<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------- -------
Commission File Number 1-1175
---------------------------------------------------------
Cooper Industries, Inc.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 31-4156620
--------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1001 Fannin, Suite 4000 Houston, Texas 77002
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(713) 739-5400
--------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No .
----- -----
Number of shares outstanding of issuer's common stock as of July 31, 1995 was
107,605,896.
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
COOPER INDUSTRIES, INC.
CONSOLIDATED RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Second Quarter Ended
June 30,
----------------------------
(millions except per share data) 1995 1994
-------- --------
<S> <C> <C>
REVENUES . . . . . . . . . . . . . . . . . . . . . . $1,268.1 $1,173.9
-------- --------
COSTS AND EXPENSES
Cost of sales . . . . . . . . . . . . . . . . . . . 834.7 769.6
Depreciation and amortization . . . . . . . . . . . 54.6 48.5
Selling and administrative expenses . . . . . . . . 198.9 201.7
Interest expense . . . . . . . . . . . . . . . . . . 39.5 16.9
-------- --------
1,127.7 1,036.7
-------- --------
Income before income taxes . . . . . . . . . . . . 140.4 137.2
Income taxes . . . . . . . . . . . . . . . . . . . . 57.6 57.9
-------- --------
Income from continuing operations . . . . . . . . . 82.8 79.3
Income from discontinued operations. . . . . . . . . - 4.3
Charge for discontinued operations . . . . . . . . . (186.6) -
-------- --------
Net income (loss). . . . . . . . . . . . . . . . . . (103.8) 83.6
Preferred dividends . . . . . . . . . . . . . . . . - 13.3
-------- --------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK . . . . $ (103.8) $ 70.3
======== ========
INCOME (LOSS) PER COMMON SHARE:
Primary:
Continuing operations . . . . . . . . . . . . . . $ .71 $ .58
Net income (loss) . . . . . . . . . . . . . . . . $ (.89) $ .62
Fully Diluted:
Continuing operations . . . . . . . . . . . . . . $ .68 $ .58
Net income (loss) . . . . . . . . . . . . . . . . $ (.89) $ .62
DIVIDENDS PER COMMON SHARE . . . . . . . . . . . . . $ .33 $ .33
</TABLE>
The accompanying notes are an integral part of these statements.
- 2 -
<PAGE> 3
COOPER INDUSTRIES, INC.
CONSOLIDATED RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------------
(millions except per share data) 1995 1994
-------- --------
<S> <C> <C>
REVENUES . . . . . . . . . . . . . . . . . . . . . . $2,391.3 $2,211.7
-------- --------
COSTS AND EXPENSES
Cost of sales . . . . . . . . . . . . . . . . . . . 1,583.0 1,461.9
Depreciation and amortization . . . . . . . . . . . 106.1 96.5
Selling and administrative expenses . . . . . . . . 389.8 391.4
Interest expense . . . . . . . . . . . . . . . . . . 77.8 33.1
-------- --------
2,156.7 1,982.9
-------- --------
Income before income taxes . . . . . . . . . . . . 234.6 228.8
Income taxes . . . . . . . . . . . . . . . . . . . . 96.5 97.3
-------- --------
Income from continuing operations . . . . . . . . . 138.1 131.5
Income from discontinued operations. . . . . . . . . - .5
Charge for discontinued operations . . . . . . . . . (186.6) -
-------- --------
Net income (loss). . . . . . . . . . . . . . . . . . (48.5) 132.0
Preferred dividends . . . . . . . . . . . . . . . . - 26.6
-------- --------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK . . . . $ (48.5) $ 105.4
======== ========
INCOME (LOSS) PER COMMON SHARE:
Primary:
Continuing operations . . . . . . . . . . . . . . $ 1.19 $ .92
Net income (loss) . . . . . . . . . . . . . . . . $ (.42) $ .93
Fully Diluted:
Continuing operations . . . . . . . . . . . . . . $ 1.15 $ .92
Net income (loss) . . . . . . . . . . . . . . . . $ (.42) $ .93
DIVIDENDS PER COMMON SHARE:
Cash . . . . . . . . . . . . . . . . . . . . . . . $ .66 $ .66
Stock of Gardner Denver Machinery Inc., at
equivalent net book value per Cooper
Common share . . . . . . . . . . . . . . . . . . $ - $ 1.321
</TABLE>
The accompanying notes are an integral part of these statements.
