<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year, if
changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------- -------
Number of shares outstanding of issuer's common stock as of October 31, 1995
was 107,875,329.
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
COOPER INDUSTRIES, INC.
CONSOLIDATED RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Third Quarter Ended
September 30,
------------------------------
(millions except per share data) 1995 1994
------------ --------------
<S> <C> <C>
REVENUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,206.4 $ 1,136.4
------------ ------------
COST AND EXPENSES
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 800.5 749.7
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . 55.1 50.2
Selling and administrative expenses . . . . . . . . . . . . . . . . . . . . . 196.8 190.0
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37.0 18.8
------------ ------------
1,089.4 1,008.7
------------ ------------
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . 117.0 127.7
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47.7 51.9
------------ ------------
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . 69.3 75.8
Loss from discontinued operations . . . . . . . . . . . . . . . . . . . . . . - (.2)
Charge for discontinued operations . . . . . . . . . . . . . . . . . . . . . - (313.0)
------------ ------------
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69.3 (237.4)
Preferred dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 13.3
------------ ------------
NET INCOME (LOSS) APPLICABLE
TO COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 69.3 $ (250.7)
============ ============
INCOME (LOSS) PER COMMON SHARE:
Primary:
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . $ .65 $ .55
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .65 $ (2.20)
Fully Diluted:
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . $ .62 $ .55
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .62 $ (2.20)
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>
Nine Months Ended
September 30,
-----------------------------
(millions except per share data) 1995 1994
------------ -------------
<S> <C> <C>
REVENUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,597.7 $ 3,348.1
------------ ------------
COST AND EXPENSES
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,383.5 2,211.6
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . 161.2 146.7
Selling and administrative expenses . . . . . . . . . . . . . . . . . . . . . 586.6 581.4
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114.8 51.9
------------ ------------
3,246.1 2,991.6
------------ ------------
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . 351.6 356.5
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144.2 149.2
------------ ------------
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . 207.4 207.3
Income from discontinued operations . . . . . . . . . . . . . . . . . . . . . - .3
Charge for discontinued operations . . . . . . . . . . . . . . . . . . . . . (186.6) (313.0)
------------ ------------
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.8 (105.4)
Preferred dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 39.9
------------ ------------
NET INCOME (LOSS) APPLICABLE
TO COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20.8 $ (145.3)
============ ============
INCOME (LOSS) PER COMMON SHARE:
Primary:
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.83 $ 1.47
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .18 $ (1.27)
Fully Diluted:
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.76 $ 1.47
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .18 $ (1.27)
DIVIDENDS PER COMMON SHARE:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .99 $ .99
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>
September 30, December 31,
(millions) 1995 1994
-------------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . $ 8.4 $ 25.3
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 931.3 904.4
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 959.0 988.5
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139.3 182.0
------------ ------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . 2,038.0 2,100.2
------------ ------------
Net assets of discontinued operations . . . . . . . . . . . . . . . . . . . - 646.4
Plant and equipment, at cost, less depreciation . . . . . . . . . . . . . . 1,179.8 1,187.5
Intangibles, less amortization . . . . . . . . . . . . . . . . . . . . . . 2,106.0 2,153.9
Deferred income taxes, investments and other assets . . . . . . . . . . . . 452.3 312.7
------------ ------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,776.1 $ 6,400.7
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 130.9 $ 179.2
Accounts payable and accrued liabilities . . . . . . . . . . . . . . . . . 1,062.4 1,133.1
Accrued income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.6 1.7
Current maturities of long-term debt . . . . . . . . . . . . . . . . . . . 62.8 19.1
------------ ------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . 1,279.7 1,333.1
------------ ------------
