wyman-Gordon.
The Notes to Consolidated Financial Statements are an integral part of
these statements. Applicable amounts for 1992 and 1993 have been restated to
reflect discontinued operations.
A-17
<PAGE> 44
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: DISCONTINUED OPERATIONS
Following a special Board of Directors meeting in mid-September 1994,
Cooper 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,
all or none of their Cooper Common stock for up to 85.5% of the common stock of
the newly-formed company, Cooper Cameron Corporation ("Cooper Cameron"). Cooper
plans to retain a 14.5% interest in 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 net assets 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 $7.9 million of taxes, ($2.74 per share) was recorded against Cooper's
third quarter 1994 reported earnings. At the time the transaction is completed
an additional gain or loss will be recorded based on the actual values in the
exchange. 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 (including $14.5 million of allocated
interest expense) from the operations of the business during the period from the
measurement date until the middle of the second quarter of 1995, as well as the
estimated costs associated with separating Cooper Cameron from Cooper. Cooper
anticipates 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 the significant operations that were at one-time or another
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.
As a consequence of treating this segment as "discontinued", Cooper's
results of operations and related footnote data for all periods 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" are presented separately in a single, net of tax caption
"Income from discontinued operations." Results under the caption "Net Income
(Loss)" remain unchanged.
As part of the restatement, the indebtedness allocated to discontinued
operations ($70 million of indebtedness that was allocated to Gardner Denver
Machinery Inc. in connection with the spin-off and $375 million of debt that has
been allocated to Cooper Cameron) 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 ($23.1 million, $18.2
million and $20.0 million in 1992, 1993 and 1994, respectively.) 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.
A-18
<PAGE> 45
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenues from discontinued operations were $1.67 billion, $1.50 billion and
$1.11 billion in 1992, 1993 and 1994, respectively.
NOTE 2: SUMMARY OF MAJOR ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Cooper and
all majority-owned subsidiaries, except for certain insignificant subsidiaries,
the investments in which are recorded under the cost method because of
restrictions upon the transfer of earnings and other economic uncertainties.
Investments of 50% or less in affiliated companies are accounted for on the
equity method, unless significant economic, political or contractual
considerations indicate that the cost method is appropriate.
INVENTORIES
Inventories are carried at cost or, if lower, net realizable value. On the
basis of current costs, 73% of continuing operations' inventories in 1993 and
75% of continuing operations' inventories in 1994 are carried on the last-in,
first-out (LIFO) method. The remaining inventories, which are primarily located
outside the United States, are carried on the first-in, first-out (FIFO) method.
PLANT AND EQUIPMENT
Depreciation is provided over the estimated useful lives of the related
assets using primarily the straight-line method. This method is applied to group
asset accounts, which in general have the following lives: buildings -- 10 to 40
years; machinery and equipment -- 3 to 18 years; and tooling, dies, patterns,
etc. -- 5 to 10 years. Prior to the fourth quarter of 1992, no provision was
made for depreciation of tooling, dies, patterns and similar assets related to
general operations, as replacement of these items was charged to expense. The
depreciable life for the majority of Cooper's machinery and equipment was
changed from 10 to 12 years effective July 1, 1993.
INTANGIBLES
Intangibles consist primarily of goodwill related to purchase acquisitions.
With minor exceptions, the goodwill is being amortized over 40 years from
respective acquisition dates. The carrying value of Cooper's goodwill is
reviewed by division 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.
INCOME TAXES
Income tax expense includes U.S. and foreign income taxes, including U.S.
Federal taxes on undistributed earnings of foreign subsidiaries to the extent
such earnings are planned to be remitted.
INVESTMENTS IN EQUITY SECURITIES
Effective January 1, 1994, Cooper adopted SFAS No. 115 (Accounting for
Certain Investments in Debt and Equity Securities.) As a result, Cooper's
investments in Belden Inc. and Wyman-Gordon Company have been adjusted to fair
market value with offsetting entries to shareholders' equity.
A-19
<PAGE> 46
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ENVIRONMENTAL REMEDIATION AND COMPLIANCE
Environmental remediation costs are accrued, except to the extent costs can
be capitalized, based on estimates of known environmental remediation exposures.
Environmental compliance costs include maintenance and operating costs with
respect to pollution control facilities, costs of ongoing monitoring programs
and similar costs. Such costs are expensed as incurred. Capitalized
environmental costs are depreciated generally utilizing a 15-year life.
INTEREST RATE SWAP AGREEMENTS
Cooper uses interest rate swaps to manage its interest rate risk. The
interest rate differential to be received or paid is recognized over the lives
of the interest rate swaps as an adjustment to interest expense.
OTHER
For purposes of the statement of Consolidated Cash Flows, Cooper considers
all investments purchased with original maturities of three months or less to be
cash equivalents.
NOTE 3: NONRECURRING ITEMS
On October 6, 1993, Cooper closed an initial public offering of 90.4% of
the stock of Belden Inc., formerly Cooper's Belden Division. This sale, which
was recorded in the third quarter, generated net-of-tax cash proceeds of
approximately $267 million and a $273.8-million pretax ($164.3 million net of
tax) gain or $1.44 per fully diluted share. In addition, depending upon the
future profitability of Belden and other factors, Cooper will receive over a
15-year period additional benefits from a tax sharing agreement between Cooper
and Belden Inc. The proceeds from the tax sharing agreement will be recorded in
income when they are earned. Cooper's remaining 9.6% interest in Belden Inc.,
the sale of which is restricted (other than when registered as permitted by
agreements with Belden) during the first two years following the public
offering, has been accounted for as a marketable equity security with an initial
investment value of $12.4 million and a December 31, 1994 market value of $55.3
million. Belden, which was included in the Electrical Products segment, had
revenues of $281 million and pretax profits of approximately $41 million through
the date of the sale in 1993.
The gain from the Belden sale was fully offset by the final loss recorded
with respect to the sale of the Cameron Forged Products Division and by the
effects of a series of management actions designed to enhance Cooper's future
profitability. These actions, as restated and realigned in connection with the
separation of continuing and discontinued operations, included $126 million of
accruals with respect to a series of productivity improvement and consolidation
programs; a $65-million reduction in the depreciable value of the machinery and
equipment and certain other plant and equipment related to the production of
transformers, a large product line within Cooper's Electrical Products segment;
and an $18-million reduction in the carrying value of the continuing operations'
internally developed capitalized software.
On January 10, 1994, Cooper entered into a definitive agreement for the
sale of its Cameron Forged Products Division to Wyman-Gordon Company in exchange
for approximately 16.5 million newly issued shares of Wyman-Gordon Company's
common stock and $5 million in cash and notes. During the fourth quarter of
1993, Cooper reclassified the net assets of Cameron Forged Products Division to
a long-term asset under the caption "Net assets of Cameron Forged Products" and
charged pretax earnings approximately $65 million, as finally determined, for a
write-down of the carrying value of those assets. Although Cooper owns
approximately 48% of Wyman-Gordon Company, this investment is not intended to be
maintained for a long period. Consequently, while the sale of the Wyman-Gordon
Company shares is restricted, Cooper has certain registration rights with
respect to the stock in addition to its rights pursuant to Rule 144 of the
Securities Act of 1933. Cooper has limited representation on Wyman-Gordon
Company's Board of Directors
A-20
<PAGE> 47
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and is required, except in certain circumstances, to vote its shares in
accordance with the position recommended by Wyman-Gordon Company's Board of
Directors or proportionately with the vote of the other shareholders. As a
result, the Wyman-Gordon Company stock has been accounted for as a marketable
equity security. At December 31, 1994, the market value of Cooper's investment
in Wyman-Gordon Company common stock was $103.1 million, based on the year-end
closing price of the Wyman-Gordon Company common stock. For the nine months
ended September 30, 1993, Cameron Forged Products Division had revenues of $114
million and a small pretax loss. The results for the fourth quarter of 1993,
which were consistent with those for the nine-month period, were not included in
Cooper's consolidated results. In connection with the restatement to reflect
discontinued operations, the historical revenues and earnings of Cameron Forged
Products originally included in the Petroleum & Industrial Equipment segment
have been reclassified to Corporate for all periods presented reflecting the
fact that Cooper's investment in this business continues in a new form.
In mid-October 1993, Cooper announced its intention to spin off to Cooper's
Common shareholders its Gardner-Denver Industrial Machinery Division
headquartered in Quincy, Illinois. Cooper formed a new corporation called
Gardner Denver Machinery Inc. ("GDMI") and then transferred the assets and
liabilities of the division into this entity. During the second quarter of 1994,
the GDMI stock was distributed on the basis of one share of common stock, par
value $.01 per share, for every 25 shares of Cooper Common stock owned as of the
determined record date. Pursuant to the income tax and accounting rules
pertaining to this transaction, Cooper recognized no gain or loss with respect
to the transaction and the GDMI stock received by Cooper's shareholders is not
taxable until sold. At December 31, 1993, the net assets of the business,
including approximately $70 million of allocated and $5 million of other
indebtedness, amounted to approximately $150 million, which amount was included
in the long-term asset caption titled "Net assets of discontinued operations"
pending completion of the distribution. For the year ended December 31, 1993,
the Gardner-Denver Industrial Machinery Division, after deducting allocated
interest expense, had a small pretax profit on revenues of $156 million.
Because the Gardner-Denver Industrial Machinery Division was historically a
part of the Petroleum & Industrial Equipment segment, its results for 1994 and
prior years have been reflected as part of discontinued operations.
Cooper's net results from continuing operations for 1992 as restated
included approximately $4 million, net of tax, of nonrecurring corporate income,
as well as a one-time, $11-million income tax expense reduction. In anticipation
of a continuing slow-growth global economy, Cooper accelerated consideration of
a number of productivity improvement, consolidation and asset disposition
programs. Cooper decided to implement several such programs that were
contemplated for later in the 1990s, resulting in a provision of $33 million,
net of tax, which offset the favorable effects of these gains.