- 3 -
<PAGE> 4
COOPER INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30, December 31,
(millions) 1995 1994
--------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . $ 13.1 $ 25.3
Receivables . . . . . . . . . . . . . . . . . . . . 918.2 904.4
Inventories . . . . . . . . . . . . . . . . . . . . 1,002.4 988.5
Other . . . . . . . . . . . . . . . . . . . . . . . 157.4 182.0
-------- --------
Total current assets . . . . . . . . . . . . . . 2,091.1 2,100.2
-------- --------
Net assets of discontinued operations . . . . . . . - 646.4
Plant and equipment, at cost, less depreciation . . 1,199.4 1,187.5
Intangibles, less amortization . . . . . . . . . . 2,124.4 2,153.9
Deferred income taxes, investments and
other assets . . . . . . . . . . . . . . . . . . 396.7 312.7
-------- --------
TOTAL ASSETS . . . . . . . . . . . . . . . . . $5,811.6 $6,400.7
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term debt . . . . . . . . . . . . . . . . . . $ 130.2 $ 179.2
Accounts payable and accrued liabilities . . . . . 1,154.1 1,133.1
Accrued income taxes . . . . . . . . . . . . . . . 37.1 1.7
Current maturities of long-term debt . . . . . . . 63.0 19.1
-------- --------
Total current liabilities . . . . . . . . . . . . 1,384.4 1,333.1
-------- --------
Long-term debt . . . . . . . . . . . . . . . . . . 1,886.2 1,361.9
Postretirement benefits other than pensions . . . . 630.4 638.0
Deferred income taxes and
other long-term liabilities . . . . . . . . . . . 331.4 326.6
-------- --------
Total liabilities . . . . . . . . . . . . . . . 4,232.4 3,659.6
-------- --------
$1.60 Convertible Exchangeable Preferred stock . . - 30.6
Common stock . . . . . . . . . . . . . . . . . . . 537.8 584.6
Capital in excess of par value . . . . . . . . . . 133.3 1,176.5
Retained earnings . . . . . . . . . . . . . . . . . 1,029.8 1,153.4
Unearned employee stock ownership plan
compensation . . . . . . . . . . . . . . . . . . (128.6) (147.4)
Minimum pension liability . . . . . . . . . . . . . (55.0) (55.0)
Translation component . . . . . . . . . . . . . . . (46.1) (49.4)
Unrealized net gain on investments, net of taxes . 108.0 47.8
-------- --------
Total shareholders' equity . . . . . . . . . . 1,579.2 2,741.1
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . . $5,811.6 $6,400.7
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
- 4 -
<PAGE> 5
COOPER INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------
(millions) 1995 1994
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) . . . . . . . . . . . . . . . . . $ (48.5) $ 132.0
Less: (Income) loss from discontinued operations . . 186.6 (.5)
------- -------
Income from continuing operations . . . . . . . . 138.1 131.5
Adjustments to reconcile to net cash provided
by operating activities:
Depreciation . . . . . . . . . . . . . . . . . . 68.1 62.6
Amortization . . . . . . . . . . . . . . . . . . 38.0 33.9
Increase in deferred income taxes . . . . . . . 8.5 29.7
Changes in assets and liabilities:(1)
Receivables . . . . . . . . . . . . . . . . . (11.1) (45.5)
Inventories . . . . . . . . . . . . . . . . . (5.5) (80.8)
Accounts payable and accrued liabilities . . . 51.6 (27.3)
Accrued income taxes . . . . . . . . . . . . . 37.4 11.1
Other assets and liabilities, net . . . . . . 51.2 (19.6)
------- -------
Net cash provided by operating activities. . 376.3 95.6
------- -------
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . . . . (89.3) (97.6)
Taxes paid in 1994 with respect to 1993 gain
on the sale of Belden Inc. . . . . . . . . . . . . - (107.3)
Proceeds from sales of plant and equipment . . . . . 7.4 6.1
Acquisitions and divestitures. . . . . . . . . . . . (3.1) 1.3
------- -------
Net cash used for investing activities . . . (85.0) (197.5)
------- -------
Cash flows from financing activities:
Additions to debt . . . . . . . . . . . . . . . . . 55.9 484.5
Reductions of debt . . . . . . . . . . . . . . . . . (232.7) (256.9)
Dividends . . . . . . . . . . . . . . . . . . . . . (90.0) (101.9)
Purchase of treasury shares. . . . . . . . . . . . . - (19.9)
Activity under stock option and other plans . . . . 10.5 14.0
------- -------
Net cash provided by (used by)
financing activities . . . . . . . . . . . (256.3) 119.8
------- -------
Cash flows used by discontinued operations . . . . . . (47.7) (14.8)
Effect of translation on cash and cash equivalents . . .5 (3.2)
------- -------
Decrease in cash and cash equivalents . . . . . . . . (12.2) (.1)
Cash and cash equivalents, beginning of period . . . . 25.3 13.0
------- -------
Cash and cash equivalents, end of period . . . . . . . $ 13.1 $ 12.9
======= =======
</TABLE>
(1) Net of effects of acquisitions, divestitures, and translation.
