<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 1-1175
COOPER INDUSTRIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
Ohio 31-4156620
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
First City Tower, Suite 4000, Houston, Texas 77002
(Address of Principal Executive Offices) (Zip Code)
713/739-5400
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- --------------------
Common Stock, $5 par value The New York Stock Exchange
The Pacific Stock Exchange
7.05% Convertible Subordinated
Debentures due 2015 The New York Stock Exchange
Rights to Purchase Preferred Stock The New York Stock Exchange
The Pacific Stock Exchange
7% Convertible Subordinated
Debentures due 2012 The New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
<PAGE> 2
The aggregate value of the registrant's voting stock held by
non-affiliates of the registrant as of March 1, 1995 was $4,581,930,189.
Number of shares outstanding of registrant's Common Stock as of
March 1, 1995 - 117,033,140
DOCUMENTS INCORPORATED BY REFERENCE
Cooper Industries, Inc. Proxy Statement for the Annual Meeting of Shareholders
to be held on April 25, 1995 (Part I - Item 1, Part II - Items 6, 7 and 8, Part
III - Items 10, 11 and 12 and Part IV - Item 14(a)(1))
-2-
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PART I
ITEM 1. BUSINESS; ITEM 2. PROPERTIES
GENERAL
The terms "Cooper" or "Company" refer to the registrant, Cooper
Industries, Inc. Cooper was incorporated under the laws of the State of Ohio
on January 8, 1919.
The Company's continuing businesses operate in three business
segments: Electrical Products, Tools & Hardware and Automotive Products.
During 1994, the Company combined its Electrical Products and Electrical Power
Equipment segments. In addition, from September 30, 1994 (and by restatement
of all prior periods) the Company is accounting for its Petroleum & Industrial
Equipment segment as a discontinued operation. See "Discontinued Operations"
below. The discussion of the Company's business under Items 1 and 2 hereof
includes only the Company's continuing operations.
Cooper manufactures, markets and sells its products and provides
services throughout the world, operating facilities in 24 countries and
currently employing approximately 40,800 people. On December 31, 1994, the
plants and other facilities used by Cooper throughout the world contained an
aggregate of approximately 30,615,000 square feet of space, of which
approximately 85% was owned and 15% leased. The charts on the next page show
the number of employees, square footage of facilities owned and leased and
location of manufacturing facilities for each industry segment. Cooper
believes its facilities are adequate and suitable for its current and
anticipated level of operations. Certain equipment and production facilities
have been financed by industrial revenue or pollution control bonds issued by
local government authorities and are subject to security arrangements customary
in such financings.
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<TABLE>
<CAPTION>
Square Footage of
Number and Nature of Facilities Plants and Facilities
Number of ------------------------------- ---------------------
Segment Employees Manufacturing Warehouse Sales Other Owned Leased
------- --------- ------------- --------- ----- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Electrical Products 14,700 42 10 82 1 10,196,000 1,156,000
Tools & Hardware 10,200 35 27 7 2 8,015,000 899,000
Automotive Products 15,600 48 13 20 7 7,663,000 2,483,000
Other 300 -- -- -- 1 -- 203,000
------ --- --- --- --- ---------- ---------
Total 40,800 125 50 109 11 25,874,000 4,741,000
</TABLE>
<TABLE>
<CAPTION>
Manufacturing Plant Locations
-----------------------------
Europe
United South United (Other
Segment States Canada Mexico America Kingdom Than UK) Australia Other
------- ------ ------ ------ ------- ------- -------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Electrical Products 29 2 5 -- 3 1 1 1
Tools & Hardware 22 1 -- 2 1 7 2 --
Automotive Products 31 3 4 1 1 6 1 1
-- -- -- -- -- -- -- --
Total 82 6 9 3 5 14 4 2
</TABLE>
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<PAGE> 5
Operations in the United States are conducted by unincorporated
divisions and subsidiaries of the Company, organized by the three business
segments. Activities outside the United States contribute significantly to the
revenues and operating earnings of all segments of Cooper. These activities
are conducted in major commercial countries by wholly-owned subsidiaries and
jointly-owned companies, the management of which is structured through the
Company's three business segments. As a result of these international
operations, sales and distribution networks are maintained throughout most of
the industrialized world. Cooper believes that there are generally no
substantial differences in the business risks associated with these
international operations compared with domestic activities, although Cooper is
subject to certain political and economic uncertainties encountered in
activities outside the United States, including trade barriers, restrictions on
foreign exchange and currency fluctuations. Cooper's operations in Mexico, as
well as its exports to Mexico, are subject to the current economic situation in
that country. In 1994, Cooper's earnings in Mexico accounted for less than 10%
of the Company's consolidated earnings. While Cooper expects its earnings in
Mexico for 1995 to decline because of the current economic situation in that
country, the decline is not expected to be material to Cooper's consolidated
earnings for the year, absent further deterioration in such situation. Exhibit
21.0 is a list of Cooper's subsidiaries.
Data with respect to Cooper's industry segments, domestic and
international operations and export sales is contained in Note 16 of the Notes
to Consolidated Financial Statements, incorporated herein by reference to pages
A-35 through A-37 of Appendix A to the Cooper Proxy Statement for the 1995
Annual Meeting of Shareholders. A discussion of acquisitions and divestitures
is included in Notes 1, 3 and 5 of the Notes to Consolidated Financial
Statements, incorporated herein by reference to pages A-18 through A-19, A-20
through A-21 and A-22 through A-23 of Appendix A to the Cooper Proxy Statement
for the 1995 Annual Meeting of Shareholders.
With its three business segments, Cooper serves four major markets:
industrial, construction, electrical power and automotive. Markets for
Cooper's products and services are worldwide, though the United States is the
largest market. Within the United States, there is no material geographic
concentration by state or region. Most operating units experience significant
competition from both larger and smaller companies with the key competitive
factors being price, quality, brand name and availability. Cooper believes
that it is among the leading manufacturers in the world of nonpower hand tools,
industrial power tools, chain products, drapery hardware and window coverings,
automotive and heavy-duty brake products, automotive lamps, wire sets, spark
plugs, wiper blades, steering, suspension, driveline and temperature control
products, aviation ignition components, primary electrical power equipment,
hazardous duty electrical equipment, lighting fixtures and fuses.
Cooper's research and development activities are for purposes of
improving existing products and services and originating new products. During
1994, approximately $26.3 million was spent for research and development
activities as compared with approximately $29.8 million in 1993 and $28.9
million in 1992. Cooper obtains and holds patents on products and designs in
the United States and many foreign countries where operations are conducted.
Although in the aggregate Cooper's patents are important in the operation of
its businesses, the loss by expiration or otherwise of any one patent or group
of patents would not materially affect its business.
Cooper does not presently anticipate that compliance with currently
applicable environmental regulations and controls will significantly change its
competitive
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<PAGE> 6
position, capital spending or earnings during 1995. Cooper has been a party to
administrative and legal proceedings with governmental agencies that have
arisen under statutory provisions regulating the discharge or potential
discharge of material into the environment. Orders and decrees consented to by
Cooper have contained agreed-upon timetables for fulfilling reporting or
remediation obligations or maintaining specified air and water discharge levels
in connection with permits for the operations of various plants. Cooper
believes it is in compliance with the orders and decrees and such compliance is
not material to the business or financial condition of Cooper. For additional
information concerning accruals for environmental liabilities of the Company,
see Notes 2 and 8 of the Notes to Consolidated Financial Statements,
incorporated herein by reference to pages A-19 through A-20 and A-24 through
A-25 of Appendix A to the Cooper Proxy Statement for the 1995 Annual Meeting of
Shareholders.