The 1992 nonrecurring income resulted from the receipt of an interest
refund from the U.S. government with respect to the settlement of a pending
income tax matter. The one-time income tax expense reduction resulted from a
reassessment of the amount of tax accruals that need to be retained in order to
fully provide for the additional U.S. tax that would be payable when the
earnings of Cooper's foreign subsidiaries are remitted.
NOTE 4: CHANGES IN ACCOUNTING PRINCIPLES
During the fourth quarter of 1992, Cooper elected to adopt effective for
all of 1992 and future years the accounting provisions of SFAS No. 106
(Employers' Accounting for Postretirement Benefits Other Than Pensions), SFAS
No. 109 (Accounting for Income Taxes) and SFAS No. 112 (Employers' Accounting
for Postemployment Benefits). Net income for 1992 included the cumulative effect
($590 million, net of tax, or $5.19 per fully diluted share) as of January 1,
1992, necessary to adjust Cooper's net assets for compliance with the new
standards. Effective January 1, 1994, Cooper adopted SFAS No. 115 (Accounting
for Certain
A-21
<PAGE> 48
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Investments in Debt and Equity Securities), which did not impact net income for
the year 1994. Each of these changes is discussed in greater detail below.
SFAS NO. 106 -- EMPLOYERS' ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN
PENSIONS
SFAS No. 106 provides that Cooper follow an accrual method of accounting
for the benefits other than pensions (primarily medical costs) provided to
employees after retirement. Net income for 1992 included a charge of $669.1
million pretax ($408.2 million, net of tax, or $3.59 per fully diluted share)
for the immediate recognition of the net transition obligation with respect to
benefits earned by active and retired employees prior to January 1, 1992.
Additionally, postretirement costs were recorded based on an actuarially
determined accrual method as opposed to Cooper's previous pay-as-you-go method
of accounting for such costs. The remaining disclosure information required by
SFAS No. 106 is set forth in Note 14.
SFAS NO. 109 -- ACCOUNTING FOR INCOME TAXES
SFAS No. 109 requires a liability, as opposed to a deferred, method of
accounting for income taxes. Net income for 1992 included a net tax charge of
$166.2 million ($1.47 per fully diluted share) in order to provide a net
deferred tax credit with respect to the aggregate of the differences between the
book and tax basis of Cooper's assets and liabilities. The direction and
magnitude of this adjustment resulted from the large, fair market value
adjustments recorded for book purposes, but not for tax purposes, with respect
to certain acquisitions, including Gardner-Denver Company, McGraw-Edison Company
and, more recently, Champion Spark Plug Company and Cameron Iron Works, Inc.
Additionally, income tax expense and certain other adjustments for 1992 were
determined in accordance with the provisions of the new standard. The remaining
disclosure information required by SFAS No. 109 is set forth in Note 10.
SFAS NO. 112 -- EMPLOYERS' ACCOUNTING FOR POSTEMPLOYMENT BENEFITS
SFAS No. 112 provides that Cooper follow an accrual method of accounting
for the benefits payable to employees when they leave Cooper other than by
reason of retirement. Because most of these benefits were already accounted for
by Cooper on an accrual method, this new standard had a relatively small
cumulative effect -- $25.6 million ($15.6 million, net of tax, or $.13 per fully
diluted share).
SFAS NO. 115 -- ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES
See Notes 2 and 3 for information pertaining to the effects of this new
accounting standard which was adopted by Cooper effective January 1, 1994.
NOTE 5: ACQUISITIONS AND DIVESTITURES
During 1992, Cooper completed one large acquisition, four small
product-line acquisitions and two divestitures. Effective October 1, 1992,
Cooper acquired Moog Automotive Group, Inc. from IFINT S.A. The total cost of
the acquisition, including $233.8 million of indebtedness that was largely
repaid at the acquisition date, was $612.4 million. Moog Automotive is a leading
manufacturer of steering, suspension, driveline and temperature control parts
for the automotive and light truck aftermarket. The Moog acquisition, along with
the four smaller acquisitions, which had an aggregate cost of $42.0 million,
have been accounted for as purchases, and the results of the acquisitions are
included in Cooper's Consolidated Results of Operations since the respective
acquisition dates. The four smaller acquisitions were all in the Tools &
Hardware segment. A total of $414.8 million of goodwill, including 1993
revisions, has been recorded with respect to the five acquisitions. During 1992,
Cooper sold its Distribution Equipment Division and one other small operation,
the results of which were previously reported in the Electrical Products
segment. Proceeds from these divestitures totaled $38.9 million and resulted in
the recognition of a $5.8 million after-tax gain.
A-22
<PAGE> 49
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In addition to the transactions described in Note 3, Cooper completed five
small product-line acquisitions and two divestitures in 1993. The acquisitions,
which had an aggregate cost of $110.2 million including $6.7 million of assumed
indebtedness, have been accounted for as purchases, with the resulting revenues
and earnings included in Cooper's continuing results of operations since the
respective acquisition dates. A total of $67.2 million of goodwill, including
1994 revisions, was recorded with respect to the five acquisitions. Two of the
acquisitions were in the Electrical Products segment, two were in the Tools &
Hardware segment and one was in the Automotive Products segment.
During 1993, Cooper sold two businesses that were being carried as
businesses held for sale. Including $19 million of notes and other amounts
receivable in the future, proceeds from the two divestitures of businesses held
for sale totaled $26 million and resulted in the recognition of a $5.5 million
after-tax gain.
Cooper completed one large acquisition, five small product-line
acquisitions and one divestiture in 1994 in addition to the divestitures
discussed in Note 3. Effective December 30, 1994, Cooper acquired the Abex
Friction Products division of Abex, Inc. The total cost of the acquisition,
including $.6 million of indebtedness assumed, was $207.4 million. Abex Friction
Products manufactures and markets asbestos-free brake friction materials for
passenger cars, light and heavy-duty trucks and off-road vehicles. The Abex
acquisition along with the five smaller acquisitions, which had an aggregate
cost of $73.2 million, have been accounted for as purchases and the results of
the acquisitions are included in Cooper's Consolidated Results of Operations
since the respective acquisition dates. A total of $242.3 million of goodwill
was recorded on a preliminary basis with respect to the six acquisitions. Of the
five small acquisitions, two were in the Automotive Products segment and three
were in the Electrical Products segment.
During 1994, 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 6: COMMON AND PREFERRED STOCK
COMMON STOCK
At December 31, 1994, 250,000,000 shares of Common stock were authorized of
which 116,923,095 shares were issued and outstanding. A total of 114,254,133
shares were issued and 114,179,700 were outstanding at December 31, 1993
(113,400,841 shares were issued and outstanding at December 31, 1992). During
the years ended December 31, 1993 and 1994, a total of 86,500 and 539,000 shares
were purchased as treasury stock at an average price of $52.82 and $36.92 per
share, respectively. In addition, 32,702,613 shares were reserved for the
Dividend Reinvestment Plan, conversions of Preferred stock, grants and exercises
of stock options, subscriptions under the Employee Stock Purchase Plan and other
plans, and shares to be issued in connection with future acquisitions.
Under a Shareholder Rights Plan adopted by the Board of Directors in 1987,
share purchase Rights were declared as a dividend at the rate of one Right for
each share of Common stock. Each Right has an exercise price of $87.50, entitles
the holder to buy securities, including in certain circumstances Common stock,
having a value of twice the exercise price, and becomes exercisable only in
certain circumstances constituting a potential change of control on a basis
considered inadequate by the Board of Directors. The Rights expire February 27,
1997, and, at Cooper's option, may be redeemed prior to expiration for $.005 per
Right.
Under the terms of the Dividend Reinvestment Plan, any holder of Common
stock may elect to have cash dividends and up to $24,000 per year in cash
payments invested in Common stock without incurring any brokerage commissions or
service charges.
A-23
<PAGE> 50
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PREFERRED STOCK
Cooper is authorized to issue 1,340,750 shares of Preferred stock with no
par value (No Par Preferred), 10,000,000 shares of $2.00 par value Preferred
stock and 36,197,499 shares of $1.00 par value Preferred stock. At December 31,
1994, no shares of the No Par Preferred or $2.00 par value Preferred stock were
issued or outstanding.
At December 31, 1993 and 1994, 33,376,420 shares of $1.00 par value
Preferred stock have been designated as Convertible Exchangeable Preferred
having a $1.60 dividend rate ("$1.60 Preferred Stock"). Of this total,
33,054,184, 33,182,654 and 30,629,808 shares were outstanding at December 31,
1992, 1993 and 1994, respectively. In December 1994, Cooper announced its
decision to exchange all of its $1.60 Preferred Stock for debentures, as
provided by the terms of the $1.60 Preferred Stock. As a result, effective
January 1, 1995, the $1.60 Preferred Stock was exchanged for Cooper's 7.05%
Convertible Subordinated Debentures due 2015 ("Debentures"), at the rate of
$22.70 principal amount of debentures for each share of $1.60 Preferred Stock.
Under a Shareholder Rights Plan adopted by the Board of Directors in 1989,
the same share purchase Rights referred to above were declared as a dividend at
the rate of .55 Rights for each share of $1.60 Preferred Stock. The Rights
attached to the $1.60 Preferred Stock terminated effective January 1, 1995 with
the exchange for Debentures.
NOTE 7: INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1993(1) 1994
------- -------
(MILLIONS)
<S> <C> <C>
Raw materials.......................................................... $ 264.7 $ 265.1
Work-in-process........................................................ 200.6 203.5
Finished goods......................................................... 488.1 563.7
Perishable tooling and supplies........................................ 53.1 55.4
------- -------
1,006.5 1,087.7
Excess of current standard costs over LIFO costs....................... (89.5) (87.3)
Allowance for obsolete and slow-moving inventory....................... (10.4) (11.9)
Other.................................................................. (2.4) --
------- -------
Net inventories.............................................. $ 904.2 $ 988.5
======= =======
</TABLE>
- ---------------
(1) Restated to exclude discontinued operations.