The accompanying notes are an integral part of these statements, including
Notes 3 and 7, which disclose Interest and Taxes Paid and Noncash Investing and
Financing Activities.
- 5 -
<PAGE> 6
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Adjustments
The financial information presented as of any date other than December
31 has been prepared from the books and records without audit. Financial
information as of December 31 has been derived from the audited financial
statements of the Company, but does not include all disclosures required by
generally accepted accounting principles. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial information for the periods indicated, have
been included. For further information regarding the Company's accounting
policies, refer to the Consolidated Financial Statements and related notes for
the year ended December 31, 1994 included as Appendix A to the Company's Proxy
Statement dated March 17, 1995.
Note 2. Discontinued Operations
In September 1994, the Company announced its decision to establish its
petroleum and industrial equipment business as an independent, publicly traded
company through an exchange offer with Cooper's Common shareholders. In the
third quarter of 1994, Cooper recorded a charge of $313 million, net of $7.9
million of taxes, ($2.74 per share) for the estimated loss on the split-off of
Cooper Cameron Corporation ("Cooper Cameron"). The estimated loss was composed
of the difference between the historical cost of Cooper's investment in Cooper
Cameron and the estimated market value ($288 million), Cooper Cameron's
estimated operating loss during the period October 1, 1994 through the
projected date Cooper Cameron would become a public company ($9.8 million) and
transaction costs ($15.2 million).
Cooper completed the exchange offer on June 30, 1995, at which time 9.5
million shares of Cooper common stock were exchanged for 85.5% of Cooper
Cameron common stock. Cooper retained a 14.5% interest in Cooper Cameron. In
the second quarter of 1995, Cooper recorded a charge of $186.6 million to
reflect the actual loss on the split-off of Cooper Cameron. The charge was
composed of the difference between the historical cost of Cooper's investment
in Cooper Cameron remaining after the September 1994 estimated charge and the
market value of Cooper Cameron common stock during the first few days the
common stock traded on a national exchange ($162.8 million), additional Cooper
Cameron operating losses during the period October 1, 1994 through June 30,
1995 ($20.3 million) and additional transaction costs ($3.5 million). The
additional operating losses and transaction costs resulted primarily from the
delay in completing the exchange transaction when originally anticipated and the
recording by Cooper Cameron of a $17 million pretax charge in the second
quarter of 1995 for the write down of receivables due from customers in Iran.
In connection with receiving a private letter ruling from the Internal Revenue
Service to the effect that, among other things, the exchange transaction will
qualify as a tax free distribution to Cooper and its shareholders, Cooper has
committed that it will vote the Cooper Cameron common stock retained in
proportion to the votes cast by other shareholders and dispose of the shares no
later than five years subsequent to June 30, 1995.
As a consequence of treating this segment as "discontinued", Cooper's
results of operations and related footnote data for the period ended June 30,
1994 presented herein have been restated to 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
September 30, 1994 are presented separately in a single, net-of-tax caption
"Income from
- 6 -
<PAGE> 7
Discontinued Operations". Results under the caption "Net Income" remain
unchanged.
As part of the restatement, the $375 million of debt allocated to the
discontinued operations 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 debt of $375 million for
the period ended June 30, 1995 and $445 million for the period ended April 15,
1994 (includes $70 million of indebtedness that was allocated to Gardner Denver
Machinery Inc. in connection with that spin-off) at the relevant Cooper
interest rate ($11.9 million and $9.3 million in the first half of 1995 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.
Revenues from discontinued operations were $523.1 million and $578.9
million in the first half of 1995 and 1994, respectively.
Note 3. Interest and Taxes Paid
Total interest paid during the first six months of 1995 and 1994
amounted to $65.7 million and $41.1 million, respectively. Cash payments for
income taxes during the first six months of 1995 and 1994 amounted to $56.2
million and $150.5 million, respectively.