Approximately 58% of the United States hourly production work force of
Cooper is employed in 70 manufacturing facilities, distribution centers and
warehouses not covered by labor agreements. Numerous agreements covering
approximately 42% of the hourly production employees exist with 34 bargaining
units at 35 operations in the United States and with various unions at 41
international operations. During 1994, new agreements were concluded covering
hourly production employees at 12 operations in the United States. Cooper
believes its current relations with employees are excellent.
Sales backlog at December 31, 1994 was approximately $350 million (all
of which is for delivery during 1995) compared with backlog of approximately
$368 million at December 31, 1993 (including approximately $63 million relative
to the Company's large power transformer business).
The following describes the business conducted by each of the
Company's business segments. Additional information regarding the products,
markets and distribution methods for each segment is set forth on the table at
the end of this Item 1. Information concerning market conditions, as well as
information concerning revenues, earnings and results of operations for each
segment is incorporated herein by reference to pages A-1 through A-11 of
Appendix A to the Cooper Proxy Statement for the 1995 Annual Meeting of
Shareholders.
Electrical Products
The Electrical Products segment manufactures, markets and sells
electrical and circuit protection products, including fittings, enclosures,
plugs, receptacles, lighting fixtures and fuses, for use in residential,
commercial and industrial construction, maintenance and repair applications.
The segment also manufactures, markets and sells products for use by utilities
and industries for primary electrical power transmission and distribution,
including distribution switchgear, transformers, transformer terminations and
accessories, capacitors, voltage regulators, surge arrestors, pole-line
hardware and other related power systems components.
The principal raw material requirements include copper, tin, lead,
plastics, insulating materials, pig iron, aluminum ingots, steel, aluminum and
brass. These raw materials are available from and supplied by numerous sources
located in the United States and abroad.
Demand for Electrical Products follows general economic conditions and
is generally sensitive to activity in the construction market, industrial
production levels and spending by utilities for replacements, expansions and
efficiency
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<PAGE> 7
improvements. The segment's product lines are marketed directly to original
equipment manufacturers and utilities and through major distributor chains and
thousands of independent distributors to a variety of end users.
As of the end of 1994, the Company had substantially completed its
exit from the large power transformer business.
Tools & Hardware
The Tools & Hardware segment manufactures, markets and sells hand
tools and chain and clamp products for industrial, construction and consumer
markets; air-powered and electric tools for general industry; and drapery
hardware and custom window coverings for residential and commercial window
treatment markets.
The principal raw material requirements include rolled coiled steel,
wood, plastic pellets, flat and bar stock steel, brass, copper, tin plate,
fiberglass, greige goods, aluminum, iron castings and plastic sheet. These
materials are available from and supplied by numerous sources in the United
States and abroad.
Historically, demand for nonpowered hand tools has been relatively
stable and is driven by employment levels and industrial activity in major
industrial countries. Demand for industrial power tools and many chain
products is related to employment levels and the overall level of U.S. and
European industrial activity. Demand for drapery hardware and window coverings
is influenced by housing starts, turnover of existing housing units and
consumer disposable income. The segment's products are sold by a company
salesforce, independent distributors and retailers.
Automotive Products
The Automotive Products segment manufactures, markets and sells
automotive and heavy-duty brakes, automotive lights, wire and cable, spark
plugs, windshield wipers, steering, suspension, driveline and temperature
control products and other products for the automotive aftermarket; lights,
spark plugs, ignition coils and windshield wipers for original equipment
manufacturers; and aviation ignition components.
The principal raw material requirements include steel, iron, nickel,
glass, aluminum, aluminum oxide, zinc, copper, rubber, plastic and chemicals.
The materials are available from and supplied by numerous sources in the United
States and abroad.
Demand for automotive aftermarket products has been relatively stable
and is driven by the age and number of vehicles on the road, and the number of
vehicle miles driven. Demand for automotive products sold to original
equipment manufacturers is driven by the number of vehicles produced. The
segment's products are sold through distributors and wholesalers to aftermarket
outlets and directly to original equipment manufacturers and retailers.
Discontinued Operations
In mid-September 1994, the Company announced its decision to establish
its petroleum and industrial equipment business as an independent,
publicly-traded company through an exchange offer with Cooper's Common
shareholders. The operations that will comprise the new company, which is
named Cooper Cameron Corporation, along with several other former operations of
Cooper divested during a period starting in 1989 and ending in the spring of
1994 with the spin-off of Gardner Denver Machinery
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<PAGE> 8
Inc. and the sale of Cameron Forged Products, previously constituted Cooper's
Petroleum & Industrial Equipment segment. From September 30, 1994 and by
restatement of all prior periods, the Petroleum & Industrial Equipment segment
is being accounted for by Cooper as a discontinued operation. For additional
information, see Notes 1 and 3 of the Notes to Consolidated Financial
Statements, incorporated herein by reference to pages A-18 through A-19 and
A-20 through A-21 of Appendix A to the Cooper Proxy Statement for the 1995
Annual Meeting of Shareholders.
-8-
<PAGE> 9
Products, Markets and Distribution Methods by Segment
ELECTRICAL PRODUCTS
MAJOR PRODUCTS AND BRANDS
ARROW HART wiring devices.
BUSS and EDISON fuses and accessories.
CROUSE-HINDS explosion-proof and nonexplosion-proof fittings, enclosures,
industrial lighting, and plugs and receptacles.
CROUSE-HINDS, LUMARK, MCGRAW-EDISON and EDISON indoor and outdoor lighting
fixtures.
FAIL-SAFE vandal-resistant lighting fixtures.
HALO recessed and track lighting fixtures.
KYLE distribution switchgear.
MCGRAW-EDISON distribution transformers, capacitors, voltage regulators,
surge arresters, pole-line hardware and related products.
METALUX fluorescent lighting fixtures.
RTE power and distribution transformers, transformer terminations and
accessories.
TOOLS & HARDWARE
MAJOR PRODUCTS AND BRANDS
APEX screwdriver bits, impact sockets and universal joints.
BUCKEYE, DGD, DOTCO and GARDNER-DENVER power tools and assembly systems.
CAMPBELL chain and fittings.
CRESCENT, DIAMOND and UTICA pliers and wrenches.
DIAMOND farrier tools and horseshoes.
EREM precision cutters and tweezers.
KIRSCH drapery hardware and custom window coverings.
LUFKIN measuring tapes.
NICHOLSON files and saws.
PLUMB hammers.
UNGAR and WELLER soldering equipment.
WELLER torches.
WISS and H.K. PORTER cutting products.
XCELITE screwdrivers and nutdrivers.
AUTOMOTIVE PRODUCTS
MAJOR PRODUCTS AND BRANDS
ABEX, LEE, GIBSON AND WAGNER brake components, including friction material,
hydraulics, drums, rotors and hardware.
ACI electric motors.
ANCO and CHAMPION windshield wiper products
CHAMPION spark plugs and igniters.
EVERCO and MURRAY heating and air conditioning products.
GENERAL DRIVESHAFT driveline products.
MOOG steering and suspension components.
POWERPATH and BELDEN automotive wire and cable.
PRECISION universal joints.
WAGNER and ZANXX lighting products.
<PAGE> 10
Products, Markets and Distribution Methods by Segment (Cont'd.)
ELECTRICAL PRODUCTS
MAJOR MARKETS
Primary and secondary electrical power transmission and distribution; and
residential, commercial and industrial construction.
PRINCIPAL DISTRIBUTION METHODS
Through distributors for use in general construction, plant maintenance,
utilities, process and energy applications, shopping centers, parking lots,
sports facilities, and data processing and telecommunications systems; through
distributors and direct to manufacturers for use in electronic equipment for
consumer, industrial, government and military applications; and direct to
original equipment manufacturers of appliances, tools, machinery and
electronic equipment.