NOTE 8: ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1993(1) 1994
------- -------
(MILLIONS)
<S> <C> <C>
Trade accounts and accruals............................................ $ 517.5 $ 655.6
Salaries, wages and related fringe benefits............................ 104.4 85.8
Product and environmental liability accruals........................... 103.4 114.4
Contributions payable under employee benefit plans..................... 58.5 49.9
Estimated costs of facility relocation, realignment and other
nonrecurring items................................................... 144.9 90.5
Other (individual items less than 5% of total current liabilities)..... 107.5 136.9
-------- --------
$1,036.2 $1,133.1
======== ========
</TABLE>
- ---------------
(1) Restated to exclude discontinued operations.
A-24
<PAGE> 51
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1994, Cooper had continuing operations' accruals of $37.1
million with respect to potential product liability claims and continuing
operations' accruals of $77.3 million with respect to potential environmental
liabilities based on Cooper's current estimate of the most likely amount of
losses that it believes will be incurred.
Of the $37.1 million of product liability accruals, $22.3 million relate to
known claims with respect to ongoing operations, $10.1 million relate to known
claims for previously divested operations that are no longer a part of Cooper
and $4.7 million relate to a minimum estimate of claims that have been incurred
but not yet reported. While Cooper is generally self-insured with respect to
product liability claims, Cooper's continuing operations had insurance coverage
for individual 1994 claims beyond $3 million. Insurance levels have varied from
year to year. The recorded product liability accruals are net of amounts covered
under insurance policies.
Of the continuing operations' $77.3 million of environmental liability
accruals, $43.1 million relate to sites owned by Cooper and $34.2 million relate
to sites either previously owned by Cooper but where Cooper has retained the
environmental liability, or third-party sites where Cooper was a contributor.
Third-party sites usually involve multiple contributors where Cooper's liability
will be determined based on an estimate of Cooper's proportionate responsibility
for the total cleanup. The amount actually accrued for such sites is based on
these estimates as well as an assessment of the financial capacity of the other
potentially responsible parties. Environmental liabilities are not generally
subject to insurance recovery. In addition, Cooper has capitalized a total of
$17.1 million with respect to continuing operations' environmental matters with
an undepreciated net book value of $14.3 million at December 31, 1994.
It has been Cooper's consistent practice to include the entire accrual for
these liabilities as a current liability although only approximately 10-20% of
the balance will be spent on an annual basis. The annual effect on earnings for
product liability is essentially equal to the amounts disbursed. In the case of
environmental liability, the annual expense is considerably smaller than the
disbursements, since the vast majority of Cooper's environmental liability has
been recorded in connection with acquired companies. The change in the accrual
balance from year to year reflects not only this normal expensing and funding
but also the effect of acquisitions and divestitures.
In establishing its accruals for both product liability and environmental
remediation liability, Cooper has not utilized any form of discounting. While
both product liability and environmental liability accruals involve estimates
that can have wide ranges of potential liability, Cooper has taken a proactive
approach and has managed the costs in both of these areas over the years such
that the actual liabilities, absent law changes, have generally been lower than
the estimates. Cooper does not believe that the nature of its products, its
production processes, or the materials or other factors involved in the
manufacturing process, subject Cooper to unusual risks or exposures for product
or environmental liability. Cooper's greatest exposure to inaccuracy in its
estimates is with respect to the constantly changing definitions of what
constitutes an environmental liability or an acceptable level of cleanup.
A-25
<PAGE> 52
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9: PLANT AND EQUIPMENT AND INTANGIBLES
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1993(1) 1994
------- -------
(MILLIONS)
<S> <C> <C>
Plant and equipment:
Land and land improvements........................................... $ 83.5 $ 83.7
Buildings............................................................ 539.6 539.5
Machinery and equipment.............................................. 1,017.8 1,078.5
Tooling, dies, patterns, etc......................................... 95.5 120.7
All other............................................................ 182.2 190.5
Construction in progress............................................. 71.9 113.4
-------- --------
1,990.5 2,126.3
Accumulated depreciation............................................. (874.6) (938.8)
-------- --------
$1,115.9 $1,187.5
======== ========
Intangibles:
Goodwill............................................................. $2,193.8 $2,459.3
Assets related to pension plans...................................... 6.8 4.5
Other................................................................ 85.3 102.4
-------- --------
2,285.9 2,566.2
Accumulated amortization............................................. (339.5) (412.3)
-------- --------
$1,946.4 $2,153.9
======== ========
</TABLE>
- ---------------
(1) Restated to exclude discontinued operations.
NOTE 10: INCOME TAXES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1992(1) 1993(1) 1994
------ ------- -------
(MILLIONS)
<S> <C> <C> <C>
Continuing operations income before income taxes:
U.S. operations.............................................. $318.4 $ 457.8 $ 405.7
Foreign operations........................................... 73.7 48.2 99.0
------ ------- -------
$392.1 $ 506.0 $ 504.7
====== ======= =======
Discontinued operations income (loss) before income taxes...... $188.0 $ 119.4 $(301.8)
====== ======= =======
Continuing operations income tax expense:
U.S. Federal................................................. $ 99.8 $ 157.2 $ 152.0
U.S. state and local......................................... 26.7 31.8 32.0
Foreign...................................................... 26.0 18.0 27.9
------ ------- -------
152.5 207.0 211.9
------ ------- -------
</TABLE>
A-26
<PAGE> 53
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1992(1) 1993(1) 1994
------ ------- -------
(MILLIONS)
<S> <C> <C> <C>
Discontinued operations income tax expense:
U.S. Federal........................................................ 28.9 28.4 9.6
U.S. state and local................................................ 8.4 8.7 2.8
Foreign............................................................. 29.0 14.2 (1.5)
------ ------- -------
66.3 51.3 10.9
------ ------- -------
Income tax expense.................................................... $218.8 $ 258.3 $ 222.8
====== ======= =======
Income taxes for continuing and discontinued operations:
Currently payable:
U.S. Federal..................................................... $ 60.9 $ 191.6 $ 91.8
U.S. state and local............................................. 19.9 45.1 17.7
Foreign.......................................................... 36.6 23.2 3.1
------ ------- -------
117.4 259.9(2) 112.6
------ ------- -------
Deferred:
U.S. Federal..................................................... 76.5 (11.3) 74.6
U.S. state and local............................................. 14.5 (5.6) 15.9
Foreign.......................................................... 18.4 9.2 14.4
------ ------- -------
109.4 (7.7) 104.9
------ ------- -------
Other:
Tax benefit of foreign exchange transaction losses credited to
translation component of equity................................. -- 6.2 --
Effect of change in U.S. Federal tax rate on recorded deferred
tax balances.................................................... -- (4.7) --
U.S. Federal adjustment of foreign unremitted earnings accrual... (15.0) -- --
Difference between tax expense and taxes payable with respect to
discontinued operations......................................... -- -- 1.3
ESOP dividends and disqualifying stock dispositions:
U.S. Federal................................................... 6.3 3.6 3.3
U.S. state and local........................................... .7 1.0 .7
------ ------- -------
(8.0) 6.1 5.3
------ ------- -------
Income tax expense.......................................... $218.8 $ 258.3 $ 222.8
====== ======= =======
Items giving rise to deferred income taxes:
Employee medical program funding.................................... $ 13.5 $ (2.8) $ (7.5)
Employee stock ownership plan....................................... 3.5 1.0 5.2
Excess of tax over book depreciation................................ 5.0 9.9 17.8
Postretirement benefits other than pensions......................... (7.7) 4.0 (1.4)
Reserves and accruals............................................... 74.3 (35.5) 86.9
Utilization of net operating loss carryforwards..................... 10.4 7.4 3.3
Other............................................................... 10.4 8.3 .6
------ ------- -------
Deferred income taxes....................................... $109.4 $ (7.7) $ 104.9
====== ======= =======
</TABLE>
- ---------------
(1) Restated to reflect discontinued operations.
(2) Includes $122 million with respect to the sale of Belden. See Note 3 for
further information.
A-27
<PAGE> 54
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1992(1) 1993(1) 1994
------ ------ ------
(MILLIONS EXCEPT FOR
PERCENTAGES)
<S> <C> <C> <C>
Effective tax rate reconciliation
U.S. Federal statutory rate.................................... 34.0% 35.0% 35.0%
State and local income taxes................................... 3.6 3.6 3.6
Foreign statutory rate differential............................ (.4) (.6) (.6)
Nondeductible goodwill......................................... 4.8 4.3 4.4
Effect of change in U.S. tax rate on recorded deferred tax
balances.................................................... -- (.8) --
Unremitted earnings accrual adjustment......................... (2.7) -- --
All other (individually less than 5% of the expected tax
provision).................................................. (.4) (.6) (.4)
------ ------ ------
Indicated effective tax rate continuing operations..... 38.9% 40.9% 42.0%
====== ====== ======
Total income taxes paid for continuing and discontinued
operations..................................................... $112.4 $157.3 $252.7
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1993(1) 1994
------- -------
(MILLIONS)
<S> <C> <C>
Components of deferred tax balances:
Deferred tax liabilities:
Plant and equipment and intangibles................................. $(150.2) $(163.1)
Inventory........................................................... (58.6) (53.9)
Employee medical program funding.................................... (22.3) (19.9)
Employee stock ownership plan....................................... (24.6) (37.2)
Other............................................................... (72.4) (98.5)
------- -------
Total deferred tax liabilities................................. (328.1) (372.6)
------- -------
Deferred tax assets:
Postretirement benefits other than pensions......................... 253.8 254.9
Reserves and accruals............................................... 219.9 183.2
Net operating loss carryforwards.................................... 16.1 12.8
Other............................................................... 70.6 85.6
------- -------
Total deferred tax assets...................................... 560.4 536.5
------- -------
Valuation allowances................................................... (16.3) (16.3)
------- -------
Net deferred tax assets........................................ $ 216.0 $ 147.6
======= =======
</TABLE>
- ---------------
(1) Restated to exclude discontinued operations.