Note 4. Inventories
<TABLE>
<CAPTION>
June 30, December 31,
(millions) 1995 1994
--------- ------------
<S> <C> <C>
Raw materials . . . . . . . . . . . . . . . $ 294.9 $ 265.1
Work-in-process . . . . . . . . . . . . . . 209.5 203.5
Finished goods . . . . . . . . . . . . . . 551.2 563.7
Perishable tooling and supplies . . . . . . 58.0 55.4
-------- --------
1,113.6 1,087.7
Less allowances (primarily LIFO
reserves) . . . . . . . . . . . . . . . . (111.2) (99.2)
-------- --------
$1,002.4 $ 988.5
======== ========
</TABLE>
- 7 -
<PAGE> 8
Note 5. Income (Loss) Per Common Share
Primary and fully diluted income (loss) per Common share is computed
based on the following information:
<TABLE>
<CAPTION>
Second Quarter Six Months
Ended Ended
(millions) June 30, June 30,
---------------------- ----------------------
1995 1994 1995 1994
------ ------ ------ ------
<S> <C> <C> <C> <C>
PRIMARY:
Net income (loss). . . . . . . . $(103.8) $ 83.6 $ (48.5) $132.0
Dividends applicable to $1.60
Convertible Exchangeable
Preferred stock . . . . . . . - (13.3) - (26.6)
------- ------ ------- ------
Net income (loss) applicable
to Common stock. . . . . . . . $(103.8) $ 70.3 $ (48.5) $105.4
======= ====== ======= ======
Average Common shares and
Common share equivalents . . . 116.5 114.2 116.4 114.3
======= ====== ======= ======
FULLY DILUTED: (1)
Net income (loss). . . . . . . . $(103.8) $ 83.6 $ (48.5) $132.0
Dividends applicable to $1.60
Convertible Exchangeable
Preferred stock . . . . . . . - (13.3) - (26.6)
Net interest expense related
to the 7.05% Convertible
Subordinated Debentures . . . 7.3 - 14.6 -
------- ------ ------- ------
Net income (loss) applicable
to Common stock . . . . . . .
$ (96.5) $ 70.3 $ (33.9) $105.4
======= ====== ======= ======
Average Common shares and
common share equivalents . . . 116.5 114.2 116.4 114.3
Assuming conversion of the 7.05%
Convertible Subordinated
Debentures . . . . . . . . . . 16.8 - 16.8 -
------- ------ ------- ------
Average Common shares and
Common share equivalents . . . 133.3 114.2 133.2 114.3
======= ====== ======= ======
</TABLE>
(1) The 1995 fully diluted income per Common share from continuing
operations is computed based on $90.1 million and $152.7 million of
income applicable to Common stock for the second quarter and six
months ended June 30, 1995, respectively, and 133.3 million and 133.2
million average Common shares and Common share equivalents for the
second quarter and six months ended June 30, 1995, respectively. The
1995 fully diluted net loss is antidilutive, therefore the primary net
loss per Common share is reflected as the fully diluted net loss per
share.
- 8 -
<PAGE> 9
Note 6. Long-Term Debt
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 the payment of 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.
At June 30, 1995, $790 million of commercial paper and bank loans were
reclassified to long-term debt, reflecting the Company's intention to refinance
this amount during the 12-month period following the balance sheet date through
either continued short-term borrowing or utilization of available revolving
bank credit facilities.
Note 7. Noncash Investing and Financing Activities
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------------
(millions) 1995 1994
-------- --------
<S> <C> <C>
Employee stock ownership plan principal
payments and difference between
Company expense and cash contribution . . . . $ 28.0 $ 30.2
Common stock issued for:
Employee stock ownership plan . . . . . . . . - 82.3
Executive restricted stock incentive plan . . - .4
Unrealized gain on investments, net of tax:
Adoption of SFAS No. 115 . . . . . . . . . . . - 20.5
Change in unrealized value of investments . . 60.2 13.7
Distribution of stock in Gardner Denver
Machinery Inc. . . . . . . . . . . . . . . . . - 152.9
Exchange of $1.60 Convertible Exchangeable
Preferred stock into 7.05% Convertible
Subordinated Debentures. . . . . . . . . . . . 691.2 -
$1.60 Convertible Exchangeable Preferred stock
issued for conversions of 7% debentures. . . . - 3.4
Retirement of Cooper Common shares exchanged
for Cooper Cameron Common shares . . . . . . . 427.5 -
</TABLE>
- 9 -
<PAGE> 10
Note 8. Industry Segment Revenues
<TABLE>
<CAPTION>
Second Quarter Ended Six Months Ended
June 30, June 30,
------------------------ -------------------------
(millions) 1995 1994(1) 1995 1994(1)
-------- ------ -------- ------
<S> <C> <C> <C> <C>
Electrical Products . . . . $ 535.5 $ 510.7 $1,016.1 $ 966.0
Tools & Hardware . . . . . 248.0 229.4 472.0 428.4
Automotive Products . . . . 476.0 424.5 891.6 800.7
Other . . . . . . . . . . . 8.6 9.3 11.6 16.6
-------- -------- -------- --------
$1,268.1 $1,173.9 $2,391.3 $2,211.7
======== ======== ======== ========
</TABLE>
(1) Restated to exclude discontinued operations and combine the Electrical
Power Equipment segment with the Electrical Products segment.
