<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
COOPER INDUSTRIES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
3) Filing Party:
------------------------------------------------------------------------
4) Date Filed:
------------------------------------------------------------------------
<PAGE>
[LOGO]
March 12, 1996
Dear Shareholder:
On behalf of the Board of Directors, I cordially invite you to attend the Annual
Shareholders' Meeting in Houston, Texas on Tuesday, April 30, 1996 at 11:00 a.m.
The meeting will be held in the Austin Room, Four Seasons Hotel, 1300 Lamar
Street, Houston, Texas.
The attached notice and proxy statement describe the business to be conducted at
the meeting, including the election of four directors. The Board of Directors
has nominated Warren L. Batts, Linda A. Hill, Constantine S. Nicandros and H.
John Riley, Jr.
The Board of Directors appreciates and encourages shareholder participation.
Whether or not you plan to attend the meeting, it is important that your shares
be represented. Please take a moment now to sign, date and return your proxy in
the envelope provided even if you actually can be present. We hope you will be
able to attend the meeting.
Sincerely,
/s/Robert Cizik
Robert Cizik
Chairman
<PAGE>
COOPER INDUSTRIES, INC.
P.O. BOX 4446
HOUSTON, TEXAS 77210
---------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
<TABLE>
<S> <C>
TIME.............................. 11:00 a.m. on Tuesday, April 30, 1996
PLACE............................. Four Seasons Hotel, Austin Room, 1300 Lamar Street, Houston,
Texas
ITEMS OF BUSINESS................. 1. To elect four directors to serve for terms of three years
expiring at the annual meeting to be held in 1999.
2. Approval of the Cooper Industries, Inc. Stock Incentive
Plan.
3. Approval of the Cooper Industries, Inc. Management Annual
Incentive Plan.
4. Approval of the Cooper Industries, Inc. Directors' Stock
Plan.
5. If presented at the meeting, to consider and act upon the
shareholder proposal with respect to the Company's
maquiladora operations in Mexico.
6. To act upon any other matters properly coming before the
meeting or any adjournment thereof.
RECORD DATE....................... Holders of Common Stock of record at the close of business on
March 4, 1996 are entitled to vote at the meeting.
FINANCIAL STATEMENTS.............. A summary annual report of the Company for the year 1995 was
mailed previously to all shareholders. The audited financial
statements of the Company for the year ended December 31, 1995
and the related Management's Discussion and Analysis of
Financial Condition and Results of Operations are included as
Appendix A to the Proxy Statement.
IMPORTANT......................... In order to avoid additional soliciting expense to the Company,
please SIGN, DATE and MAIL your proxy PROMPTLY in the return
envelope provided, even if you plan to attend the meeting. If
you attend the meeting and wish to vote your shares in person,
arrangements will be made for you to do so.
</TABLE>
By order of the Board of Directors:
/s/Diane K. Schumacher
Diane K. Schumacher
Senior Vice President, General Counsel
and Secretary
Houston, Texas
March 12, 1996
<PAGE>
COOPER INDUSTRIES, INC.
MARCH 12, 1996
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
APRIL 30, 1996
VOTING SECURITIES, PRINCIPAL HOLDERS AND PROXIES
Only shareholders of record as of the close of business on March 4, 1996
(the "Record Date") will be entitled to notice of and to vote at the Annual
Meeting of Shareholders or any adjournment thereof. On the Record Date, there
were outstanding 107,929,157 shares of Common Stock, which constituted the only
outstanding voting securities. Each share of Common Stock has one vote. This
proxy statement and the enclosed form of proxy are first being mailed to
shareholders on or about March 12, 1996.
Shares may be voted at the meeting in person or by proxy. The accompanying
proxy is solicited by the Board of Directors of Cooper Industries, Inc.
(hereinafter referred to as "Company" or "Cooper"), and is intended to permit
each shareholder as of the Record Date to vote. All valid proxies received prior
to the meeting will be voted. Unless marked to the contrary, such proxies will
be voted "For" the election of the four directors, "For" approval of the Stock
Incentive Plan, the Management Annual Incentive Plan and the Directors' Stock
Plan, and "Against" the shareholder proposal, all as set forth in the attached
Notice. If any other business is brought before the meeting, the proxies will be
voted in accordance with the judgment of the persons voting the proxies. A
shareholder who has given a proxy may revoke it at any time prior to such proxy
being voted at the meeting by filing with the Secretary of the Company an
instrument revoking it or a duly executed proxy bearing a later date, or by
attending the meeting and giving notice of such revocation. Attendance at the
meeting does not by itself constitute revocation of a proxy.
Cooper has adopted a confidential voting policy which provides that
shareholder votes at Company shareholder meetings are kept confidential by an
independent inspector of election, who may be the transfer agent, except as may
be necessary to meet applicable legal requirements or to respond to written
comments on proxy cards. Each proxy solicited by the Board that identifies the
vote of a specific shareholder will be treated in accordance with this policy
unless the shareholder elects not to have such vote kept confidential. In the
event of a contested solicitation, the Company will attempt to agree with the
opposing party on mutually acceptable confidentiality procedures that would
apply to each party's solicitation. The Company's confidential voting policy
shall not operate to impair free and voluntary communication between Cooper and
its shareholders, including disclosure by shareholders of the nature of their
votes.
In addition to the use of the mails, proxies may be solicited by the
directors, officers and employees of the Company without additional
compensation, by personal interview, telephone, telegram or otherwise.
Arrangements also may be made with brokerage firms and other custodians,
nominees and fiduciaries who hold the voting securities of record for the
forwarding of solicitation material to the beneficial owners thereof. The
Company will reimburse such brokers, custodians, nominees and fiduciaries for
the reasonable out-of-pocket expenses incurred by them in providing such
services. In addition, Georgeson & Company Inc. has been engaged to solicit
proxies at a fee of $16,000 plus out-of-pocket costs and expenses. Expenses of
solicitation will be borne by the Company.
The accompanying proxy card includes all shares of Common Stock held of
record on March 4, 1996.
If you are a participant in the Cooper Dividend Reinvestment and Stock
Purchase Plan ("DRP"), shares of Cooper stock held in your DRP account are
included on and may be voted through the proxy card accompanying this mailing.
The DRP administrator, as the shareholder of record, may only vote the DRP
shares for which it has received directions to vote from the DRP participants.
FOR COOPER EMPLOYEES: If you are a participant in the Cooper Savings Plans
and/or Stock Ownership Plan ("CO-SAV"), the accompanying proxy card will include
the number of equivalent shares credited to your account by The Chase Manhattan
Bank, N.A., as Trustee for CO-SAV ("Trustee"). When your proxy card is returned
properly signed, it will serve as direction to the Trustee to vote the shares
held in CO-SAV for your account in accordance with your directions. If you
return a proxy card properly signed, but do not indicate your voting preference,
the shares represented by your proxy card will be voted "For" the election of
all nominees for director named in the Notice, "For" approval of the Stock
Incentive Plan, the Management Annual Incentive Plan, and the Directors' Stock
Plan, and "Against" the shareholder proposal. The shares of Common Stock
credited to participants' accounts for which no directions are
<PAGE>
received ("Uninstructed Shares") and shares of Common Stock not yet allocated to
participants' accounts ("Unallocated Shares"), will be voted by the Trustee in
the same proportion (for/against) as the shares of Common Stock for which
instructions are received from CO-SAV participants. Properly signed proxy cards
from CO-SAV participants will serve as a direction to the Trustee to vote all of
the Uninstructed Shares and the Unallocated Shares in the same manner as
indicated by CO-SAV participants. If you fail to return a proxy card properly
signed, the equivalent shares of Common Stock credited to your account will then
be voted by the Trustee in the same proportion as the shares for which
instructions were received from other CO-SAV participants.
The Company knows of no person who was the beneficial owner as of the Record
Date of more than five percent of the outstanding shares of any class of voting
securities, other than the following, which have filed statements of ownership
on Schedule 13G with the Securities and Exchange Commission:
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
NAME AND ADDRESS OF BENEFICIAL PERCENT OF
TITLE OF CLASS BENEFICIAL OWNER OWNERSHIP CLASS
- ---------------------------------------------------------------------------------------------------- ------------- ----------
<S> <C> <C> <C>
Common Stock............. J.P. Morgan & Co. Incorporated 10,534,374(1) 9.8%
60 Wall Street
New York, New York 10260
Common Stock............. FMR Corp. 8,606,067(2) 8.0%
Edward C. Johnson 3d
(Chairman of FMR Corp.)
Abigail P. Johnson (Director)
82 Devonshire Street
Boston, Massachusetts 02109
Common Stock............. Delaware Management Holdings, Inc. 5,738,800(3) 5.3%
2005 Market Street
Philadelphia, Pennsylvania 19103
</TABLE>
In addition, The Chase Manhattan Bank, N.A., as Trustee of CO-SAV, holds of
record 6,506,626 shares of Cooper Common Stock, which is six percent of the
outstanding shares of Common Stock. The CO-SAV participants have voting rights
with respect to all such shares.
- ------------
(1) Shares are held by J.P. Morgan & Co. Incorporated directly or through its
affiliates, Morgan Guaranty Trust Company of New York, J.P. Morgan
Investment Management, Inc. and J.P. Morgan Florida Federal Savings Bank.
(2) Shares are held by FMR Corp. directly or through its affiliates, Fidelity
Management & Research Company, Fidelity Management Trust Company and
Fidelity International Limited. The Johnson family forms a controlling group
with respect to FMR Corp.
(3) Shares are held by Delaware Management Holdings, Inc. directly or through
its affiliates, including Delaware Management, Inc.
2
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
Robert Cizik, Chairman since 1983 and a director since 1971, will retire as
of April 30, 1996, and, in accordance with Board policy, will retire from the
Board of Directors at the conclusion of the Annual Meeting of Shareholders.
Effective with his retirement, the authorized number of directors has been
reduced to 10, divided into three classes, one having four members and two
classes having three members each. Each class is elected for a term of three
years, so that the term of one class of directors expires at every meeting.
NOMINEES
The Board of Directors has nominated four persons for election as directors
in the class whose term will expire in April 1999, or when their successors are
elected and qualified. The nominees are: Warren L. Batts, Linda A. Hill,
Constantine S. Nicandros and H. John Riley, Jr., all of whom are directors and
members of the class whose term expires at the meeting. The affirmative vote of
a majority of the shares represented in person or by proxy at the meeting and
voting on the election of directors is required in order to elect each director,
provided that a quorum is present. Under the Code of Regulations of the Company,
a quorum is constituted by the presence, in person or by proxy, of a majority of
the voting power of the Company. Abstentions will be counted for purposes of
determining whether a quorum is present and will be counted as voting. Broker
nonvotes are not counted for purposes of voting.
If any nominee should be unable to serve as a director, an event not now
anticipated, it is intended that the shares represented by proxies will be voted
for the election of such substitute as the Board of Directors may nominate. Set
forth on the following four pages are the names of, and certain information with
respect to, the persons nominated as directors and the current directors of the
Company who will continue as directors after the Annual Meeting.
3
<PAGE>
NOMINEES FOR TERMS EXPIRING IN 1999
<TABLE>
<S> <C>
- ---------------------- [PHOTO]
WARREN L. BATTS Received a B.S. degree in electrical engineering from Georgia Institute of
Chairman and Chief Technology and an M.B.A. from Harvard Business School. Joined Dart
Executive Industries in 1980 and was President in 1980 when Dart Industries merged
Officer, Premark with Kraft, Inc. Became President of Dart & Kraft, Inc. in 1981 and Chief
International, Inc. Operating Officer in 1983; served in these positions until October 1986,
Member -- Executive when Premark International, Inc. (food containers, commercial food
Committee equipment, housewares and decorative laminates) was created by Dart & Kraft,
and Management Inc. Has been Chairman and Chief Executive Officer and a director of Premark
Development and since 1986.
Compensation Director: Premark International, Inc.; Allstate Corporation; Sears, Roebuck
Committee and Co.; and Sprint Corporation.
Director Since 1986 Director, Children's Memorial Hospital. Trustee: Northwestern University and
Age 63 Art Institute of Chicago.
- ---------------------- [PHOTO]
LINDA A. HILL Received an A.B., summa cum laude in psychology, from Bryn Mawr College and
Professor, Harvard an M.A. in educational psychology from the University of Chicago. Earned a
Business School Ph.D in behavioral sciences at the University of Chicago. Prior to 1984, was
Member -- Audit a postdoctoral research fellow at the Harvard Business School, an advisor to
Committee and Finance the Federal Commissioner of Education and a member of the "Blueprint 2000"
Committee Employment Committee for the Commonwealth of Massachusetts. Joined the
Director since 1994 faculty of Harvard Business School in 1984 as an Assistant Professor in
Age 39 organizational behavior and human resource management. In 1991 named
Associate Professor and in 1995 Professor. Provides consulting and executive
education to Fortune 500 companies and other organizations.
Director, Human Resource Planning Society. Member, American Repertory
Theater Advisory Board. Member of the Board of Trustees: Rockefeller
Foundation; Bryn Mawr College; The Children's Museum, Boston; and Beth
Israel Hospital, Boston.
- ---------------------- [PHOTO]
CONSTANTINE S. NICANDROS Graduate of Ecole Des Hautes Etudes Commerciales in Paris, France. Received
Retired Chairman, a Juris Doctor degree and a doctorate in economics from the University of
President and Chief Paris Law School and an M.B.A. from Harvard Graduate School of Business
Executive Officer, Administration. Joined Conoco (petroleum products) in 1957 and held various
Conoco Inc. positions in many areas of that company. Named Executive Vice President for
Retired Vice Chairman, Worldwide Supply and Transportation in 1975 and Group Executive Vice
E.I. du Pont de Nemours President, Petroleum Products in 1978. Named President, Petroleum Operations
and Company in 1983 and elected President and Chief Executive Officer in March 1987.
Chairman -- Management Named Vice Chairman of E.I. du Pont de Nemours and Company (chemical,
Development and specialty products and energy) in 1991. Retired February 1996.
Compensation Committee Director: Texas Commerce Bank National Association and Mitchell Energy and
Member -- Audit Development Corp.
Committee and Committee Chairman: Houston Symphony and Senior Chairman of Houston Grand Opera.
on Nominations and Trustee: Baylor College of Medicine; Rice University; Houston Ballet
Corporate Governance Foundation; and Houston Museum of Fine Arts.
Director since 1990
Age 62
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
- ---------------------- [PHOTO]
H. JOHN RILEY, JR. Received a B.S. degree in industrial engineering from Syracuse University.
President and Chief Also a graduate of the Harvard Advanced Management Program. Joined
Executive Officer Crouse-Hinds Company in 1962 and held various manufacturing positions before
Member -- Executive appointment as Corporate Vice President in 1979. In 1982, after Cooper
Committee acquired Crouse-Hinds Company, became Executive Vice President, Operations
Director since 1992 for Cooper. Named President and Chief Operating Officer in September 1992
Age 55 and Chief Executive Officer in September 1995.
Director, Wyman-Gordon Company.
Director and Chairman, Junior Achievement of Southeast Texas. Director:
Central Houston, Inc.; Houston Symphony; and The Houston Forum. Trustee,
Manufacturers' Alliance for Productivity Improvement. Member: The Business
Roundtable and The Electrical Manufacturers Club.
</TABLE>
PRESENT DIRECTORS WHOSE TERMS EXPIRE IN 1997
<TABLE>
<S> <C>
- ---------------------- [PHOTO]
CLIFFORD J. GRUM Received a B.A. degree from Austin College and an M.B.A. from University of
Chairman and Chief Pennsylvania, Wharton School of Finance. Joined Temple Industries, Inc. in
Executive 1968 as Vice President, Finance. After a merger with Time Inc. in 1973, held
Officer, Temple-Inland various positions with Time Inc., including Treasurer, publisher of FORTUNE
Inc. magazine and Executive Vice President. Elected a director of Time Inc. in
Member -- Executive 1980 and, after a spin-off of Temple-Inland (container and containerboard,
Committee and pulp and paperboard, building products and financial services) by Time Inc.
Finance Committee in 1983, became President and Chief Executive Officer and a director of
Director since 1982 Temple-Inland. In 1991, became Chairman of the Board and Chief Executive
Age 61 Officer of Temple-Inland.
Director: Temple-Inland Inc.; Premark International, Inc.; and Trinity
Industries Inc.
Treasurer, Texas Association of Business and Chambers of Commerce. Trustee:
Austin College, Sherman, Texas; Lufkin Industrial Foundation; and Memorial
Medical Center of East Texas.
- ---------------------- [PHOTO]
SIR RALPH H. ROBINS Received a B.S. degree from Imperial College, London and is a Chartered
Chairman, Rolls-Royce Engineer. Joined Rolls-Royce (aerospace engines and industrial power
plc equipment) in 1955 as a Graduate Apprentice and held various positions with
Member -- Audit the Aero Engine Division before being named Executive Vice President of
Committee Rolls-Royce Aero Engines Inc. in 1972 and then Managing Director of the
and Finance Committee Rolls-Royce Industrial and Marine Division in 1973. Elected to the Board of
Director since 1991 Rolls-Royce plc in 1982 as Commercial Director, then appointed Managing
Age 63 Director in 1984. Became Deputy Chairman in 1989, Chief Executive in 1991
and Chairman in October 1992.
Director: Rolls-Royce plc; Marks & Spencer plc; Schroders plc; Standard
Chartered plc; and Cable & Wireless plc.
Chairman, Defence Industries Council. Member, Institution of Mechanical
Engineers. Fellow: Royal Aeronautical Society; the Royal Academy of
Engineering; and Imperial College.
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
- ---------------------- [PHOTO]
A. THOMAS YOUNG Received Bachelor of Aeronautical Engineering and Mechanical Engineering
Retired Executive Vice degrees from University of Virginia and a Master of Management degree from
President, Lockheed Massachusetts Institute of Technology. Had a 21-year career with NASA before
Martin joining Martin Marietta Corporation (aerospace, electronic and defense
Corporation products and services) in 1982 as Vice President of Aerospace Research and
Member -- Audit Engineering. Named Senior Vice President and President of Martin Marietta
Committee Electronics & Missiles Group in 1987. Became Executive Vice President in
and Management 1989 and President and Chief Operating Officer in 1990. Following the merger
Development of Lockheed Corporation and Martin Marietta Corporation in March 1995,
and Compensation became Executive Vice President of Lockheed Martin Corporation, which
Committee position he held until retirement in July 1995.
Director since 1990 Director: The Dial Corp.; The BFGoodrich Company; Potomac Electric Power
Age 57 Company; Science Applications International Corporation; and Memotec
Communications, Inc.
Chairman, Business Committee for the Arts. Director: Council for Excellence
in Government; NASA Alumni League; and Virginia Engineering Foundation,
University of Virginia. Fellow: American Institute of Aeronautics &
Astronautics and American Astronautical Society. Member, National Academy of
Engineering.
</TABLE>
PRESENT DIRECTORS WHOSE TERMS EXPIRE IN 1998
<TABLE>
<S> <C>
- ---------------------- [PHOTO]
HAROLD S. HOOK Received a B.S. degree in business administration, an M.A. in accounting and
Chairman and Chief a Doctor of Laws from University of Missouri, and a Doctor of Laws from
Executive Officer, Westminster College. Also a graduate of Southern Methodist University,
American General Cor- Institute of Insurance Marketing. Joined American General Corporation
poration (insurance) in 1970 as President and Chief Executive Officer of
Chairman -- Audit California-Western States Life Insurance Co. Elected a director in 1972 and
Committee then named President of American General in 1975. Elected Chairman and Chief
Member -- Executive Executive Officer in 1978.
Committee, Management Director: American General Corporation; Chemical Banking Corporation;
Development Chemical Bank; PanEnergy Corp.; Sprint Corporation; and Texas Commerce Bank
and Compensation National Association.
Committee, and Committee Vice Chairman and a member of Council of Overseers, Rice University (Jesse
on Nominations and Jones Graduate School). National Advisory Council, Boy Scouts of America and
Corporate Governance Advisory Board, Boy Scouts of America, Sam Houston Area Council. Director:
Director since 1986 Greater Houston Partnership; Society for the Performing Arts; Texas
Age 64 Association of Taxpayers, Inc.; and Texas Research League. Board of
Trustees, Baylor College of Medicine.
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
- ---------------------- [PHOTO]
FRANK A. OLSON Received an A.A. degree from City College of San Francisco. Joined The Hertz
Chairman, Chief Corporation (rental cars and trucks) in 1964 and held various positions
Executive and until 1973 when named Executive Vice President and 1974 when elected to the
Chief Operating Officer, Board of Directors. Named President and Chief Executive Officer of The Hertz
The Hertz Corporation Corporation in 1977 and Chairman in 1980. Also in 1980, was elected a Group
Chairman -- Finance Executive President of RCA Corporation, then parent Company of Hertz. In
Committee 1985, after Hertz was sold to UAL, Inc., became a director of UAL, Inc.,
Member -- Management which became Allegis Corporation. In June 1987, was elected Chairman and
Development and Chief Executive Officer of Allegis Corporation and President and Chief
Compensation Committee Executive Officer of United Airlines, a position he held until December
and Committee on 1987, after which he continued as Chairman, Chief Executive Officer and
Nominations and Chief Operating Officer of The Hertz Corporation, which became a
Corporate Governance wholly-owned subsidiary of Ford Motor Company in April 1994.