The U.S. Federal portion of the above provision includes U.S. tax expected
to be payable on the foreign portion of Cooper's income before income taxes when
such earnings are remitted. During the third quarter of 1992, Cooper completed
its assessment of the effects of various legal entity restructurings, capital
investment alterations and other actions that have been taken over the last
three to five years as part of efforts to optimize Cooper's foreign tax
structure. The effect of Cooper's assessment was a $15-million reduction in
Cooper's income tax accrual ($11 million related to continuing operations and $4
million related to discontinued operations) with respect to the unremitted
earnings of its foreign subsidiaries. Cooper's remaining accruals for continuing
operations at December 31, 1993 and December 31, 1994 are sufficient to cover
the additional U.S. tax estimated to be payable on the earnings that Cooper
anticipates will be remitted. Through December 31, 1994, this amounted to
essentially all unremitted earnings of Cooper's foreign subsidiaries.
A-28
<PAGE> 55
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11: LONG-TERM DEBT AND OTHER BORROWING ARRANGEMENTS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1993(1) 1994
------- -------
(MILLIONS)
<S> <C> <C>
6.29%* commercial paper and bank loans maturing at various dates
through January 31, 1995............................................. $ 820.0 $1,275.0
6.27% Pounds Sterling bank loans maturing at various dates through
January 27, 1995..................................................... 70.7 68.8
7.96% first series medium-term notes, due 1995......................... 41.9 1.1
7.70%-7.99% second series medium-term notes, due through 1998.......... 197.9 197.9
6.18% floating-rate loan, due 1996..................................... 50.0 50.0
7.875% notes, due 1997**............................................... 100.0 --
10.7% notes payable, due through 1998.................................. 16.9 13.1
5.61%* floating-rate ESOP notes, due through 1999...................... 90.7 80.4
Capitalized lease obligations.......................................... 31.3 14.8
Other.................................................................. 71.8 54.9
------- --------
1,491.2 1,756.0
Amounts allocated to discontinued operations........................... (450.0) (375.0)
Current maturities**................................................... (157.8) (19.1)
------- --------
Long-term portion...................................................... $ 883.4 $1,361.9
======= ========
</TABLE>
- ---------------
* Weighted average interest rates at December 31, 1994. (In 1993, 3.43% for
commercial paper and bank loans and 3.14% for the ESOP notes).
** Cooper issued a call notice for this borrowing and subsequently refinanced
it with commercial paper in January 1994. Accordingly, the principal balance
of $100 million is included in current maturities at December 31, 1993.
(1) Restated to exclude discontinued operations.
Cooper has U.S. committed credit facilities totaling $885 million that
expire in 1997, U.S. committed credit facilities totaling $975 million that
expire in 1995, Pounds Sterling credit facilities totaling 25 million Pounds
Sterling that expire in 1996 and 30 million Pounds Sterling credit facilities
expiring in 1995. At December 31, 1994, Cooper had an effective "shelf"
registration statement, which may be used to issue up to $302 million of
indebtedness from time to time.
At December 31, 1993, Cooper had $1.04 billion of its $1.76 billion U.S.
committed credit facilities available, after considering commercial paper
backup, and 7.2 million of its 55 million Pounds Sterling credit facilities was
available. At December 31, 1994, $511.8 million of the total $1.86 billion U.S.
committed credit facilities was available after considering commercial paper
backup, and 11 million Pounds Sterling of the 55 million Pounds Sterling credit
facilities was available. The agreements for the credit facilities require that
Cooper maintain certain financial ratios, including a prescribed limit on debt
as a percentage of total capitalization.
Interest rates on Cooper's commercial paper and bank loans were generally
2.7% below the U.S. prime rate during 1993 and 1994. Total interest paid during
1992, 1993 and 1994 was $128 million, $104 million and $85 million,
respectively.
Commercial paper and bank loans of $821 million and $1.28 billion were
reclassified to long-term debt at December 31, 1993 and 1994, respectively,
reflecting Cooper's intention to refinance these amounts during the twelve-month
period following the balance sheet date through either continued short-term
borrowing or utilization of available credit facilities. In addition, $450
million and $375 million of allocated bank debt was classified in discontinued
operations at December 31, 1993 and 1994, respectively.
A-29
<PAGE> 56
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Effective January 1, 1995, Cooper exchanged all of the outstanding $1.60
Convertible Exchangeable Preferred Stock for $691.2 million of 7.05% Convertible
Subordinated Debentures due 2015 and $3.8 million in cash related to fractional
shares. Each $1,000 of debentures is convertible into 24.229 shares of Common
stock and at Cooper's option may be redeemed for cash at prices (expressed as
percentages of the principal amount) declining from 103.525% in 1995 to 100.000%
in 2000. The debentures require sinking fund payments of 5% of the aggregate
principal amount commencing in the year 2000.
The floating-rate ESOP notes are indebtedness of Cooper's ESOP. Because
payment of the ESOP notes is guaranteed by Cooper, the ESOP notes are reported
with Cooper's indebtedness. (See Note 12 for further information regarding the
ESOP).
Based on the most restrictive provision contained in Cooper's loan
agreements, retained earnings of approximately $729 million were unrestricted as
to the payment of dividends at December 31, 1994.
Maturities of long-term debt (exclusive of bank loans allocated to
discontinued operations) for the five years subsequent to December 31, 1994, are
$19.1 million, $148.8 million, $98.8 million, $81.2 million and $19.7 million,
respectively. The future net minimum lease payments under capital leases and
obligations under operating leases are not significant.
NOTE 12: COOPER SAVINGS AND EMPLOYEE STOCK OWNERSHIP PLANS
All full-time domestic employees, except for certain bargaining unit
employees, are eligible to participate in the Cooper Savings Plan. Under the
terms of the Plan, employee savings deferrals are partially matched with
contributions by Cooper of Common stock consisting of either an allocation of
shares in Cooper's employee stock ownership plan (ESOP) or new shares issued to
the ESOP.
During 1994, Cooper sold an additional 1.6 million shares to the ESOP for
$82.3 million in cash. The 1994 sales were funded by loans between the ESOP and
Cooper, which for accounting purposes are treated as eliminated intercompany
loans. For shares purchased by the ESOP prior to 1994, compensation expense is
equal to Cooper's matching obligation, adjusted for the difference between the
fair market value and cost of the related shares released to the savings plan to
cover the matching obligation. Compensation expense is also adjusted for the
amount of dividends paid on ESOP shares available for future matching. In
addition, all shares issued to the ESOP are considered outstanding for the
purposes of computing earnings per share. For shares purchased during 1994,
compensation expense is recorded for the amount of Cooper's matching obligation,
with the difference between the fair market value and cost of shares released to
cover the obligation recorded as an adjustment to paid in capital and dividends
paid on shares available for future matching recorded as an adjustment to
retained earnings. Shares available for future matching are not treated as
outstanding for the purpose of computing earnings per share.
The proceeds from dividends paid on shares available for future matching by
the ESOP of $4.4 million and $5.3 million during 1993 and 1994, respectively,
were used to reduce the amount of cash required to fund principal and interest
payments on ESOP debt, which payments are required before shares can be released
from collateral to participants in the savings plan. The proceeds from dividends
on allocated shares of $5.0 million and $5.1 million were used to pay additional
principal and interest payments in order to release shares equivalent to the
dividend amount to participants in the savings plan. Cooper contributed $22.3
million and $49.2 million in cash to the ESOP to fund its remaining principal
and interest payments on ESOP indebtedness during 1993 and 1994, respectively.
The above payments permitted the release of shares with respect to both
continuing and discontinued operations.
At December 31, 1993 and 1994, the ESOP had 2.9 million and 3.7 million
shares available for future matching purposes, respectively. At December 31,
1994, 1.2 million shares which had a fair market value of $42.2 million,
remained from the 1994 share sale. The number of allocated shares at December
31, 1993 and
A-30
<PAGE> 57
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1994 were 3.8 million and 4.2 million, respectively, and the number of shares
committed to be released were .1 million at December 31, 1994 and 1993.
Expense with regard to the ESOP includes the recognition of interest
expense payable by the ESOP on third party indebtedness and net employer
matching expense. Expense for continuing operations under the Cooper Savings
plan amounted to $16.9 million in 1992, $16.3 million in 1993 and $25.2 million
in 1994, which was distributed through the ESOP.
With respect to continuing operations net matching expense of the ESOP
amounted to $14.1 million in 1992, $14.0 million in 1993 and $22.6 million in
1994 while interest expense amounted to $2.8 million, $2.3 million and $2.6
million in 1992, 1993 and 1994, respectively.
NOTE 13: PENSION PLANS
Cooper and its subsidiaries have numerous pension plans covering
substantially all domestic employees and pension and similar arrangements in
accordance with local custom covering employees at foreign locations. Aggregate
pension expense for continuing operations amounted to $37.5 million in 1992,
$44.3 million in 1993 and $46.1 million in 1994. The amount of expense with
respect to Cooper's various defined benefit pension plans of continuing
operations is set forth in the table below. For the years ended December 31,
1992, 1993 and 1994, expense with respect to domestic and foreign defined
contribution plans (primarily related to various groups of hourly employees) of
continuing operations amounted to $19.4 million, $23.2 million and $22.8
million, respectively. Also included in pension expense are gains and losses on
curtailments and settlements and other matters. The increases in pension expense
resulted from incremental expense related to acquired companies, lower amounts
of pension income with respect to overfunded plans and changes in plan
assumptions.