TOOLS AND HARDWARE
MAJOR MARKETS
Industrial production and plant maintenance; industrial, commercial and
residential construction; professional trades; and home improvement.
PRINCIPAL DISTRIBUTION METHODS
Through distributors to general industry, particularly automotive, appliance
and aircraft maintenance; through distributors and wholesalers to hardware
stores, home centers, lumber yards, department stores and mass merchandisers;
and direct to original equipment manufacturers, home centers, specialty stores,
department stores, mass merchandisers and hardware outlets.
AUTOMOTIVE PRODUCTS
MAJOR MARKETS
Automotive and heavy-duty vehicle replacement parts distribution; automotive and
heavy-duty vehicle original equipment; industrial; and aviation.
PRINCIPAL DISTRIBUTION METHODS
Replacement parts -- to professional service tehnicians and repair garages
through warehouse distributors and jobbers; to do-it-yourself customers through
warehouse distributors and jobbers, retailers and mass merchandisers; and to
national repair shop networks. Original equipment parts -- to original
equipment manufacturers and their respective service networks.
Brand names that appear in bold type are registered trademarks of Cooper
Industries, Inc., except DGD, Erem, Fail-Safe, General Driveshaft, Lee and
McGraw-Edison, which are unregistered trademarks. Belden is a registered
trademark of Belden Wire & Cable Company, and Gardner-Denver is a registered
trademark of Gardner Denver Machinery Inc. Both trademarks are used by Cooper
Industries under license.
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<PAGE> 11
ITEM 3. LEGAL PROCEEDINGS
The Company, certain of its current officers and directors and one
retired officer/director are named in a consolidated class action lawsuit
brought in Federal court in Houston on behalf of persons who purchased Cooper
stock during the period from February 1, 1993 through January 25, 1994. The
complaints appear 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 court
denied a motion filed by the Company to dismiss the class action. While the
ultimate liability, if any, that may result from these lawsuits 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. The Company intends to vigorously defend this litigation.
During November 1992, the Cooper-Bessemer Rotating operation of the
Company (now 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 arise 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 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. If the projects are not
completed by February 28 and April 28, 1995, respectively, the Company will be
required to pay an additional $21,250 in otherwise "suspended" penalties.
In March 1993, the Wisconsin Department of Natural Resources (DNR)
alleged violations by the Company's Pewaukee, Wisconsin plant of air pollution
control regulations concerning organic compound emissions from two coating
lines and a rotary tumble coater. In April 1994, the Company and the State of
Wisconsin entered into a settlement agreement under which the Company agreed to
test changes in processes and coating materials to lower the amount of
emissions and to cause the facility to be in compliance no later than April
1996. The Company agreed to pay a civil penalty of $128,712 and $127 per day
during the implementation of the compliance schedule. The settlement was
approved by the Circuit Court for Waukesha County in April 1994. From April
1994, the Company has paid civil penalties of $179,567, including the per diem
penalty of $127. Working closely with the DNR, the Company anticipates
completion of the compliance schedule by the end of the third quarter of 1995.
The Company is also subject to various other suits, legal proceedings
and claims that arise in the normal course of business. While it is not
feasible to predict the outcome of these matters with certainty, management is
of the opinion that their ultimate disposition should not have a material
adverse effect on the Company's financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this report,
no matters were submitted to a vote of the shareholders.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock (symbol - CBE) is listed on the New York
Stock Exchange and the Pacific Stock Exchange. Options for the Company's
Common Stock are listed on the American Stock Exchange.
As of March 1, 1995 there were 35,333 record holders of the Company's
Common Stock.
The high and low quarterly sales price for the past two years of the
Company's Common Stock, as reported by Dow Jones & Company, Inc., are as
follows:
<TABLE>
<CAPTION>
Quarter
-------------------------------------------
1 2 3 4
-------------------------------------------
<S> <C> <C> <C> <C> <C>
1994 High $52.25 $38.75 $42.125 $40.375
Low 35.875 34.875 35.50 31.625
1993 High 54.75 51.875 52.875 54.125
Low 46.625 45.625 47.25 47.125
</TABLE>
Annual cash dividends declared on the Company's Common Stock during 1994 and
1993 were $1.32 a share ($.33 a quarter). On February 14, 1995, the Board of
Directors declared a quarterly dividend of $.33 a share, which will be paid
April 3, 1995 to shareholders of record on March 1, 1995.
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ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected historical financial data for Cooper
for each of the five years in the period ended December 31, 1994. The selected
historical financial information for Cooper for the years ended December 31,
1990, 1991, 1992, 1993 and 1994 shown below has been derived from the audited
consolidated financial statements of Cooper. This information should be read
in conjunction with the consolidated financial statements of Cooper and notes
thereto incorporated herein by reference to pages A-12 through A-41 of Appendix
A to the Cooper Proxy Statement for the 1995 Annual Meeting of Shareholders.
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------
1990(1) 1991(1) 1992(1)(2) 1993(1) 1994
----- ----- ----- ----- --------
(in millions except per share data)
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Revenues $4,570.8 $4,307.6 $4,468.4 $4,776.4 $4,588.0
-------- -------- -------- -------- --------
Cost of sales 3,031.5 2,862.2 2,969.4 3,163.0 3,026.4
Depreciation and amortization 165.3 186.6 211.8 215.9 199.0
Selling and administrative expenses 745.5 726.7 759.1 810.6 784.6
Interest expense 170.9 125.4 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 -
-------- -------- -------- -------- --------
Total costs and
expenses 4,113.2 3,900.9 4,076.3 4,270.4 4,083.3
-------- -------- -------- -------- --------
Income from continuing operations before
income taxes and cumulative effect of
changes in accounting principles 457.6 406.7 392.1 506.0 504.7
Income taxes (192.3) (175.5) (152.5) (207.0) (211.9)
Income from discontinued operations,
net of taxes 96.1 162.0 121.7 68.1 .3
Charge for discontinued operations - - - - (313.0)
Cumulative effect on prior years of
changes in accounting principles(3) - - (590.0) - -
-------- -------- -------- -------- --------
Net Income (Loss) $ 361.4 $ 393.2 $ (228.7) $ 367.1 $ (19.9)
======== ======== ======== ======== ========
</TABLE>
(Continued on following page)
___________________
(1) Restated to exclude discontinued operations.
(2) During 1992, Cooper acquired Moog Automotive Group, Inc. in a
transaction that was accounted for as a purchase.
(3) In the first quarter of 1992, Cooper adopted the following
accounting standards: SFAS No. 106 (Employers' Accounting for
Postretirement Benefits Other Than Pensions); SFAS No. 109
(Accounting for Income Taxes); SFAS No. 112 (Employers' Accounting
for Postemployment Benefits). See Note 4 of the Notes to
Consolidated Financial Statements incorporated herein by reference
to pages A-21 through A-22 of Appendix A to the Cooper Proxy
Statement for the 1995 Annual Meeting of Shareholders.
(4) Excluding $375 million in 1994 and $450 million in 1993 allocated
to discontinued operations.