Director since 1989 Director: The Hertz Corporation; Becton Dickinson and Company; The
Age 63 Commonwealth Edison Company; and Foundation Health Corporation.
Director: National Multiple Sclerosis Society and The Swedish-American
Chamber of Commerce, Inc. Trustee, National Committee Against Drunk Driving.
Member, Advisory Board of Religion in American Life. Board of Visitors:
Berry College and Duke University Fuqua School of Business.
- ---------------------- [PHOTO]
JOHN D. ONG Received B.A. and M.A. degrees in history from Ohio State University.
Chairman and Chief Received an LL.B. degree from Harvard Law School. Joined The BFGoodrich
Executive Officer, The Company (chemicals and aerospace products) in 1961 and held various
BFGoodrich Company positions in the international division. Elected a Group Vice President in
Chairman -- Committee on 1972 and then Executive Vice President and a director in 1973. Elected Vice
Nominations and Chairman of the Board in 1974 and President in 1975. Named Chairman and
Corporate Chief Executive Officer in 1979.
Governance Director: The BFGoodrich Company; Ameritech Corporation; ASARCO
Member -- Finance Incorporated; The Geon Company; The Kroger Company; and TRW Inc.
Committee Chairman, The Ohio Business Roundtable. Trustee: University of Chicago and
Director since 1975 John S. & James L. Knight Foundation. Member: The Business Council; The
Age 62 Business Roundtable; Business Committee for the Arts; and Senior Member of
The Conference Board.
</TABLE>
7
<PAGE>
INFORMATION ABOUT MANAGEMENT AND ORGANIZATION
OF THE BOARD OF DIRECTORS
EXECUTIVE OFFICERS
The following sets forth certain information as of the Record Date with
respect to Cooper's present executive officers. All executive officers are
elected to terms that expire at the organizational meeting of the Board of
Directors, which follows the Annual Meeting of Shareholders.
<TABLE>
<CAPTION>
YEARS OF OFFICER
NAME POSITION AGE SERVICE SINCE
- ------------------------------------------------------------------------------------------ --- -------- -------
<S> <C> <C> <C> <C>
Robert Cizik.................. Chairman 64 34 1963
H. John Riley, Jr............. President and Chief Executive Officer 55 33 1982
Ralph E. Jackson, Jr.......... Executive Vice President, Operations 54 20 1992
Larry W. McCurdy.............. Executive Vice President, Operations 60 3 1994
D. Bradley McWilliams......... Senior Vice President, Finance 54 24 1982
Carl J. Plesnicher, Jr........ Senior Vice President, Human Resources 58 28 1979
Diane K. Schumacher........... Senior Vice President, General Counsel and Secretary 42 16 1988
David A. White, Jr............ Senior Vice President, Strategic Planning 54 24 1988
Walter F. DuPont.............. Vice President, Information Services 62 21 1991
Alan J. Hill.................. Vice President and Treasurer 51 18 1979
Terry A. Klebe................ Vice President and Controller 41 0.9 1995
E. Daniel Leightman........... Vice President, Taxes 55 8 1994
Phyllis J. Piano.............. Vice President, Public Affairs 39 0.3 1995
Robert W. Teets............... Vice President, Environmental Affairs and Risk Management 45 18 1993
</TABLE>
All of the above executive officers have been employed by Cooper in
management positions for more than five years, except Larry W. McCurdy, Terry A.
Klebe and Phyllis J. Piano. Larry W. McCurdy was President and Chief Executive
Officer of Moog Automotive, Inc. (a manufacturer of automotive parts), a
subsidiary of IFINT, S.A., from 1985 through 1992, when Moog Automotive, Inc.
was acquired by Cooper. Terry A. Klebe was a Senior Manager with the accounting
firm of Ernst & Young LLP from 1985 until October 1990, after which he was a
Partner until April 1995. Phyllis J. Piano was Manager, Communication and
Community Relations for General Electric Medical Systems from 1986 until 1993,
after which she served until December 1995 as Manager, Public Relations Programs
at General Electric Company.
8
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
As of the Record Date, each director and each executive officer named in the
Summary Compensation Table benefically owned the number of shares of Common
Stock of the Company set forth in the following Table. Each of the named
individuals and all directors and executive officers as a group beneficially
owned less than one percent of the Company's outstanding Common Stock.
<TABLE>
<CAPTION>
NAME OF NUMBER OF SHARES
BENEFICIAL BENEFICIALLY
OWNER OWNED (1)
- ------------------------------------------------------------------------------------ --------------------
<S> <C>
Robert Cizik........................................................................ 273,158(2)(3)
Warren L. Batts..................................................................... 16,000(2)(4)
Clifford J. Grum.................................................................... 18,000(2)
Linda A. Hill....................................................................... 0
Harold S. Hook...................................................................... 8,000
Constantine S. Nicandros............................................................ 219
Frank A. Olson...................................................................... 9,000(2)
John D. Ong......................................................................... 3,700(3)
H. John Riley, Jr................................................................... 108,458(2)
Sir Ralph H. Robins................................................................. 221
A. Thomas Young..................................................................... 2,200(2)
Ralph E. Jackson, Jr................................................................ 28,711(2)
Larry W. McCurdy.................................................................... 26,037(2)
D. Bradley McWilliams............................................................... 17,233(2)
All Directors and Executive Officers as a Group..................................... 663,606(2)(5)
</TABLE>
- ------------
(1) Includes shares held by executive officers in the Cooper Savings and Stock
Ownership Plan.
(2) Includes shares of Common Stock issuable upon the exercise of options
granted under either the Company's 1986 Stock Option Plan or 1989 Director
Stock Option Plan, which are exercisable within a period of 60 days from
March 4, 1996, as follows: Mr. Cizik -- 49,999 shares; Mr. Batts -- 10,000
shares; Mr. Grum -- 10,000 shares; Mr. Olson -- 4,000 shares; Mr. Riley --
26,666 shares; Mr. Young -- 2,000 shares; Mr. Jackson -- 16,666 shares; Mr.
McCurdy -- 24,666 shares; Mr. McWilliams -- 5,000 shares; and all directors
and executive officers as a group -- 227,643 shares.
(3) Includes shares owned by family members as follows: Mr. Cizik -- 520 shares;
Mr. Ong -- 400 shares.
(4) Includes 6,000 shares held in a trust for which Mr. Batts is the settlor and
trustee and for which a member of his family is the beneficiary. Mr. Batts
has sole voting and investment power with respect to these shares.
(5) Includes 4,385 shares that may be acquired by conversion of the Company's
7.05% Convertible Subordinated Debentures due 2015.
REPORTING OF SECURITIES TRANSACTIONS
The Company's executive officers and directors are required under the
Securities Exchange Act of 1934 to file reports of ownership and changes in
ownership of Cooper stock with the Securities and Exchange Commission and the
New York Stock Exchange. For 1995 one report was filed late by Mr. Larry W.
McCurdy for one transaction completed on behalf of Mr. McCurdy by his investment
advisor in an uninstructed discretionary investment account. The report was
filed as soon as Mr. McCurdy had knowledge of the transaction.
MEETINGS OF THE COOPER BOARD AND ITS COMMITTEES
The Board of Directors of Cooper met on four occasions during 1995. All of
the directors attended seventy-five percent or more of the meetings of the Board
and of the committees of the Board on which they served, except Ms. Hill.
9
<PAGE>
Cooper has five committees composed of directors:
AUDIT COMMITTEE
The Audit Committee consists of five nonemployee directors: Harold S. Hook,
Chairman, Linda A. Hill, Constantine S. Nicandros, Sir Ralph H. Robins and A.
Thomas Young. Three Committee meetings were held during the year. Activities of
the Committee included conferring with management and the independent auditors
regarding the 1994 financial statements and the annual report on Form 10-K;
reviewing the 1994 management letter of the independent auditors and
management's response thereto; reviewing fees paid to the independent auditors;
reviewing the scope of the 1995 audit by the independent auditors; and making a
recommendation acted on by the Board of Directors to appoint Ernst & Young LLP
as the Company's independent auditors for 1995. During 1995, the Committee also
reviewed the following matters: the 1995 internal audit program and the proposed
scope of the 1996 internal audit program; officers' travel and entertainment
expenses; financial criteria for choosing insurance carriers; compliance with
the Company's conflicts of interest and ethical conduct policies; the
effectiveness of the Company's internal controls; the status of tax audits; and
the Company's litigation and environmental matters and risk management program.
EXECUTIVE COMMITTEE
The Executive Committee consists of two employee directors, Robert Cizik,
Chairman, and H. John Riley, Jr., and three nonemployee directors, Warren L.
Batts, Clifford J. Grum and Harold S. Hook. Under the Code of Regulations of the
Company, the Executive Committee has, during the intervals between the meetings
of the directors, all of the powers of the directors in the management and
control of the business and property of the Company. The Executive Committee did
not meet in 1995.
FINANCE COMMITTEE
The Finance Committee consists of five nonemployee directors: Frank A.
Olson, Chairman, Clifford J. Grum, Linda A. Hill, John D. Ong and Sir Ralph H.
Robins. Four Committee meetings were held during the year. The activities of the
Committee included reviewing pension plan asset management and the Company's
capital structure, debt ratings and debt composition; making recommendations
acted upon by the Board regarding dividends, the sale of equity securities owned
by the Company, the registration of debt securities, financing through state and
local government agencies, the repurchase of the Company's debentures and the
refinancing of certain credit facilities.
MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE
The Management Development and Compensation Committee consists of five
nonemployee directors: Constantine S. Nicandros, Chairman, Warren L. Batts,
Harold S. Hook, Frank A. Olson and A. Thomas Young. Three meetings of the
Committee were held in 1995. The activities of the Committee included a review
of the compensation philosophy and program for executive officers and key
managers; determination of the attainment of performance targets and cash bonus
awards for executive officers and other key managers; establishment of
performance targets and grants of awards of restricted stock and
performance-based shares under the Executive Restricted Stock Incentive Plan;
grants of stock options to 625 employees; salary reviews and actions for
officers; distributions under the Deferred Compensation Plan; establishment of
the 1996 Salary Policy and of the 1996 targets for the annual incentive plan;
approval of a new Stock Incentive Plan and a Management Annual Incentive Plan;
and adoption of Stock Ownership Guidelines for executive officers and key
executives.
COMMITTEE ON NOMINATIONS AND CORPORATE GOVERNANCE
The Committee on Nominations and Corporate Governance consists of four
nonemployee directors: John D. Ong, Chairman, Harold S. Hook, Constantine S.
Nicandros and Frank A. Olson. Three meetings of the Committee were held in 1995.
Matters reviewed and considered by the Committee included general matters of
corporate governance; establishment of a retirement policy for directors;
election of members of the Board to committees; nominations for election of
directors; and, pursuant to a delegation of authority from the Board of
Directors, establishment of the final exchange ratio for the exchange of shares
of Cooper for shares of Cooper Cameron Corporation common stock.
10
<PAGE>
EXECUTIVE MANAGEMENT COMPENSATION
The following table presents information concerning compensation paid to, or
accrued for services by the Chairman, the Chief Executive Officer and the three
most highly compensated executive officers of Cooper during fiscal years 1993,
1994 and 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION(3)
-------------------------
AWARDS
-------------------------
ANNUAL COMPENSATION(1) (F) (G)
---------------------- RESTRICTED SECURITIES (I)
(A) STOCK UNDERLYING ALL OTHER
NAME AND (B) (C) (D) AWARD(S) OPTIONS/SARS COMPENSATION
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($)(2) # ($)(4)
- --------------------------------------------------- --------- ---------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Cizik, R. -- Chairman.............................. 1995 $ 980,000 $ 400,000 $ 197,500 0 $ 44,100
1994 895,000 0 0 75,000 58,275
1993 835,000 400,000 0 0 37,575
Riley, Jr., H. J. -- President & 1995 541,250 250,000 177,125 0 24,356
Chief Executive Officer............................ 1994 487,500 0 0 40,000 32,063
1993 435,000 225,000 0 0 19,575
Jackson, Jr., R. E. -- Executive Vice 1995 322,917 120,000 88,875 0 14,531
President, Operations.............................. 1994 285,938 0 0 25,000 17,367
1993 250,000 100,000 0 0 11,989
McCurdy, L. W. -- Executive 1995 322,917 90,000 88,875 0 14,531
Vice President, Operations (5)..................... 1994 275,000 0 0 25,000 499,425
McWilliams, D. Bradley -- Senior 1995 254,375 85,000 61,225 0 13,472
Vice President, Finance............................ 1994 210,813 45,000 0 0 11,962
1993 187,708 55,000 0 5,000 8,447
</TABLE>
- ------------
(1) Column (e) "Other Annual Compensation" has been omitted since there are no
amounts to report. The aggregate amount of perquisites and other personal
benefits for any named executive does not exceed $50,000 or 10% of the total
of annual salary and bonus for any such named executive.
(2) The figures in column (f) reflect the fair market value on the date of grant
of awards of restricted stock that are subject to forfeiture in the event
that the executive does not remain employed by the Company until December
31, 1998, unless the executive sooner retires at age 65 in accordance with
corporate policy. All awards, except 500 shares to Mr. Riley, were granted
on February 13, 1995 and are valued at $39.50 a share. The additional award
of 500 shares to Mr. Riley was made on September 1, 1995 when he became
Chief Executive Officer, and is valued at $38.25 a share.
The following chart shows the number of shares of restricted stock held as
of December 31, 1995 and the value of such shares as of the end of 1995:
<TABLE>
<CAPTION>
NUMBER OF SHARES MARKET VALUE
------------------- ------------
<S> <C> <C>
Cizik.............................................................................. 5,000 $ 183,750
Riley.............................................................................. 4,500 165,375
Jackson............................................................................ 2,250 82,688
McCurdy............................................................................ 2,250 82,688
McWilliams......................................................................... 1,550 56,963
</TABLE>
(FOOTNOTES CONTINUED ON NEXT PAGE)
11
<PAGE>
All of the shares of restricted stock are subject to forfeiture in the event
that the named executive does not remain employed until December 31, 1998,
unless the employee sooner retires at age 65 in accordance with corporate
policy. Dividends are paid on the shares of restricted stock at the dividend
rate payable on all outstanding shares of Company Common Stock.
(3) Column (h) "LTIP Payouts" has been omitted since no LTIP Payouts were made
to the named executives during the years shown.
(4) The figures in column (i) for 1995 include the Company's contributions to
the Cooper Industries, Inc. Employees' Savings and Stock Ownership Plan and
to the Cooper Industries, Inc. Supplemental Excess Defined Contribution
Plan, respectively, as follows: R. Cizik $6,750 and $37,350; H. J. Riley,
Jr. $6,750 and $17,606; R. E. Jackson, Jr. $6,750 and $7,781; L. W. McCurdy
$6,750 and $7,781; and D. B. McWilliams $6,750 and $6,722. The figure for
1994 for L. W. McCurdy also includes payments totaling $483,000 in
connection with the Company's acquisition of Moog Automotive, Inc., his
previous employer, and the termination of his employment contract with that
company.
(5) Compensation information for Mr. McCurdy is not provided for 1993, as he was
not an executive officer of the Company during that year.
- ------------
The following table presents information concerning the unexercised stock
options held at December 31, 1995 by the individuals named in the Summary
Compensation Table.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION/SAR VALUES (1)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED
OPTIONS/SARS AT FISCAL
YEAR-END (#)
EXERCISABLE/UNEXERCISABLE
(D)
NAME --------------------------
(A) EXERCISABLE UNEXERCISABLE
- ------------------------------------------------------------------------------ ----------- -------------
<S> <C> <C>
Cizik, R...................................................................... 49,999 25,001
Riley, Jr., H. J.............................................................. 26,666 13,334
Jackson, Jr., R. E............................................................ 16,666 8,334
McCurdy, L. W................................................................. 24,666 8,334
McWilliams, D. B.............................................................. 10,033 1,667
</TABLE>
- ------------
(1) No options were exercised by any of the named executive officers during
1995. As of December 31, 1995, the exercise price for all options held by
the named executive officers was in excess of the market value. Accordingly,
columns (b), (c) and (e) of the table have been omitted.
12
<PAGE>
The following table presents information concerning long-term incentive
awards granted in 1995 to the individuals named in the Summary Compensation
Table pursuant to the Company's Executive Restricted Stock Incentive Plan. The
performance period for earning the awards is a four-year period from January 1,
1995 through December 31, 1998. Award payouts are tied to achieving performance
targets expressed as a compound growth rate in earnings per share over the
four-year performance period using 1994 earnings per share of $2.10 as the base.
No awards will be earned unless compound growth in earnings per share of at
least three percent is achieved. Earnings per share growth over the period of at
least 12 percent is required for target level performance and at least 15
percent is required for a payout at the maximum level. Since the plan was
established in 1978, the maximum target was achieved three times; the threshold
target one time; and no performance shares were earned four times.
LONG-TERM INCENTIVE PLAN -- AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
(C) UNDER NON-STOCK PRICE BASED PLANS
PERFORMANCE OR --------------------------------------------------
(B) OTHER PERIOD
(A) NUMBER OF UNTIL MATURATION OR (D) (E) (F)
NAME SHARES PAYOUT THRESHOLD TARGET MAXIMUM
- ------------------------------------- ------------ -------------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Cizik, R............................. 30,500(1) 1-1-95 to 12-31-98 30,500 shares 71,000 shares 137,000 shares
Riley, Jr., H. J..................... 15,000 1-1-95 to 12-31-98 24,500 shares 58,000 shares 111,500 shares
McCurdy, L.W......................... 8,250 1-1-95 to 12-31-98 8,250 shares 21,000 shares 39,750 shares
Jackson, Jr., R. E................... 8,250 1-1-95 to 12-31-98 8,250 shares 21,000 shares 39,750 shares
McWilliams, D. B..................... 4,550 1-1-95 to 12-31-98 4,550 shares 12,200 shares 22,850 shares
</TABLE>
- ------------
(1) Pursuant to the terms of the Company's Executive Restricted Stock Incentive
Plan, the issuance to Mr. Cizik of shares reflected in the above table is
subject to the discretion of the Management Development and Compensation
Committee based upon the performance of the Company from January 1, 1995
through June 30, 1996, the first calendar quarter ending after the date of
Mr. Cizik's retirement.
13
<PAGE>
COMPARISON OF FIVE-YEAR
CUMULATIVE TOTAL SHAREHOLDER RETURNS
The following graph compares the total shareholder return on the Company's
Common Stock for the five-year period December 31, 1990 through December 31,
1995 to the total returns for the same period of (a) the Standard & Poors 500
Stock Index; (b) the Standard & Poors Electrical Equipment Group; and (c) the
Standard & Poors Diversified Machinery Group. The Company chose the two industry
indices for comparison since Cooper's product offering is so diverse. Standard &
Poors assigns Cooper to its Diversified Machinery Group, while many analysts
compare Cooper to other electrical equipment manufacturers since this is a
significant part of Cooper's business. Management believes that a comparison to
two different indices is appropriate.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
COOPER INDUSTRIES INC. S&P ELECTRICAL EQUIPMENT S&P DIVERSIFIED MACHINERY* S&P 500*
<S> <C> <C> <C> <C>
1990 100.0 100.0 100.0 100.0
1991 142.3 132.5 118.9 130.3
1992 120.7 145.1 121.3 140.3
1993 128.8 175.0 179.6 154.3
1994 92.9 177.1 174.9 156.4
1995 104.0 247.0 214.5 215.0
*Includes Cooper
</TABLE>
REPORT OF THE MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
RESPONSIBILITIES OF THE COMMITTEE
The Management Development and Compensation Committee (the "Committee") is
responsible for establishing compensation programs for executive officers of the
Company that are designed to attract, retain and motivate the best qualified
executives. The Committee administers compensation programs so as to benefit the
long-term interests of the Company and its shareholders. The Committee also
reviews annually the succession planning and development and performance of the
executive officers and other key executives.
COMPENSATION PHILOSOPHY
The Committee's policy is to compensate executive officers based on their
responsibilities, individual performance, including achievement of annual goals
established for each individual executive, and the Company's performance, both
short- and long-term. The compensation program takes into account the
compensation practices of companies comparable to the Company (as described
below) so as to remain competitive in attracting and retaining key personnel.
There are three major components of the Company's executive compensation: a
base salary, an annual cash bonus and long-term stock incentive awards.
BASE SALARY
A base salary range is established for each executive officer using the Hay
Job Evaluation System, which uses a comparative assessment of know-how,
problem-solving and accountability factors in the job rating process. The
14
<PAGE>
competitiveness of the base salary is also considered since the Committee
believes it is critical to attract and retain the best qualified executives. The
Committee uses the annual Hay Survey of Compensation Practices to establish the
ranges of executives' salaries. In 1995, the Hay Survey of Compensation
Practices included 326 industrial companies with revenues in excess of $1
billion, which is a broader universe than the companies included in the S&P
Electrical Equipment Index and the S&P Diversified Machinery Index appearing in
the performance graph. The Committee believes that the broader group of
companies provides a more appropriate basis for establishing salary levels since
it minimizes the distortion of results that occurs when using a small sample
group.