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,882.0 1,361.9
Postretirement benefits other than pensions . . . . . . . . . . . . . . . . 626.8 638.0
Deferred income taxes and other long-term liabilities . . . . . . . . . . . 327.2 326.6
------------ ------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . 4,115.7 3,659.6
------------ ------------
$1.60 Convertible Exchangeable Preferred stock . . . . . . . . . . . . . . - 30.6
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 539.0 584.6
Capital in excess of par value . . . . . . . . . . . . . . . . . . . . . . 141.8 1,176.5
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,063.0 1,153.4
Unearned employee stock ownership plan compensation . . . . . . . . . . . . (117.3) (147.4)
Minimum pension liability . . . . . . . . . . . . . . . . . . . . . . . . . (55.0) (55.0)
Translation component . . . . . . . . . . . . . . . . . . . . . . . . . . . (59.3) (49.4)
Unrealized net gain on investments, net of taxes . . . . . . . . . . . . . 148.2 47.8
------------ ------------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . 1,660.4 2,741.1
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . . . . . . . . . . . . $ 5,776.1 $ 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>
Nine Months Ended
September 30,
-----------------------------
(millions) 1995 1994 (1)
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20.8 $ (105.4)
Less: Loss from discontinued operations . . . . . . . . . . . . . . . . . 186.6 312.7
------------ ------------
Income from continuing operations . . . . . . . . . . . . . . . . . 207.4 207.3
Adjustments to reconcile to net cash provided
by operating activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103.5 94.9
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57.7 51.8
Increase in deferred income taxes . . . . . . . . . . . . . . . . . 38.2 28.7
Changes in assets and liabilities: (2)
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.4 (46.8)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . 37.4 (100.4)
Accounts payable and accrued liabilities . . . . . . . . . . . . (9.8) (37.6)
Accrued income taxes . . . . . . . . . . . . . . . . . . . . . . 23.9 10.9
Other assets and liabilities, net . . . . . . . . . . . . . . . . (28.5) 8.4
------------ ------------
Net cash provided by operating activities . . . . . . . . . 443.2 217.2
------------ ------------
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . (134.3) (145.4)
Taxes paid in 1994 with respect to 1993 gain on the
sale of Belden Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . - (107.3)
Proceeds from sales of plant and equipment . . . . . . . . . . . . . . . . 20.7 26.5
Acquisitions and divestitures . . . . . . . . . . . . . . . . . . . . . . (11.9) 1.2
Proceeds from sale of securities . . . . . . . . . . . . . . . . . . . . . 9.9 -
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.4) .1
------------ ------------
Net cash used for investing activities . . . . . . . . . . . (116.0) (224.9)
------------ ------------
Cash flows from financing activities:
Additions to debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 254.7 484.8
Reductions of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . (429.3) (267.8)
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (125.7) (154.4)
Purchase of treasury shares . . . . . . . . . . . . . . . . . . . . . . . - (19.9)
Activity under stock option and other plans . . . . . . . . . . . . . . . 6.5 19.8
------------ ------------
Net cash provided by (used by) financing activities . . . . (293.8) 62.5
------------ ------------
Cash flows used by discontinued operations . . . . . . . . . . . . . . . . . (47.7) (50.3)
Effect of translation on cash and cash equivalents . . . . . . . . . . . . . (2.6) (3.9)
------------ ------------
Increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . (16.9) .6
Cash and cash equivalents, beginning of period . . . . . . . . . . . . . . . 25.3 13.0
------------ ------------
Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . . . $ 8.4 $ 13.6
============ ============
</TABLE>
(1) Restated to segregate the effects of discontinued operations.
(2) 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 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
obtaining 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.
In connection with the split-off, $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 six month period through the exchange date of June 30, 1995 and $445 million
for the period ended
- 6 -
<PAGE> 7
April 15, 1994 (includes $70 million of indebtedness that was allocated to
Gardner Denver Machinery Inc. in connection with the spin-off of that company)
at the relevant Cooper interest rate (Cooper Cameron interest expense was $11.9
million for the six month period through the exchange date of June 30, 1995, and
$14.5 million in the first nine months of 1994). The interest rates utilized
were 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., foreign,
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 for the
six-month period through the exchange date of June 30, 1995, and $861.2
million for the nine months ended September 30, 1994.