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<PAGE> 14
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------
1990(1) 1991(1) 1992(1)(2) 1993(1) 1994
----- ----- ----- ----- --------
(in millions except per share data)
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Primary -
Income from continuing operations before
cumulative effect of changes in accounting
principles $ 1.94 $ 1.60 $ 1.64 $ 2.15 $ 2.10
Income (loss) from discontinued operations .87 1.44 1.07 .60 (2.74)
Cumulative effect on prior years of changes
in accounting principles - - (5.19) - -
-------- -------- -------- -------- --------
Net Income (Loss) $ 2.81 $ 3.04 $ (2.48) $ 2.75 $ (.64)
======== ======== ======== ======== ========
Fully Diluted -
Income from continuing operations before
cumulative effect of changes in
accounting principles $ 1.94 $ 1.60 $ 1.64 $ 2.15 $ 2.10
Income (loss) from discontinued operations .87 1.41 1.07 .60 (2.74)
Cumulative effect on prior years of changes
in accounting principles - - (5.19) - -
-------- -------- -------- -------- --------
Net Income (Loss) $ 2.81 $ 3.01 $ (2.48) $ 2.75 $ (.64)
======== ======== ======== ======== ========
Average Common Shares Outstanding
Primary 110.8 112.5 113.8 114.2 114.2
Fully diluted 110.9 131.1 113.8 114.2 114.2
BALANCE SHEET DATA
Total assets $6,019.1 $5,951.1 $6,551.4 $6,361.7 $6,400.7
Long-term debt(4) 1,238.5 1,033.3 1,369.8 883.4 1,361.9
Shareholders' equity 3,042.0 3,319.0 2,862.6 3,009.6 2,741.1
CASH DIVIDENDS PER COMMON SHARE $ 1.08 $ 1.16 $ 1.24 $ 1.32 $ 1.32
</TABLE>
___________________
(1) Restated to exclude discontinued operations.
(2) During 1992, Cooper acquired Moog Automotive Group, Inc. in a
transaction that was accounted for as a purchase.
(3) In the first quarter of 1992, Cooper adopted the following
accounting standards: SFAS No. 106 (Employers' Accounting for
Postretirement Benefits Other Than Pensions); SFAS No. 109
(Accounting for Income Taxes); SFAS No. 112 (Employers' Accounting
for Postemployment Benefits). See Note 4 of the Notes to
Consolidated Financial Statements incorporated herein by reference
to pages A-21 through A-22 of Appendix A to the Cooper Proxy
Statement for the 1995 Annual Meeting of Shareholders.
(4) Excluding $375 million in 1994 and $450 million in 1993 allocated
to discontinued operations.
For additional information concerning the year-to-year comparability
of the financial information set forth in the preceding table, see (i) Notes 1
through 5, 10, 11 and 14 of the Notes to Consolidated Financial Statements and
(ii) Management's Discussion and Financial Review, incorporated herein by
reference to pages A-1 through A-11, A-18 through A-23, A-26 through A-28, A-29
through A-30 and A-33 through A-34 of Appendix A to the Cooper Proxy Statement
for the 1995 Annual Meeting of Shareholders.
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<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Incorporated by reference to pages A-1 through A-11 of Appendix A to
the Cooper Proxy Statement for the 1995 Annual Meeting of Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated by reference to pages A-12 through A-41 of Appendix A to
the Cooper Proxy Statement for the 1995 Annual Meeting of Shareholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference to pages 3 through 8 and 9 of the Cooper
Proxy Statement for the 1995 Annual Meeting of Shareholders.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to pages 11 through 18 of the Cooper Proxy
Statement for the 1995 Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference to pages 2 and 10 of the Cooper Proxy
Statement for the 1995 Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
-15-
<PAGE> 16
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements and Other Financial Data (incorporated by
reference to the pages shown below in Appendix A to the Cooper
Proxy Statement for the 1995 Annual Meeting of Shareholders).
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Report of Independent Auditors ........................... A-12
Cooper Industries, Inc. and Subsidiaries:
Consolidated Results of Operations for Each of the
Three Years in the Period Ended December 31, 1994 .. A-13
Consolidated Balance Sheet as of
December 31, 1994 and December 31, 1993 ............ A-14
Consolidated Cash Flows for Each of the Three
Years in the Period Ended December 31, 1994 ........ A-15
Consolidated Changes in Shareholders' Equity for
Each of the Three Years in the Period Ended
December 31, 1994 .................................. A-16
through
A-17
Notes to Consolidated Financial Statements ......... A-18
through
A-41
Management's Discussion and Financial Review ....... A-1
through
A-11
</TABLE>
Financial information with respect to subsidiaries not
consolidated and 50% or less owned persons accounted for by
the equity method has not been included since in the aggregate
such subsidiaries and investments do not constitute a
significant subsidiary.
2. Financial Statement Schedules
Financial statement schedules are not included in this Form
10-K Annual Report because they are not applicable or the
required information is shown in the financial statements or
notes thereto.
3. Exhibits
3.1 Twenty-Fifth Amended Articles of Incorporation of
Cooper Industries, Inc. (incorporated herein by
reference to Exhibit 3.1 of the Company's
Form 10-K for the year ended December 31, 1992).
3.2 Code of Regulations (By-Laws), as amended, of Cooper
Industries, Inc. (incorporated herein by reference to
Exhibit 3.2 of the Company's Form 10-K for the year
ended December 31, 1992).
-16-
<PAGE> 17
4.1 Rights Agreement, dated as of February 17, 1987,
between Cooper Industries, Inc. and First Chicago
Trust Company of New York as Rights Agent, an
amendment thereto dated August 14, 1989 (incorporated
herein by reference to Exhibit 4.4 to Registration
Statement No. 33-31941), and an amendment thereto
dated November 6, 1990 (incorporated herein by
reference to Exhibit 4.4 to Registration Statement
No. 33-38808).
4.2 Form of Indenture between Cooper Industries, Inc. and
The First National Bank of Chicago, as Trustee,
relating to the 7.05% Convertible Subordinated
Debentures due 2015 (incorporated herein by reference
to Exhibit 4.2 to Registration Statement No.
33-31941).
10.1 1989 Director Stock Option Plan (incorporated herein
by reference to Exhibit 28.1 to Registration
Statement No. 2-33-29302).
10.2 Cooper Industries, Inc. Directors Deferred
Compensation Plan (incorporated herein by reference
to Exhibit 10.2 of the Company's Form 10-K for the
year ended December 31, 1992).
10.3 Cooper Industries, Inc. Directors Retirement Plan
(incorporated herein by reference to Exhibit 10.3 of
the Company's Form 10-K for the year ended December
31, 1992).
10.4 Cooper Industries, Inc. Executive Restricted Stock
Incentive Plan (incorporated herein by reference to
Exhibit 10.4 of the Company's Form 10-K for the year
ended December 31, 1992).
10.5 Cooper Industries, Inc. Supplemental Excess Defined
Benefit Plan (incorporated herein by reference to
Exhibit 10.6 of the Company's Form 10-K for the year
ended December 31, 1992).
10.6 Cooper Industries, Inc. Supplemental Excess Defined
Contribution Plan (incorporated herein by reference
to Exhibit 10.7 of the Company's Form 10-K for the
year ended December 31, 1992).
10.7 Management Incentive Compensation Deferral Plan
(incorporated herein by reference to Exhibit 10.8 of
the Company's Form 10-K for the year ended December
31, 1992).
10.8 Crouse-Hinds Company Officers' Disability and
Supplemental Pension Plan (incorporated herein by
reference to Exhibit 10.9 of the Company's Form 10-K
for the year ended December 31, 1992).
10.9 Amended and Restated Asset Transfer Agreement, dated
as of January 1, 1995, by and between Cooper
Industries, Inc. and Cooper Cameron Corporation
(incorporated herein by reference to Exhibit 2.1 to
Cooper Cameron Corporation Registration Statement No.
33-90288).