The Committee's policy is to establish a salary range for the Chief
Executive Officer and the other named executives, to set the midpoint of the
range between the 50th and the 75th percentile of the Hay Survey, and to pay
compensation within the established range. Each executive's actual base salary
takes into account the individual's duties, responsibilities, work experience,
impact on the business and individual performance. The Committee verifies the
Hay data through use of a separate compensation study, known as Project 777,
which is compiled by Management Compensation Services. This data bank includes
335 companies, over 50 percent of which are in the Fortune 500. During 1995, the
actual base salaries for the named executive officers generally approximated the
50th percentile of the Hay Survey.
Salaries of senior executive officers are typically reviewed at 15-month
intervals. Base salary adjustments are primarily weighted on individual
performance with due consideration given to immediate past performance and
business decisions that impact the future growth and economic stability of the
Company.
ANNUAL INCENTIVE COMPENSATION
An annual cash bonus opportunity, which is awarded at the discretion of the
Committee, is designed to tie annual incentive compensation to overall corporate
and individual performance. The awarding of the bonus is based on performance
goals established by the Committee in February of the bonus year. A bonus pool
is established by the Committee based upon earnings per share performance as
compared to the prior year. The individual bonus amount awarded, if any, is tied
to the individual's job performance during the year. To date, the payments of
annual cash bonuses have been at the complete discretion of the Committee.
In February 1995, the Committee established the performance criteria and
bonus opportunities for executives named in the Summary Compensation Table for
1995, which overall ranged from 20 to 100 percent of the salary range midpoint,
depending on the executive's position. The award of cash bonuses for 1995 was
based on an increase in earnings per share in 1995 over 1994. In February 1996,
the Committee determined that the performance criteria were met and cash bonuses
were awarded to the named executives at an average of 34 percent of base salary.
LONG-TERM INCENTIVE PROGRAM
The Committee provides incentives to executive officers that are tied to the
long-term performance of the Company in order to link the executive's interests
to those of the Company's shareholders. For this purpose, the Committee has
granted share awards to the named executive officers pursuant to the Executive
Restricted Stock Incentive Plan or stock options pursuant to the 1986 Stock
Option Plan. Both Plans have been approved by the shareholders.
Under the Executive Restricted Stock Incentive Plan ("Stock Incentive
Plan"), initial share awards are granted, subject to forfeiture if the named
executive does not remain employed by the Company for a period of four years
from January 1 in the year the award is granted, unless the executive sooner
retires at age 65 in accordance with corporate policy. For each award, the
Committee establishes a four-year performance cycle and a range of additional
awards that may be earned based on achievement of the prescribed performance
goals. Performance goals are based on compound growth in earnings per share over
a specified target. The Committee generally establishes the value of the grant
at the median compensation level of large industrial companies.
Stock awards under the Stock Incentive Plan were made by the Committee in
February 1995 for a performance period commencing on January 1, 1995 and ending
on December 31, 1998. The number of shares of restricted stock and
performance-based stock awards granted to each named executive are shown in
column (f) of the Summary Compensation Table and in footnote 2 to the Summary
Compensation Table, respectively. The Committee determined the number of shares
awarded to each individual based on actual compensation, assumptions relating to
stock price and earnings growth, and recommendations and advice from Frederic W.
Cook & Co., a compensation consulting firm. In 1992 awards under the Stock
Incentive Plan were granted with a four-year performance cycle ending December
31, 1995. In
15
<PAGE>
February 1996, the Committee determined that the performance criteria
established by the Committee in 1992 for the 1992-1995 award cycle were not met
and all performance share awards were forfeited by the Chief Executive Officer
and the other named executives who had been granted awards in 1992.
CHIEF EXECUTIVE OFFICER COMPENSATION
During 1995 the Committee maintained the compensation of Mr. Cizik, who was
Chief Executive Officer until August 31, 1995, at the same level as was
established in 1994 by the Committee.
In 1995, the Committee established the compensation of Mr. Riley, who became
Chief Executive Officer on September 1, 1995. Mr. Riley's base salary of
$650,000 was based on a review of the compensation levels of chief executive
officers of companies of comparable size and in similar businesses, using the
surveys previously discussed. In addition, in establishing Mr. Riley's
compensation, the Committee examined the Company's financial position and
results and Mr. Riley's experience and duties and responsibilities as Chief
Executive Officer.
In February 1996, the Committee awarded cash bonuses to Mr. Cizik and Mr.
Riley after reviewing the Company's performance and determining that the
criteria established in February 1995 had been achieved. The awards of cash
bonuses were also based on specific accomplishments during 1995 including
completion of the exchange offer that resulted in the divestiture of the former
petroleum and industrial equipment segment; revenue growth of 6.5 percent;
growth in earnings per share of 15 percent; integration of the Abex and Zanxx
acquisitions; the general internationalization of the Company's businesses
through completion of the acquisitions of the CEAG electrical products
operations in Germany, the Cutler-Hammer electrical recloser business in Brazil
and the Trichamp automotive operations in South Africa; and monetization of the
Company's investment in Wyman-Gordon Company. No specific weighting was assigned
to any of these accomplishments.
In 1995, the Committee granted awards under the Stock Incentive Plan to Mr.
Cizik and Mr. Riley. Restricted stock awards of 5,000 shares to Mr. Cizik and
4,000 shares to Mr. Riley will be received by each if each remains employed by
the Company until December 31, 1998 or retires at age 65, if earlier. An earlier
termination of employment results in forfeiture of the restricted stock awards.
Upon Mr. Riley's appointment as Chief Executive Officer, an additional award of
500 shares of restricted stock was granted by the Committee to recognize his
greater responsibilities.
In 1995, the Committee also granted performance-based awards under the Stock
Incentive Plan to Mr. Cizik and Mr. Riley. The awards are shown in the Table,
Long-Term Incentive Plan -- Awards in Last Fiscal Year, on page 13. The
Committee determined the number of shares awarded to Mr. Cizik and Mr. Riley
using the same criteria as for other executive officers. The individual awards
were based on actual compensation, assumptions relating to stock price and
earnings growth and the recommendations and advice of Frederic W. Cook & Co., a
compensation consulting firm. The Committee believes that the performance share
awards granted to Mr. Cizik and Mr. Riley are competitive with awards granted to
chief executive officers of other, similar companies in the S&P Electrical Index
and the S&P Diversified Machinery Index. Through the performance share awards, a
significant portion of the Chief Executive Officer's compensation is tied
directly to the Company's financial performance and overall return to
shareholders.
STOCK OWNERSHIP GUIDELINES
The Committee established stock ownership guidelines in 1995 for executive
officers and certain other key executives as a way to align more closely the
interests of the key executives with those of the shareholders. These key
executives are required to make continuing progress toward compliance with the
guidelines during the five-year period beginning January 1, 1996 and to fully
comply with the guidelines by the end of such five-year period. The guidelines
are as follows:
- Chief Executive Officer -- 4.5 times base salary
- Other Senior Officers, including those other officers named in the Summary
Compensation Table -- 3 times base salary
- Other officers and division presidents or general managers -- 1.5 times
base salary
OMNIBUS BUDGET RECONCILIATION ACT IMPLICATIONS
The Committee has reviewed the provisions of the Omnibus Budget
Reconciliation Act of 1993 ("OBRA") and the regulations issued under the Act
that impose a limit, with certain exceptions, on the amount that a publicly held
16
<PAGE>
corporation may deduct in any year for the compensation paid to its five most
highly compensated officers. The regulations provide certain transition rules
that will preserve the deductibility for the Company of the performance-based
awards granted in 1995. In addition, because Mr. Cizik has elected to defer
receipt of his annual cash bonus earned during 1995 until the year following his
retirement, all compensation paid by the Company in 1995 should be deductible.
In 1995, the Committee adopted a new cash bonus plan and a new stock incentive
plan that will meet the requirements of the new tax rules so as to preserve the
tax deductibility of all executive compensation while maintaining the
Committee's policy of compensating executives based on their responsibilities,
achievement of annual goals and the Company's annual and longer-term
performance.
NEW MANAGEMENT ANNUAL INCENTIVE PLAN AND NEW STOCK INCENTIVE PLAN
During 1995, the Committee engaged Frederic W. Cook & Co., a compensation
consultant, to review and evaluate the existing executive compensation program.
As a result of this review, the expiration of the existing stock option plan and
the desire to link more closely compensation and Company performance, the
Committee adopted a new Management Annual Incentive Plan and a new Stock
Incentive Plan. Both Plans are described in detail in this proxy statement at
pages 20 through 26 and are being submitted to shareholders for approval.
The Committee in 1995 adopted a formal cash bonus plan for senior executives
that contains the limitations necessary to comply with OBRA. The new Management
Annual Incentive Plan formalizes the Committee's existing procedure for awarding
annual cash bonuses. The Committee currently intends to continue to use an
increase in earnings per share over the prior year as the performance criteria
for awarding cash bonuses.
The new Stock Incentive Plan ("New Incentive Plan") provides for awards in
the form of stock options, restricted stock and performance-based share awards.
The New Incentive Plan replaces both the 1986 Stock Option Plan, which expired
in 1996, and the Executive Restricted Stock Incentive Plan. The Committee
intends to award primarily stock options and performance-based share awards to
the named executive officers and other key executives. Awards of restricted
stock will be used only in unusual, limited circumstances, such as for
attracting a new key executive. The Committee also intends to award stock
options under the New Incentive Plan to other middle and upper level Company
employees.
The Committee believes that the new Management Annual Incentive Plan and the
new Stock Incentive Plan, along with the Stock Ownership Guidelines adopted in
1995, will result in an executive compensation program that more closely ties
compensation to corporate performance and to the interests of the Company's
shareholders.
Constantine S. Nicandros, Chairman
Warren L. Batts Frank A. Olson
Harold S. Hook A. Thomas Young
17
<PAGE>
PENSION BENEFITS
Upon retirement the executives named in the Summary Compensation Table may
be entitled to retirement benefits from the Salaried Employees' Retirement Plan
of Cooper Industries, Inc. ("Cooper Retirement Plan"), the Cooper Industries,
Inc. Supplemental Excess Defined Benefit Plan ("Supplemental Plan") and the
Crouse-Hinds Officers' Disability and Supplemental Pension Plan ("Crouse-Hinds
Officers' Plan).
Pursuant to the Cooper Retirement Plan, the Company credits to the
individual's plan account four percent of each year's total compensation up to
the Social Security wage base for the year, plus eight percent of each year's
total compensation which exceeds the Social Security wage base. For this
purpose, total compensation is cash remuneration paid by the Company to or for
the benefit of a member of the Cooper Retirement Plan for services rendered
while an employee. For the executives named in the Summary Compensation Table,
the total compensation is shown in columns (c) and (d) of the Summary
Compensation Table. However, if an executive elects to defer any compensation,
his total compensation under the Cooper Retirement Plan is reduced by the amount
deferred. The Executive Restricted Stock Incentive Plan awards shown in column
(f) of the Summary Compensation Table and on the Long-Term Incentive Plan --
Awards in Last Fiscal Year Table are not included for purposes of determining
the credits under the Cooper Retirement Plan. This formula for determining
benefit credits became effective on July 1, 1986.
Benefits for service through June 30, 1986, were determined based on the
retirement plan formula then in effect and converted to initial balances under
the Cooper Retirement Plan. Both initial balances and credits for benefits after
July 1, 1986 receive interest credits until the participant commences benefit
payments. The Plan's interest credit rate for 1995 was 4.75% and will be 5.0%
for 1996. Benefits at retirement are payable, as the participant elects, in the
form of an escalating annuity, a level annuity with or without survivorship, or
a lump-sum payment.
The Cooper Retirement Plan "grandfathers" prior plan benefits for
participants (including some of the executives named in the Summary Compensation
Table) who meet certain age and service requirements. Under this "grandfather"
provision, an eligible participant is assured that his or her actual pension
benefit payable from the Cooper Retirement Plan will not be less than the
benefit he or she would have received at retirement under the prior plan formula
calculated based on service and earnings through June 30, 1991.
The Supplemental Plan is an unfunded, nonqualified plan that provides to
certain employees, including those named in the Summary Compensation Table,
Cooper Retirement Plan benefits that cannot be paid from a qualified, defined
benefit plan due to Internal Revenue Code provisions. The Plan also provides
benefits equal to what would have been paid under the Cooper Retirement Plan on
amounts of deferred compensation had those amounts not been deferred. The
Crouse-Hinds Officers' Plan, an unfunded, nonqualified plan assumed by the
Company following the acquisition of Crouse-Hinds Company, may provide to one
Cooper officer benefits in addition to amounts payable under other retirement
plans of the Company. In addition, Mr. McCurdy had a Supplemental Retirement
Agreement with Moog Automotive, Inc., which agreement was assumed by the Company
in connection with the acquisition of Moog. This agreement will provide benefits
to Mr. McCurdy in addition to amounts payable under other retirement plans of
the Company.
PENSION BENEFITS
<TABLE>
<CAPTION>
CREDITED YEAR ANNUAL
SERVICE AS OF INDIVIDUAL ESTIMATED
JANUARY 1, REACHES AGE BENEFIT AT
1996 65 AGE 65
--------------- ----------- ----------
<S> <C> <C> <C>
Robert Cizik........................................................ 34.4 1996 $ 511,000
H. John Riley, Jr................................................... 33.2 2005 $ 289,000
Ralph E. Jackson, Jr................................................ 20.0 2006 $ 126,000
Larry W. McCurdy.................................................... 10.1 2000 $ 102,000
D. Bradley McWilliams............................................... 24.1 2006 $ 129,000
</TABLE>
For each of the individuals shown in the Summary Compensation Table, the
table above shows current credited years of service, the year each attains age
65, and the projected annual pension benefit at age 65. The projected annual
pension benefit is based on the following assumptions: benefits paid on a
straight-life annuity basis; continued compensation at the 1995 levels; and an
interest credit rate of 5.0%. Amounts payable under the Supplemental Plan, but
not the
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Crouse-Hinds Officers' Plan, are included in the Annual Estimated Benefit. The
amount shown for Mr. McCurdy includes the additional retirement benefits that he
will receive under his Supplemental Retirement Agreement described above.
CHANGE IN CONTROL ARRANGEMENTS
The executives named in the Summary Compensation Table participate in the
Executive Restricted Stock Incentive Plan. This Plan was approved by the
shareholders on April 26, 1988. The Plan is designed to tie executive
compensation to increases in earnings per share thus benefiting stock price
appreciation and shareholder wealth. Under the Plan, which is administered by
the Management Development and Compensation Committee of the Board of Directors
("Committee"), initial share awards are granted, subject to forfeiture if the
executive does not remain in the employ of Cooper until the end of the four-year
performance cycle. Additional performance shares (and cash equal to the amount
of dividends that would have been paid thereon) may be earned during the
four-year period in accordance with a formula that is dependent upon the
achievement of performance criteria established by the Committee. At the
conclusion of the four-year period, the initial share awards plus the
performance shares earned, if any, are issued (and cash equal to the dividends
on the performance shares is paid). The Plan provides that upon a change in
control of the Company, the executive officers may receive cash in lieu of
shares under the Plan in amounts equal to the fair market value of all
outstanding share awards.
The executives named in the Summary Compensation Table have been granted
stock options under the Company's 1986 Stock Option Plan. The options vest over
a period of three years, one-third each year after the first year, and have a
five-year term. The 1986 Stock Option Plan provides that upon a change of
control of the Company, the Committee may accelerate the vesting of any
outstanding options, or cancel outstanding options and make a cash payment to
the named executives equal to the difference between the fair market value of
the Company's Common Stock and the option exercise price.
There are no circumstances presently foreseeable under which the aggregate
dollar amount payable reasonably can be estimated to have a material, adverse
effect on the operating or financial condition of the Company. The Company has
established a trust that will be used to fund its obligations under the
Executive Restricted Stock Incentive Plan, the 1986 Stock Option Plan and
certain otherwise unfunded benefit plans in the event of a change in control or
a potential change in control. In 1988, the Company also established a trust
that will be used to fund its obligations under otherwise unfunded benefit plans
providing deferred compensation and retirement benefits to nonemployee directors
of the Company. Presently these trusts have been nominally funded.
COMPENSATION TO DIRECTORS
The Annual Basic Retainer of nonemployee directors is $45,000 per annum. In
addition, nonemployee directors are paid meeting attendance fees of $1,000 for
regular committee meetings and $2,000 for special Board or committee meetings.
An additional annual retainer of $6,000 is paid to each nonemployee chairman of
a standing committee.
In lieu of receiving the Annual Basic Retainer and meeting fees in cash,
each nonemployee director may elect, pursuant to the Directors Deferred
Compensation Plan, to defer receipt of such amounts until a date determined by a
director or until retirement from the Board. Alternatively, in 1995 each
nonemployee director could have elected to receive, in lieu of the Annual Basic
Retainer fee, a nonqualified stock option covering 2,000 shares of the Company's
Common Stock pursuant to the 1989 Director Stock Option Plan (the "Director
Plan"). The exercise price is determined as follows:
<TABLE>
<S> <C> <C> <C> <C>
Fair Market Value Annual Basic
of a Share of Retainer Cash Exercise
Common Stock on - ------------------- = Price Per
Date of Grant 2,000 Share
</TABLE>
provided that the minimum Exercise Price is $5.00 per share. The maximum number
of shares to be issued under the Director Plan, the number of shares subject to
each option (including the denominator of 2,000) and the minimum price per share
are subject to adjustment in the event of stock splits or other changes in the
Cooper Common Stock or capital structure.
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<PAGE>
Historically, options have been granted on the date following commencement
of the Annual Meeting of Shareholders and have become fully exercisable on the
first anniversary of the date of grant. Options terminate upon the expiration of
five years from the date of grant, subject to prior termination pursuant to the
terms of the Director Plan.
In 1995, two nonemployee directors elected to receive a stock option in lieu
of the Annual Basic Retainer for the year April 1995 to April 1996. During 1995,
options for a total of 4,000 shares of Cooper Common Stock were granted and
6,000 shares were issued pursuant to the exercise of options under the Director
Plan. As of December 31, 1995, options were outstanding for 26,000 shares under
the Director Plan.
Pursuant to the Cooper Industries, Inc. Directors Retirement Plan, any
director with at least 10 years of service as a director (counting a fractional
year as a full year), or any director who retires in accordance with a
resolution regarding director tenure adopted by the Board on April 25, 1995, as
thereafter from time to time amended, will be entitled to receive a benefit
amount equal to the annual basic retainer for nonemployee directors in effect at
the time of retirement, exclusive of special compensation for services as a
Committee Chairman or attendance at meetings. The benefit amount will be paid
annually on January 2 for the preceding calendar year, or quarterly if elected,
for the number of years in which the director has served on the Board (counting
a fractional year as a full year). Payment ceases with the death of the retired
director.
In February 1996, the Committee on Nominations and Corporate Governance
reviewed the compensation paid and benefits provided to nonemployee directors
and recommended certain changes that were then adopted by the Board of
Directors. The Board decided to terminate the existing Directors Retirement
Plan, described in the preceding paragraph. Any vested benefits under the
Directors Retirement Plan will be grandfathered and no additional benefits will
accrue. The Board also decided to terminate the 1989 Director Stock Option Plan
in favor of a broader stock plan. No further grants of options will be made
under the 1989 Plan, but outstanding options shall not be affected by such
termination.
To replace benefits under the two terminated plans, the Board adopted the
Cooper Industries, Inc. Directors' Stock Plan and is submitting such Plan for
approval by the shareholders. The Directors' Stock Plan provides for a grant to
each nonemployee director of 400 shares of Common Stock of the Company on each
annual meeting date with a maximum of 1,200 shares to be issued to any
individual director. The Plan further provides for an annual grant to each
nonemployee director of a stock option for 1,000 shares at fair market value.
The option will vest on the third anniversary of the date of grant and has a
10-year term. The Directors' Stock Plan is described more fully in the section
captioned Proposal 3. The Board believes that the new Directors' Stock Plan will
encourage the ownership of Company stock by the directors and increase their
personal interest in the Company's success.
PROPOSAL 2
APPROVAL OF COOPER INDUSTRIES, INC. STOCK INCENTIVE PLAN
During 1995, the Management Development and Compensation Committee (the
"Committee") reviewed the Company's compensation policy for executive officers
and key managers with a view toward more closely linking compensation to the
Company's performance and encouraging ownership of Company stock. The Committee
also desired to meet the requirements of the Omnibus Budget Reconciliation Act
of 1993 (also referred to as Section 162(m) of the Internal Revenue Code) so
that the Company will continue to receive a deduction for all compensation paid
to executive officers. In addition, the Company's existing 1986 Stock Option
Plan expired on February 18, 1996, and stock options can no longer be granted
under the 1986 Plan. As of the Record Date there were 2,372,500 outstanding
options under the 1986 Stock Option Plan. The Company has no other stock option
plan for employees.
Upon the Committee's recommendation, the Board of Directors approved,
subject to shareholder approval, the Cooper Industries, Inc. Stock Incentive
Plan ("Stock Incentive Plan"), which will replace both the 1986 Stock Option
Plan and the Executive Restricted Stock Incentive Plan. No further awards will
be made under those plans. The Stock Incentive Plan is intended to advance the
interests of Cooper by providing executives and key employees an opportunity to
acquire a proprietary interest in the Company and financial incentives that
correspond to the performance of the Company and shareholder value. The link
between the interests of executives and key employees with those of shareholders
is further enhanced by the Stock Ownership Guidelines adopted by the Committee
(described on page 16 of this proxy statement), which require certain levels of
stock ownership to be attained during the next five years.