Note 3. Interest and Taxes Paid
Total interest paid during the first nine months of 1995 and 1994
amounted to $108.6 million and $80.4 million, respectively. Cash payments for
income taxes during the first nine months of 1995 and 1994 amounted to $107.6
million and $197.4 million, respectively.
Note 4. Inventories
<TABLE>
<CAPTION>
September 30, December 31,
(millions) 1995 1994
-------------- ---------------
<S> <C> <C>
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 290.3 $ 265.1
Work-in-process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209.7 203.5
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 512.3 563.7
Perishable tooling and supplies . . . . . . . . . . . . . . . . . . . . . 58.0 55.4
------------ ------------
1,070.3 1,087.7
Less allowances (primarily LIFO reserves) . . . . . . . . . . . . . . . . (111.3) (99.2)
------------ ------------
$ 959.0 $ 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>
Third Quarter Ended Nine Months Ended
September 30, September 30,
------------------------- ---------------------------
(millions) 1995 1994 1995 1994
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
PRIMARY:
Net income (loss) . . . . . . . . . . . . . . . . . $ 69.3 $ (237.4) $ 20.8 $ (105.4)
Dividends applicable to $1.60
Convertible Exchangeable
Preferred stock . . . . . . . . . . . . . . . . - (13.3) - (39.9)
----------- ----------- ----------- -----------
Net income (loss) applicable to
Common stock . . . . . . . . . . . . . . . . . . $ 69.3 $ (250.7) $ 20.8 $ (145.3)
=========== =========== =========== ===========
Average Common shares and
Common share equivalents . . . . . . . . . . . . 107.4 114.1 113.4 114.2
=========== =========== =========== ===========
FULLY DILUTED: (1)
Net income (loss) . . . . . . . . . . . . . . . . . $ 69.3 $ (237.4) $ 20.8 $ (105.4)
Dividends applicable to $1.60
Convertible Exchangeable
Preferred stock . . . . . . . . . . . . . . . . - (13.3) - (39.9)
Net interest expense related to the
7.05% Convertible Subordinated
Debentures . . . . . . . . . . . . . . . . . . . 7.3 - 21.9 -
----------- ----------- ----------- -----------
Net income (loss) applicable to
Common stock . . . . . . . . . . . . . . . . . . $ 76.6 $ (250.7) $ 42.7 $ (145.3)
=========== =========== =========== ===========
Average Common shares and
Common share equivalents . . . . . . . . . . . . 107.4 114.1 113.4 114.2
Additional shares assuming conversion of
the 7.05% Convertible Subordinated
Debentures . . . . . . . . . . . . . . . . . . . 16.7 - 16.7 -
----------- ----------- ----------- -----------
Average Common shares and
Common share equivalents . . . . . . . . . . . . 124.1 114.1 130.1 114.2
=========== =========== =========== ===========
</TABLE>
(1) The 1995 fully diluted income per Common share from continuing
operations is computed based on $76.6 million and $229.3 million of
income applicable to Common stock for the third quarter and nine
months ended September 30, 1995, respectively, and 124.1 million and
130.1 million average Common shares and Common share equivalents for
the third quarter and nine months ended September 30, 1995,
respectively. The 1994 calculations and the 1995 year-to-date
calculation of fully diluted net income (loss) per Common share are
antidilutive, therefore the primary net income (loss) per Common share
is reflected as the fully diluted net income (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 September 30, 1995, $623 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.
During the quarter ended September 30, 1995, the Company issued medium
term notes under its previously filed debt shelf registration. By the end of
September, $165.3 million of the remaining $302 million shelf had been issued,
most at the ten-year maturity level.