<TABLE>
<CAPTION>
COMPONENTS OF DEFINED BENEFIT
PLAN PENSION EXPENSE
------------------------------
YEAR ENDED DECEMBER 31,
------------------------------
1992(1) 1993(1) 1994
------ ------ ------
(MILLIONS)
<S> <C> <C> <C>
Service cost -- benefits earned during the year............... $ 27.7 $ 26.2 $ 26.4
Interest cost on projected benefit obligation................. 69.7 66.0 63.0
Actual return on assets....................................... (53.8) (54.4) (14.3)
Net amortization and deferral................................. (28.0) (17.2) (51.8)
------ ------ ------
Net pension cost.............................................. $ 15.6 $ 20.6 $ 23.3
====== ====== ======
</TABLE>
A-31
<PAGE> 58
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FUNDED STATUS OF DEFINED BENEFIT PLANS
----------------------------------------------
PLANS WITH ASSETS PLANS WITH
IN EXCESS OF ACCUMULATED BENEFITS
ACCUMULATED BENEFITS IN EXCESS OF ASSETS
-------------------- --------------------
DECEMBER 31, DECEMBER 31,
-------------------- --------------------
1993(1) 1994 1993(1) 1994
------- ------- ------- -------
(MILLIONS)
<S> <C> <C> <C> <C>
Actual present value of:
Vested benefit obligation..................... $(484.4) $(467.0) $(379.7) $(335.6)
======= ======= ======= =======
Accumulated benefit obligation................ $(502.5) $(491.1) $(413.1) $(360.5)
======= ======= ======= =======
Projected benefit obligation.................. $(525.8) $(508.6) $(424.6) $(365.0)
Plan assets at fair value....................... 553.5 529.0 306.1 264.6
------- ------- ------- -------
Projected benefit obligation (in excess of) less
than plan assets.............................. 27.7 20.4 (118.5) (100.4)
Unrecognized net loss........................... 17.7 34.1 69.3 47.5
Unrecognized net (asset) obligation from
adoption date................................. (15.3) (13.3) 7.4 6.6
Unrecognized prior service cost................. .2 (5.2) 1.9 1.7
Adjustment required to recognize minimum
liability..................................... -- -- (74.1) (59.5)
------- ------- ------- -------
Pension asset (liability) at end of year........ $ 30.3 $ 36.0 $(114.0) $(104.1)
======= ======= ======= =======
</TABLE>
- ---------------
(1) Restated to exclude discontinued operations.
<TABLE>
<CAPTION>
COMPUTATIONAL ASSUMPTIONS
---------------------------------------------------
PROJECTED
BENEFIT
NET PENSION COST OBLIGATION
----------------------------- ----------------
1992 1993 1994 1993 1994
------ ------ ----- ----- -----
<S> <C> <C> <C> <C> <C>
Discount rate:
Domestic.................................... 9% 8 1/2% 7% 7% 8%
International............................... 7 1/2-9 7 1/2-9 6-7 3/4 6-7 3/4 7 1/2-9
Rate of increase in compensation levels:
Domestic.................................... 6 5 1/2 5 5 5
International............................... 4-6 4-6 4-5 1/2 4-5 1/2 4-6
Expected long-term rate of return on assets:
Domestic.................................... 9 1/2 9 8 1/2 -- --
International............................... 7 1/2-10 7 1/2-10 6-9 1/2 -- --
Benefit basis:
Salaried plans-earnings during career
Hourly plans-dollar unit, multiplied by
years of service
Funding policy: 5 to 30 years
</TABLE>
Cooper's minimum liability for pension plans with accumulated benefits in
excess of assets of $74.1 million in 1993 and $59.5 million in 1994 has been
recorded in Cooper's Consolidated Balance Sheet as a long-term liability with a
$6.8 million offsetting intangible asset in 1993 and $4.5 million in 1994. In
addition, Cooper has recorded a $67.3 million reduction in shareholders' equity
in 1993 and a $55.0 million reduction in 1994. The assets of the various
domestic and foreign plans are maintained in various trusts and consist
primarily of equity and fixed-income securities.
Cooper partially or completely settled or curtailed three defined benefit
plans for hourly employees during 1992, four during 1993 and six during 1994.
The settlements and curtailments resulted in net losses of $2.5 million in 1992
and $.5 million in 1993 and reversion to Cooper of surplus assets totaling $.9
million during 1992. In 1992, six Canadian defined benefit plans were converted
to defined contribution plans and the surplus assets relating to the plans are
being used to reduce required future Cooper contributions.
A-32
<PAGE> 59
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14: POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
As described in Note 4, Cooper adopted the provisions of SFAS No. 106
(Employers' Accounting for Postretirement Benefits Other Than Pensions)
beginning in 1992. The benefits provided under Cooper's various plans, all of
which are unfunded, include retiree medical care, dental care, prescriptions and
life insurance, with medical care accounting for over 90% of the total. While
Cooper has numerous plans, primarily resulting from Cooper's extensive
acquisition activity, the vast majority of the annual expense is related to
employees who are already retired. In fact, as a result of actions taken by
Cooper starting in 1989, virtually no active salaried employees continue to earn
retiree medical benefits and the number of active hourly employees earning such
benefits has been greatly diminished. Additionally, Cooper continues to amend
its various plans to provide for appropriate levels of cost sharing and other
cost-control measures.
The table below reflects detailed information for continuing operations and
summary information for discontinued operations.
<TABLE>
<CAPTION>
AMOUNTS PER
FINANCIAL STATEMENTS
----------------------
ITEMS NOT YET RECORDED LIABILITY
IN FINANCIAL FOR
ACCUMULATED STATEMENTS POSTRETIREMENT
POSTRETIREMENT ------------------------- BENEFITS
BENEFIT PRIOR ACTUARIAL OTHER NET
OBLIGATION SERVICE NET THAN ANNUAL
(APBO) COST GAIN PENSIONS EXPENSE
------- ------- --------- -------- -------
(MILLIONS EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C>
BALANCE -- DECEMBER 31, 1991........................ $(141.7) $ -- $ -- $(141.7) $ --
Adoption of SFAS No. 106............................ (669.1) (669.1)
Reclassification to discontinued operations......... 171.3 171.3
------- -------
(639.5) (639.5)
Acquisition of Moog Automotive...................... (44.7) (44.7)
Benefit payments.................................... 30.3 30.3
Plan amendments..................................... .6 (.6)
Plan expense:
Service cost...................................... (3.4) 3.4
Interest cost..................................... (43.8) 43.8
Amortization of prior service cost................ .1 (.1)
Curtailment gain (one plan)....................... 1.5 (1.5)
------
Net annual expense.................................. (45.6) $ 45.6
------- ------ ------- ------- ======
BALANCE -- DECEMBER 31, 1992........................ (699.0) (.5) -- (699.5)
Benefit payments.................................... 33.3 33.3
Plan amendments..................................... 31.8 (31.8)
Actuarial net gain.................................. 15.6 (15.6)
Business dispositions............................... 32.1 8.1 (11.0) 29.2
Moog curtailments affecting goodwill................ 17.8 17.8
Plan expense:
Service cost...................................... (1.9) $ 1.9
Interest cost..................................... (40.1) 40.1
Amortization of prior service cost................ 3.2 (3.2)
Curtailment gains (four plans).................... 11.3 (11.3)
------
Net annual expense.................................. (27.5) $ 27.5
------- ------ ------- ------- ======
BALANCE -- DECEMBER 31, 1993........................ (599.1) (21.0) (26.6) (646.7)
Reclassification of amounts pertaining to Forged
Products.......................................... 9.1 (1.3) 4.4 12.2
------- ------ ------- -------
ADJUSTED BALANCES CONTINUING OPERATIONS............. (590.0) (22.3) (22.2) (634.5)
------- ------ ------- -------
Benefit payments.................................... 35.7 35.7
Plan amendments..................................... 11.4 (11.4)
Actuarial net gain.................................. 124.3 (124.3)
Business acquisition................................ (5.2) (5.2)
Business dispositions............................... (.3) .1 (.2) (.4)
Plan expense:
Service cost...................................... (.8) $ .8
Interest cost..................................... (35.4) 35.4
Amortization of prior service cost................ 2.6 (2.6)
------
Net annual expense.................................. (33.6) $ 33.6
------- ------ ------- ------- ======
BALANCE -- DECEMBER 31, 1994........................ $(460.3) $(31.0) $(146.7) $(638.0)
======= ====== ======= =======
</TABLE>
A-33
<PAGE> 60
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1993 1994
------- -------
<S> <C> <C>
Amount of APBO related to:
Retired employees............................................ $(551.2) $(436.2)
Employees eligible to retire................................. (22.2) (8.7)
Other employees.............................................. (25.7) (15.4)
Actuarial assumptions:
Discount rate................................................ 7.58% 6.87%
Ensuing year to 2002-health-care cost trend rate..... 17% ratable to 5.5% 15% ratable to 5.5%
Effect of 1% change in health-care cost trend rate:
Increase year-end APBO....................................... 9% 8%
Increase expense............................................. 10% 10%
</TABLE>
NOTE 15: STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------------
RANGE OF
SHARES OPTION PRICES
-------- ---------------
<S> <C> <C>
Stock options outstanding at January 1, 1994.................... 3,131,234 $ 28.28 - 56.50
Options granted to employees.................................... 250,000 39.06
Options exercised............................................... (106,348) 28.28 - 46.31
Options cancelled............................................... (323,226) 28.28 - 56.50
Stock options outstanding at December 31, 1994.................. 2,951,660 $ 37.75 - 56.50
</TABLE>
Options to purchase Common stock are granted to employees under Cooper
stock option plans at not less than 100% of the market value of Cooper's stock
at the date of grant. The options expire five years from the date of grant and
generally become exercisable ratably over a three-year period commencing one
year from the date of grant. At December 31, 1994, options under the various
plans for 1,621,075 Common shares were exercisable at $37.75 to $56.50 and
1,623,224 (951,855 at December 31, 1993) Common shares were reserved for future
grants. Options for 446,097 Common shares at $26.815 to $46.31 per share were
exercised during the year ended December 31, 1993.