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A summary of the essential features of the Stock Incentive Plan is provided
below, but is qualified in its entirety by reference to the full text of the
Stock Incentive Plan, which is attached to this Proxy Statement as Exhibit I.
Approval of the Stock Incentive Plan requires the affirmative vote of a majority
of the shares represented in person or by proxy at the meeting and voting on
such Plan. Abstentions will be counted for purposes of determining whether a
quorum is present and will be counted as voting. Broker nonvotes are not counted
for purposes of voting.
ELIGIBILITY
Officers and key employees of the Company, its subsidiaries and affiliates
are eligible to receive awards. There are approximately 625 persons currently
eligible to participate in the Plan, including the executives named in the
Summary Compensation Table.
PLAN ADMINISTRATION
The Plan will be administered by the Committee, which will have authority to
select participants to whom awards will be made, determine the type, amount and
terms of any award, adopt administrative policies and otherwise interpret and
carry out the Plan. The Committee may not take any action that would prevent
awards granted under the Plan from meeting the requirements for exemption from
Section 16(b) of the Securities Exchange Act of 1934 ("Exchange Act") or prevent
awards that are intended to provide "performance-based compensation," within the
meaning of Section 162(m) of the Internal Revenue Code ("Code"), from doing so.
AWARDS
Awards under the Plan may be in the form of stock options (either incentive
stock options within the meaning of Section 422 of the Code or nonstatutory
stock options), restricted stock and performance based share awards.
Stock options will be exercisable in whole or in such installments and at
such times and upon such terms as the Committee determines, provided that no
stock options will be exercisable more than 10 years after grant. The exercise
price of any option may not be less than the fair market value of a share of
Common Stock on the date of grant. Participants may pay the exercise price of a
stock option in cash, Common Stock, a combination thereof or such other
consideration as the Committee may deem appropriate.
Restricted stock will be awarded in such numbers and at such times as the
Committee determines. Restricted stock will be subject to such terms, conditions
or restrictions as the Committee deems appropriate, including, but not limited
to, restrictions on transferability, requirements of continued employment,
individual performance or the financial performance of the Company. The
Committee will establish the period of vesting and forfeiture restrictions at
the time of grant, provided that vesting will be at least one year from the date
of grant, except as noted below in the event of a Change in Control. The
Committee may grant to a participant to whom restricted stock has been awarded
all or any of the rights of a shareholder with respect to such restricted stock,
including dividends or dividend equivalents and voting rights. It is the
Company's intention that awards of restricted stock will be used only in
unusual, limited circumstances, such as for attracting a new, key executive.
The Committee may grant an award of performance shares to participants as of
the first day of each performance period established by the Committee, which
must be at least one year. Performance goals will be established by the
Committee not later than 90 days after the commencement of the applicable
performance period. At the end of the period, the performance shares will be
converted into Common Stock, cash or a combination thereof and distributed based
upon attainment of the performance goals. Upon issuance of performance shares,
the Company will pay to the participant an amount equal to the aggregate amount
of dividends that the participant would have received had the participant owned
the shares during the performance period.
Performance criteria used to establish performance goals will include one or
any combination of the following: (i) the Company's return on equity, assets,
capital or investment; (ii) pre-tax or after-tax profit levels of the Company,
any subsidiary or business segment; (iii) cash flow or similar measure; or (iv)
total shareholder return; (v) changes in the market price of the Common Stock;
or (vi) market share. Performance goals will specify achievement targets for
each applicable performance criterion, including a threshold level below which
no award will be payable. Each award will specify the amount payable, or the
formula for determining the amount payable, upon achievement of applicable
performance targets. Performance goals may be different for each performance
period and for each participant for the same period. The Committee is authorized
to adjust the method of calculating attainment of performance goals in
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<PAGE>
recognition of nonrecurring items and may reduce performance results upon which
awards are based to offset any unintended results arising from events not
anticipated when the goals were established, provided the adjustment is
permitted by Section 162(m) of the Code.
SHARES SUBJECT TO PLAN
The aggregate number of shares of Common Stock available for awards granted
under the Plan is 7,000,000, of which no more than 2,300,000 will be available
for restricted stock and performance shares, subject to adjustment for any stock
split, stock dividend or other change in the Company's outstanding shares of
Common Stock. Shares issued under the Plan may be authorized but unissued shares
or treasury shares. Common Stock related to awards that are forfeited or expire
unexercised will become available for future awards. If an award is exchanged
for cash or other property of comparable value, the Common Stock related to the
award will be deducted from the shares available for future awards.
No participant who is an executive officer will receive awards of stock
options in excess of the greater of 100,000 shares per calendar year or a total
of 500,000 shares in a continuous five-year period. No participant who is an
executive officer will receive awards of restricted stock and performance shares
in excess of the greater of 125,000 shares per calendar year or a total of
500,000 shares in a continuous four-year period.
The closing price of the Company's Common Stock on the New York Stock
Exchange on March 4, 1996, was $39.00 per share.
CHANGE IN CONTROL
Immediately upon a Change in Control, as defined in the Plan, all
outstanding awards will vest automatically, all forfeiture restrictions will
lapse and all performance shares will be deemed earned at the maximum
performance goal level. With respect to stock options, the Company will cancel
such options and, within 10 days of the Change in Control, make a payment in
cash to each participant with an outstanding option in an amount equal to the
excess of the greater of (i) the fair market value of the stock on the date of
the Change in Control or (ii) the highest price per share actually paid for the
stock in connection with the Change in Control, over the option exercise price
times the number of shares subject to outstanding options held by the
participant. There are no separate change in control or "golden parachute"
contracts between the Company and the executives named in the Summary
Compensation Table.
Under certain circumstances, an accelerated vesting or the cash out of stock
options, or an accelerated lapse of restrictions on other awards, in connection
with a Change in Control might be deemed an "excess parachute payment" under
Section 280G of the Code. To the extent payments are considered to be "excess
parachute payments," the participant may be subject to an excise tax and the
Company may be denied a tax deduction. In such cases, the participant may
disclaim any entitlement to any payment or benefit under the Plan that would
constitute such "excess parachute payment."
AMENDMENT, SUSPENSION AND TERMINATION
The Company's Board of Directors may amend, suspend or terminate the Plan at
any time, except that no amendment may impair the rights of any participant
without such participant's consent and no amendment will be effective prior to
approval by the Company's shareholders to the extent such approval is required
by law or pursuant to Section 162(m) of the Code or Rule 16b-3 issued under the
Exchange Act to preserve the applicability of any exemption provided by such
rules to any award then outstanding. Subject to earlier termination pursuant to
the above, the Plan will terminate November 7, 2005. After that date, no future
awards may be granted, but previously granted awards will remain outstanding in
accordance with their applicable terms and conditions.
NONTRANSFERABILITY OF OPTIONS
Awards granted under the Plan will not be transferable or assignable other
than (i) by will or the laws of descent and distribution, (ii) by gift or other
transfer (other than an incentive stock option unless permitted by the Code) to
any trust or estate in which the original participant or such participant's
spouse or other immediate relative has a substantial beneficial interest, or to
a spouse or other immediate relative (subject to Rule 16b-3 of the Exchange
Act), or (iii) pursuant to a qualified domestic relations order.
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<PAGE>
DEFERRALS
The Committee may require or permit participants to defer the receipt of any
award. It also may provide that deferred amounts be credited with interest or
the crediting of dividend equivalents where the deferral amount is denominated
in shares.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary generally describes the principal federal income tax
consequences under current tax laws of certain events under the Plan. The
summary is general in nature and is not intended to cover all tax consequences
that may apply to a particular participant or to the Company, nor does it
describe foreign, state or local tax consequences.
INCENTIVE STOCK OPTIONS
No income results to a participant upon the grant or exercise of an
incentive stock option ("ISO") provided that (i) there is no disposition of
stock received upon exercise of an ISO within two years from the date the ISO is
granted or within one year from the date the ISO is exercised (the "ISO holding
periods"); and (ii) the participant is an employee of the Company or a
subsidiary of the Company at all times during the period commencing on the date
of grant and ending on the date three months (or one year in the case of a
participant who is totally and permanently disabled) prior to the date of
exercise.
In the event of a disposition of stock received upon exercise of an ISO
after the ISO holding periods have been satisfied, any gain or loss, equal to
the difference between the amount realized upon such disposition and the option
price, generally will be taxable as long-term capital gain or loss. In the event
of a disposition of stock received upon exercise of an ISO prior to the
expiration of the ISO holding periods, the participant will recognize ordinary
income equal to the excess of the fair market value of such stock at the time of
exercise (or the amount realized upon such disposition, if less) over the option
price. If the amount realized upon such disqualifying disposition exceeds the
fair market value of such stock at the time of exercise, the excess will be
taxable as long-term or short-term capital gain, depending on the participant's
holding period.
No deduction is allowable to the Company upon the grant or exercise of an
ISO. In the event that a participant recognizes ordinary income as a result of a
disposition of stock received upon exercise of an ISO prior to the expiration of
the ISO holding periods, the Company generally will be entitled to a deduction
in an amount equal to the ordinary income recognized by the participant.
Certain additional special rules may apply if the exercise price for an
option is paid for with shares previously owned by the participant rather than
in cash.
NONSTATUTORY STOCK OPTIONS
No income is recognized upon the grant of a nonstatutory stock option to a
participant. The participant recognizes ordinary income upon exercise of the
nonstatutory stock option equal to the excess of the fair market value of the
stock received upon exercise of the stock option on the date of exercise over
the option price. Such ordinary income is subject to withholding. The
participant's tax basis in these shares will be their fair market value when
purchased. On subsequent sale of such shares, gain or loss will be recognized in
an amount equal to the difference between the tax basis thereof and the amount
realized on such sale. If the participant is subject to the provisions of
Section 16(b) of the Exchange Act regarding short-swing purchases and sales, the
participant may not be required to recognize income upon the exercise of the
nonstatutory stock option, but generally may recognize ordinary income six
months thereafter in an amount equal to the excess of the fair market value of
the stock received upon exercise of the stock option at that time over the
option price.
Certain additional special rules may apply if the exercise price for an
option is paid for with shares previously owned by the participant rather than
in cash.
RESTRICTED STOCK
A participant generally will not recognize taxable income upon the grant of
restricted stock, and the recognition of any income will be postponed until the
time that the restrictions on the shares lapse, at which time the participant
will recognize ordinary income equal to the fair market value of the restricted
stock at the time that such restrictions lapse. A
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participant may elect to be taxed at the time of the grant of restricted stock
and, if this election is made, the participant will recognize ordinary income
equal to the fair market value of the restricted stock at the time of grant
determined without regard to any of the restrictions thereon.
PERFORMANCE SHARES
When performance shares are earned and stock is issued therefor, a
participant will realize ordinary income equal to the fair market value of the
performance shares. If a participant is subject to the provisions of Section
16(b) of the Exchange Act regarding short-swing purchases and sales, the
participant may not be required to recognize income upon receipt of performance
shares, but generally may recognize ordinary income six months thereafter in an
amount equal to the fair market value of the performance shares at that time.
DIVIDEND EQUIVALENTS
A participant realizes ordinary income upon the receipt of dividend
equivalents in an amount equal to any cash received.
DEDUCTIBILITY BY THE COMPANY
The Company generally will be entitled to a deduction equal to the ordinary
income recognized by the participant in the same taxable year in which the
participant recognizes ordinary income with respect to nonstatutory stock
options, restricted stock, performance shares and dividend equivalent payments.
The benefits that will be received by employees under the Plan, or that
would have been received under the Plan in 1995 if the Plan had then been in
effect, are not currently determinable. On February 13, 1996 the Board of
Directors granted awards of stock options and performance shares under the Stock
Incentive Plan, subject to approval of the Plan by the Company's shareholders.
The following table provides information as to the awards granted.
STOCK INCENTIVE PLAN
<TABLE>
<CAPTION>
PERFORMANCE-SHARE
STOCK OPTIONS AWARDS
NAME AND POSITION # SHARES (1) # SHARES (2)
- ---------------------------------------------------------------------------- ------------- -----------------
<S> <C> <C>
Cizik, R. -- Chairman....................................................... 0 0
Riley, Jr., H. J. -- President and Chief
Executive Officer.......................................................... 43,500 60,900
Jackson, Jr., R.E. -- Executive Vice President,
Operations................................................................. 15,500 21,700
McCurdy, L. W. -- Executive Vice President,
Operations................................................................. 15,500 21,700
McWilliams, D. B. -- Senior Vice President,
Finance.................................................................... 10,700 15,000
All Current Executive Officers as a Group
(including those named above).............................................. 136,200 182,600
All Employees as a Group (excluding
Current Executive Officers)................................................ 923,000 86,300
</TABLE>
- ------------
(1) The option exercise price per share is $39.06, the average of the high and
low sales prices of the Company's Common Stock on February 13, 1996, the
date of grant, in the New York Stock Exchange Composite Transactions. Each
option will expire 10 years from the date of grant and will become one-third
exercisable after one year, two-thirds exercisable after two years and fully
exercisable after three years from the date of grant, subject to earlier
vesting in the event of death, disability or a Change in Control, as defined
in the Plan.
(2) The performance-share awards may be earned based on achievement of
performance goals over a four-year period commencing January 1, 1996 and
ending on December 31, 1999. The performance goals are based on compound
growth in earnings per share over the performance period, with a threshold
of six percent compound growth before
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any awards are earned. The table shows the maximum number of performance
shares that may be earned. At least 15 percent compound growth in earnings
per share must be achieved for a payout at the maximum level shown in the
table. The awards, to the extent earned, will be distributed in shares of
Company Common Stock or at the executive's election, up to 50 percent of the
earned award may be paid in cash.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE COOPER
INDUSTRIES, INC. STOCK INCENTIVE PLAN.
PROPOSAL 3
APPROVAL OF COOPER INDUSTRIES, INC. MANAGEMENT ANNUAL INCENTIVE PLAN
The Board of Directors adopted and submits to the shareholders for approval,
the Cooper Industries, Inc. Management Annual Incentive Plan ("Annual Incentive
Plan"), which is intended to formalize the existing practices of awarding annual
cash bonuses to senior executives based on the Company's performance. The Annual
Incentive Plan is designed so that payments to senior executives will constitute
performance-based compensation under Section 162(m) of the Code and will be tax
deductible by the Company. The Annual Incentive Plan furthers the Board's policy
of linking executive compensation to the Company's performance and shareholders'
interests as a whole.
A summary of the essential features of the Annual Incentive Plan is provided
below, but is qualified in its entirety by reference to the full text of the
Annual Incentive Plan, which is attached to this Proxy Statement as Exhibit II.
Approval of the Annual Incentive Plan requires the affirmative vote of a
majority of the shares represented in person or by proxy at the meeting and
voting on such Plan. Abstentions will be counted for purposes of determining
whether a quorum is present and will be counted as voting. Broker nonvotes are
not counted for purposes of voting.
ELIGIBILITY
Participation in the Plan will be limited to the Chairman; the Chief
Executive Officer; any Executive Vice President, Operations; any Senior Vice
President; and any other senior officer reporting directly to the Chief
Executive Officer. There are seven persons currently eligible to participate in
the Plan.
PLAN ADMINISTRATION
The Plan will be administered by the Committee, which will certify in
writing as to the achievement of performance criteria prior to payment of any
awards. The Committee retains the discretion to reduce in whole or in part the
amount of any award that would otherwise be payable to a participant based upon
its assessment of that participant's performance.
AWARDS, PERFORMANCE GOALS AND MEASURES
Awards under the Plan will be paid in cash. The Committee will establish no
later than 90 days after the beginning of each year performance goals for such
year based upon one or more of the following performance measures: return on
equity, assets, capital or investment; pre-tax or after-tax profit levels; and
cash flow or similar measures. Performance goals may be identical for all
participants or may be different to reflect more appropriate measures of
individual performance. Performance goals will include a threshold level below
which no award will be payable and a maximum award opportunity for each
participant. The Committee is authorized to adjust the method of calculating
attainment of performance goals in recognition of nonrecurring items and may
reduce performance results upon which awards are based to offset unintended
results arising from events not anticipated when the goals were established,
provided the adjustment is permitted by Section 162(m) of the Code. The maximum
annual award that may be granted to a participant under the Plan is $1.5
million.
CHANGE IN CONTROL
Immediately upon a Change in Control, as defined in the Plan, all
outstanding awards shall be deemed earned at the maximum performance goal level
and the Company shall make a payment of such awards in cash within 10 days after
the effective date of the Change in Control. There are no separate change in
control or "golden parachute" contracts between the Company and the participants
in the Plan.
DEFERRALS
The Committee may permit participants to defer receipt of all or a portion
of an award. It also may provide that deferred amounts be credited with
interest.
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AMENDMENT, SUSPENSION AND TERMINATION
The Company's Board of Directors may amend, suspend or terminate the Plan at
any time except that no amendment will be effective prior to approval by the
Company's shareholders to the extent such approval is required by law or
pursuant to Section 162(m) of the Code. Further, no amendment will be effective
that would (i) increase the maximum amount that can be paid to a participant
under the Plan, (ii) change the performance criterion set forth in the Plan, or
(iii) modify the eligibility requirements of participants without shareholder
approval. Subject to earlier termination pursuant to the above, the Plan will
terminate November 7, 2000. After that date, no future awards may be granted.
On February 13, 1996, the Board of Directors established the performance
goals for the payment of awards for fiscal year 1996, which are based on
increases in earnings per share in 1996 as compared to 1995. If this Plan had
been in effect in 1995, the cash bonuses paid to the executives named in the
Summary Compensation Table would have been essentially the same as shown in the
Summary Compensation Table.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE COOPER
INDUSTRIES, INC. MANAGEMENT ANNUAL INCENTIVE PLAN.
PROPOSAL 4
APPROVAL OF COOPER INDUSTRIES, INC. DIRECTORS' STOCK PLAN
On February 13, 1996, the Board of Directors of the Company adopted, subject
to approval by the shareholders, the Cooper Industries, Inc. Directors' Stock
Plan (the "Directors' Plan"). The Directors' Plan will replace the existing
Directors' Retirement Plan, which provided cash payments to eligible directors
after retirement from the Board, and the 1989 Director Stock Option Plan, which
provided options in lieu of the annual retainer upon election by the director.
The Board of Directors believes that the Directors' Plan will promote the
growth and success of the Company by attracting and retaining the best qualified
persons to serve as independent directors and will encourage stock ownership and
increase the directors' personal interest in the Company's financial performance
and success.
A summary of the essential features of the Directors' Plan is provided
below, but is qualified in its entirety by reference to the full text of the
Directors' Plan, which is attached to the Proxy Statement as Exhibit III.
Approval of the Directors' Plan requires the affirmative vote of a majority of
the shares represented in person or by proxy at the meeting and voting on such
Plan. Abstentions will be counted for purposes of determining whether a quorum
is present and will be counted as voting. Broker nonvotes are not counted for
purposes of voting.
If approved by the shareholders, each nonemployee director of the Company
will receive an annual grant of 400 shares of Company Common Stock on the date
of the annual meeting of shareholders with a maximum of 1,200 shares to be
granted to any one nonemployee director. Further, each nonemployee director will
receive annually on the date of the annual meeting of shareholders a
nonqualified stock option for 1,000 shares of Company Common Stock. As of March
4, 1996, the Company had nine nonemployee directors.
The option exercise price per share will be equal to the fair market value
of a share of Common Stock on the grant date. The option exercise price may be
paid in cash, shares of Company Common Stock or a combination of both.
The term of each option will be 10 years and each option will become
exercisable on the third anniversary of the grant date. After a director's
retirement from the Board, each option may be exercised for the remaining term
of the option or for a period of five years, whichever is less.
The Directors' Plan will be administered by the Board. The maximum number of
shares that may be issued under the Directors' Plan is 200,000, subject to
adjustment for stock splits and certain other changes in capitalization. In the
event of a change in control of the Company, outstanding options will be
cancelled and a cash payment equal to the excess of the fair market value over
the option exercise price will be made. Options are nontransferable and, during
the optionee's lifetime, may be exercised only by the optionee.
If adopted, the Directors' Plan will become effective on April 30, 1996, and
will terminate on April 30, 2006.
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The Board of Directors has the power to suspend, discontinue or amend the
Directors' Plan without shareholder approval; however, no amendment may change
the number of shares subject to the Plan, materially modify the requirements for
participation or materially increase the benefits accruing to participants.
The following summary generally describes the principal federal income tax
consequences under current tax laws of certain events under the Directors' Plan.
The summary is general in nature and is not intended to cover all tax
consequences that may apply to a particular participant or to the Company, nor
does it describe foreign, state or local tax consequences.
In general, upon an award of shares, a participant will realize ordinary
income equal to the fair market value of the shares. The Company will be
entitled to a deduction equal to the ordinary income recognized by the
participant in the same taxable year in which the participant recognizes such
income with respect to the award.
All options granted under the Directors' Plan will be nonstatutory options.
The grant of stock options will not result in taxable income for the director or
a deduction for the Company. The exercise of a stock option will result in
ordinary income for the director and a deduction for the Company measured by the
difference between the option price and the fair market value of the shares
received at the time that the option is exercised. The director's basis in these
shares will be their fair market value when purchased. Any gain or loss upon a
subsequent sale or exchange of the shares obtained upon exercise of an option
under the Directors' Plan will be capital gain or loss, and will be long-term or
short-term, depending on the holding period for the shares. Such sale or
exchange will have no tax consequences to the Company.