- 10 -
<PAGE> 11
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Results of Operations:
Second Quarter Ended June 30, 1995 Compared With Second Quarter Ended
June 30, 1994
All comparative 1994 amounts have been restated to separate the
Company's Petroleum and Industrial Equipment segment as discontinued
operations. See Note 2 of the Notes to Consolidated Financial Statements
under Item 1. In addition, the Electrical Power Equipment segment has been
combined with the Electrical Products segment.
Income from continuing operations increased 4% to $82.8 million, or
$.68 per fully diluted share, compared with $79.3 million or $.58 per share in
1994. Revenues increased 8% to $1.27 billion from $1.17 billion in the second
quarter of 1994. The improvement in second quarter earnings resulted from
revenue gains from improved market conditions, new product development and
acquisitions, and benefits from recent operating efficiency programs.
Providing a partial offset was a significant increase in interest expense as a
result of the exchange of $1.60 convertible exchangeable preferred stock
("Preferred Stock") for 7.05% convertible subordinated debentures
("Debentures") on January 1, 1995. Higher interest rates also added to
interest expense. Income per common share was impacted by the net effect of
the elimination of dividends on the Preferred Stock, as a result of the
exchange of the Preferred Stock for Debentures, offset by the increased
interest expense on the Debentures.
Net income for the second quarter of 1995 included a net-of-tax
earnings charge of $186.6 million related to the split-off of Cooper Cameron
Corporation (See Note 2 of the Notes to Consolidated Financial Statements under
Item 1). After the earnings charge, the second quarter reflected a loss of
$103.8 million or $.89 per fully diluted share, compared with net income of
$83.6 million or $.62 per share in the same period of 1994. The prior year's
net income included a $4.3 million contribution from discontinued operations,
which consisted primarily of Cooper Cameron Corporation.
Revenues:
Revenues from continuing operations in the second quarter of 1995
increased 8% compared to the second quarter of 1994. The improvement was due
to continued strong domestic markets, rebounding international demand and
recent acquisitions. In addition, all three business segments benefited from
more aggressive marketing and new products. After excluding the effect of
acquisitions and divestitures, revenues were up 5% over the second quarter of
1994.
Revenues in the Electrical Products segment increased 5% compared to
the second quarter of 1994. Adjusted for recent small product line
acquisitions and the closure of the large power transformer business, revenues
increased 8%. Continued strength in industrial production and commercial and
industrial construction and renovation activity benefited sales of electrical
circuit protection products, lighting fixtures, and power distribution
products. New product introductions also added to revenues for the quarter.
- 11 -
<PAGE> 12
Tools & Hardware segment revenues increased 8% over the second quarter
of 1994. The improvement was fueled by the continued strength in domestic
commercial construction and industrial production, which had a beneficial
impact on domestic hand tool, power tool, and window treatment operations. The
ongoing economic recovery in Europe also contributed to the improvement in each
of these operations. Quarter-to-quarter comparisons for this segment are not
impacted by recent divestitures or acquisitions.
Revenues in the Automotive Products segment increased 12% from the
prior year period. Adjusted for the effect of recent acquisitions and
divestitures, revenues in the Automotive Products segment were up 1%.
Improvement in the domestic original equipment market and a recovery in
European original equipment and aftermarket demand offset sluggishness in
domestic automotive repair and maintenance activity.
Operating Income:
Consolidated income before interest and taxes increased 17% to $179.9
million for the second quarter of 1995, compared to $154.1 million in 1994.
After adjusting for the effects of acquisitions and divestitures, operating
income increased 6% over the second quarter of 1994. Selling and
administrative expenses decreased both in amount and as a percentage of sales.
The improvement resulted from leveraging of fixed costs, as well as various
consolidation and relocation programs. The impact of higher revenues, the
leveraging of costs, and the benefits of cost improvement programs all
contributed to the increase in operating income.
Operating earnings in the Electrical Products segment increased
significantly compared to the second quarter of 1994. Excluding the effects
of small product line acquisitions and the closure of the large power
transformer business in 1994, operating earnings still reflected a significant
increase. The earnings generated from the growth in revenues, facility
relocations and consolidations, and the closure of the large power transformer
business all contributed to an improvement in operating performance.
The Tools & Hardware segment reflected a moderate increase in
operating earnings compared to the same period last year. The improvement in
earnings was driven by the increase in revenues, partially offset by
disruptions from several recent plant consolidation programs. There are no
acquisitions or divestitures impacting the quarter-to- quarter comparison of
operating earnings for this segment.
Operating earnings of the Automotive Products segment increased
moderately over 1994 due to the net effect of 1994 acquisitions and
divestitures. Excluding the impact of acquisitions and divestitures, operating
earnings for the segment decreased from the prior year, primarily as a result
of continued weak domestic aftermarket sales and competitive market conditions.