Under a director stock option plan, each year a nonemployee director may
elect to receive, in lieu of the annual retainer fee, a nonqualified stock
option covering 2,000 shares of Common stock. The exercise price is determined
by a formula based on the fair market value of the stock and the director's
annual retainer. Options for 4,000 shares were granted in 1993 at $24.00 per
share. No options were exercised during 1993 and options for 28,000 shares were
exercisable at December 31, 1993. During 1994, options for 4,000 shares were
granted at $14.69 per share and options for 8,000 shares at $13.625 to $25.438
per share were exercised. At December 31, 1994, options under the director plans
for 24,000 Common shares were exercisable at $24.00 to $27.125 and 148,000
shares (152,000 at December 31, 1993) were reserved for future grants.
EMPLOYEE STOCK PURCHASE PLAN
Participants in the Employee Stock Purchase Plan receive an option to
purchase Common stock at a price that is the lesser of 90% of the market value
on the offering date or 100% of the market value on the purchase date. On
September 9, 1993, 475,256 shares were sold to 8,028 employees at $49.56 per
share. At December 31, 1994, subscriptions for 747,239 shares of Common stock
were outstanding at $45.56 per share or, if lower, the average market price on
September 9, 1995, which is the purchase date. At December 31, 1994, an
aggregate of 3,124,800 shares of Common stock were reserved for future
offerings.
A-34
<PAGE> 61
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 16: INDUSTRY SEGMENTS, DOMESTIC AND INTERNATIONAL OPERATIONS
<TABLE>
<CAPTION>
REVENUES OPERATING EARNINGS IDENTIFIABLE ASSETS
----------------------------- ----------------------------- -----------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, DECEMBER 31,
----------------------------- ----------------------------- -----------------------------
1992(1) 1993(1) 1994 1992(1) 1993(1) 1994 1992(1) 1993(1) 1994
------- ------- ------- ------- ------- ------- ------- ------- -------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Electrical Products(2).... $2,190.3 $2,177.5 $2,034.8 $ 353.2 $ 359.0 $ 326.3 $1,920.0 $1,739.3 $1,788.6
Tools & Hardware.......... 812.0 807.9 897.9 83.4 91.6 102.4 708.8 757.4 797.4
Automotive Products....... 1,285.4 1,670.0 1,622.1 139.0 188.9 190.1 2,245.5 2,208.8 2,654.2
------- ------- ------- ------- ------- ------- ------- ------- -------
4,287.7 4,655.4 4,554.8 575.6 639.5 618.8 4,874.3 4,705.5 5,240.2
Cameron Forged
Products(3)............. 167.9 109.7 -- 10.0 1.7 -- 146.1 74.9 --
Other..................... 12.8 11.3 33.2 12.8 11.3 33.2
------- ------- -------
Consolidated revenues..... $4,468.4 $4,776.4 $4,588.0
======== ======== ========
Nonrecurring income(4).... 6.6 273.8 --
Nonrecurring expense(4)... (50.1) (273.8) --
Interest expense.......... (92.5) (80.9) (73.3)
General corporate......... (70.3) (65.6) (74.0) 430.8 474.9 472.8
------- ------- -------
Consolidated income from
continuing operations
before income
taxes(5)................ $ 392.1 $ 506.0 $ 504.7
======= ======= =======
Businesses held for
divestiture............. 30.9 17.6 19.5
Discontinued operations... 1,064.1 1,068.1 646.4
Investment in
unconsolidated
subsidiaries............ 5.2 20.7 21.8
-------- -------- --------
Consolidated assets....... $6,551.4 $6,361.7 $6,400.7
======== ======== ========
</TABLE>
- ---------------
(1) Restated to exclude discontinued operations.
(2) The Electrical Power Equipment segment has been combined with the Electrical
Products segment for all periods presented.
(3) The amounts reflected for Cameron Forged Products in 1992 are based on the
gross assets of the business as reflected in the various balance sheet
captions. The 1993 amount reflects Cooper's investment in the business.
(4) See the separate table for segment detail of nonrecurring items.
(5) Before the cumulative effect of changes in accounting principles in 1992.
INDUSTRY SEGMENTS. Cooper's continuing operations are organized into three
segments.
The Electrical Products segment manufactures and markets electrical and
electronic distribution and circuit protection products for use in residential,
commercial and industrial construction, maintenance and repair and products for
use by utilities and industries for primary power distribution and control. This
segment also manufactured and marketed wire and cable for electronic signal
transmission through September 30, 1993.
The Tools & Hardware segment produces and markets tools and hardware items
for use in residential, commercial and industrial construction, maintenance and
repair, and for general industrial and consumer use.
The Automotive Products segment primarily manufactures and distributes
spark plugs, wiper blades, lamps, asbestos-free brake friction materials and
other products for use by the automotive aftermarket and in automobile
assemblies. In addition, this segment manufactures and distributes suspension,
steering, temperature control, driveline and brake system components and
material for the automotive aftermarket.
The businesses included in discontinued operations primarily manufacture,
market and service machinery and equipment used in oil and natural gas
exploration, drilling, production, transmission, storage and processing, as well
as equipment and repair parts used in compression markets.
Intersegment sales and related receivables for each of the years shown were
immaterial.
A-35
<PAGE> 62
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
REVENUES OPERATING EARNINGS IDENTIFIABLE ASSETS
----------------------------- ----------------------------- -----------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, DECEMBER 31,
----------------------------- ----------------------------- -----------------------------
1992(1) 1993(1) 1994 1992(1) 1993(1) 1994 1992(1) 1993(1) 1994
------- ------- ------- ------- ------- ------- ------- ------- -------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Domestic.................. $3,593.7 $4,028.9 $3,800.7 $ 466.3 $ 572.5 $ 511.0 $3,967.2 $3,845.2 $4,232.9
------- ------- ------- ------- ------- ------- ------- ------- -------
International
Europe.................. 415.2 385.3 495.4 51.5 26.9 62.8 592.2 562.0 676.6
Canada.................. 285.1 254.7 212.4 12.5 .1 3.2 155.9 115.2 139.5
Other................... 196.7 207.1 219.6 47.0 44.6 45.1 292.4 349.9 295.6
------- ------- ------- ------- ------- ------- ------- ------- -------
Sub-total
International....... 897.0 847.1 927.4 111.0 71.6 111.1 1,040.5 1,027.1 1,111.7
------- ------- ------- ------- ------- ------- ------- ------- -------
Eliminations:
Transfers to
International......... (138.5) (174.5) (138.6) (75.1) (53.7) (45.1)
Transfers to Domestic... (64.5) (46.1) (34.7) (48.1) (103.2) (49.2)
Other................... -- -- -- (1.7) (4.6) (3.3) (10.2) (9.9) (10.1)
------- ------- ------- ------- ------- ------- ------- ------- -------
4,287.7 4,655.4 4,554.8 575.6 639.5 618.8 4,874.3 4,705.5 5,240.2
Cameron Forged
Products(2)............. 167.9 109.7 -- 10.0 1.7 -- 146.1 74.9 --
Other..................... 12.8 11.3 33.2 12.8 11.3 33.2
------- ------- -------
Consolidated revenues..... $4,468.4 $4,776.4 $4,588.0
======= ======= =======
Nonrecurring income....... 6.6 273.8 --
Nonrecurring expense...... (50.1) (273.8) --
Interest expense.......... (92.5) (80.9) (73.3)
General corporate......... (70.3) (65.6) (74.0) 430.8 474.9 472.8
------- ------- -------
Consolidated income from
continuing operations
before income
taxes(3)................ $ 392.1 $ 506.0 $ 504.7
======= ======= =======
Businesses held for
divestiture............. 30.9 17.6 19.5
Discontinued operations... 1,064.1 1,068.1 646.4
Investment in
unconsolidated
subsidiaries............ 5.2 20.7 21.8
------- ------- -------
Consolidated assets....... $6,551.4 $6,361.7 $6,400.7
======= ======= =======
</TABLE>
- ---------------
(1) Restated to exclude discontinued operations.
(2) The amounts reflected for Cameron Forged Products in 1992 are based on the
gross assets of the business as reflected in the various balance sheet
captions. The 1993 amount reflects Cooper's investment in the business.
(3) Before the cumulative effect of changes in accounting principles in 1992.
DOMESTIC AND INTERNATIONAL OPERATIONS
Transfers between domestic and international operations, principally
inventory transfers, are charged to the receiving organization at prices
sufficient to recover manufacturing costs and provide a reasonable return.
Continuing operations' export sales to unaffiliated customers included in
domestic sales were $264.3 million in 1992, $273.8 million in 1993 and $267.2
million in 1994. Of total export sales of continuing operations, approximately
38% in 1992, 41% in 1993 and 36% in 1994 were to Asia, Africa, Australia and the
Middle East, 32% in 1992, 24% in 1993 and 26% in 1994 were to Canada and Europe,
and 30% in 1992, 35% in 1993 and 38% in 1994 were to Latin America.