Special rules apply to the participants because each is subject to Section
16(b) of the Exchange Act. Certain additional special rules may apply if the
exercise price for an option is paid for with shares previously owned by the
optionee rather than in cash.
The closing price of the Company's Common Stock on the New York Stock
Exchange on March 4, 1996, was $39.00 per share.
On April 30, 1996, all nonemployee directors, which will consist of nine
persons assuming the election of all nominees at the Annual Meeting, would
receive under the Directors' Plan an aggregate of 3,600 shares of the Company's
Common Stock and options for an aggregate of 9,000 shares of the Company's
Common Stock.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE DIRECTORS' STOCK
PLAN.
PROPOSAL 5
SHAREHOLDER PROPOSAL
Four shareholders, The Loretto Literary and Benevolent Institution (also
known as the Sisters of Loretto), Loretto Motherhouse, Nerinx, Kentucky, owner
of 458 shares of Cooper Common Stock; the Benedictine Sisters, 3120 W. Ashby,
San Antonio, Texas 78228, owner of 50 shares of Cooper Common Stock; Catholic
Healthcare West, 1700 Montgomery Street, Suite 300, San Francisco, California
94111, owner of 100 shares of Cooper Common Stock; and Board of Pensions,
Evangelical Lutheran Church in America, 800 Marquette Avenue, Suite 1050,
Minneapolis, Minnesota 55402-2885, owner of 56,900 shares of Cooper Common
Stock, have informed the Company that they intend to present the following
proposal at the Annual Meeting:
REQUEST FOR REVIEW OF MAQUILADORA OPERATIONS
WHEREAS, we believe U.S. companies have the responsibility wherever they do
business to pay employees a living, sustainable wage, enabling them to provide
for themselves and their families.
The economic crisis in Mexico, precipitated by the peso devaluation in
December, 1994, has further undermined the purchasing power of maquiladora
workers. Prior to the crisis, the average pay of a maquiladora worker was $30 to
$50 for a 48 hour week. Today, as a result of a 1995 projected annual inflation
rate of 50%, workers' purchasing power has declined dramatically. We believe
that the modest wage increases suggested by the Mexican government of 7% in
January, 1995 and 12% in April, 1995 do not begin to address the workers' loss
of purchasing power.
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A 1994 market basket study, using First Quarter, 1994 figures prior to the
devaluation, reveals a maquiladora worker worked 69.0 minutes to purchase 5 lbs.
of rice, 113.2 minutes for cooking oil (48 oz.), 87.0 minutes for 1 lb. of
chicken, 142.9 minutes for a gallon of milk, and 69.8 minutes for one dozen eggs
(MARKET BASKET SURVEY, RUTH ROSENBAUM, 1994).
Pollution from the maquiladora industry is a bi-national problem which
threatens the health of citizens both in Mexico and the United States. Hazardous
waste pollutes rivers and aquifers and contaminates drinking water. Accidental
chemical leaks from plants or transportation vehicles carrying hazardous
materials impact both sides of the border.
RESOLVED: The shareholders request the Board of Directors to initiate a
review of our company's maquiladora operations, including the adequacy of wage
levels and environmental standards and practices. A summary report of the review
and recommendations for changes in policies, programs and practices in light of
this review will be made available to shareholders within six months of the 1996
meeting.
SUPPORTING STATEMENT
The proponents of this resolution firmly believe there is a need for strict,
enforceable standards of conduct for corporations operating around the world,
including Mexico. We believe corporations should protect the environment and pay
sustainable community wages which are significantly higher than the marginal
survival wages paid in the maquiladoras. We define a sustainable community wage
as one that allows a worker to meet basic needs, set aside money for future
purchases and earn enough discretionary income to participate in support of the
development of small businesses in a local community (MARKET BASKET SURVEY).
It is essential that our company regularly review its environmental
performance, as well as its wages and benefits policies, including average wages
paid to employees, how these compare to the local cost of living and poverty
level, and the level of profit sharing with employees (required by Mexican law).
We propose that the reviews utilize an ongoing market basket survey to determine
sustainable wage purchasing power. Our company should consider additional ways
to support environmentally sound sustainable development in the communities
where it operates.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST PROPOSAL 5.
The Board of Directors does not believe that it is appropriate to conduct
special reviews and adopt separate policies for its maquiladora operations.
Cooper has operations worldwide, with manufacturing plants located in 18
different countries and employees in 24 countries. The Company has adopted
corporate policies relating to environmental, health, safety and employment
practices, which apply equally to all of these operations.
An element of the Company's management philosophy is to treat all employees
with dignity and respect and to pay wages and provide benefits that are
competitive in the community and the relevant industry. The wages and benefits
paid to employees of the Company's maquiladora operations in Mexico are reviewed
regularly in accordance with the Company's practices for all of its operations
worldwide.
The Company's management philosophy provides that all manufacturing
operations will be conducted in a manner that safeguards employee health and
demonstrates respect for the environment by complying with applicable
environmental laws, reducing and striving to eliminate all environmentally
hazardous wastes or emissions from the Company's manufacturing processes and
providing employee training that emphasizes personnel safety and effective
environmental management practices. During the past three years, environmental
audits were conducted at all of the Company's manufacturing plants in Mexico,
with five audits completed in 1995. In addition, in 1995 the operational
practices of four of the Company's Mexican facilities were reviewed for the
purpose of improving employee health and safety. Cooper's Mexican Environmental
and Safety Council, which was established in 1994 and has representatives from
each plant, facilitates the exchange of technology and best practices throughout
the Company's operations. This Council monitors compliance with existing laws
and examines ways to eliminate or reduce the generation of pollutants. The
Company intends to continue the environmental and safety audits as well as its
established proactive environmental management program for its maquiladora
operations in Mexico.
For these reasons, YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST
PROPOSAL 5.
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Approval of the proposal requires the affirmative vote of a majority of the
shares represented in person or by proxy at the meeting and voting on the
proposal. Abstentions will be counted for purposes of determining whether a
quorum is present and will be counted as voting. Broker nonvotes are not counted
for purposes of voting.
RELATIONSHIP WITH INDEPENDENT AUDITORS
During the year ended December 31, 1995, Ernst & Young LLP was employed
principally to perform the annual audit and to render other services.
Representatives of Ernst & Young will be present at the meeting and will be
available to answer questions and discuss matters pertaining to the Report of
Independent Auditors contained in the financial statements included in Appendix
A hereto. Representatives of Ernst & Young will have the opportunity to make a
statement, if they desire to do so.
Selection of the Company's independent auditors for each year is done at the
August meeting of the Board of Directors for such year.
SHAREHOLDERS' PROPOSALS
Shareholders' proposals intended to be presented at the 1997 Annual Meeting
should be sent by certified mail, return receipt requested, and must be received
by the Company at its principal executive offices (Attention: Corporate
Secretary) on or before November 12, 1996 for inclusion in the proxy statement
and the form of proxy for that meeting. Such proposals may be made only by
persons who are shareholders, beneficially or of record, on the date the
proposal is submitted and who continue in such capacity through the meeting
date, of at least one percent or $1,000 in market value of securities entitled
to be voted at the meeting, and have held such securities for at least one year.
OTHER BUSINESS
The Board of Directors is not aware of any other matters that will be
presented for action at the meeting. If any other matter requiring a vote of the
shareholders properly comes before the meeting, the persons authorized under
management proxies will vote and act according to their best judgment.
FORM 10-K
A copy of the 1995 Annual Report on Form 10-K for the fiscal year ended
December 31, 1995 as filed with the Securities and Exchange Commission may be
obtained upon request and without charge, by writing:
Public Affairs Department
Cooper Industries, Inc.
P.O. Box 4446
Houston, Texas 77210
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EXHIBIT I
COOPER INDUSTRIES, INC.
STOCK INCENTIVE PLAN
NOVEMBER 7, 1995
I. PURPOSE OF THE PLAN
The Cooper Industries Stock Incentive Plan is intended to provide Cooper
Industries, Inc. (the "Company") a means by which it can engender and sustain a
sense of proprietorship and personal commitment on the part of its executives,
managers and other key employees in the continued growth, development and
financial success of the Company and encourage them to remain with and devote
their best efforts to the business of the Company, thereby advancing the
interests of the Company and its shareholders. Accordingly, the Company may
award to certain employees shares of the Common Stock of the Company, on the
terms and conditions established herein.
II. DEFINITIONS
2.1 "Award" means any form of Stock Option, Restricted Stock or Performance
Share granted under the Plan, whether singly or in combination, to a Participant
by the Committee pursuant to such terms, conditions, restrictions and
limitations, if any, as the Committee may establish by the Award Agreement or
otherwise.
2.2 "Award Agreement" means a written agreement with respect to an Award
between the Company and a Participant establishing the terms, conditions,
restrictions and limitations applicable to an Award. To the extent an Award
Agreement is inconsistent with the terms of the Plan, the Plan shall govern the
rights of the Participant thereunder.
2.3 "Board" shall mean the Board of Directors of the Company.
2.4 For all purposes of the Plan, a "Change in Control" shall have occurred
if any of the following events shall occur:
(a) The Company is merged, consolidated or reorganized into or with
another corporation or other legal person, and immediately after such
merger, consolidation or reorganization less than a majority of the combined
voting power of the then-outstanding securities of such corporation or
person immediately after such transaction are held in the aggregate by the
holders of Voting Stock of the Company immediately prior to such
transaction;
(b) The Company sells all or substantially all of its assets to any
other corporation or other legal person, and less than a majority of the
combined voting power of the then-outstanding securities of such corporation
or person immediately after such sale are held in the aggregate by the
holders of Voting Stock of the Company immediately prior to such sale;
(c) There is a report filed on Schedule 13D or Schedule 14D-1 (or any
successor schedule, form or report), each as promulgated pursuant to the
Exchange Act, disclosing that any person (as the term "person" is used in
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has become the
beneficial owner (as the term "beneficial owner" is defined under Rule
13(d)(3) or any successor rule or regulation promulgated under the Exchange
Act) of securities representing 20% or more of the Voting Stock;
(d) The Company files a report or proxy statement with the Securities
and Exchange Commission pursuant to the Exchange Act disclosing in response
to Form 8-K or Schedule 14A (or any successor schedule, form or report or
item therein) that a change in control of the Company has or may have
occurred or will or may occur in the future pursuant to any then-existing
contract or transaction; or
(e) If during any period of two consecutive years, individuals who at
the beginning of any such period constitute the Directors of the Company
cease for any reason to constitute at least a majority thereof, provided,
however, that for purposes of this Section 2.4(e), each Director who is
first elected, or first nominated for election
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by the Company's stockholders, by a vote of at least two-thirds of the
Directors of the Company (or a committee thereof) then still in office who
were Directors of the Company at the beginning of any such period will be
deemed to have been a Director of the Company at the beginning of such
period.
Notwithstanding the foregoing provisions of Section 2.4(c) or 2.4(d) hereof,
unless otherwise determined in a specific case by majority vote of the Board, a
Change in Control shall not be deemed to have occurred for purposes of the Plan
solely because (i) the Company, (ii) an entity in which the Company directly or
indirectly beneficially owns 50% or more of the Voting Stock, or (iii) any
employee stock ownership plan or any other employee benefit plan sponsored by
the Company, either files or becomes obligated to file a report or a proxy
statement under or in response to Schedule 13D, Schedule 14D-1, Form 8-K or
Schedule 14A (or any successor schedule, form or report or item therein) under
the Exchange Act, disclosing beneficial ownership by it of shares of Voting
Stock, whether in excess of 20% or otherwise, or because the Company reports
that a change in control of the Company has or may have occurred or will or may
occur in the future by reason of such beneficial ownership.
2.5 "Change in Control Price" means the higher of (i) the Fair Market Value
on the date of determination of the Change in Control or (ii) the highest price
per share actually paid for the Common Stock in connection with the Change in
Control of the Company.
2.6 "Code" means the Internal Revenue Code of 1986, as amended from time to
time.
2.7 "Commission" shall mean the Securities and Exchange Commission.
2.8 "Committee" means the Management Development and Compensation Committee
of the Board, or such other committee designated by the Board to administer the
Plan, provided that the Committee shall consist of three or more persons, each
of whom is an "outside director" within the meaning of Section 162(m) of the
Code and a "disinterested person" within the meaning of Rule 16b-3 under the
Exchange Act.
2.9 "Common Stock" or "Shares" shall mean the shares of Common Stock, par
value $5.00 a share, of the Company and other such securities of the Company as
the Committee may from time to time determine.
2.10 "Dividend Equivalent" shall mean any right granted pursuant to Section
X hereof.
2.11 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
2.12 "Executive Officer" means an executive officer as defined in Rule 3b-7
promulgated under the Exchange Act.
2.13 "Fair Market Value" of a share of Common Stock, as of any date, means
the average of the high and low sales prices of a share of Common Stock as
reported on the Stock Exchange composite tape on the applicable date, provided
that if no sales of Common Stock were made on the Stock Exchange on that date,
the average of the high and low prices as reported on the composite tape for the
preceding day on which sales of Common Stock were made.
2.14 "Incentive Stock Option" shall mean an option granted under Section
VII hereof that is intended to meet the requirements of Section 422 of the Code
or any successor provision thereto.
2.15 "Nonstatutory Stock Option" shall mean an option granted under Section
VII hereof that is not intended to be an Incentive Stock Option.
2.16 "Option" shall mean any right granted to a Participant under the Plan
allowing such Participant to purchase Shares at such prices and during such
Period or Periods as the Committee shall determine.
2.17 "Participant" means an officer or key employee of the Company or its
subsidiaries who is selected by the Committee to participate in the Plan.
2.18 "Performance Goals" or "Targets" in respect to Awards of Performance
Shares are defined as the performance criterion or criteria established by the
Committee, pursuant to Section 9.3 hereof.
2.19 "Performance Period" shall mean that period established by the
Committee at the time any Performance Shares are granted, provided that a
Performance Period shall be a minimum of one year.
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2.20 "Performance Share" shall mean any grant pursuant to Section IX hereof
of a unit valued by reference to a designated number of Shares, which value may
be paid to the Participant by delivery of such property as the Committee shall
determine, including cash, Shares or any combination thereof, upon achievement
of such Performance Goals during the Performance Period as the Committee shall
establish at the time of such grant or thereafter.
2.21 "Plan" shall mean the Cooper Industries, Inc. Stock Incentive Plan
dated November 7, 1995.
2.22 "Restricted Stock" shall mean any Shares issued pursuant to Section
VIII and which are subject to such terms, conditions and restrictions as the
Committee deems appropriate, including but not limited to restrictions on
transferability, which restrictions may lapse separately or in combination at
such time or times, in installments or otherwise, as the Committee may deem
appropriate.
2.23 "Section 162(m)" means Section 162(m) of the Code and the regulations
promulgated thereunder.
2.24 "Stock Exchange" means the New York Stock Exchange, Inc. ("NYSE") or,
if the Common Stock is no longer included on the NYSE, then such other market
price reporting system on which the Common Stock is traded or quoted.
2.25 "Voting Stock" means securities entitled to vote in an election of
Directors of the Company.
III. ADMINISTRATION
3.1 The Plan shall be administered by the Committee.
3.2 Subject to the provisions of the Plan, the Committee shall have the
authority in its sole discretion to administer the Plan and to exercise all the
powers and authorities either specifically granted to it under the Plan or
necessary or advisable in the administration of the Plan, including, without
limitation, the authority to select the Participants; to determine the type of
Awards to be made to Participants; to determine the Shares subject to any Award
and the terms, conditions and restrictions relating to any Award; to determine
whether, to what extent and under what circumstances any Award may be settled,
cancelled, forfeited, exchanged, or surrendered; to waive or modify any
condition applicable to an Award (other than a Performance Share Award to
Executive Officers if inconsistent with Section 162(m)); to make adjustments in
the performance goals of an Award (i) in recognition of unusual or nonrecurring
events affecting the Company or the financial statements of the Company (with
respect to Awards made to Executive Officers, to the extent in accordance with
Section 162(m), if applicable) or (ii) in response to changes in applicable
laws, regulations, or accounting principles; to interpret the Plan; to
establish, amend or rescind any administrative policies; to determine the terms
and provisions of any agreements entered into hereunder; and to make all other
determinations necessary or advisable for the administration of the Plan. The
Committee may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or in any Award in the manner and to the extent it
shall deem desirable to carry it into effect. The determinations of the
Committee in the administration of the Plan, as described herein, shall be final
and conclusive; provided, however, that no action shall be taken which will
prevent Awards granted under the Plan from meeting the requirements for
exemption from Section 16(b) of the Exchange Act, or subsequent comparable
statute, as set forth in Rule 16b-3 under the Exchange Act or any subsequent
comparable rule; and, provided further, that no action shall be taken which will
prevent Awards hereunder that are intended to provide "performance-based
compensation," within the meaning of Section 162(m), from doing so.
3.3 In order to enable Participants who are foreign nationals or employed
outside the United States, or both, to receive Awards under the Plan, the
Committee may adopt such amendments, subplans and the like as are necessary or
advisable, in the opinion of the Committee, to effectuate the purposes of the
Plan.
IV. ELIGIBILITY
Any key employee of the Company or any of its subsidiaries or affiliates is
eligible to receive one or more Awards under the Plan.
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V. SHARES SUBJECT TO THE PLAN
5.1 There shall be available for Awards granted wholly or partly in Common
Stock (including rights or options which may be exercised for or settled in
Common Stock) during the term of this Plan an aggregate of 7,000,000 shares of
Common Stock, of which no more than 2,300,000 shall be available for Restricted
Stock or Performance Shares as provided herein, subject to the adjustments
provided for in Section XIV hereof. Shares of Common Stock available for
issuance under the Plan may be authorized and unissued Shares or treasury
shares, as the Company may from time to time determine. The Board of Directors
and the appropriate officers of the Company shall from time to time take
whatever actions are necessary to file required documents with governmental
authorities and the Stock Exchange to make shares of Common Stock available for
issuance pursuant to Awards. Common Stock related to Awards that are forfeited
or otherwise terminated, or expire unexercised, or are settled in a manner such
that all or some of the Shares covered by an Award are not issued to a
Participant (other than an exchange for cash or other property of comparable
value) shall immediately become available for Awards hereunder. If an Award is
exchanged for cash or other property of comparable value, the Common Stock
related to the Award will be deducted from the Shares available for Awards
hereunder. Any Shares issued by the Company in respect of the assumption or
substitution of outstanding awards from a corporation or other business entity
acquired by the Company shall not reduce the number of Shares available for
Awards under this Plan. The Committee may from time to time adopt and observe
such procedures concerning the counting of shares against the Plan maximum as it
may deem appropriate under Rule 16b-3 issued pursuant to the Exchange Act.
5.2 The number of shares of Common Stock subject to Awards granted under
the Plan to any individual who is an Executive Officer shall not exceed the
limits set forth below:
<TABLE>
<S> <C> <C>
- - Stock Options -- the greater of 100,000 Shares per calendar year or a total of
500,000 Shares in a continuous five (5) year period.
- - Restricted Stock -- the greater of 125,000 Shares per calendar year or a total of
and Performance 500,000 Shares in a continuous four (4) year period.
Shares
</TABLE>
Determinations under the preceding sentence shall be made in a manner that is
consistent with Section 162(m).
VI. AWARDS
Awards under the Plan may consist of: Stock Options (either Incentive Stock
Options within the meaning of Section 422 of the Code or Nonstatutory Stock
Options), Restricted Stock or Performance Shares. Awards of Performance Shares
and Restricted Stock may provide the Participant with dividends or Dividend
Equivalents and voting rights prior to vesting (whether based on a period of
time or based on attainment of specified performance conditions). The terms,
conditions and restrictions of each Award shall be set forth in an Award
Agreement.
VII. STOCK OPTIONS
7.1 GRANTS. Awards may be granted in the form of Stock Options. Stock
Options may be Incentive Stock Options within the meaning of Section 422 of the
Code or Nonqualified Stock Options or a combination of both, or any particular
type of tax-advantaged option authorized by the Code from time to time, and
approved by the Committee.
7.2 TERMS AND CONDITIONS OF OPTIONS. A Stock Option shall be exercisable
in whole or in such installments and at such times and upon such terms as may be
determined by the Committee; provided, however, that no Stock Option shall be
exercisable more than 10 years after the date of grant thereof. The option
exercise price shall be established by the Committee, but such price shall not
be less than the Fair Market Value on the date of the Stock Option's grant,
subject to adjustment as provided in Section XIV hereof.
7.3 RESTRICTIONS RELATING TO INCENTIVE STOCK OPTIONS. Stock Options issued
in the form of Incentive Stock Options shall, in addition to being subject to
all applicable terms, conditions, restrictions and limitations established by
the Committee, comply with Section 422 of the Code. Incentive Stock Options
shall be granted only to key employees of the Company and its subsidiaries
within the meaning of Section 424 of the Code.
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7.4 PAYMENT. Upon exercise, a Participant may pay the option exercise
price of a Stock Option in cash or Shares, or a combination of cash and Shares,
or such other consideration as the Committee may deem appropriate. The Committee
shall establish appropriate methods for accepting Common Stock and may impose
such conditions as it deems appropriate on the use of Common Stock to exercise a
Stock Option.