On October 17, 1995, the Company filed a registration statement with
the Securities and Exchange Commission for the offering of three-year notes
exchangeable into common stock of Wyman-Gordon Company in the form of 15
million DECS(SM) (Debt Exchangeable for Common Stock(SM)). An additional 1.5
million DECS will be offered if the underwriters' over-allotment is exercised
in full. At maturity, holders of DECS will receive, in exchange for the
principal amount of the notes, shares of Wyman-Gordon common stock or, at
Cooper's option, cash in lieu of the shares. The number of shares or the
amount of cash will be based on the price of Wyman-Gordon common stock shortly
before the maturity of the DECS. Based on Wyman-Gordon's October 16, 1995
closing stock price of $12.75 per share, the principal amount of the DECS
offered would be $191.3 million, or $210.4 million if the over-allotment is
exercised. If the underwriters do not exercise the over-allotment option, the
Company may sell the shares that were subject to the option from time to time
in open-market or privately negotiated transactions. The Company currently
owns 16.5 million shares of Wyman-Gordon's common stock, or 47% of the
outstanding shares. The Company received these shares in May 1994 in
connection with the sale of its Cameron Forged Products Company to
Wyman-Gordon.
- 9 -
<PAGE> 10
Note 7. Noncash Investing and Financing Activities
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------------
(millions) 1995 1994
------------- -------------
<S> <C> <C>
Employee stock ownership plan principal payments and
difference between Company expenses and cash contribution . . . . . . . $ 27.5 $ 43.4
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 . . . . . . . . . . . . . . . 100.4 15.1
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
conversion of 7% debentures . . . . . . . . . . . . . . . . . . . . . . - 3.5
Retirement of Cooper Common shares exchanged for
Cooper Cameron Common shares . . . . . . . . . . . . . . . . . . . . . . 427.5 -
</TABLE>
Note 8. Industry Segment Revenues
<TABLE>
<CAPTION>
Third Quarter Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
(millions) 1995 1994 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Electrical Products . . . . . . . . . . . . . . . . $ 522.7 $ 522.1 $ 1,538.8 $ 1,488.1
Tools & Hardware . . . . . . . . . . . . . . . . . 233.1 222.8 705.1 651.2
Automotive Products . . . . . . . . . . . . . . . . 435.5 381.7 1,327.1 1,182.4
Other . . . . . . . . . . . . . . . . . . . . . . . 15.1 9.8 26.7 26.4
------------ ------------ ------------ ------------
$ 1,206.4 $ 1,136.4 $ 3,597.7 $ 3,348.1
============ ============ ============ ============
</TABLE>
- 10 -
<PAGE> 11
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Results of Operations:
Third Quarter Ended September 30, 1995 Compared With Third Quarter Ended
September 30, 1994
Income from continuing operations decreased 9% to $69.3 million due to
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. Income
from continuing operations per fully diluted share increased 13% to $.62 per
share compared to $.55 per share in 1994. Income per common share was impacted
by the exchange of the Preferred Stock for Debentures and the Cooper Cameron
Exchange Offer completed on June 30, 1995, which reduced shares outstanding by
9.5 million shares (See Notes 2 and 5 of the Notes to Consolidated Financial
Statements under Item 1 for further information). Revenues increased 6% to
$1.21 billion from $1.14 billion in the third quarter of 1994. Although third
quarter earnings benefited from new product development, acquisitions, recent
operating efficiency programs, and a gain on the sale of securities ($.04 per
share), these benefits were offset by the significant increase in interest
expense.
The net loss for the third quarter of 1994 resulted from a loss from
the discontinued Petroleum & Industrial Equipment businesses of $0.2 million
and a $313 million, noncash, net-of-tax earnings charge for the estimated loss
on the disposition of the segment (see Note 2 of the Notes to Consolidated
Financial Statements under Item 1 for further information). Including the
earnings charge and the results of the discontinued segment, the Company posted
a 1994 third quarter net loss of $237.4 million, or $2.20 per share.
Revenues:
Revenues from continuing operations for the third quarter of 1995
increased 6% compared to the third quarter of 1994. The improvement was due to
improved market conditions for certain businesses and recent acquisitions. In
addition, all three business segments benefited from more aggressive marketing
and new products. After excluding the effects of acquisitions and
divestitures, revenues were up 1% over the third quarter of 1994.
Revenues of the Electrical Products segment were essentially unchanged
from the third quarter of 1994. Adjusted for recent small product line
acquisitions and the closure of the large power transformer business in 1994,
revenues increased 2%. 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.