A-36
<PAGE> 63
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
NONRECURRING
DEPRECIATION AMORTIZATION (INCOME)/EXPENSE
------------------------ ------------------------ -------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
------------------------ ------------------------ -------------------------
1992(1) 1993(1) 1994 1992(1) 1993(1) 1994 1992(1) 1993(1) 1994
------ ------ ------ ------ ------ ------ ------ ------- ------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Electrical
Products(2).......... $ 67.7 $ 58.5 $ 43.1 $ 29.0 $ 29.5 $ 29.3 $ 9.8 $ 155.3 $ --
Tools & Hardware....... 30.5 29.4 30.8 6.0 6.7 7.4 20.9 16.5 --
Automotive Products.... 42.0 50.4 51.3 24.9 32.3 32.1 7.4 26.5 --
Corporate.............. 9.3 6.9 3.0 2.4 2.2 2.0 5.4 (198.3) --
------ ------ ------ ------ ------ ------ ------ ------- ------
$149.5 $145.2 $128.2 $ 62.3 $ 70.7 $ 70.8 $ 43.5 $ -- $ --
====== ====== ====== ====== ====== ====== ====== ======= ======
</TABLE>
<TABLE>
<CAPTION>
CAPITAL TRANSLATION COMPONENT
EXPENDITURES INCREASE (DECREASE)
---------------------------- ----------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
---------------------------- ----------------------------
1992 1993 1994 1992 1993 1994
------ ------ ------ ------ ------ ------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Electrical Products(2)............... $ 63.7 $ 78.0 $ 74.6 $ (7.3) $ (2.3) $ (1.6)
Tools & Hardware..................... 34.5 29.4 38.5 (15.3) (9.2) 10.0
Automotive Products.................. 63.7 72.3 94.4 (41.7) (12.3) (12.6)
Corporate............................ 20.0 8.7 1.2 (23.0) 2.3 1.9
------ ------ ------ ------ ------ ------
$181.9 $188.4 $208.7 $(87.3) $(21.5) $ (2.3)
====== ====== ====== ====== ====== ======
</TABLE>
- ---------------
(1) Restated to exclude discontinued operations.
(2) The Electrical Power Equipment segment has been combined with the Electrical
Products segment for all periods presented.
NOTE 17: OFF-BALANCE-SHEET RISK, CONCENTRATION OF CREDIT RISK AND
FAIR VALUE OF FINANCIAL INSTRUMENTS, INCLUDING DERIVATIVES
OFF-BALANCE-SHEET RISK
As a result of having sales and purchases denominated in currencies other
than the functional currencies used by Cooper's divisions and foreign
subsidiaries, Cooper is exposed to the effect of foreign exchange rate
fluctuations on the U.S. dollar value of its cash flows. To the extent possible,
Cooper utilizes natural hedges to minimize the effect on cash flows of
fluctuating foreign currencies. When natural hedges are not sufficient, it is
Cooper's policy to enter into forward foreign exchange contracts to hedge all
significant transactions for periods consistent with the terms of the underlying
transactions. Cooper does not engage in speculation or hedge
nontransaction-related balance sheet exposure. While forward contracts affect
Cooper's results of operations, they do so only in connection with the
underlying transactions. As a result, they do not subject Cooper to uncertainty
from exchange rate movements, because gains and losses on these contracts offset
losses and gains on the transactions being hedged. The volume of forward
activity engaged in by Cooper from year to year fluctuates in proportion to the
level of worldwide cross-border transactions, and contracts generally have
A-37
<PAGE> 64
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
maturities that do not exceed one year. The table below summarizes, by currency,
the contractual amounts of Cooper's forward exchange contracts at December 31,
1993 and 1994.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1993 1994
----- -----
(MILLIONS)
<S> <C> <C>
Deutschemark......................................................... $ 5.8 $14.0
Pounds Sterling...................................................... 5.2 28.2
Guilder.............................................................. 23.1 10.7
Canadian Dollar...................................................... 36.7 .4
Other................................................................ 10.1 20.0
----- -----
$80.9 $73.3
===== =====
</TABLE>
Deferred gains and losses on forward foreign exchange contracts based upon
anticipated transactions were not material at December 31, 1993 and 1994.
In an effort to reduce interest rate risk on Cooper's floating-rate
borrowings, Cooper entered into interest rate swaps, which became effective in
early 1993 and matured at various dates through February 22, 1994, that
converted $500 million of its floating-rate borrowing into fixed rate borrowing
for a one year period at an effective interest rate of 3.70%.
Cooper's other off-balance-sheet risks are not material.
CONCENTRATIONS OF CREDIT RISK
Concentrations of credit risk with respect to trade receivables are limited
due to the wide variety of customers and markets into which Cooper's products
are sold, as well as their dispersion across many different geographic areas. As
a result, at December 31, 1994, Cooper does not consider itself to have any
significant concentrations of credit risk.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cooper's financial instruments consist primarily of cash and cash
equivalents, trade receivables, trade payables, debt instruments and foreign
currency forward contracts. The book values of cash and cash equivalents, trade
receivables and trade payables are considered to be representative of their
respective fair values. Cooper had approximately $1.5 billion and $1.6 billion
of debt instruments at December 31, 1993 and 1994, respectively. The book value
of these instruments exceeded fair value by approximately 1% at December 31,
1993 and was approximately equal to fair value at December 31, 1994. Based on
year-end exchange rates and the various maturity dates of the foreign currency
forward contracts, Cooper estimates that the contract value is representative of
the fair value of these items at December 31, 1993 and 1994.
A-38
<PAGE> 65
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 18: SUMMARY OF NONCASH INVESTING AND FINANCING ACTIVITIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1992 1993 1994
------ ------ ------
(MILLIONS)
<S> <C> <C> <C>
Increase (decrease) in net assets:
Employee stock ownership plan (ESOP):
Principal payments and difference between Cooper expense
and cash contributions................................. $ 25.7 $ 24.5 $ 60.1
Unearned ESOP compensation............................... (26.2) -- (82.3)
Common stock issued for:
Employee stock ownership plan............................ 26.2 -- 82.3
Executive restricted stock incentive plan................ 7.1 -- 2.5
Acquired companies....................................... 2.4 .3 --
Employee stock purchase plan............................. -- 23.6 --
Unrealized gain on investments, net of tax:
Adoption of SFAS No. 115................................. -- -- 20.5
Change in unrealized value of investment in Belden
Inc. .................................................. -- -- 5.3
Investment in Wyman-Gordon Company....................... -- -- 22.0
Distribution of stock in Gardner Denver Machinery Inc. ..... -- -- (152.9)
$1.60 Preferred Stock issued for conversion of debentures... 3.9 2.9 3.5
</TABLE>
The above information supplements the disclosures required by SFAS No. 95
(Statement of Cash Flows).
NOTE 19: NET INCOME (LOSS) PER COMMON SHARE
<TABLE>
<CAPTION>
PRIMARY FULLY DILUTED
----------------------------- -----------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------------- -----------------------------
1992(1) 1993(1) 1994 1992(1) 1993(1) 1994
------- ------- ------- ------- ------- -------
($ IN MILLIONS, SHARES IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Income from continuing operations
before cumulative effect of
changes in accounting
principles........................ $ 239.6 $ 299.0 $ 292.8 $ 239.6 $ 299.0 $ 292.8
Income from discontinued
operations........................ 121.7 68.1 .3 121.7 68.1 .3
Charge for discontinued
operations........................ -- -- (313.0) -- -- (313.0)
Dividends applicable to $1.60
Preferred Stock................... (52.8) (53.1) (53.3) (52.8) (53.1) (53.3)
------- ------- ------- ------- ------- -------
Income (loss) applicable to Common
stock before cumulative effect of
changes in accounting
principles........................ 308.5 314.0 (73.2) 308.5 314.0 (73.2)
Cumulative effect on prior years of
changes in accounting
principles........................ (590.0) -- -- (590.0) -- --
------- ------- ------- ------- ------- -------
Net income (loss) applicable to
Common stock...................... $(281.5) $ 314.0 $ (73.2) $(281.5) $ 314.0 $ (73.2)
======= ======= ======= ======= ======= =======
Average Common shares and Common
share equivalents................. 113,830 114,201 114,218 113,830 114,201 114,218
======= ======= ======= ======= ======= =======
</TABLE>
- ---------------
(1) Restated to reflect discontinued operations.
A-39
<PAGE> 66
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 20: UNAUDITED QUARTERLY OPERATING RESULTS
<TABLE>
<CAPTION>
1993 (BY QUARTER)(1)
----------------------------------------------
1 2 3(2) 4
------- ------- ------- -------
(MILLIONS EXCEPT PER-SHARE DATA)
<S> <C> <C> <C> <C>
Revenues....................................... $1,150.3 $1,234.2 $1,232.7 $1,159.2
Costs and Expenses:
Cost of sales................................ 769.7 809.2 825.6 758.5
Depreciation and amortization................ 58.9 58.8 49.2 49.0
Selling and administrative expenses.......... 203.8 203.9 197.7 205.2
Interest expense............................. 21.8 21.2 21.0 16.9
Nonoperating gain on 1993 IPO of Belden
Inc....................................... -- -- (273.8) --
Nonrecurring expense......................... -- -- 273.8 --
-------- -------- -------- --------
1,054.2 1,093.1 1,093.5 1,029.6
-------- -------- -------- --------
Income from continuing operations before income
taxes........................................ 96.1 141.1 139.2 129.6
Income taxes................................... 39.3 57.4 55.9 54.4
-------- -------- -------- --------
Income from continuing operations.............. 56.8 83.7 83.3 75.2
Income from discontinued operations............ 6.3 19.2 15.6 27.0
-------- -------- -------- --------
Net Income..................................... 63.1 102.9 98.9 102.2
Preferred dividends............................ 13.3 13.2 13.3 13.3
-------- -------- -------- --------
Net Income Applicable to Common Stock.......... $ 49.8 $ 89.7 $ 85.6 $ 88.9
======== ======== ======== ========
Income per Common Share:
Primary --
Continuing operations..................... $ 0.38 $ 0.62 $ 0.61 $ 0.54
Discontinued operations................... 0.06 0.16 0.14 0.24
-------- -------- -------- --------
Net Income................................ $ 0.44 $ 0.78 $ 0.75 $ 0.78
======== ======== ======== ========
Fully diluted --
Continuing operations..................... $ 0.38 $ 0.62(3) $ 0.61 $ 0.54(3)
Discontinued operations................... 0.06 0.16(3) 0.14 0.24(3)
-------- -------- -------- --------
Net Income................................ $ 0.44 $ 0.78(3) $ 0.75 $ 0.78(3)
======== ======== ======== ========
</TABLE>
Gross margin for the four quarters in 1993 was $380.6, $425.0, $407.1 and
$400.7.