7.5 ADDITIONAL TERMS AND CONDITIONS. The Committee may, by way of the
Award Agreement or otherwise, establish such other terms, conditions or
restrictions, if any, on any Stock Option Award, provided they are not
inconsistent with the Plan. The Committee may condition the vesting of Stock
Options on the achievement of financial performance criteria established by the
Committee at the time of grant.
VIII. RESTRICTED STOCK AWARDS
8.1 GRANTS. Awards may be granted in the form of Restricted Stock
("Restricted Stock Awards"). Restricted Stock Awards shall be awarded in such
numbers and at such times as the Committee shall determine.
8.2 AWARD RESTRICTIONS. Restricted Stock Awards shall be subject to such
terms, conditions or restrictions as the Committee deems appropriate, including,
but not limited to, restrictions on transferability, requirements of continued
employment, individual performance or the financial performance of the Company.
The period of vesting and the forfeiture restrictions shall be established by
the Committee at the time of grant, provided that the period of vesting shall be
at least one year from the date of grant, except as provided in Section XVIII.
8.3 RIGHTS AS SHAREHOLDERS. The Committee may, in its discretion, grant to
the Participant to whom such Restricted Stock has been awarded, all or any of
the rights of a shareholder with respect to such shares of Restricted Stock,
including the right to receive dividends.
8.4 EVIDENCE OF AWARD. Any Restricted Stock Award granted under the Plan
may be evidenced in such manner as the Committee deems appropriate, including,
without limitation, book entry registration or issuance of a stock certificate
or certificates.
IX. PERFORMANCE SHARE AWARDS
9.1 GRANTS. Awards may be granted in the form of Performance Shares.
9.2 PERFORMANCE SHARES. The Committee may grant an Award of Performance
Shares to Participants as of the first day of each Performance Period.
Performance Goals will be established by the Committee not later than 90 days
after the commencement of the Performance Period relating to the specific Award.
At the end of the Performance Period, the Performance Shares shall be converted
into Common Stock (or cash or a combination of Common Stock and cash, as
determined by the Award Agreement) and distributed to Participants based upon
such entitlement. Award payments in respect of Performance Shares made in cash
rather than the issuance of Common Stock shall not, by reason of such payment in
cash, result in additional Shares being available for reissuance pursuant to
Section V hereof.
9.3 PERFORMANCE CRITERIA. Notwithstanding anything to the contrary
contained in this Section IX, Performance Share Awards shall be made to
Executive Officers only in compliance with Section 162(m). Performance criteria
used to establish Performance Goals for Performance Share Awards granted to
Executive Officers must include one or any combination of the following: (i) the
Company's return on equity, assets, capital or investment; (ii) pre-tax or
after-tax profit levels expressed in earnings per share of the Company or any
subsidiary or business segment of the Company; (iii) cash flow or similar
measure; (iv) total shareholder return; (v) changes in the market price of the
Common Stock; or (vi) market share. The Performance Goals established by the
Committee for each Performance Share Award will specify achievement targets with
respect to each applicable performance criterion (including a threshold level of
performance below which no amount will become payable with respect to such
Award). To the extent applicable, any such Performance Goals shall be determined
in accordance with generally accepted accounting principles. Each Award will
specify the amount payable, or the formula for determining the amount payable,
upon achievement of the various applicable Performance Targets. The Performance
Goals established by the Committee may be (but need not be) different for each
Performance Period and different Performance Goals may be applicable for Awards
to different Executive Officers in the same Performance Period. Payment shall be
made with respect to a Performance Share Award to an Executive Officer only
after the attainment of the applicable Performance Goals has been certified in
writing by the Committee.
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9.4 The Committee shall be authorized to make adjustments in the method of
calculating attainment of Performance Goals in recognition of: (i) extraordinary
or non-recurring items; (ii) changes in tax laws; (iii) changes in generally
accepted accounting principles or changes in accounting policies; (iv) charges
related to restructured or discontinued operations; (v) restatement of prior
period financial results; and (vi) any other unusual, non-recurring gain or loss
that is separately identified and quantified in the Company's financial
statements. Notwithstanding the foregoing, the Committee may, at its sole
discretion, reduce the performance results upon which Awards are based under the
Plan, to offset any unintended result(s) arising from events not anticipated
when the Performance Goals were established, provided that such adjustment is
permitted by Section 162(m).
9.5 ADDITIONAL TERMS AND CONDITIONS. The Committee may, by way of the
Award Agreement or otherwise, determine the manner of payment of Awards of
Performance Shares and other terms, conditions or restrictions, if any, on any
Award of Performance Shares, provided they are consistent with the Plan.
X. DIVIDENDS
Upon issuance of Performance Shares earned under the Plan, the Company also
shall pay to the Participant an amount equal to the aggregate amount of
dividends that the Participant would have received had the Participant been the
owner of record of such earned Performance Shares during the Performance Period.
XI. DEFERRALS AND SETTLEMENTS
The Committee may require or permit Participants to elect to defer the
issuance of Shares or the settlement of Awards in cash as set out in any Award
Agreement or under such administrative policies as it may establish under the
Plan. It also may provide that deferred settlements include the payment or
crediting of interest on the deferral amounts, or the payment or crediting of
Dividend Equivalents where the deferral amounts are denominated in Shares.
XII. TERMINATION OF EMPLOYMENT
Upon the termination of employment by a Participant, any unexercised,
deferred or unpaid Awards shall be treated as provided in the specific Award
Agreement evidencing the Award, except that the Committee may, in its
discretion, accelerate the vesting or exercisability of an Award, eliminate or
make less restrictive any restrictions contained in an Award, waive any
restriction or other provision of this Plan or an Award or otherwise amend or
modify the Award in any manner that is either (i) not adverse to such
Participant or (ii) consented to by such Participant.
XIII. TRANSFERABILITY AND EXERCISABILITY
Awards granted under the Plan shall not be transferable or assignable other
than: (i) by will or the laws of descent and distribution; (ii) by gift or other
transfer of an Award (other than an Incentive Stock Option unless permitted by
the Code) to any trust or estate in which the original Award recipient or such
recipient's spouse or other immediate relative has a substantial beneficial
interest, or to a spouse or other immediate relative, provided that any such
transfer is permitted subject to Rule 16b-3 issued pursuant to the Exchange Act
as in effect when such transfer occurs and the Board does not rescind this
provision prior to such transfer; or (iii) pursuant to a qualified domestic
relations order (as defined by the Code). However, any Award so transferred
shall continue to be subject to all the terms and conditions contained in the
Award Agreement.
XIV. ADJUSTMENTS
14.1 The existence of outstanding Awards shall not affect in any manner the
right or power of the Company or its shareholders to make or authorize (i) any
adjustments, recapitalizations, reorganizations or other changes in the capital
stock of the Company or its business; (ii) any merger or consolidation of the
Company; (iii) any issuance of bonds, debentures, preferred or prior preference
stock (whether or not such issue is prior to, on a parity with or junior to the
Common Stock); (iv) the dissolution or liquidation of the Company, or any sale
or transfer of all or any part of its assets or business; or (v) any other
corporate act or proceeding of any kind, whether or not of a character similar
to that of the acts or proceedings enumerated above.
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14.2 In the event of any subdivision or consolidation of outstanding shares
of Common Stock or declaration of a dividend payable in shares of Common Stock
or other stock split, then (i) the number of shares of Common Stock issuable
pursuant to each Award; (ii) the total number of Shares reserved under the Plan;
and (iii) the per share exercise price of the Awards shall each be
proportionately adjusted to reflect such transaction. In the event of any other
recapitalization or capital reorganization of the Company, any consolidation or
merger of the Company with another corporation or entity, the adoption by the
Company of a plan of exchange affecting the Common Stock or any distribution to
holders of Common Stock of securities or property (other than normal cash
dividends or dividends payable in Common Stock), the Board of Directors shall
make appropriate adjustments to (i) the number of shares of Common Stock
issuable pursuant to each Award and (ii) the per share exercise price of the
Awards to reflect such transaction; provided that such adjustments shall only be
such as are necessary to maintain the proportionate interest of the Participants
and preserve, without exceeding, the value of the Awards. In the event of a
corporate merger, consolidation, acquisition of property or stock, separation,
reorganization or liquidation, the Board of Directors shall be authorized to
issue or assume Stock Options by means of substitution of new options for
previously issued options or an assumption of previously issued options as a
part of such adjustment.
XV. WITHHOLDING TAXES
The Company shall have the right to deduct from any payment to be made
pursuant to the Plan the amount of any taxes required by law to be withheld
therefrom, or to require a Participant to pay to the Company such amount
required to be withheld prior to the issuance or delivery of any shares of
Common Stock or the payment of cash under the Plan. The Committee may, in its
discretion, permit a Participant to elect to satisfy such withholding obligation
by (i) having the Company retain the number of shares of Common Stock or (ii)
tendering the number of shares of Common Stock, in either case, whose Fair
Market Value equals the amount required to be withheld. Any fraction of a share
of Common Stock required to satisfy such obligation shall be disregarded and the
amount due shall instead be paid in cash, to or by the Participant, as the case
may be.
XVI. REGULATORY APPROVALS AND LISTINGS
Notwithstanding anything contained in this Plan to the contrary, the Company
shall have no obligation to issue or deliver certificates evidencing Shares
under this Plan prior to (i) the obtaining of any approval from any governmental
agency which the Company shall, in its sole discretion, determine to be
necessary or advisable; (ii) the listing of such Shares on the Stock Exchange;
and (iii) the completion of any registration or other qualification of the
Shares under any state or federal law or ruling of any governmental body which
the Company shall, in its sole discretion, determine to be necessary or
advisable.
XVII. NO RIGHT TO CONTINUED EMPLOYMENT OR GRANTS
No person shall have any claim or right to be granted an Award, and the
grant of an Award shall not be construed as giving a Participant the right to be
retained in the employ of the Company or its subsidiaries. Further, the Company
and its subsidiaries expressly reserve the right at any time to terminate the
employment of any Participant free from any liability, or any claim under the
Plan, except as provided herein or in any Award Agreement entered into
hereunder.
XVIII. CHANGE IN CONTROL
18.1 Immediately upon a Change in Control, all outstanding Awards shall
vest automatically, all forfeiture restrictions shall lapse, and all Performance
Share Awards shall be deemed earned at the maximum Performance Goal level.
18.2 With respect to outstanding Stock Options, the Company shall cancel
such Stock Options and make a payment in cash to each Participant with an
outstanding Stock Option in an amount equal to the excess of the Change in
Control Price over the option exercise price times the number of Shares subject
to the outstanding Stock Options, within 10 days after the effective date of the
Change in Control. With respect to Restricted Stock Awards and Performance Share
Awards, the Company shall issue certificates evidencing the Shares subject to
such Awards (or remove restricted legends if certificates were issued
previously) within 10 days after the effective date of the Change in Control.
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18.3 It is recognized that under certain circumstances: (a) payments or
benefits provided to a Participant might give rise to an "excess parachute
payment" within the meaning of Section 280G of the Code; and (b) it might be
beneficial to a Participant to disclaim some portion of the payment or benefit
in order to avoid such "excess parachute payment" and thereby avoid the
imposition of an excise tax resulting therefrom; and (c) under such
circumstances it would not be to the disadvantage of the Company to permit the
Participant to disclaim any such payment or benefit in order to avoid the
"excess parachute payment" and the excise tax resulting therefrom.
Accordingly, the Participant may, at the Participant's option, exercisable
at any time or from time to time, disclaim any entitlement to any portion of the
payment or benefits arising under this Plan which would constitute "excess
parachute payments," and it shall be the Participant's choice as to which
payments or benefits shall be so surrendered, if and to the extent that the
Participant exercises such option, so as to avoid "excess parachute payments."
18.4 The granting of Awards under the Plan shall in no way affect the right
of the Company to adjust, reclassify, reorganize or otherwise change its capital
or business structures or to merge, consolidate, dissolve, liquidate, sell or
transfer all or any portion of its business or assets.
XIX. AMENDMENT, MODIFICATION, SUSPENSION OR TERMINATION
The Board may amend, modify, suspend or terminate this Plan for any purpose
except that (i) no amendment or alteration that would impair the rights of any
Participant under any Award previously granted to such Participant shall be made
without such Participant's consent and (ii) no amendment or alteration shall be
effective prior to approval by the Company's shareholders to the extent such
approval is then required (a) pursuant to Rule 16b-3 in order to preserve the
applicability of any exemption provided by such rule to any Award then
outstanding (unless the holder of such Award consents); (b) pursuant to Section
162(m); or (c) otherwise required by applicable legal requirements.
XX. GOVERNING LAW
The validity, construction and effect of the Plan and any actions taken or
relating to the Plan shall be determined in accordance with the laws of the
State of Ohio and applicable Federal law.
XXI. RIGHTS AS SHAREHOLDER
Except as otherwise provided in the Award Agreement, a Participant shall
have no rights as a shareholder until he or she becomes the holder of record.
XXII. OTHER BENEFIT AND COMPENSATION PROGRAMS
Unless otherwise specifically provided to the contrary in the relevant plan,
program or practice, settlements of Awards received by Participants under the
Plan shall not be deemed a part of a Participant's regular, recurring
compensation for purposes of calculating payments or benefits from any Company
benefit plan, program or practice or any severance pay law of any country.
Further, the Company may adopt other compensation programs, plans or
arrangements as it deems appropriate or necessary.
XXIII. UNFUNDED PLAN
Unless otherwise determined by the Committee, the Plan shall be unfunded and
shall not create (or be construed to create) a trust or a separate fund or
funds. The Plan shall not establish any fiduciary relationship between the
Company and any Participant or other person. To the extent any person holds any
rights by virtue of an Award granted under the Plan, such rights (unless
otherwise determined by the Committee) shall be no greater than the rights of an
unsecured general creditor of the Company.
XXIV. USE OF PROCEEDS
The cash proceeds received by the Company from the issuance of Shares
pursuant to Awards under the Plan shall constitute general funds of the Company.
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XXV. SUCCESSORS AND ASSIGNS
The Plan shall be binding on all successors and assigns of a Participant,
including, without limitation, the estate of such Participant and the executor,
administrator or trustee of such estate, or any receiver or trustee in
bankruptcy or representative of the Participant's creditors.
XXVI. EFFECTIVE DATE
This Plan shall be effective as of the date it is approved by the Board of
Directors of the Company. Notwithstanding the foregoing, the adoption of this
Plan is expressly conditioned upon approval by the Company's shareholders at the
annual meeting held in 1996. If the shareholders of the Company shall fail to
approve this Plan prior to such date, this Plan shall terminate and cease to be
of any further force or effect and all grants of Awards hereunder shall be null
and void. Subject to earlier termination pursuant to Section XIX, the Plan shall
have a term of 10 years from its effective date. After termination of the Plan,
no future Awards may be granted but previously granted Awards shall remain
outstanding in accordance with their applicable terms and conditions and the
terms and conditions of the Plan.
XXVII. INTERPRETATION
The Plan as applicable to certain employees is designed and intended to
comply with Rule 16b-3 promulgated under the Exchange Act and with Section
162(m) of the Code, and all provisions hereof shall be construed in a manner to
so comply with respect to such employees.
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EXHIBIT II
COOPER INDUSTRIES, INC.
MANAGEMENT ANNUAL INCENTIVE PLAN
NOVEMBER 7, 1995
I. PURPOSE OF THE PLAN
The Cooper Industries, Inc. Management Annual Incentive Plan is intended to
provide Cooper Industries, Inc. ("the Company") a means by which it can engender
and sustain a sense of personal commitment on the part of its senior executives
in the continued growth, development and financial success of the Company and
encourage them to remain with and devote their best efforts to the business of
the Company, thereby advancing the interests of the Company and its
shareholders. Accordingly, the Company may award to senior executives annual
incentive compensation on the terms and conditions established herein.
II. DEFINITIONS
2.1 "Annual Incentive Award" or "Award" means the compensation payable in
cash granted under the Plan to a Participant by the Committee pursuant to such
terms, conditions, restrictions and limitations established by the Committee and
the Plan.
2.2 "Board" means the Board of Directors of the Company.
2.3 For all purposes of the Plan, a "Change in Control" shall have occurred
if any of the following events shall occur:
(a) The Company is merged, consolidated or reorganized into or with
another corporation or other legal person, and immediately after such
merger, consolidation or reorganization less than a majority of the combined
voting power of the then-outstanding securities of such corporation or
person immediately after such transaction are held in the aggregate by the
holders of Voting Stock of the Company immediately prior to such
transaction;
(b) The Company sells all or substantially all of its assets to any
other corporation or other legal person, and less than a majority of the
combined voting power of the then-outstanding securities of such corporation
or person immediately after such sale are held in the aggregate by the
holders of Voting Stock of the Company immediately prior to such sale;
(c) There is a report filed on Schedule 13D or Schedule 14D-1 (or any
successor schedule, form or report), each as promulgated pursuant to the
Exchange Act, disclosing that any person (as the term "person" is used in
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has become the
beneficial owner (as the term "beneficial owner" is defined under Rule
13(d)(3) or any successor rule or regulation promulgated under the Exchange
Act) of securities representing 20% or more of the Voting Stock;
(d) The Company files a report or proxy statement with the Securities
and Exchange Commission pursuant to the Exchange Act disclosing in response
to Form 8-K or Schedule 14A (or any successor schedule, form or report or
item therein) that a Change in Control of the Company has or may have
occurred or will or may occur in the future pursuant to any then-existing
contract or transaction; or
(e) If during any period of two consecutive years, individuals who at
the beginning of any such period constitute the Directors of the Company
cease for any reason to constitute at least a majority thereof, provided,
however, that for purposes of this Section 2.3(e), each Director who is
first elected, or first nominated for election by the Company's
stockholders, by a vote of at least two-thirds of the Directors of the
Company (or a committee thereof) then still in office who were Directors of
the Company at the beginning of any such period will be deemed to have been
a Director of the Company at the beginning of such period.
Notwithstanding the foregoing provisions of Section 2.3(c) or 2.3(d) hereof,
unless otherwise determined in a specific case by majority vote of the Board, a
Change in Control shall not be deemed to have occurred for purposes of
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the Plan solely because (i) the Company, (ii) an entity in which the Company
directly or indirectly beneficially owns 50% or more of the Voting Stock, or
(iii) any employee stock ownership plan or any other employee benefit plan
sponsored by the Company, either files or becomes obligated to file a report or
a proxy statement under or in response to Schedule 13D, Schedule 14D-1, Form 8-K
or Schedule 14A (or any successor schedule, form or report or item therein)
under the Exchange Act, disclosing beneficial ownership by it of shares of
Voting Stock, whether in excess of 20% or otherwise, or because the Company
reports that a change in control of the Company has or may have occurred or will
or may occur in the future by reason of such beneficial ownership.
2.4 "Code" means the Internal Revenue Code of 1986, as amended from time to
time.
2.5 "Commission" means the Securities and Exchange Commission.
2.6 "Committee" means the Management Development and Compensation Committee
of the Board, or such other committee designated by the Board to administer the
Plan, provided that the Committee shall consist of three or more persons each of
whom is an "outside director" within the meaning of Section 162(m) and a
"disinterested person" within the meaning of Rule 16b-3 under the Exchange Act.
2.7 "Employee" means an employee of the Company or any of its subsidiaries
or affiliates.
2.8 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
2.9 "Participant" means a Senior Executive Officer of the Company who is
selected by the Committee to participate in the Plan.
2.10 "Plan" means the Cooper Industries, Inc. Management Annual Incentive
Plan dated November 7, 1995.
2.11 "Performance Goals" shall be defined as the performance criterion or
criteria established by the Committee, pursuant to Section V hereof, for the
purpose of determining Awards under the Plan.
2.12 "Performance Period" means the consecutive 12 month period that
constitutes the Company's fiscal year.
2.13 "Section 162(m)" means Section 162(m) of the Code and the regulations
promulgated thereunder.
2.14 "Senior Executive Officer" means the Chairman; Chief Executive
Officer; any Executive Vice President, Operations; any Senior Vice President; or
any other senior officer reporting directly to the Chief Executive Officer.
2.15 "Voting Stock" means securities entitled to vote in an election of
Directors of the Company.
III. ADMINISTRATION
3.1 The overall administration of the Plan, including the final
determination of Awards to each Participant, is vested in the Committee.
3.2 Determinations of the Committee in administering the Plan shall be final
and binding upon all Participants.
IV. ELIGIBILITY
Participation in the Plan shall be limited to Senior Executive Officers.
Participants will be selected for participation annually by the Committee not
later than 90 days after the commencement of the Performance Period. The
Committee may withdraw its approval for participation in the Plan for a
Participant at any time. In the event of such withdrawal, such Participant shall
cease to be a Participant as of the date designated by the Committee and the
employee shall be notified of such withdrawal as soon as practicable following
such action. Further, such Employee shall cease to have any right to an Award
for the Performance Period in which such withdrawal is effective; provided,
however, that the Committee may, in its sole discretion, authorize a prorated
award based on the number of full months of participation prior to the effective
date of such withdrawal and the Company's performance during such period.