Tools & Hardware segment revenues increased 5% over the third quarter
of 1994. The improvement was fueled by the continued strength in domestic
commercial construction and industrial production, which had a beneficial
impact on demand for domestic hand tools and power tools. The economic
recovery in Europe also contributed to the improvement for each of the Tools &
Hardware operations. Quarter-to-quarter comparisons for this segment are not
impacted by divestitures or acquisitions.
- 11 -
<PAGE> 12
Revenues in the Automotive Products segment increased 11% from the
prior year period. Adjusted for the effects of recent acquisitions and
divestitures, revenues in the Automotive Products segment were down slightly
from last year. The decline was driven by continued weakness in domestic
automotive repair and maintenance activity and a slowdown in Mexican and Latin
American demand.
Operating Income:
Operating income (income before interest expense and income taxes)
increased 5% to $154.0 million for the third quarter of 1995, compared to
$146.5 million for the same period of 1994. After adjusting for the effects of
acquisitions and divestitures, operating income decreased slightly from the
third quarter of 1994. Selling and administrative expenses decreased as a
percentage of sales. This improvement was the result of leveraging fixed
costs as well as various consolidation and relocation programs. Higher
revenues, the leveraging of costs, and the benefits of cost improvement
programs all contributed to operating income but were offset by negative
factors affecting the automotive sector.
Operating earnings of the Electrical Products segment reflected a
moderate increase compared to the third quarter of 1994. Allowing for the
effects of small product line acquisitions and the closure of the large power
transformer business in 1994, operating earnings still reflected a slight
increase. The growth in revenues, facility relocations and consolidations,
and the closure of the large power transformer business all contributed to the
improvement in operating performance.
The Tools & Hardware segment operating earnings were relatively flat
compared to the same period last year. Earnings were favorably impacted by the
overall improvement in hand and power tool revenues but were affected by recent
plant consolidation disruptions and competitive pricing for window treatment
products. There are no acquisitions or divestitures impacting the
quarter-to-quarter comparison of operating earnings for this segment.
The favorable impact of 1994 acquisitions of the Automotive Products
segment were unable to overcome the continued weak domestic aftermarket,
competitive market conditions and the decline of the Mexican market, resulting
in lower operating earnings compared to the third quarter of 1994.
Interest and Taxes:
Interest expense of $37.0 million in the third quarter of 1995
reflected an increase of 97% 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 third quarter was 40.8%, changing only slightly from
40.6% for the third quarter of 1994.
Nine Months Ended September 30, 1995 Compared with Nine Months Ended September
30, 1994
Income from continuing operations for the nine month period ended
September 30, 1995 was $207.4 million compared to $207.3 million for the nine
months ended September 30, 1994. The exchange of the Preferred Stock for 7.05%
Debentures on January 1, 1995 increased interest expense
- 12 -
<PAGE> 13
by approximately $36 million in the nine month period in 1995. Fully diluted
share earnings from continuing operations increased 20% to $1.76 from the $1.47
recorded in the same nine month period of 1994. Income per share was impacted
by the exchange of the Preferred Stock for Debentures and the Cooper Cameron
Exchange Offer completed on June 30, 1995 (See Notes 2 and 5 of the Notes to
Consolidated Financial Statements under Item 1 for further information).
Revenues for the period of $3.60 billion increased 7% over the first nine months
of 1994. Although earnings for the first nine months ended September 30, 1995
benefited from new product developments, acquisitions, recent operating
efficiencies, and a gain on the sale of securities ($.04 per share), these
benefits were offset by the significant increase in interest expense.
Net income (loss) for the nine months ended September 30, 1995 and
1994 included charges of $186.6 million and $313 million, respectively, from
the discontinued Petroleum & Industrial Equipment business (See Note 2 of the
Notes to Consolidated Financial Statements under Item 1 for further
information). Including the earnings charges and the results of the
discontinued segment, net income was $20.8 million or $.18 per share for the
nine months ended September 30, 1995 and a net loss of $105.4 million or $1.27
per share for the nine months ended September 30, 1994.