10.10 Canadian Asset Transfer Agreement, dated as of
January 1, 1995, by and between Cooper Industries
(Canada) Inc. and Cooper Cameron Limited
(incorporated herein by reference to Exhibit 2.2 to
Cooper Cameron Corporation Registration Statement
No. 33-90288).
10.11 German Asset Transfer Agreement, dated as of January
1, 1995, by and between Champion Spark Plug GmbH and
Cooper Oil Tool GmbH (incorporated herein by
reference to Exhibit 2.3 to Cooper Cameron
Corporation Registration Statement No. 33-90288).
-17-
<PAGE> 18
10.12 Norway Asset Transfer Agreement, dated as of January
1, 1995, by and between Cooper Oil Tool Norway A/S
and Cooper Cameron Norge A/S (incorporated herein by
reference to Exhibit 2.4 to Cooper Cameron
Corporation Registration Statement No. 33-90288).
10.13 Amended and Restated United Kingdom Asset Transfer
Agreement, dated as of January 1, 1995, by and among
CoopCam (U.K.) Limited, Cooper Cameron (U.K.) Limited
and Cooper (Great Britain) Ltd. (incorporated herein
by reference to Exhibit 2.5 to Cooper Cameron
Corporation Registration Statement No. 33-90288).
13.0 Text of Appendix A to Cooper Industries, Inc. Proxy
Statement for the Annual Meeting of Shareholders to
be held April 25, 1995.
21.0 List of Cooper Industries, Inc. Subsidiaries.
23.0 Consent of Ernst & Young LLP.
24.0 Powers of Attorney from members of the Board of
Directors of Cooper Industries, Inc.
Cooper will furnish to the Commission supplementally upon request a
copy of any instrument with respect to long-term debt of the Company.
Copies of the above Exhibits are available to shareholders of record
at a charge of $.25 per page, minimum order of $10.00. Direct
requests to:
Cooper Industries, Inc.
Attn: Corporate Secretary
P.O. Box 4446
Houston, Texas 77210
(b) Reports on Form 8-K. The Company filed a report on Form 8-K on
November 23, 1994 to restate selected financial information originally
filed under Form 10-K for the year ended December 31, 1993. The
restatement, which reflects the separation of "continuing" and
"discontinued" operations, was prepared in connection with the
Company's decision to establish its petroleum and industrial equipment
business as an independent, publicly-traded company through an
exchange offer with the holders of the Company's Common Stock. The
Form 8-K contains the following financial statements and report:
Report of Independent Auditors dated January 24, 1994, except
as to Note 1, as to which the date is September 30, 1994
Consolidated Results of Operations for Each of the Two Years
in the Period Ended December 31, 1993
Consolidated Balance Sheet as of December 31, 1993 and
December 31, 1992
Consolidated Cash Flows for Each of the Two Years in the
Period Ended December 31, 1993 (not restated)
Consolidated Changes in Shareholders' Equity for Each of the
Two Years in the Period Ended December 31, 1993
Notes to Consolidated Financial Statements
-18-
<PAGE> 19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Ex-
change 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.
Date: March 30, 1995 By /s/ ROBERT CIZIK
(Robert Cizik, Chairman and
Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C>
/s/ ROBERT CIZIK Chairman and Chief Executive March 30, 1995
-------------------------- Officer (Principal Executive
(Robert Cizik) Officer) and Director
/s/ DEWAIN K. CROSS Senior Vice President, Finance March 30, 1995
-------------------------- (Principal Financial Officer)
(Dewain K. Cross)
/s/ JOSEPH D. CHAMBERLAIN Controller, Accounting March 30, 1995
-------------------------- (Principal Accounting Officer)
(Joseph D. Chamberlain)
/s/ H. JOHN RILEY, JR. Director March 30, 1995
--------------------------
(H. John Riley, Jr.)
*WARREN L. BATTS Director March 30, 1995
--------------------------
(Warren L. Batts)
*CLIFFORD J. GRUM Director March 30, 1995
--------------------------
(Clifford J. Grum)
*CONSTANTINE S. NICANDROS Director March 30, 1995
--------------------------
(Constantine S. Nicandros)
*SIR RALPH H. ROBINS Director March 30, 1995
--------------------------
(Sir Ralph H. Robins)
*A. THOMAS YOUNG Director March 30, 1995
--------------------------
(A. Thomas Young)
* By /s/ DIANE K. SCHUMACHER
-----------------------------------------
(Diane K. Schumacher, as Attorney-In-Fact
for each of the persons indicated)
</TABLE>
-19-
<PAGE> 20
Cooper Industries, Inc.
1994 Annual Report on Form 10-K
Cross Reference Sheet
<TABLE>
<CAPTION>
Page Reference
Page Reference in Incorporated
Item No. in Form 10-K in 10-K Proxy Statement
--------------------- -------------- ---------------
<S> <C> <C> <C>
Item 1. Business 3 through 10 A-1 through A-11,
A-18 through A-21,
A-22 through A-23,
A-24 through A-25,
A-35 through A-37
Item 2. Properties 3 through 10 -
Item 3. Legal Proceedings 11 -
Item 4. Submission of Matters
to a Vote of Security
Holders 11 -
Item 5. Market for Registrant's
Common Equity and Related
Stockholder Matters 12 -
Item 6. Selected Financial Data 13 through 14 A-1 through A-41
Item 7. Management's Discussion
and Analysis of Finan-
cial Condition and A-1 through
Results of Operations 15 A-11
Item 8. Financial Statements
and Supplementary Data 15 A-12 through A-41
Item 9. Changes in and Disagree-
ments with Accountants
on Accounting and
Financial Disclosure 15 -
Item 10. Directors and Executive
Officers of the
Registrant 15 3 through 8, 9
Item 11. Executive Compensation 15 11 through 18
Item 12. Security Ownership of
Certain Beneficial
Owners and Management 15 2, 10
Item 13. Certain Relationships
and Related Transactions 15 -
Item 14. Exhibits, Financial
Statement Schedules, A-1 through
and Reports on Form 8-K 16 through 18 A-41
</TABLE>
-20-
<PAGE> 21
INDEX TO EXHIBITS
Exhibit
No. Description
------- -----------
3.1 Twenty-Fifth Amended Articles of Incorporation of
Cooper Industries, Inc. (incorporated herein by
reference to Exhibit 3.1 of the Company's
Form 10-K for the year ended December 31, 1992).
3.2 Code of Regulations (By-Laws), as amended, of Cooper
Industries, Inc. (incorporated herein by reference to
Exhibit 3.2 of the Company's Form 10-K for the year
ended December 31, 1992).
4.1 Rights Agreement, dated as of February 17, 1987,
between Cooper Industries, Inc. and First Chicago
Trust Company of New York as Rights Agent, an
amendment thereto dated August 14, 1989 (incorporated
herein by reference to Exhibit 4.4 to Registration
Statement No. 33-31941), and an amendment thereto
dated November 6, 1990 (incorporated herein by
reference to Exhibit 4.4 to Registration Statement
No. 33-38808).
4.2 Form of Indenture between Cooper Industries, Inc. and
The First National Bank of Chicago, as Trustee,
relating to the 7.05% Convertible Subordinated
Debentures due 2015 (incorporated herein by reference
to Exhibit 4.2 to Registration Statement No.
33-31941).
10.1 1989 Director Stock Option Plan (incorporated herein
by reference to Exhibit 28.1 to Registration
Statement No. 2-33-29302).
10.2 Cooper Industries, Inc. Directors Deferred
Compensation Plan (incorporated herein by reference
to Exhibit 10.2 of the Company's Form 10-K for the
year ended December 31, 1992).
10.3 Cooper Industries, Inc. Directors Retirement Plan
(incorporated herein by reference to Exhibit 10.3 of
the Company's Form 10-K for the year ended December
31, 1992).