V. PERFORMANCE GOALS AND MEASURES
5.1 Performance Goals shall be established by the Committee not later than
90 days after commencement of the Performance Period relating to a specific
Award. The Performance Goals may be identical for all Participants or, at the
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discretion of the Committee, may be different to reflect more appropriate
measures of individual performance. The criterion or criteria used in
establishing Performance Goals may, at the discretion of the Committee, include
one or any combination of the following: (i) the Company's return on equity,
assets, capital or investment; (ii) pre-tax or after-tax profit levels expressed
in absolute dollars or earnings per share of the Company; or (iii) cash flow or
similar measure. The Performance Goals established by the Committee shall
include a threshold level of performance below which no Award will be payable
and a maximum Award opportunity for each Senior Executive Officer. The
determination of attainment of the Performance Goals shall be determined in
accordance with generally accepted accounting principles and certified in
writing by the Committee.
5.2 The Committee shall be authorized to make adjustments in the method of
calculating attainment of Performance Goals in recognition of: (i) extraordinary
or non-recurring items, (ii) changes in tax laws, (iii) changes in generally
accepted accounting principles or changes in accounting policies, (iv) charges
related to restructured or discontinued operations, (v) restatement of prior
period financial results, and (vi) any other unusual, non-recurring gain or loss
that is separately identified and quantified in the Company's financial
statements. Notwithstanding the foregoing, the Committee may, at its sole
discretion, reduce the performance results upon which Awards are based under the
Plan, to offset any unintended result(s) arising from events not anticipated
when the Performance Goals were established, provided that such adjustment is
permitted by Section 162(m).
VI. AWARDS
6.1 Awards under the Plan shall be paid in cash.
6.2 At the first meeting of the Committee after the expiration of the
Performance Period, the Committee shall review the prior year's performance in
relation to the Performance Goals and determine the level of achievement of the
Performance Goals. Payment of Annual Incentive Awards to Participants under the
Plan shall occur only after the Committee has certified in writing that the
Performance Goals have been achieved for the relevant Performance Period.
Notwithstanding the attainment of Performance Goals for the Company as a whole,
Awards for individual Participants under the Plan may be denied or adjusted
downward by the Committee, in its sole judgment, based on its assessment of the
Participant's performance. The maximum Annual Incentive Award that may be
granted to a Senior Executive Officer under the Plan for any Performance Period
shall be $1.5 million.
VII. DEFERRALS AND SETTLEMENTS
The Committee may permit Participants to elect to defer receipt of all or a
portion of the Annual Incentive Award under administrative policies established
pursuant to the Company's Management Incentive Compensation Deferral Plan. It
also may provide that amounts be credited with interest.
VIII. WITHHOLDING TAXES
The Company shall have the right to deduct from any payment to be made
pursuant to the Plan the amount of any taxes required by law.
IX. NO RIGHT TO CONTINUED EMPLOYMENT OR AWARDS
No person shall have any claim or right to be granted an Award, and the
granting of an Award shall not be construed as giving a Participant the right to
be retained in the employ of the Company or any of its subsidiaries. Further,
the Company and its subsidiaries expressly reserve the right at any time to
terminate the employment of any Participant free from any liability under the
Plan; except that a Participant, who meets or exceeds the Performance Goals for
the Performance Period and was actively employed for the full term of the
Performance Period, will be eligible for an Award even though the Participant is
not an active employee of the Company at the time the Committee grants Awards
under the Plan.
X. CHANGE IN CONTROL
Immediately upon a Change in Control, all outstanding Awards shall be deemed
earned at the maximum Performance Goal level and the Company shall make a
payment in cash to each Participant within ten (10) days after the
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effective date of the Change in Control in the amount of such maximum Award. The
granting of Awards under the Plan shall in no way affect the right of the
Company to adjust, reclassify, reorganize, or otherwise change its capital or
business structure, or to merge, consolidate, dissolve, liquidate, sell or
transfer all or any portion of its businesses or assets.
XI. AMENDMENT, MODIFICATION, SUSPENSION OR TERMINATION
The Board may amend, modify, suspend or terminate this Plan for any purpose
except that no amendment or alteration shall be effective prior to approval by
the Company's shareholders to the extent such approval is then required pursuant
to Section 162(m) or otherwise required as a matter of law. Further, no
amendment to the Plan shall be effective that would (i) increase the maximum
amount that can be paid to a Participant under the Plan; (ii) change the
performance criterion or criteria set forth in Section V hereof for payment of
Awards; or (iii) modify the eligibility requirements for Participants in the
Plan unless first approved by the Company's shareholders.
XII. GOVERNING LAW
The validity, construction and effect of the Plan and any actions taken or
relating to the Plan shall be determined in accordance with the laws of the
State of Ohio and applicable Federal law.
XIII. OTHER BENEFIT AND COMPENSATION PROGRAMS
Unless otherwise specifically provided to the contrary in the relevant plan,
program or practice, Awards received by Participants under the Plan shall not be
deemed a part of a Participant's regular, recurring compensation for purposes of
calculating payments or benefits under any other Company benefit plan, program
or practice or any severance policy of the Company. Further, the Company may
adopt other compensation programs, plans or arrangements for employees below the
level of Senior Executive Officer as it deems necessary and appropriate.
XIV. SUCCESSORS AND ASSIGNS
The Plan shall be binding on all successors and assigns of a Participant,
including, without limitation, the estate of such Participant and the executor,
administrator or trustee of such estate, or any receiver or trustee in
bankruptcy or representative of the Participant's creditors.
XV. EFFECTIVE DATE
This Plan shall be effective as of the date it is approved by the Board of
Directors of the Company. Notwithstanding the foregoing, the adoption of this
Plan is expressly conditioned upon the approval by the Company's shareholders at
the annual meeting of the Company's shareholders held in 1996. If the
shareholders of the Company shall fail to approve this Plan prior to such date,
this Plan shall terminate and cease to be of any further force or effect.
Subject to earlier termination pursuant to Section XI, the Plan shall have a
term of five years from its effective date. After termination of the Plan, no
future Awards may be granted.
XVI. INTERPRETATION
The Plan is designed to comply with Section 162(m) of the Code, and all
provisions hereof shall be construed in a manner consistent with that intent.
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EXHIBIT III
COOPER INDUSTRIES, INC.
DIRECTORS' STOCK PLAN
1. PURPOSE AND AUTHORIZED SHARES.
1.1 The purpose of this Directors' Stock Plan (the "Plan") is to align more
closely the interests of the nonemployee directors of Cooper Industries, Inc.
(the "Company") with the interests of the Company's shareholders and to attract,
motivate and retain experienced and knowledgeable Directors. Accordingly, the
Company will distribute shares, or options to purchase shares, of Common Stock
of the Company to nonemployee Directors on the terms and conditions set forth in
this Plan.
1.2 The total number of shares of Common Stock available for issuance under
this Plan is 200,000, subject to adjustment pursuant to Section 7. Shares
available for issuance under this Plan may be authorized and unissued shares or
treasury shares, as the Company may determine from time to time. Any shares that
have been subject to an option which for any reason expires or is terminated
unexercised shall again be available for grants of options.
2. DEFINITIONS. AS USED IN THE PLAN:
2.1 "Board" means the Board of Directors of the Company.
2.2 For all purposes of the Plan, a "Change in Control" shall have occurred
if any of the following events shall occur:
(a) The Company is merged, consolidated or reorganized into or with
another corporation or other legal person, and immediately after such
merger, consolidation or reorganization less than a majority of the combined
voting power of the then-outstanding securities of such corporation or
person immediately after such transaction are held in the aggregate by the
holders of Voting Stock of the Company immediately prior to such
transaction;
(b) The Company sells all or substantially all of its assets to any
other corporation or other legal person, and less than a majority of the
combined voting power of the then-outstanding securities of such corporation
or person immediately after such sale are held in the aggregate by the
holders of Voting Stock of the Company immediately prior to such sale;
(c) There is a report filed on Schedule 13D or Schedule 14D-1 (or any
successor schedule, form or report), each as promulgated pursuant to the
Exchange Act, disclosing that any person (as the term "person" is used in
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has become the
beneficial owner (as the term "beneficial owner" is defined under Rule
13(d)(3) or any successor rule or regulation promulgated under the Exchange
Act) of securities representing 20% or more of the Voting Stock;
(d) The Company files a report or proxy statement with the Securities
and Exchange Commission pursuant to the Exchange Act disclosing in response
to Form 8-K or Schedule 14A (or any successor schedule, form or report or
item therein) that a change in control of the Company has or may have
occurred or will or may occur in the future pursuant to any then-existing
contract or transaction; or
(e) If during any period of two consecutive years, individuals who at
the beginning of any such period constitute the Directors of the Company
cease for any reason to constitute at least a majority thereof, provided,
however, that for purposes of this Section 2.4(e), each Director who is
first elected, or first nominated for election by the Company's
stockholders, by a vote of at least two-thirds of the Directors of the
Company (or a committee thereof) then still in office who were Directors of
the Company at the beginning of any such period will be deemed to have been
a Director of the Company at the beginning of such period.
Notwithstanding the foregoing provisions of Section 2.4(c) or 2.4(d)
hereof, unless otherwise determined in a specific case by majority vote of
the Board, a Change in Control shall not be deemed to have occurred for
purposes of the Plan solely because (i) the Company, (ii) an entity in which
the Company directly or indirectly beneficially owns 50% or more of the
Voting Stock, or (iii) any employee stock ownership plan or any other
employee benefit plan sponsored by the Company, either files or becomes
obligated to file a report or a proxy statement under or in response to
Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A (or any successor
schedule, form or report
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or item therein) under the Exchange Act, disclosing beneficial ownership by
it of shares of Voting Stock, whether in excess of 20% or otherwise, or
because the Company reports that a change in control of the Company has or
may have occurred or will or may occur in the future by reason of such
beneficial ownership.
2.3 "Change in Control Price" means the higher of (i) the Fair Market Value
on the date of determination of the Change in Control or (ii) the highest price
per share actually paid for the Common Stock in connection with the Change in
Control of the Company.
2.4 "Common Stock" means the Common Stock, par value $5.00 a share, of the
Company.
2.5 "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
2.6 "Fair Market Value" of a share of Common Stock, as of any date, means
the average of the high and low sales prices of a share of Common Stock as
reported on the Stock Exchange composite tape on the applicable date, provided
that if no sales of Common Stock were made on the Stock Exchange on that date,
the average of the high and low prices as reported on the composite tape for the
preceding day on which sales of Common Stock were made.
2.7 "Grant Date" shall mean the day on which the Annual Meeting of
Shareholders commences.
2.8 "Participant" means a member of the Board who is not an officer or
employee of the Company or any of its subsidiaries.
2.9 "Stock Exchange" means the New York Stock Exchange, Inc. ("NYSE") or,
if the Common Stock is no longer included on the NYSE, then such other market
price reporting system on which the Common Stock is traded or quoted.
2.10 "Voting Stock" means securities entitled to vote in an election of
Directors of the Company.
3. ADMINISTRATION.
3.1 This Plan shall be, to the maximum extent possible, self-effectuating.
This Plan shall be construed, interpreted and, to the extent required,
administered by the Board or a committee appointed by the Board to act on its
behalf under this Plan. Notwithstanding the foregoing, but subject to Section 9
hereof, the Board shall have no discretionary authority with respect to the
amount, price or timing (as these terms are used under Rule 16b-3(c) promulgated
under the Exchange Act ("Rule 16b-3")) of any grants made under this Plan and no
Director shall participate in any decision relating solely to his or her
benefits. Subject to the foregoing, the Board may resolve any questions and make
all other determinations and adjustments required by this Plan, maintain all the
necessary records for the administration of the Plan, and provide forms and
procedures to facilitate the implementation of this Plan.
3.2 Any determination of the Board or committee made in good faith shall be
conclusive. In performing its duties, the Board or the committee shall be
entitled to rely on public records and on information, opinions, reports or
statements prepared or presented by officers or employees of the Company or
other experts believed to be reliable and competent. The Board or the committee
may delegate ministerial, bookkeeping and other nondiscretionary functions to
individuals who are officers or employees of the Company.
4. AWARD OF STOCK. Commencing on the effective date of this Plan, each
Participant shall receive annually on the Grant Date an award of 400 shares,
provided that no Participant shall receive annual awards aggregating more than
1,200 shares under this Section. A Participant shall not be required to make any
payment for any shares delivered under this Section 4, other than services
rendered as a Director. Upon delivery of the shares, the recipient shall have
the entire beneficial ownership interest in, and all rights and privileges of an
owner as to those shares, including the right to vote the shares and to receive
dividends thereon.
5. AWARD OF STOCK OPTIONS. In each year commencing in 1996, each
Participant shall receive on the Grant Date a nonqualified option to purchase
1,000 shares, upon the terms and conditions set forth in this Plan.
6. TERMS AND CONDITIONS OF OPTIONS.
6.1 The option exercise price shall be the Fair Market Value on the Grant
Date.
6.2 The option shall become fully exercisable on the third anniversary of
the Grant Date. If, prior to the third anniversary of the Grant Date, the
Participant ceases to be a Director of the Company for any reason other than
death
III-2
<PAGE>
or retirement in accordance with the Board's retirement policy, the option
rights shall terminate immediately. If the Participant dies while serving as a
Director of the Company or retires in accordance with the Board's retirement
policy, all outstanding options shall become fully exercisable immediately.
6.3 The duration of stock options shall be 10 years from the Grant Date.
6.4 Options may be exercised in whole or in part by delivering to the
Company at its principal executive office (directed to the attention of the
Secretary or Assistant Secretary) a written notice, signed by the Participant or
by the Participant's executor, administrator or a person entitled by will or the
laws of descent and distribution to exercise the option, as the case may be, of
the election to exercise the option and stating the number of shares in respect
of which it is then being exercised. The option shall be deemed exercised as of
the date the Company receives such notice. Payment of the exercise price shall
be made in cash or with shares of Common Stock or a combination of both
delivered at the time that an option, or any part thereof, is exercised.
No shares shall be issued pursuant to the exercise of an option until full
payment therefor is received. Common Stock used as payment shall have been owned
by the Participant not less than six months preceding the date the option is
exercised and shall be valued at its Fair Market Value.
6.5 An option may be exercised only by the Participant or, in the case of
the Participant's death, by the executor or administrator of the Participant's
estate or by the person who acquired the right to exercise such option by
bequest or inheritance. After the Participant ceases to be a member of the
Board, vested options may be exercised for the remaining term of the option or
for a period of five years, whichever is less.
6.6 An option shall not be transferable by the Participant other than by
will or by the laws of descent and distribution.
7. CHANGES IN COMMON STOCK. In the event of any change in the number of
outstanding shares by reason of any stock dividend, stock split,
recapitalization, merger, consolidation, exchange of shares or other similar
corporate change, the following shall be adjusted appropriately to reflect such
changes: (i) the number of shares available for issuance under the Plan; (ii)
the number of shares granted in each option pursuant to Section 5; (iii) the
number of shares awarded pursuant to Section 4 and the maximum number of shares
to be awarded to each Participant under Section 4; (iv) the number of shares
subject to outstanding options; and (v) the option exercise price per share.
8. CHANGE IN CONTROL. In the event of a Change in Control, all outstanding
options shall be canceled and the Company shall make a payment in cash to each
Participant with an outstanding option, within 10 days after the effective date
of the Change in Control, in an amount equal to the excess of the Change in
Control Price over the option exercise price times the number of shares subject
to the outstanding option.
9. AMENDMENT AND TERMINATION. The Board may, from time to time, amend or
terminate the Plan; provided, however, that no amendment or termination shall
adversely affect the rights of any Participant without his or her consent with
respect to outstanding options, and no amendment shall be effective prior to
approval by the Company's shareholders to the extent such approval is then
required pursuant to Rule 16b-3 in order to preserve the exemptions provided by
Rule 16b-3. In addition, the provisions of this Plan that determine the amount,
price or timing of awards shall not be amended more than once every six months
(other than as may be necessary to conform to any applicable changes in the
Internal Revenue Code of 1986, as amended or the rules thereunder), unless such
amendment is consistent with Rule 16b-3.
10. EFFECTIVE DATE. This Plan shall be effective on the date shareholder
approval is obtained and shall continue for a period of 10 years after the
effective date, provided that options that are outstanding 10 years after the
effective date shall continue to be outstanding and exercisable in accordance
with their terms.
11. INTERPRETATION. It is the intent of the Company that this Plan satisfy
and be interpreted in a manner that satisfies the applicable requirements of
Rule 16b-3 so that Participants remain "disinterested" as defined in Rule 16b-3
for purposes of administering other stock plans of the Company and will be
entitled to the benefits of Rule 16b-3 or other exemptive rules under Section 16
of the Exchange Act and will not be subjected to avoidable liability thereunder.
Any contrary interpretation shall be avoided.
III-3
<PAGE>
12. GOVERNMENT AND OTHER REGULATIONS. The obligations of the Company to
deliver shares under the Plan shall be subject to all applicable laws, rules and
regulations and such approvals by any government agency as may be required,
including, without limitation, compliance with the Securities Act of 1933, as
amended.
13. NO RIGHT TO CONTINUE AS A DIRECTOR. Nothing contained in this Plan
shall be deemed to confer upon any Participant any right to continue as a
Director of the Company.
14. GOVERNING LAW. To the extent that Federal laws do not otherwise
control, the Plan and all determinations made and actions taken pursuant
thereto, shall be governed by the laws of the State of Ohio.
III-4
<PAGE>
APPENDIX A
COOPER INDUSTRIES, INC.
<TABLE>
<S> <C>
Management's Discussion and Analysis of Financial Condition and Results of
Operations....................................................................... A-1
Consolidated Financial Statements................................................. A-10
</TABLE>
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
During the last three years, Cooper's continuing operations have completed
14 acquisitions and five divestitures, including the initial public offering of
90.4% of the common stock of Belden Inc. and the sale of its forging business,
Cameron Forged Products, through an exchange for Wyman-Gordon Company common
stock. Cooper also exited the large power transformer business in 1994. In
addition, in 1994, Cooper completed the prorata distribution to shareholders of
the common stock of Gardner-Denver Machinery Inc., and in 1995, divested the
remaining businesses comprising the former Petroleum & Industrial Equipment
segment through an exchange offer with shareholders. The acquisitions have been
in complementary product lines that enhance areas of strength, while the
dispositions have been of noncore or poor-performing businesses.
Cooper has invested $586 million in capital assets related to modernization
and expansion of facilities plus significant amounts related to the integration
of newly acquired businesses and the revitalization of existing ones during the
last three years. The combined result of these efforts is a 30% improvement in
the Company's operating earnings in 1995 as compared to 1992. More important,
the Cooper of 1995 is a much different company than it was in 1992, and one that
the Company believes is well prepared for the increasingly competitive global
marketplace.
On January 1, 1995, Cooper exchanged all of its 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. While the exchange boosted the debt-to-total capitalization ratio above
Coopers preferred target, it generated in excess of $20 million per year of
additional net cash flows. In December 1995, Cooper issued $222.8 million in
Exchangeable Notes due January 1, 1999. The notes are mandatorily exchangeable
into shares of Wyman-Gordon common stock owned by Cooper or, at Cooper's option,
into cash in lieu of shares. The notes are in effect a monetization of Cooper's
investment in Wyman-Gordon common stock and will result in Cooper realizing a
minimum after-tax gain of $100.6 million at maturity of the notes. In addition,
Cooper retained the first 16% of appreciation in the fair market value of the
Wyman-Gordon common stock between the date of issuance of the notes and their
maturity, plus 13.8% of any additional appreciation beyond the first 16%.
The financial information and discussions that follow, along with the
consolidated financial statements and related footnotes, will aid in
understanding Cooper's results of operations as well as its financial position,
cash flows and indebtedness.
REVENUES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Electrical Products.............................................................. $ 2,089.7 $ 2,034.8 $ 2,177.5
Tools & Hardware................................................................. 962.4 897.9 807.9
Automotive Products.............................................................. 1,796.6 1,622.1 1,670.0
--------- --------- ---------
Operating Revenues............................................................. 4,848.7 4,554.8 4,655.4
Cameron Forged Products.......................................................... -- -- 109.7
Other............................................................................ 37.2 33.2 11.3
--------- --------- ---------
Consolidated Revenues.......................................................... $ 4,885.9 $ 4,588.0 $ 4,776.4
--------- --------- ---------
--------- --------- ---------
</TABLE>
1995 VS. 1994 REVENUES Cooper's 1995 revenues increased 6% over 1994.
Excluding the impact of two 1995 acquisitions (the acquisition of CEAG on
December 31, 1995 had no effect on revenues in 1995), six 1994 acquisitions, one
1994 divestiture and the closure of the large power transformer business,
revenues for 1995 were up 3%.
The Electrical Products segment comprised approximately 43% of Cooper's
total revenues in 1995, with revenues increasing 3% over 1994. Excluding the
effects of four small acquisitions and the closure of the large power
transformer business in 1994, revenues would have increased 5% (the acquisition
of CEAG on December 31, 1995 had no effect on revenues in 1995). Steady demand
from maintenance, repair and renovation activity continued to benefit the
Electrical Products segment. Electrical circuit protection products, lighting
fixtures and power distribution products all benefited from the continued
strength of industrial production and nonresidential construction. Product-line
additions and new
A-1
<PAGE>
product introductions also added to revenues in 1995. Offsetting a portion of
these increases is a significant decline in revenues in Mexico as a result of
the economic downturn in that country that followed the December 1994
devaluation of the Mexican currency.