- ---------------
(1) Restated to reflect discontinued operations.
(2) Includes nonrecurring income and expense items as further described in
Management's Discussion and Financial Review.
(3) Assumes the conversion of the 7% debentures and the $1.60 Preferred Stock to
Common. As a result, Preferred dividends are not deducted in the
computations. Interest on the debentures is not material.
A-40
<PAGE> 67
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1994 (BY QUARTER)
----------------------------------------------
1(1) 2(1) 3(2) 4
------- ------- ------- -------
(MILLIONS EXCEPT PER-SHARE DATA)
<S> <C> <C> <C> <C>
Revenues.............................................. $1,037.8 $1,173.9 $1,136.4 $1,239.9
Costs and Expenses:
Cost of sales....................................... 692.3 769.6 749.7 814.8
Depreciation and amortization....................... 48.0 48.5 50.2 52.3
Selling and administrative expenses................. 189.7 201.7 190.0 203.2
Interest expense.................................... 16.2 16.9 18.8 21.4
------- ------- ------- -------
946.2 1,036.7 1,008.7 1,091.7
------- ------- ------- -------
Income from continuing operations before income
taxes............................................... 91.6 137.2 127.7 148.2
Income taxes.......................................... 39.4 57.9 51.9 62.7
------- ------- ------- -------
Income from continuing operations..................... 52.2 79.3 75.8 85.5
Income (loss) from discontinued operations............ (3.8) 4.3 (0.2) --
Charge for discontinued operations.................... -- -- (313.0) --
------- ------- ------- -------
Net Income (Loss)..................................... 48.4 83.6 (237.4) 85.5
Preferred dividends................................... 13.3 13.3 13.3 13.4
------- ------- ------- -------
Net Income (Loss) Applicable to Common Stock.......... $ 35.1 $ 70.3 $(250.7) $ 72.1
======= ======= ======= =======
Income (loss) per Common share:
Primary --
Continuing operations............................ $ 0.34 $ 0.58 $ 0.55 $ 0.63
Discontinued operations.......................... (0.03) 0.04 (2.75) --
------- ------- ------- -------
Net Income (Loss)................................ $ 0.31 $ 0.62 $ (2.20) $ 0.63
======= ======= ======= =======
Fully diluted --
Continuing operations............................ $ 0.34 $ 0.58 $ 0.55 $ 0.63
Discontinued operations.......................... (0.03) 0.04 (2.75) --
------- ------- ------- -------
Net Income (Loss)................................ $ 0.31 $ 0.62 $ (2.20) $ 0.63
======= ======= ======= =======
</TABLE>
Gross margin for the four quarters in 1994 was $345.5, $404.3, $386.7 and
$425.1.
- ---------------
(1) Restated to reflect discontinued operations.
(2) Includes nonrecurring income and expense items as further described in
Management's Discussion and Financial Review.
(3) Assumes the conversion of the 7% debentures and the $1.60 Preferred Stock to
Common. As a result, Preferred dividends are not deducted in the
computations. Interest on the debentures is not material.
A-41
<PAGE> 68
- --------------------------------------------------------------------------------
[Cooper Logo]
COOPER INDUSTRIES, INC.
Proxy for Annual Meeting of Shareholders
April 25, 1995
P Solicited on Behalf of the Board of Directors
R The undersigned shareholder of Cooper Industries, Inc. ("Cooper")
appoints H. John Riley, Jr. and Diane K. Schumacher, or either of them,
O proxies, with full power of substitution, to vote all shares of stock
which the shareholder would be entitled to vote if present at the
X Annual Meeting of Shareholders of Cooper on Tuesday, April 25, 1995, at
11:00 a.m. (central time) in the Austin Room, Four Seasons Hotel, 1300
Y Lamar Street, Houston, Texas, and at any adjournments thereof, with all
powers the shareholder would possess if present. The shareholder hereby
revokes any proxies previously given with respect to such meeting.
THIS PROXY WILL BE VOTED AS SPECIFIED ON THE REVERSE SIDE, BUT
IF NO SPECIFICATION IS MADE, IT WILL BE VOTED FOR THE NOMINEES FOR
DIRECTOR (ROBERT CIZIK, HAROLD S. HOOK, FRANK A. OLSON AND JOHN D. ONG)
AND WILL BE VOTED AGAINST PROPOSALS 2 AND 3 AND IN THE DISCRETION OF
THE PROXIES ON OTHER MATTERS AS MAY COME BEFORE THE MEETING OR ANY
| ADJOURNMENT THEREOF.
|
| This card also constitutes voting instructions for any shares
| held for the shareholder in the following: Cooper's Dividend
Reinvestment and Stock Purchase Plan; the Cooper Industries, Inc. Stock
Ownership Plan and the Cooper Industries, Inc. Savings Plans, as
described in the Notice of Meeting and Proxy Statement.
(Please date and sign on the reverse side)
- --------------------------------------------------------------------------------
* FOLD AND DETACH HERE *
<PAGE> 69
- -------------------------------------------------------------------------------
/X/ Please mark your votes as in this example. | 9327
| _ _ _
- -------------------------------------------------------------------------------
The Board of Directors recommends a vote FOR all nominees.
1. FOR / / WITHHELD / / Election of Directors.
Nominees: R. Cizik, H.S. Hook,
F.A. Olson, J.D. Ong
To withhold your vote for any nominee(s), write the name(s) here.
- ----------------------------------------------------------------
The Board recommends a vote AGAINST proposals 2 and 3.
2. Proposal relating to Ceres Principles
FOR / / AGAINST / / ABSTAIN / /
3. Proposal relating to Maquiladora Operations
FOR / / AGAINST / / ABSTAIN / /
- -------------------------------------------------------------------------------
I plan to attend the meeting. / /
Please sign exactly as name appears
hereon. Joint owners should each sign.
When signing as attorney, executor,
administrator, trustee or guardian,
please give full title as such.
------------------------------------
------------------------------------
SIGNATURE(S) DATE
- -------------------------------------------------------------------------------
* FOLD AND DETACH HERE *
THIS IS YOUR PROXY.
YOUR VOTE IS IMPORTANT [COOPER LOGO]
COOPER'S REVITALIZATION PROGRAM
EXTENDS TO OUR VALUED SHAREHOLDERS
As part of Cooper Industries' revitalization program, we are constantly working
to improve the quality of our shareholder services through the following
programs:
ELECTRONIC FUNDS TRANSFER A TELEPHONE RESPONSE CENTER IS
(Direct Deposit) of Dividends AVAILABLE AT COOPER'S TRANSFER AGENT,
FIRST CHICAGO TRUST, TO PROVIDE
/ / Dividend monies deposited directly SHAREHOLDERS PERSONAL ASSISTANCE WITH:
into your bank account.
/s/ Verifying the number of Cooper
/ / No worry of lost dividend checks. shares in your account.
/ / Immediate access of dividend money, /s/ Lost or stolen stock certificates.
no mail delays.
/s/ Name changes on stock registration
/ / Verification of dividend receipts in the event of marriage, death
on monthly bank statement. and estate transfers, gifts of
stock to minors in custodial
DIVIDEND REINVESTMENT PLAN accounts...any transfer of stock
ownership.
/ / Dividends automatically reinvested
in your account to purchase / / Inquiries about lost or stolen
additional shares of Cooper dividend checks & 1099-DIV's.
common stock.
/ / Any shareholder inquiries
/ / No commission or service charge is concerning Cooper common stock
paid to purchase shares. will be answered courteously
and promptly
/ / Whole and fractional shares will
be credited to your account. Call First Chicago Trust Company of
New York at (201) 324-0498, or write:
/ / Optional cash payments for
purchase of additional shares First Chicago Trust Company of
of Cooper common stock can be New York
made, regardless or whether P.O. Box 2500
dividends are being reinvested. Jersey City, NJ 07303-2500
<PAGE> 70
EXHIBIT INDEX
Exhibit No.
27. Financial Data Schedule for the year ended December 31, 1994
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the audited
financial statements of Cooper Industries, Inc. for the year ended December 31,
1994 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 25,300
<SECURITIES> 0
<RECEIVABLES> 904,400
<ALLOWANCES> 0
<INVENTORY> 988,500
<CURRENT-ASSETS> 2,100,200
<PP&E> 2,126,300
<DEPRECIATION> 938,800
<TOTAL-ASSETS> 6,400,700
<CURRENT-LIABILITIES> 1,333,100
<BONDS> 1,361,900
<COMMON> 584,600
0
30,600
<OTHER-SE> 2,125,900
<TOTAL-LIABILITY-AND-EQUITY> 6,400,700
<SALES> 4,588,000
<TOTAL-REVENUES> 4,588,000
<CGS> 3,026,400
<TOTAL-COSTS> 3,026,400
<OTHER-EXPENSES> 983,600
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 73,300
<INCOME-PRETAX> 504,700
<INCOME-TAX> 211,900
<INCOME-CONTINUING> 292,800
<DISCONTINUED> (312,700)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (19,900)
<EPS-PRIMARY> (.64)
<EPS-DILUTED> (.64)
</TABLE>