10.4 Cooper Industries, Inc. Executive Restricted Stock
Incentive Plan (incorporated herein by reference to
Exhibit 10.4 of the Company's Form 10-K for the year
ended December 31, 1992).
10.5 Cooper Industries, Inc. Supplemental Excess Defined
Benefit Plan (incorporated herein by reference to
Exhibit 10.6 of the Company's Form 10-K for the year
ended December 31, 1992).
10.6 Cooper Industries, Inc. Supplemental Excess Defined
Contribution Plan (incorporated herein by reference
to Exhibit 10.7 of the Company's Form 10-K for the
year ended December 31, 1992).
10.7 Management Incentive Compensation Deferral Plan
(incorporated herein by reference to Exhibit 10.8 of
the Company's Form 10-K for the year ended December
31, 1992).
10.8 Crouse-Hinds Company Officers' Disability and
Supplemental Pension Plan (incorporated herein by
reference to Exhibit 10.9 of the Company's Form 10-K
for the year ended December 31, 1992).
10.9 Amended and Restated Asset Transfer Agreement, dated
as of January 1, 1995, by and between Cooper
Industries, Inc. and Cooper Cameron Corporation
(incorporated herein by reference to Exhibit 2.1 to
Cooper Cameron Corporation Registration Statement No.
33-90288).
10.10 Canadian Asset Transfer Agreement, dated as of
January 1, 1995, by and between Cooper Industries
(Canada) Inc. and Cooper Cameron Limited
(incorporated herein by reference to Exhibit 2.2 to
Cooper Cameron Corporation Registration Statement
No. 33-90288).
10.11 German Asset Transfer Agreement, dated as of January
1, 1995, by and between Champion Spark Plug GmbH and
Cooper Oil Tool GmbH (incorporated herein by
reference to Exhibit 2.3 to Cooper Cameron
Corporation Registration Statement No. 33-90288).
10.12 Norway Asset Transfer Agreement, dated as of January
1, 1995, by and between Cooper Oil Tool Norway A/S
and Cooper Cameron Norge A/S (incorporated herein by
reference to Exhibit 2.4 to Cooper Cameron
Corporation Registration Statement No. 33-90288).
10.13 Amended and Restated United Kingdom Asset Transfer
Agreement, dated as of January 1, 1995, by and among
CoopCam (U.K.) Limited, Cooper Cameron (U.K.) Limited
and Cooper (Great Britain) Ltd. (incorporated herein
by reference to Exhibit 2.5 to Cooper Cameron
Corporation Registration Statement No. 33-90288).
13.0 Text of Appendix A to Cooper Industries, Inc. Proxy
Statement for the Annual Meeting of Shareholders to
be held April 25, 1995.
21.0 List of Cooper Industries, Inc. Subsidiaries.
23.0 Consent of Ernst & Young LLP.
24.0 Powers of Attorney from members of the Board of
Directors of Cooper Industries, Inc.
<PAGE> 1
EXHIBIT 13.0
APPENDIX A
COOPER INDUSTRIES, INC.
<TABLE>
<S> <C>
Management's Discussion and Financial Review................... A-1
Consolidated Financial Statements.............................. A-12
</TABLE>
<PAGE> 2
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> 3
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> 4
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> 5
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.
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<PAGE> 6
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> 7
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> 8
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> 9
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> 10
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> 11
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> 12
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> 13
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> 14
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.
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<PAGE> 15
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> 16
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> 17
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> 18
<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> 19
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> 20
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> 21
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> 22
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> 23
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> 24
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> 25
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> 26
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> 27
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> 28
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> 29
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> 30
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> 31
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> 32
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> 33
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> 34
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> 35
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> 36
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> 37
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> 38
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> 39
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> 40
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> 41
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> 42
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> 1
Exhibit 21.0
12-31-94
SUBSIDIARIES
Cooper has no parent. The subsidiaries of Cooper are listed in groupings that
indicate the nature and management of the operations of each. Unless noted
herein, all subsidiaries are wholly owned by Cooper or one of its subsidiaries.
<TABLE>
<CAPTION>
Place of
Name Incorporation
-------------------------------------------- --------------
A. GENERAL CORPORATE ADMINISTRATION
------------------------------------
<S> <C>
CI Leasing Company Delaware, U.S.
Cooper (Great Britain) Ltd. United Kingdom
Cooper (U.K.) Limited Delaware, U.S.
Cooper CPS Corporation Delaware, U.S.
Cooper Cameron Pensions Australia Pty. Ltd. Australia
Cooper Cameron Pensions Limited United Kingdom
Cooper Industries (Canada) Inc. Ontario, Canada
Cooper Industries Australia Pensions Pty Ltd Australia
Cooper Industries Australia Pty Limited Australia
Cooper Industries Foreign Sales Company, Ltd. Barbados
Cooper Industries Foundation Ohio, U.S.
Cooper Industries GmbH Beteiligungen Germany
Cooper Industries Italia S.p.A. Italy
Cooper Industries, Inc. Delaware, U.S.
Cooper Industries International Holding B.V. Netherlands
Cooper Industries Sweden AB (556391-9728) Sweden
Cooper International Company Delaware, U.S.
Cooper PAC Corporation Delaware, U.S.
Cooper Pensions Limited United Kingdom
Cooper Securities, Inc. Texas, U.S.
Cooper Trading, Inc. Delaware, U.S.
Cooper Western Hemisphere Company Delaware, U.S.
CS Holdings Inc. Delaware, U.S.
CS Holdings International Inc. Cayman Islands
Kirsch Company Michigan, U.S.
P B Marketing, Inc. Delaware, U.S.
Sani Kirsch, Inc. Delaware, U.S.
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
Place of
Name Incorporation
-------------------------------------------- --------------
B. ELECTRICAL PRODUCTS
----------------------
<S> <C>
Arrow-Hart, S.A. de C.V. Mexico
Bussmann International, Inc. Delaware, U.S.
Bussmann (Aust.) Pty Limited Australia
Bussmann de Mexico S.A. de C.V. Mexico
Bussmann, S.A. de C.V. Mexico
Combined Technologies, Inc. Wisconsin, U.S.
Componentes de Iluminacion, S.A. de C.V. Mexico
Connectron, Inc. New Jersey, U.S.
Cooper Power Systems, Inc. Delaware, U.S.
Crouse-Hinds (Australia) Pty. Ltd. Australia
Crouse-Hinds Domex, S.A. de C.V. Mexico
Edison Fusegear, Inc. Delaware, U.S.
Iluminacion Cooper de las Californias S.A. de C.V. Mexico
McGraw-Edison Company Delaware, U.S.
McGraw-Edison Development Corporation Delaware, U.S.
McGraw-Edison Power Systems Overseas, Inc. Delaware, U.S.
RTE Far East Corporation Taiwan
RTE Transportation Co., Inc. Wisconsin, U.S.