Interest and Taxes:
Interest expense of $39.5 million in the second quarter of 1995
reflected an increase of 134% over the same period of the prior year. The
increase was due to the exchange of the Company's Preferred Stock for
Debentures effective January 1, 1995, and higher interest rates. See Notes 6
and 7 of the Notes to Consolidated Financial Statements under Item 1 for
further information.
The effective tax rate (income tax expense as a percentage of income
before taxes) for the second quarter was 41.0% compared to 42.2% for the second
quarter
- 12 -
<PAGE> 13
of 1994. Relatively fixed nondeductible items, such as goodwill amortization,
had less impact on the effective rate in 1995 due to higher projected earnings
for the current year.
Six Months Ended June 30, 1995 Compared with Six Months Ended June 30, 1994
Income from continuing operations for the six month period ended June
30, 1995 increased 5% to $138.1 million compared to the same period in 1994.
Revenues for the period of $2.39 billion increased 8% over the first six months
of 1994. Fully diluted share earnings from continuing operations increased 25%
to $1.15, compared to the $.92 recorded in the first half of 1994.
Revenues:
Revenues for the first half of 1995 were $2.39 billion, 8% higher than
1994's revenues of $2.21 billion. The improvement in revenues resulted from
improved market conditions, new product development, and the net effect of
acquisitions and divestitures. Excluding the impact of acquisitions and
divestitures, revenues for the first six months of 1995 increased 5% over 1994.
Revenues in the Electrical Products segment increased 5% over the
first six months of 1994. Sales of electrical circuit protection, lighting
fixtures, and power distribution products all benefited from the continued
strength of industrial production, nonresidential construction, and renovation
activity. Excluding the effect of acquisitions and divestitures, which
included the closure of the large power transformer business in 1994,
Electrical Products segment revenues for the first half of 1995 increased 8%
over the prior year period.
Tools & Hardware segment revenues for the first six months of 1995
increased 10% compared to the same period in 1994. Comparisons for this
segment are not affected by acquisitions or divestitures. The continued
strength in commercial and industrial construction and improving international
demand more than offset the negative effect of a slowdown in housing
construction and in sales of existing homes.
Revenues in the Automotive Products segment increased 11% compared to
the first six months of 1994 due to the net effect of acquisitions and
divestitures. Excluding the impact of acquisitions and divestitures, revenues
for the first six months of 1995 were unchanged from the prior year period.
Continued strong activity in the domestic original equipment market and a
recovering European market offset weak demand from the domestic aftermarket in
the first half of 1995.
Operating Income:
Consolidated income before interest and taxes of $312.4 million
improved 19% over the first six months of 1994. The impact of revenue gains
driven by improved market conditions, new product development and acquisitions,
combined with benefits from recent operating efficiency programs, contributed
to the improvement in operating earnings. Selling and administrative expenses
reflected the leveraging of fixed costs with the higher revenues and the
benefit of facility relocations and consolidations. Adjusted for the effect of
acquisitions and divestitures, operating earnings increased 7% for the first
six months of 1995 compared to the prior year.
The Electrical Products segment reported significantly higher
operating earnings compared to the prior year period. The benefits of
additional revenues, recent facility relocations and consolidations, and the
closure of the large
- 13 -
<PAGE> 14
power transformer business in 1994, all contributed to improved operating
performance. The net effect of acquisitions and divestitures did not have a
significant impact on the improvement in operating earnings for the Electrical
Products segment over the prior year.
Operating earnings for the Tools & Hardware segment increased compared
to the first six months of 1994 due to higher revenues and benefits from recent
consolidation and realignment programs. There were no acquisitions or
divestitures affecting the first half of 1995 compared to the prior year.
Operating earnings for the Automotive Products segment increased
moderately in the first half of 1995 compared to 1994. However, excluding the
net effect of recent acquisitions and divestitures, earnings for the Automotive
Products segment reflected a decline compared to the prior year. The decline
was due to sluggish domestic repair and maintenance activity and severe price
competition, particularly for brake products.
Interest and Taxes:
Interest expense for the first six months of 1995 was $77.8 million
compared to $33.1 million for the same period in 1994. The significant
increase in interest expense was due to the exchange of the Company's Preferred
Stock for Debentures effective January 1, 1995, as well as higher interest
rates (see Notes 6 and 7 of the Notes to Consolidated Financial Statement under
Item 1).
The effective tax rate (income tax expense as a percentage of income
before taxes) decreased from 42.5% in 1994 to 41.1% for 1995. The decrease in
the effective tax rate for the first half of 1995 is due to the same factors as
discussed in the quarter-to-quarter comparison.