Revenues:
Revenues for the first nine months of 1995 were $3.60 billion, 7%
higher than 1994 revenues of $3.35 billion. The increase in revenues resulted
from improved market conditions for certain businesses, new product
development, and the net effect of acquisitions and divestitures. Excluding
the impact of acquisitions and divestitures, revenues for the first nine months
of 1995 increased 4% over 1994.
Revenues of the Electrical Products segment increased 3% over the
first nine 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, the
Electrical Products segment revenues for the nine month period of 1995
increased 6% over the prior year period.
Tools & Hardware segment revenues for the first nine months of 1995
increased 8% 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 improvement in 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 nine months of 1994 due to the net effect of acquisitions and
divestitures. Excluding the impact of acquisitions and divestitures, revenues
for the first nine months were essentially flat compared to the prior year
period. Increased demand in the domestic original equipment market and in
European markets offset weak demand from the domestic aftermarket and lower
sales from Mexico.
Operating Income:
Consolidated income before interest and taxes of $466.4 million
improved 14% over the first nine 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
- 13 -
<PAGE> 14
programs, contributed to the improvement in operating earnings. The improvement
in selling and administrative expenses, as a percent of revenues, 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 modestly for the first nine 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 power transformer business in 1994, all contributed to
improved operating performance. Exclusive of acquisitions and divestitures,
operating earnings for the Electrical Products segment still showed a marked
increase over the prior year.
Operating earnings for the Tools & Hardware segment increased compared
to the first nine months of 1994 due to higher revenues and benefits from
recent consolidation and realignment programs. There were no acquisitions or
divestitures affecting the first nine months of 1995 compared to the prior
year.
Operating earnings for the Automotive Products segment increased
slightly in the first nine months 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 decrease was due to sluggish domestic repair and maintenance activity,
severe price competition, particularly for brake products, and the decline in
the Mexican market.
Interest and Taxes:
Interest expense for the first nine months of 1995 was $114.8 million
compared to $51.9 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 slightly from 41.9% in 1994 to 41.0% for 1995.
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 $41.0 million during the first nine months of 1995. This decrease
resulted primarily from inventory reductions.
During the quarter ended September 30, 1995, the Company issued medium
term notes under its previously filed debt shelf registration. By the end of
September, $165.3 million of the remaining $302 million shelf had been issued,
most at the ten-year maturity level.
During the first nine months of 1995, cash flows from operating
activities of continuing operations totalled $443 million. The cash flows from
operating activities were used to fund capital expenditures of $134 million,
dividends of $126 million and discontinued operations of $48 million.
- 14 -
<PAGE> 15
In addition, cash flows from operating activities and other net investing and
financing activities provided funds to reduce debt by $175 million during the
nine months ended September 30, 1995.
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
businesses into existing Cooper operations. Cash flow from operating
activities is reduced by the amounts expended against the various accruals
established in connection with each acquisition. Spending with respect to
these accruals was $30.3 million in the nine month period ended September 30,
1995. There were no significant additions to these accruals during the first
nine months of 1995.
The reduction in total assets of $625 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.)
At September 30, 1995, the Company's debt-to-total-capitalization
ratio was 55.6% compared to 56.8% at June 30, 1995, and 36.3% at December 31,
1994. The increase from the prior year end was the result of the Cooper
Cameron split-off on June 30, 1995, and the exchange of Preferred Stock for
Debentures on January 1, 1995. The Company does not anticipate increases in
its cost of borrowing or its current debt-to-total-capitalization ratio over
the remainder of 1995 as a result of the Cooper Cameron split-off and the
related charge in the second quarter of 1995. The Company has targeted a
35-45% debt-to-total-capitalization ratio and will continue utilizing excess
cash generated to reduce debt and consummate 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>
September 30,
--------------------------
(millions) 1995 1994
----------- -----------
<S> <C> <C>
Electrical Products (1) . . . . . . . . . . . . . . . . . . . . . . . . $ 232.7 $ 215.4
Tools & Hardware . . . . . . . . . . . . . . . . . . . . . . . . . . . 82.9 68.6
Automotive Products . . . . . . . . . . . . . . . . . . . . . . . . . . 90.2 73.9
----------- -----------
$ 405.8 $ 357.9
=========== ===========
</TABLE>
(1) 1994 restated to exclude the large power transformer sales backlog due
to exiting the product line.