</TABLE>
-2-
<PAGE> 3
<TABLE>
<CAPTION>
Place of
Name Incorporation
-------------------------------------------- --------------
C. TOOLS & HARDWARE
-------------------
<S> <C>
AB Sani-Maskiner (556179-9643) Sweden
Acrimo AB (28.9% owned) Sweden
Aryho, S.A. Spain
Comercial Decorativa, S.A. Spain
Cooper Industries Sweden Realty AB (556403-8684) Sweden
Cooper Tools GmbH Germany
Cooper Tools Industrial Ltda. Brazil
Cooper Tools Pty. Limited Australia
Cooper Tools S.A. France
Decoracion, S.A. Spain
Deutsche Gardner-Denver Beteiligungs-GmbH Germany
Deutsche Gardner-Denver GmbH & Co. Germany
Empresa Andina de Herramientas, S.A. (49% owned) Colombia
Erem S.A. Switzerland
Hofesa France, S.A. France
Hofesa Home Fittings de Portugal Decoracao, Limitada Portugal
Hofesa Italia S.r.l. Italy
Hofesa UK PLC United Kingdom
Home Fittings Espana, S.A. Spain
Innovaciones Decorativas, S.A. Spain
Lufkin Europa B.V. Netherlands
Nicholson Mexicana, S.A. de C.V. (49% owned) Mexico
SANI-Kirsch Inc. & Co. KG Germany
The Cooper Group, Inc. Delaware, U.S.
</TABLE>
-3-
<PAGE> 4
<TABLE>
<CAPTION>
Place of
Name Incorporation
-------------------------------------------- --------------
D. AUTOMOTIVE PRODUCTS
----------------------
<S> <C>
Abex Industries Ltd. Canada
Anco de Mexico, S.A. de C.V. Mexico
Bougie Champion, S.A. France
Bujias Champion de Mexico, S.A. de C.V. Mexico
Bujias Champion de Venezuela, C.A. Venezuela
Champion Filtration S.p.A. Italy
Champion Iberica S.A. Spain
Champion Interamericana, Ltd. Delaware, U.S.
Champion Spark Plug Company (Aust.) Pty. Limited Australia
Champion Spark Plug Company Delaware, U.S.
Champion Spark Plug Belgium S.A. Belgium
Champion Spark Plug New Zealand New Zealand
Champion Spark Plug S.A. Belgium
Champion Spark Plug Taiwan, Inc. Taiwan
Cooper Automotive, Inc. Delaware, U.S.
Crucetas Mexicanas, S.A. de C.V. (40% owned) Mexico
CSP Industries B.V. Netherlands
Farloc Argentina S.A.I.C. y. F. (23.9% owned) Argentina
Frenos Hidraulicos Automotrices S.A. (49% owned) Mexico
Moog Automotive, Inc. Missouri, U.S.
Nippon Champion Spark Plug Kabushiki Kaisha Japan
Productos de Frenos Automotrices de
Calidad, S.A. de C.V. Mexico
Sistemas de Energia de Matamoros, S.A. de C.V. Mexico
Wagner Electric Corporation Delaware, U.S.
</TABLE>
-4-
<PAGE> 5
<TABLE>
<CAPTION>
Place of
Name Incorporation
-------------------------------------------- --------------
E. DISCONTINUED OPERATIONS -- PETROLEUM & INDUSTRIAL EQUIPMENT
--------------------------------------------------------------
<S> <C>
Cameron Venezolana S.A. (49% owned) Venezuela
Cameronvolgomash (50% owned) Russia
Champion Spark Plug GmbH Germany
Compression Services Company Ohio, U.S.
Cooper Cameron Corporation Delaware, U.S.
Cooper Cameron Limited Ontario, Canada
Cooper Energy Services B.V. Netherlands
Cooper Energy Services de Venezuela, S.A. Venezuela
Cooper Energy Services International, Inc. Ohio, U.S.
Cooper Oil Tool (Singapore) Pte. Ltd. Singapore
Cooper Oil Tool Argentina S.A.I.C. Argentina
Cooper Oil Tool Australia Pty. Ltd. Australia
Cooper Oil Tool B.V. Netherlands
Cooper Oil Tool de Mexico, S.A. Mexico
Cooper Oil Tool S.A. de C.V. Mexico
Cooper Oil Tool France, S.A. France
Cooper Oil Tool Gabon, S.A. Gabon
Cooper Oil Tool Ireland Limited Ireland
Cooper Oil Tool Nigeria Limited (60% owned) Nigeria
Cooper Oil Tool Norway A/S Norway
COT-Excel Sdn Bhd (49% owned) Malaysia
Cooper Petroleum Equipment Group, Inc. Delaware, U.S.
Cooper Rolls Incorporated (50% owned) Ohio, U.S.
Cooper Rolls Limited (50% owned) United Kingdom
Cooper Turbocompressor (Deutschland) GmbH Germany
Cooper Turbocompressor Inc. Delaware, U.S.
Cooper, Rolls Corporation (50% owned) Federal, Canada
Industrias Cooper de Venezuela, S.A. Venezuela
Syarikat Rajah Sdn Bhd (70% owned) Brunei
Wheeling Machine Products Company Delaware, U.S.
</TABLE>
-5-
<PAGE> 6
<TABLE>
<CAPTION>
Place of
Name Incorporation
-------------------------------------------- --------------
F. INACTIVE SUBSIDIARIES
-------------------------
<S> <C>
Battery Products, Inc. Illinois, U.S.
B & S Fuses Limited United Kingdom
Bussmann (U.K.) Limited United Kingdom
Cameron do Brasil Industrias Mecanicas Ltda. Brazil
Cameron Iron Works de Venezuela C.A. Venezuela
Cameron Offshore Engineering Limited United Kingdom
Carlton Santee Corporation California, U.S
Champion Service & Trading Pte. Ltd. Singapore
Champion Spark Plug (Far East) Pte. Limited Singapore
Champion Sparking Plug Company (Ireland) Limited Ireland
Coninco Corporation Puerto Rico
Coopauto Corporation Delaware, U.S.
Cooper-Bessemer, S.A. Switzerland
Cooper Cameron (U.K.) Limited United Kingdom
Cooper Flow Control Australia Pty. Ltd. Australia
Cooper Hand Tools of California, Inc. Delaware, U.S.
Cooper-Vulkan Kompressoren, GmbH (70% owned) Germany
Crouse-Hinds de Venezuela, C.A. Venezuela
Crouse-Hinds of Europe, S.r.l. Italy
DFL Fusegear Limited United Kingdom
Duotech Pty Limited Australia
Expandforce Limited United Kingdom
Everco Industries of Canada Ltd. Ontario, Canada
Gardner-Denver (Aust.) Pty. Limited Australia
Gardner-Denver International, C.A. Venezuela
Inmobiliaria Cisco, S.A. (49% owned) Mexico
Manufacturas Cameron, C.A. (85% owned) Venezuela
McGraw-Edison Export Corporation Delaware, U.S.
Moog World Trade Corporation Virgin Islands
Sri Timor Oilfield Supplies &
Equipment Sdn Bhd (49% owned) Malaysia
The Cooper Group, B.V. Netherlands
Veda Manufacturing Pty. Ltd. Australia
Velas Champion do Brasil, Ltda. Brazil
WAWD Autoteile GmbH Germany
WPC Corporation, Inc. Delaware, U.S.
ZV Zundkerzenvertriebs GmbH Germany
</TABLE>
-6-
<PAGE> 1
Exhibit 23.0
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Cooper Industries, Inc. of our report dated January 23, 1995, included in
Appendix A to the Cooper Industries, Inc. Proxy Statement for the 1995 Annual
Meeting of Shareholders.
We also consent to the incorporation by reference in the following Registration
Statements on Form S-8, Form S-3 or Form S-4 of Cooper Industries, Inc. and in
each related Prospectus of our report dated January 23, 1995, with respect to
the consolidated financial statements incorporated herein by reference.
<TABLE>
<CAPTION>
Registration
Statement No. Purpose
------------- -------
<S> <C>
No. 2-81114 Form S-8 Registration Statement for Cooper Industries, Inc.
1981 Incentive Stock Option Plan
No. 2-71732 Form S-8 Registration Statement for Shares issuable pursuant to
Substitute Deferred Compensation Agreements in connection
with the acquisition of Crouse-Hinds Company
No. 2-33-14542 Form S-8 Registration Statement for Cooper Industries, Inc.