Financial Position and Liquidity & Capital Resources:
Cooper's "operating working capital" (defined as receivables and
inventories less accounts payable and accrued liabilities, excluding the
effects of acquisitions, divestitures, and foreign currency translation)
decreased $35.0 million during the first six months of 1995. This decrease
resulted primarily from an increase in accounts payable and accrued
liabilities.
During the first half of 1995, cash flows from operating activities of
continuing operations totalled $376 million. The cash flows from operating
activities were used to fund capital expenditures of $89 million, dividends of
$90 million and discontinued operations of $48 million. In addition, debt was
reduced by $177 million.
In connection with acquisitions accounted for as purchases, Cooper
records, to the extent appropriate, accruals for the costs of closing duplicate
facilities, severing redundant personnel and integrating the acquired business
into existing Cooper operations. Cash flow from operating activities is
reduced by the amounts expended on the various accruals established in
connection with each acquisition. Spending with respect to these accruals was
$9.8 million and $9.9 million in the first and second quarters of 1995,
respectively. There were no significant additions to these accruals during the
first six months of 1995.
The reduction in total assets of $589 million compared to the prior
year-end was due primarily to the completion of the split-off of Cooper Cameron
on June 30, 1995. See Note 2 of the Notes to Consolidated Financial Statements
under Item 1 for further information.
- 14 -
<PAGE> 15
At June 30, 1995, the Company's debt-to-total-capitalization ratio increased to
56.8% as a result of the Cooper Cameron split-off on June 30, 1995, and the
conversion of Preferred Stock into Debentures on January 1, 1995. The Company
does not anticipate increases in its cost of borrowing over the remainder of
1995 as a result of the Cooper Cameron split-off and related charge in the
second quarter of 1995 or the current debt-to-total-capitalization ratio. The
Company has targeted a 35-45% debt-to-total-capitalization ratio and will
continue utilizing excess cash generated to reduce debt and consummate any
strategic acquisitions.
Backlog:
Sales backlog represents the dollar amount of all firm open orders for
which all terms and conditions pertaining to the sale have been approved such
that a future sale is reasonably expected. Sales backlog by segment was as
follows:
<TABLE>
<CAPTION>
June 30, June 30,
(millions) 1995 1994(1)
-------- ---------
<S> <C> <C>
Electrical Products . . . . . . . . $237.1 $200.0
Tools & Hardware . . . . . . . . . . 78.2 63.0
Automotive Products . . . . . . . . 84.5 66.6
------ ------
$399.8 $329.6
====== ======
</TABLE>
(1) Restated to exclude the large power transformer sales backlog due to
exiting the product line, combine the Electrical Power Equipment
segment with the Electrical Products segment, and exclude discontinued
operations.
- 15 -
<PAGE> 16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company and certain of its current and former officers and
directors are named in a consolidated class action lawsuit brought in U.S.
District Court for the Southern District of Texas in Houston on behalf of
persons who purchased Cooper stock during the period from February 1, 1993
through January 25, 1994. The complaint appears to allege that the defendants,
through certain public statements, misled investors respecting (i)
deterioration in certain of the Company's markets and the demand for some of
its products, and (ii) the Company's anticipated performance in 1994. On
February 6, 1995, the District Court denied a motion filed by the Company to
dismiss the class action and on July 20, 1995 the U.S. Court of Appeals for the
Fifth Circuit denied the Company's petition for appeal. The case is proceeding
through the discovery process and trial is currently scheduled for the fall of
1995. While the ultimate liability, if any, that may result from this
litigation cannot be determined with certainty at this time, the Company
believes that its investigation of the facts to date has not revealed anything
to support the plaintiffs' claims.
During November 1992, the Cooper-Bessemer Rotating operation of the
Company (part of discontinued operations) received a letter from the Ohio
Attorney General's office alleging violations of the Ohio Right to Know, Toxic
Release Inventory reporting requirements. The allegations arose out of an Ohio
EPA audit of the facility on April 30, 1992. The State initially proposed a
penalty of $212,240. On December 31, 1994, the parties reached an agreement
and on February 6, 1995 the Court of Common Pleas for Knox County Ohio entered
a Consent Order. Under the Consent Order, the Company paid fines totaling
$47,500 and committed to install two supplemental environmental projects at the
facility. The Company also agreed that if the projects were not completed by
February 28 and April 28, 1995, respectively, the Company would pay an
additional $21,250 in otherwise "suspended" penalties. Both projects were
completed within the stated periods. The Company filed a final report with the
Ohio EPA on May 11, 1995, which closed this matter.