- 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 class notification and discovery process and trial is currently
scheduled for August, 1996. 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.
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
Nine-month Periods Ended September 30, 1995 and 1994.
27. Financial Data Schedule for the Quarter Ended
September 30, 1995.
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on July 14, 1995,
announcing the distribution on June 30, 1995, of 85.5% of the
common stock of Cooper Cameron Corporation pursuant to the
Cooper Cameron Corporation Exchange Offer.
- 16 -
<PAGE> 17
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Cooper Industries, Inc.
----------------------------
(Registrant)
Date November 13, 1995 /s/ D. Bradley McWilliams
----------------------------- -----------------------------
D. Bradley McWilliams
Senior Vice President, Finance
Date November 13, 1995 /s/ Terry A. Klebe
----------------------------- -----------------------------
Terry A. Klebe
Vice President, Controller
and Chief Accounting Officer
- 17 -
<PAGE> 18
Exhibit Index
Exhibit No.
12. Computation of Ratios of Earnings to Fixed Charges for the
Calendar Years 1990 through 1994 and the Nine-month Periods
Ended September 30, 1995 and 1994.
27. Financial Data Schedule for the Quarter Ended September 30,
1995.
- 18 -
<PAGE> 1
EXHIBIT 12
COOPER INDUSTRIES, INC.
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(Dollar Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
------------------------ -----------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Expense $114,800 $ 51,900 $ 73,300 $ 80,900 $ 92,500 $125,400 $170,900
Estimated Interest Portion of
Rent Expense (One-Third) 12,439 13,868 19,289 20,701 16,178 18,130 21,286
-------- -------- -------- -------- -------- -------- --------
Fixed Charges $127,239 $ 65,768 $ 92,589 $101,601 $108,678 $143,530 $192,186
======== ======== ======== ======== ======== ======== ========
Income From Continuing
Operations Before Income Taxes $351,600 $356,500 $504,700 $506,000 $392,100 $406,700 $457,600
Add: Fixed Charges 127,239 65,768 92,589 101,601 108,678 143,530 192,186
Dividends From Less Than
50% Owned Companies 728 151 835 2,395 2,278 1,711 2,382
Less: Equity in Net Losses (Income)
of Less Than 50% Owned
Companies (754) (1,410) (1,900) (1,200) (1,900) (900) (600)
-------- -------- -------- -------- -------- -------- --------
Earnings Before Fixed Charges $478,813 $421,009 $596,224 $608,796 $501,156 $551,041 $651,568
======== ======== ======== ======== ======== ======== ========
Ratio of Earnings to Fixed Charges 3.8x 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 SEPTEMBER
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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 8,400
<SECURITIES> 0
<RECEIVABLES> 931,300
<ALLOWANCES> 0
<INVENTORY> 959,000
<CURRENT-ASSETS> 2,038,000
<PP&E> 2,199,300
<DEPRECIATION> 1,019,500
<TOTAL-ASSETS> 5,776,100
<CURRENT-LIABILITIES> 1,279,700
<BONDS> 0
<COMMON> 539,000
0
0
<OTHER-SE> 1,121,400
<TOTAL-LIABILITY-AND-EQUITY> 5,776,100
<SALES> 3,597,700
<TOTAL-REVENUES> 3,597,700
<CGS> 2,383,500
<TOTAL-COSTS> 2,383,500
<OTHER-EXPENSES> 747,800
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 114,800
<INCOME-PRETAX> 351,600
<INCOME-TAX> 144,200
<INCOME-CONTINUING> 207,400
<DISCONTINUED> (186,600)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,800
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
</TABLE>