1985 and 1989 Employee Stock Purchase Plans
No. 2-33-19574 Form S-8 Registration Statement for Cooper Industries, Inc.
1981 Incentive Stock Option Plan and 1986 Stock Option Plan
No. 2-33-29302 Form S-8 Registration Statement for 1989 Director Stock Option
Plan
No. 33-2243 Form S-3 Registration Statement for Cooper Industries, Inc.
Debt Securities
No. 33-4097 Form S-3 Registration Statement for Cooper Industries, Inc.
Debt Securities
No. 33-13695 Form S-3 Registration Statement for Cameron Iron Works, Inc. 7%
Convertible Subordinated Debentures due 2012
No. 33-33011 Form S-3 Registration Statement for Cooper Industries, Inc.
Debt Securities
No. 33-29301 Form S-4 Registration Statement for 3,000,000 Shares of Cooper
Common Stock (Equity Shelf)
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
No. 33-37875 Form S-3 Registration Statement for Cooper Industries, Inc.
Dividend Reinvestment and Stock Purchase Plan
No. 33-57829 Form S-8 Registration Statement for Cooper Industries, Inc.
1986 Stock Option Plan.
</TABLE>
/s/ Ernst & Young LLP
Houston, Texas
March 30, 1995
-2-
<PAGE> 1
Exhibit 24.0
POWER OF ATTORNEY
COOPER INDUSTRIES, INC.
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director or
officer of Cooper Industries, Inc. ("Cooper"), an Ohio corporation, does hereby
make, constitute and appoint Diane K. Schumacher and Karen E. Herbert, and each
of them acting individually, his true and lawful attorney with power to act
without the other and with full power of substitution, to execute, deliver and
file, for and on behalf of the undersigned, and in his name and in his capacity
or capacities as aforesaid, the Cooper Annual Report on Form 10-K with the
Securities and Exchange Commission under the Securities Exchange Act of 1934,
as amended, and any other documents in support thereof or supplemental thereto,
with respect to the fiscal year ended December 31, 1994 and any and all
amendments thereto. The undersigned hereby grants to said attorneys and each
of them full power and authority to do and perform each and every act and thing
whatsoever as said attorney or attorneys may deem necessary or advisable to
carry out fully the intent of the foregoing as the undersigned might or could
do personally or in the capacity or capacities as aforesaid, hereby ratifying
and confirming all acts and things which said attorney or attorneys may do or
cause to be done by virtue of these presents.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
13th day of February, 1995.
/s/ WARREN L. BATTS
Warren L. Batts
<PAGE> 2
Exhibit 24.0
POWER OF ATTORNEY
COOPER INDUSTRIES, INC.
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director or
officer of Cooper Industries, Inc. ("Cooper"), an Ohio corporation, does hereby
make, constitute and appoint Diane K. Schumacher and Karen E. Herbert, and each
of them acting individually, his true and lawful attorney with power to act
without the other and with full power of substitution, to execute, deliver and
file, for and on behalf of the undersigned, and in his name and in his capacity
or capacities as aforesaid, the Cooper Annual Report on Form 10-K with the
Securities and Exchange Commission under the Securities Exchange Act of 1934,
as amended, and any other documents in support thereof or supplemental thereto,
with respect to the fiscal year ended December 31, 1994 and any and all
amendments thereto. The undersigned hereby grants to said attorneys and each
of them full power and authority to do and perform each and every act and thing
whatsoever as said attorney or attorneys may deem necessary or advisable to
carry out fully the intent of the foregoing as the undersigned might or could
do personally or in the capacity or capacities as aforesaid, hereby ratifying
and confirming all acts and things which said attorney or attorneys may do or
cause to be done by virtue of these presents.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
13th day of February, 1995.
/s/ CLIFFORD J. GRUM
Clifford J. Grum
<PAGE> 3
Exhibit 24.0
POWER OF ATTORNEY
COOPER INDUSTRIES, INC.
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director or
officer of Cooper Industries, Inc. ("Cooper"), an Ohio corporation, does hereby
make, constitute and appoint Diane K. Schumacher and Karen E. Herbert, and each
of them acting individually, his true and lawful attorney with power to act
without the other and with full power of substitution, to execute, deliver and
file, for and on behalf of the undersigned, and in his name and in his capacity
or capacities as aforesaid, the Cooper Annual Report on Form 10-K with the
Securities and Exchange Commission under the Securities Exchange Act of 1934,
as amended, and any other documents in support thereof or supplemental thereto,
with respect to the fiscal year ended December 31, 1994 and any and all
amendments thereto. The undersigned hereby grants to said attorneys and each
of them full power and authority to do and perform each and every act and thing
whatsoever as said attorney or attorneys may deem necessary or advisable to
carry out fully the intent of the foregoing as the undersigned might or could
do personally or in the capacity or capacities as aforesaid, hereby ratifying
and confirming all acts and things which said attorney or attorneys may do or
cause to be done by virtue of these presents.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
13th day of February, 1995.
/s/ CONSTANTINE S. NICANDROS
Constantine S. Nicandros
<PAGE> 4
Exhibit 24.0
POWER OF ATTORNEY
COOPER INDUSTRIES, INC.
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director or
officer of Cooper Industries, Inc. ("Cooper"), an Ohio corporation, does hereby
make, constitute and appoint Diane K. Schumacher and Karen E. Herbert, and each
of them acting individually, his true and lawful attorney with power to act
without the other and with full power of substitution, to execute, deliver and
file, for and on behalf of the undersigned, and in his name and in his capacity
or capacities as aforesaid, the Cooper Annual Report on Form 10-K with the
Securities and Exchange Commission under the Securities Exchange Act of 1934,
as amended, and any other documents in support thereof or supplemental thereto,
with respect to the fiscal year ended December 31, 1994 and any and all
amendments thereto. The undersigned hereby grants to said attorneys and each
of them full power and authority to do and perform each and every act and thing
whatsoever as said attorney or attorneys may deem necessary or advisable to
carry out fully the intent of the foregoing as the undersigned might or could
do personally or in the capacity or capacities as aforesaid, hereby ratifying
and confirming all acts and things which said attorney or attorneys may do or
cause to be done by virtue of these presents.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
13th day of February, 1995.
/s/ SIR RALPH H. ROBINS
Sir Ralph H. Robins
<PAGE> 5
Exhibit 24.0
POWER OF ATTORNEY
COOPER INDUSTRIES, INC.
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director or
officer of Cooper Industries, Inc. ("Cooper"), an Ohio corporation, does hereby
make, constitute and appoint Diane K. Schumacher and Karen E. Herbert, and each
of them acting individually, his true and lawful attorney with power to act
without the other and with full power of substitution, to execute, deliver and
file, for and on behalf of the undersigned, and in his name and in his capacity
or capacities as aforesaid, the Cooper Annual Report on Form 10-K with the
Securities and Exchange Commission under the Securities Exchange Act of 1934,
as amended, and any other documents in support thereof or supplemental thereto,
with respect to the fiscal year ended December 31, 1994 and any and all
amendments thereto. The undersigned hereby grants to said attorneys and each
of them full power and authority to do and perform each and every act and thing
whatsoever as said attorney or attorneys may deem necessary or advisable to
carry out fully the intent of the foregoing as the undersigned might or could
do personally or in the capacity or capacities as aforesaid, hereby ratifying
and confirming all acts and things which said attorney or attorneys may do or
cause to be done by virtue of these presents.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
13th day of February, 1995.
/s/ A. THOMAS YOUNG
A. Thomas Young