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of shareholders was held on April 25, 1995 in
Houston, Texas. Two proposals were submitted by shareholders as described in
the Company's Proxy Statement dated March 17, 1995 and were voted upon at the
meeting. Following is a brief description of the matters voted upon, the
number of votes cast for and against each proposal, and the number of
abstentions.
1. Shareholder Proposal regarding endorsement of the CERES Principles:
Votes For: 6,580,567
Votes Against: 80,366,848
Abstain: 7,594,998
Broker Non-votes: 5,929,724
2. Shareholder Proposal regarding adoption of a policy for doing
business in Mexico:
Votes For: 7,313,222
Votes Against: 78,330,652
Abstain: 8,898,539
Broker Non-votes: 5,929,724
Neither proposal received sufficient votes to pass.
- 16 -
<PAGE> 17
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
12. Computation of Ratios of Earnings to Fixed Charges
for the Calendar Years 1990 through 1994 and the
Six-Month Periods Ended June 30, 1995 and 1994.
27. Financial Data Schedule for the Quarter Ended June 30,
1995.
(b) Reports on Form 8-K
The Company filed a Form 8-K on April 28, 1995 in order to
file with the Securities and Exchange Commission a press
release dated April 20, 1995 announcing the Company's first
quarter earnings.
- 17 -
<PAGE> 18
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Cooper Industries, Inc.
-----------------------------
(Registrant)
Date August 14, 1995 /s/ D. Bradley McWilliams
-------------------------- -----------------------------
D. Bradley McWilliams
Senior Vice President, Finance
Date August 14, 1995 /s/ Terry A. Klebe
-------------------------- -----------------------------
Terry A. Klebe
Vice President, Controller
and Chief Accounting Officer
- 18 -
<PAGE> 19
Exhibit Index
Exhibit No.
12. Computation of Ratios of Earnings to Fixed Charges for the
Calendar Years 1990 through 1994 and the Six-Month Periods
Ended June 30, 1995 and 1994.
27. Financial Data Schedule for the Quarter Ended June 30, 1995.
- 19 -
<PAGE> 1
EXHIBIT 12
COOPER INDUSTRIES, INC.
COMPUTATION OF RATIOS OF EARNINGS TO FIXED
CHARGES (DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30, Year Ended December 31,
---------------------- ----------------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Expense $ 77,800 $ 33,100 $ 73,300 $ 80,900 $ 92,500 $125,400 $170,900
Estimated Interest Portion of
Rent Expense (One-Third) 8,302 9,391 19,289 20,701 16,178 18,130 21,286
-------- -------- -------- -------- -------- -------- --------
Fixed Charges $ 86,102 $ 42,491 $ 92,589 $101,601 $108,678 $143,530 $192,186
======== ======== ======== ======== ======== ======== ========
Income From Continuing
Operations Before Income Taxes $234,600 $228,800 $504,700 $506,000 $392,100 $406,700 $457,600
Add: Fixed Charges 86,102 42,491 92,589 101,601 108,678 143,530 192,186
Dividends From Less Than
50% Owned Companies 258 151 835 2,395 2,278 1,711 2,382
Less: Equity in Net Losses (Income)
of Less Than 50% Owned
Companies (200) (1,000) (1,900) (1,200) (1,900) (900) (600)
-------- -------- -------- -------- -------- -------- --------
Earnings Before Fixed Charges $320,760 $270,442 $596,224 $608,796 $501,156 $551,041 $651,568
======== ======== ======== ======== ======== ======== ========
Ratio of Earnings to Fixed Charges 3.7x 6.4x 6.4x 6.0x 4.6x 3.8x 3.4x
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of Cooper Industries, Inc. for the quarter ended June 30,
1995 set forth in the Company's Form 10-Q for such period and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 13,100
<SECURITIES> 0
<RECEIVABLES> 918,200
<ALLOWANCES> 0
<INVENTORY> 1,002,400
<CURRENT-ASSETS> 2,091,100
<PP&E> 2,203,500
<DEPRECIATION> 1,004,100
<TOTAL-ASSETS> 5,811,600
<CURRENT-LIABILITIES> 1,384,400
<BONDS> 0
<COMMON> 537,800
0
0
<OTHER-SE> 1,041,400
<TOTAL-LIABILITY-AND-EQUITY> 5,811,600
<SALES> 2,391,300
<TOTAL-REVENUES> 2,391,300
<CGS> 1,583,000
<TOTAL-COSTS> 1,583,000
<OTHER-EXPENSES> 495,900
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 77,800
<INCOME-PRETAX> 234,600
<INCOME-TAX> 96,500
<INCOME-CONTINUING> 138,100
<DISCONTINUED> (186,600)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (48,500)
<EPS-PRIMARY> (.42)
<EPS-DILUTED> (.42)
</TABLE>