The Tools & Hardware segment, which was not affected by acquisitions or
divestitures, comprised approximately 20% of Cooper's total revenues in 1995,
with revenues increasing 7% over 1994. Continued strength in domestic commercial
construction and industrial production and the impact of new product
introductions have benefited demand for domestic hand tools, power tools and
drapery hardware. However, the slowdown in home construction activity and sales
of existing homes have tempered the gains made in hand tool and window treatment
sales. European demand held up well throughout the year.
The Automotive Products segment comprised approximately 37% of Cooper's
total revenues in 1995, with revenues increasing 11% over 1994. Excluding the
effects of one 1995 acquisition, three 1994 acquisitions, and one 1994
divestiture, revenues for the segment would have decreased about 2%. Weakness in
the domestic aftermarket as a result of reduced vehicle maintenance activity,
consolidations within the distribution channel and competitive market conditions
affected demand for many products. In addition, demand from Mexico and Latin
America slowed significantly during the year due to the economic downturn in
Mexico following the devaluation of Mexico's currency in December 1994. Domestic
original equipment demand held up relatively well throughout the year, while
European product demand for both original equipment and aftermarket products
continued its modest growth.
Other revenues increased $4 million in 1995, primarily from a gain of $11.7
million on the sale of Belden Inc. common shares offset by a decrease in the
amount received from Belden Inc. under a tax sharing agreement.
1994 VS. 1993 REVENUES Cooper's 1994 revenues decreased 4% as compared to
1993. Excluding the effect of the divestitures of two small Automotive Products
businesses, Belden Inc. and Cameron Forged Products during 1993, the divestiture
of a small Automotive Products business during 1994 and the closure of the large
power transformer business, revenues, including revenues generated by
acquisitions, were up 8% in 1994 (excluding acquisitions, revenues were up 5%).
The Electrical Products segment contributed approximately 45% of Cooper's
total revenues during 1994, with revenues decreasing 7% from 1993. Excluding the
effect of acquisitions, divestitures and the closure of the large power
transformer business, revenues would have increased 6%. The Electrical Products
segment continued to benefit from relatively steady demand for maintenance,
repair and renovation needs. The continued strength of industrial production and
commercial and residential construction promoted sales growth for electrical
circuit protection products, lighting products, fixtures and power distribution
products. The combination of several successful product introductions and
product-line acquisitions also added to revenue growth during the year.
The Tools & Hardware segment comprised approximately 20% of Cooper's total
revenues in 1994, with revenues increasing 11% over 1993. Excluding
acquisitions, revenues improved 3%. 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.
Product line acquisitions also added to the year-to-year improvement. Weak
demand and competitive conditions in window coverings markets partially offset
this improvement.
The Automotive Products segment contributed approximately 35% of Cooper's
total revenues during 1994, with revenues decreasing 3% from 1993. Excluding the
effect of acquisitions and divestitures, revenues would have increased 2%.
Aftermarket sales were essentially unchanged, while 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 on revenues in 1994.
The 1993 revenues of Cameron Forged Products reflect the results for the
nine months ended September 30, 1993. This business, which was previously
included in the Petroleum & Industrial Equipment segment, was not treated as
part of discontinued operations in order to reflect that Cooper's investment in
the business continued in a new form (see Note 2 of Notes to Consolidated
Financial Statements). Other revenues increased $21.9 million in 1994 over 1993
primarily due to a full-year impact of the Belden Inc. tax sharing agreement,
increases in earnings from equity investments and small gains from sales of
corporate assets.
A-2
<PAGE>
OPERATING EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
--------- --------- ------------
(IN MILLIONS)
<S> <C> <C> <C>
Electrical Products................................................................. $ 355.5 $ 326.3 $ 359.0(1)
Tools & Hardware.................................................................... 111.2 102.4 91.6(1)
Automotive Products................................................................. 180.7 190.1 188.9(1)
--------- --------- ------
Segment Operating Earnings........................................................ 647.4 618.8 639.5
Other............................................................................... 37.2 33.2 13.0(1)
General Corporate................................................................... (55.6) (74.0) (65.6)
--------- --------- ------
Operating Earnings................................................................ $ 629.0 $ 578.0 $ 586.9
--------- --------- ------
--------- --------- ------
</TABLE>
- ------------
(1) The 1993 operating earnings amounts exclude nonrecurring expenses of $155.3
million for Electrical Products, $16.5 million for Tools & Hardware and
$26.5 million for Automotive Products and nonrecurring income of $198.3
million for Other.
1995 VS. 1994 SEGMENT OPERATING EARNINGS Segment operating earnings in
1995 increased 5% over the $619 million reported in 1994. Divestitures had an
insignificant impact on total company year-to-year comparisons, while
acquisitions made during the two years improved segment operating earnings by
approximately $45 million in 1995 when compared to 1994.
The Electrical Products segment operating earnings improved 9%, with the
segment contributing 55% of total segment operating earnings. The 1994 closure
of the large power transformer business and four small acquisitions during the
two-year period had an insignificant impact on the year-to-year earnings
comparison. The benefits of revenue growth and ongoing cost-improvement programs
led to an improvement in return on revenues from 16.0% in 1994 to 17.0% in 1995.
Moreover, these benefits offset the business decline in Mexico resulting from
the December 1994 devaluation of the Mexican currency and costs associated with
the transitional effects of relocation activities in one of the businesses
comprising this segment.
The Tools & Hardware segment operating earnings, which were not affected by
either divestitures or acquisitions in the year-to-year comparisons, increased
9% with the segment contributing 17% of total segment operating earnings. Return
on revenues increased slightly over 1994 from 11.4% to 11.6%. Operating earnings
for this segment benefitted from the improvement in sales of hand and power
tools and drapery hardware and leveraging of fixed costs. These benefits more
than offset expenses related to disruptions from recent plant consolidation
programs and several new product introductions.
The Automotive Products segment operating earnings decreased 5%, with the
segment contributing 28% of total segment operating earnings. A 1994 divestiture
had an insignificant impact on the year-to-year operating earnings comparison,
however four acquisitions added approximately $45 million to the segment's
operating earnings. The return on revenues declined from 11.7% in 1994 to 10.1%
in 1995. Gains from product additions and business consolidations were more than
offset by weak domestic aftermarket demand, continued severe price competition,
and initial costs incurred in obtaining several new distribution accounts.
Additionally, the decline in Mexican demand from the December 1994 devaluation
of the Mexican currency negatively impacted operating earnings during 1995.
1995 VS. 1994 OTHER INCOME Other income increased $4 million in 1995,
primarily from a gain of $11.7 million on the sale of Belden Inc. common shares
offset by a decrease in the amount received from Belden Inc. under a tax sharing
agreement.
1995 VS. 1994 GENERAL CORPORATE General corporate expenses decreased $18.4
million in 1995 after an increase of $8.4 million in 1994. The 1995 decrease was
primarily a result of the downsizing of the corporate office in 1995, a
reduction in postemployment benefit costs retained in the divestiture of
businesses, and reductions from the 1994 level of corporate charitable
contributions.
1995 VS. 1994 OPERATING EARNINGS Operating earnings increased 9% in 1995
compared to 1994 due to the factors discussed above. As a percentage of
revenues, cost of sales increased to 66.2% from 66.0%, depreciation and
amortization increased to 4.5% from 4.3% and selling and administrative expenses
decreased to 16.5% from 17.1%. The
A-3
<PAGE>
.2 percentage point increase in the cost of sales percentage is primarily
attributable to the weakness and competitive conditions in the Automotive
Products aftermarket and operating inefficiencies related to facility
consolidations. The depreciation and amortization increase was a result of
capital improvement projects completed in recent years. The decline in selling
and administrative expenses, as a percentage of revenues, was primarily a result
of management's efforts to increase productivity and reduce inefficiencies in
all segments and the corporate office.
1994 VS. 1993 SEGMENT OPERATING EARNINGS Segment operating earnings
decreased 3% in 1994 from the $639.5 million reported in 1993, exclusive of the
1993 nonrecurring expenses of $198.3 million. After excluding the effects of
divestitures, segment operating earnings increased 5%. As discussed in greater
detail below, all three of Cooper's segments contributed to the year-to-year
improvement after excluding divestitures. Acquisitions accounted for an increase
in operating earnings in 1994 of approximately $19 million. The following
comparative analysis excludes the 1993 nonrecurring expenses.
The Electrical Products segment operating earnings declined 9% in 1994 with
the segment contributing 53% of total segment operating earnings. Excluding the
effects of divestitures and the closure of the large power transformer business,
1994's segment operating earnings would have increased approximately 3%.
Acquisitions accounted for an increase in operating earnings of approximately $5
million. While earnings benefited from the improved sales discussed previously,
return on revenues declined from 16.5% in 1993 to 16.0% in 1994, 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 operation discussed
above. On the positive side, acquisitions and new product introductions added to
profits, but were not yet at return-on-sales levels achievable when fully
integrated from both a manufacturing and marketing perspective.
The Tools & Hardware segment operating earnings increased 12% in 1994 with
the segment contributing 16% of total segment operating earnings. Acquisitions
accounted for an increase in operating earnings of approximately $10 million.
Return on revenues was essentially unchanged from year-to-year. While the
majority of the earnings improvement for this segment was 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, offsetting the weak demand and
competitive conditions in window coverings.
The Automotive Products segment operating earnings increased 1% in 1994 with
the segment contributing 31% of total segment operating earnings. Excluding the
effects of divestitures, 1994's segment operating earnings would have increased
approximately 7%. Acquisitions accounted for an increase in operating earnings
of approximately $4 million. Comparative return on revenues improved
year-to-year for this segment from 11.3% in 1993 to 11.7% in 1994. Industry
conditions in the aftermarket improved somewhat after being depressed for nearly
a year and a half. Additionally, the growth in worldwide original equipment
demand was more than sufficient to offset short-term disruptions experienced in
connection with various business consolidation actions taken by Cooper.
1994 VS. 1993 OTHER INCOME Other income increased $20.2 million in 1994
over 1993 primarily due to a full-year's impact of the Belden Inc. tax sharing
agreement, increases in earnings from equity investments and small gains from
sales of corporate assets.
1994 VS. 1993 GENERAL CORPORATE General corporate expenses increased $8.4
million in 1994. The 1994 increase was primarily a result of gains reflected in
1993 from benefit plan curtailments and a lower level of expenses in 1993
related to performance-based compensation programs.
1994 VS. 1993 OPERATING EARNINGS Operating earnings decreased 2% in 1994
compared to 1993 results due to the factors discussed above. As a percentage of
revenues, cost of sales decreased to 66.0% from 66.2%, depreciation and
amortization decreased to 4.3% from 4.5% and selling and administrative expenses
increased to 17.1% from 17.0%. The change in the cost of sales percentage was
primarily driven by acquisitions and divestitures, offset by the impact of
exiting the large power transformer business. The decline in depreciation and
amortization as a percentage of sales reflects the impact of the divestitures as
well as the change in lives from 10 to 12 years for machinery and equipment in
mid-year 1993. Selling and administrative expenses, as a percentage of revenues,
increased primarily as a result of the increase in corporate expenses, as
discussed above.
1993 NONRECURRING INCOME AND EXPENSE 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
A-4
<PAGE>
completion of the Belden Inc. public offering provided a $273.8 million pretax
gain. That gain was entirely offset by a charge 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
machinery and equipment and certain other property, plant and equipment
associated with Cooper's large power transformer product line included in the
Electrical Products segment; and accruals of $126 million for a number of
facility consolidations, shutdowns and rationalizations. Additional information
regarding 1993 nonrecurring income and expense items is set forth in Note 2 of
the Notes to Consolidated Financial Statements. The facility projects were
planned for all of Cooper's segments and involved operations in the United
States, Canada and Europe. 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. While a
majority of the spending for these projects was completed by the end of 1995,
some projects will not be completed until 1997. See "Liquidity and Capital
Resources" below.
INTEREST EXPENSE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Interest expense......................................................................... $ 151.0 $ 73.3 $ 80.9
--------- --------- ---------
--------- --------- ---------
</TABLE>
1995 VS. 1994 INTEREST EXPENSE Interest expense increased $77.7 million in
1995. Approximately $48.7 million of the increase was the result of Cooper
exchanging, on January 1, 1995, 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. While the exchange increased interest expense, it eliminated preferred
dividends of $53.3 million, which were not tax deductible, generating in excess
of $20 million per year of additional net cash flows. The remainder of the
increase in interest expense is approximately equally attributable to the higher
average debt outstanding in 1995 following the fourth quarter 1994 acquisitions
of Abex Friction Products and Zanxx and an increase in the average interest rate
on outstanding debt.
1994 VS. 1993 INTEREST EXPENSE Interest expense decreased $7.6 million in
1994 primarily due to the lower average debt outstanding offset by a slight
increase in the average interest rate on outstanding debt.
INCOME FROM CONTINUING OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
(IN MILLIONS, EXCEPT
PER SHARE DATA)
<S> <C> <C> <C>
Income from continuing operations before income taxes.................................. $ 478.0 $ 504.7 $ 506.0
Income taxes........................................................................... 197.4 211.9 207.0
--------- --------- ---------
Income from continuing operations...................................................... $ 280.6 $ 292.8 $ 299.0
--------- --------- ---------
--------- --------- ---------
Fully diluted earnings per share from continuing operations............................ $ 2.41 $ 2.10 $ 2.15
--------- --------- ---------
--------- --------- ---------
</TABLE>
1995 VS. 1994 INCOME FROM CONTINUING OPERATIONS Income from continuing
operations before income taxes for 1995 decreased 5%. This decrease reflects the
increase in operating earnings, discussed above, offset by the 106% increase in
interest expense. The effective tax rate decreased slightly from 42.0% in 1994
to 41.3% in 1995. Income from continuing operations decreased 4% due to the
combination of the above factors, while fully diluted earnings per share from
continuing operations increased by 15%. The reduction in average shares
outstanding resulting from the Cooper Cameron Exchange Offer in mid-year 1995,
the Preferred Stock being antidulitive in 1994 and the increased income
available to Common shareholders resulting from the Preferred Stock conversion
each contributed to the earnings per share increase.
1994 VS. 1993 INCOME FROM CONTINUING OPERATIONS Income from continuing
operations before income taxes for 1994 decreased less than 1%. This result
reflects effects of divestitures, discussed above, partially offset by the
benefit of
A-5
<PAGE>
lower interest expense. Cooper's effective income tax rate increased by 1.1
percentage point in 1994. This increase principally 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 the adjustment of the net deferred tax
asset on the balance sheet at the date of enactment of the rate increase as
required by the income tax accounting rules. Income from continuing operations
and earnings per share from continuing operations for 1994 decreased 2% as a
result.
DISCONTINUED OPERATIONS
In September 1994, Cooper announced its decision to discontinue its
Petroleum & Industrial Equipment segment through an exchange offer with holders
of Cooper Common Stock. On June 30, 1995, Cooper's Common shareholders exchanged
9.5 million shares of their Cooper Common Stock for common stock of Cooper
Cameron, a newly formed company that included all of the assets and liabilities
of the four divisions that comprised Cooper's Petroleum & Industrial Equipment
segment, as well as $375 million of allocated indebtedness. Operating results of
the Petroleum & Industrial Equipment segment are reported as discontinued
operations in the consolidated statements of operations. See Note 18 of the
Notes to Consolidated Financial Statements for additional information.
Cooper's consolidated results for 1994 and 1993 included income from the
operations of the discontinued Petroleum & Industrial Equipment segment of $.3
million and $68.1 million, respectively. The 1994 results include the operations
through September 30, 1994, the date the segment was reflected as a discontinued
operation.
The $313 million charge for discontinued operations, net of $7.9 million in
taxes ($2.74 per share) recorded by Cooper in the third quarter of 1994,
consisted of the estimated difference between the historical cost of Cooper's
investment in Cooper Cameron and the estimated market value of Cooper Cameron
equity ($288 million), Cooper Cameron's estimated operating losses during the
period October 1, 1994 through the projected date Cooper Cameron would become a
public company ($9.8 million) and transaction costs ($15.2 million). The
estimated market value of Cooper Cameron equity, which was determined by the
Company with the advice of its financial advisors, was based on Cooper Cameron's
historical and projected results of operations and cash flows and market
comparables for a selected group of peer companies.
In the second quarter of 1995, Cooper recorded an additional charge of
$186.6 million ($1.67 per share) to reflect the actual loss on the split-off of
Cooper Cameron. The charge was composed of the difference between the historical
cost of Cooper's investment in Cooper Cameron remaining after the September 1994
estimated charge and the market value of Cooper Cameron common stock during the
first few days the common stock traded on a national exchange ($162.8 million),
additional Cooper Cameron operating losses during the period October 1, 1994
through June 30, 1995 ($20.3 million) and additional transaction costs ($3.5
million). The additional operating losses and transaction costs resulted
primarily from the delay in completing the exchange transaction and the
recording by Cooper Cameron of a $17 million pretax charge in the second quarter
of 1995 for the write-down of receivables due from customers in Iran.
Under the provisions of the Asset Transfer Agreement between Cooper and
Cooper Cameron, Cooper Cameron was responsible, other than for certain agreed
amounts of estimated operating losses, for its cash requirements between October
1, 1994 and the expiration date of the Exchange Offer. Other than for income tax
liabilities for periods prior to the completion of the Exchange Offer, Cooper
did not retain any liabilities, contingent or otherwise, with respect to the
discontinued operations.
The Petroleum & Industrial Equipment segment revenues were $523.1 million
for the six-month period ended on the exchange date of June 30, 1995 and $1.11
billion and $1.50 billion during the years ended December 31, 1994 and 1993,
respectively. Excluding the effects of the spin-off of Gardner Denver Machinery
Inc. during 1994, the decline in revenues was 22% in 1994. 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 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.
FULLY DILUTED NET INCOME (LOSS) PER SHARE
Net income (loss) per fully diluted share increased from a loss in 1994 of
$.64 to income of $.84 in 1995. Both years reflect a charge for discontinued
operations.
A-6
<PAGE>
Net income (loss) per fully diluted share declined to a loss of $.64 in 1994
from income of $2.75 in 1993. 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 to less than $.01 per share in 1994
from income of $.60 per share in 1993. The same factors discussed above under
"Discontinued Operations" and "Income from Continuing Operations" led to the
changes in share earnings.
EARNINGS OUTLOOK
Assuming modest growth in the economy, Cooper currently expects each of its
segment's revenues and earnings to grow during 1996. The performance of the
Electrical Products and Tools & Hardware segments should reflect the expected
improvement in domestic and international markets and gains from new product
introductions and other 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 return to more normal levels of
domestic aftermarket demand.
PRICING AND VOLUME
In each of Cooper's 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 1995 unit volume increased in the
Electrical Products and Tools & Hardware segments and decreased in the
Automotive Products segment due to the weak domestic aftermarket. During 1994,
unit volume increased in all three business segments, and during 1993, unit
volume increased in the Electrical Products segment, was relatively unchanged in
the Automotive Products segment and decreased in the Tools & Hardware segment.
During the three-year period ending in 1995, 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 actions during this period so that the inability to increase prices has
not significantly affected profitability in the segments, except for power
equipment products within the Electrical Products segment during 1993 and 1994.
EFFECT OF INFLATION
During each year, inflation has had a relatively minor effect on Cooper's
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 Sheets are recorded in connection with business
combinations that are accounted for as purchases. At the time of such
acquisitions, the assets and liabilities are adjusted to fair market value and,
therefore, the cumulative long-term effect of inflation is reduced.
LIQUIDITY AND CAPITAL RESOURCES
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 AND NONRECURRING INCOME AND EXPENSE ITEMS AND AFTER
THE RESTATEMENT TO REFLECT DISCONTINUED OPERATIONS.
In 1995, operating working capital decreased $73 million primarily driven by
a reduction of inventories during the year. All three segments contributed to
the reduction of inventory. Management attention was focused in 1995 on reducing
the build up of inventories that occurred in 1994. Attention will continue to be
focused on operating working capital reductions in 1996.
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
A-7
<PAGE>
revenue growth discussed previously, and an industry-wide trend to an 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.
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.
CASH FLOWS
Net cash flows provided by operating activities in 1995 totaled $550
million. This cash, in addition to $40 million generated by sales of fixed
assets and marketable equity securities, was used to fund capital spending of
$188 million, dividends of $164 million, debt reduction of $186 million and
discontinued operations of $48 million.
During 1994, net cash flows provided by operating activities totaled $321
million. These cash flows as well as the $40 million of net cash flows generated
by discontinued operations and other miscellaneous cash flows totaling a net of
$27 million, provided 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 the sale of Belden, accounts for the debt increase of $415 million.
During 1993, net cash flows provided by 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 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.
In connection with the 1993 management actions discussed under "1993
Nonrecurring Income and Expense," Cooper expended cash that was reflected as a
decrease in cash flows from operations in 1994 and 1995. During 1995 management
continuously reviewed levels and timing of expenditures on these projects. Since
the level of spending and timing of the various projects is within management's
control and discretion and the amounts remaining to be expended are
insignificant, the Company does not believe that the resources required for the
completion of these projects will in any way strain Cooper's overall liquidity
or capital resources.
In connection with accounting for purchase business combinations, Cooper
records, to the extent appropriate, accruals for the costs of closing duplicate
facilities, severing redundant personnel and integrating the acquired business
into existing Cooper operations. Cash flow from operating activities for each of
the three years in the period ended December 31, 1995, is reduced by the amounts
expended on the various accruals established in connection with each
acquisition. At December 31, 1995, Cooper had accruals totaling $65.6 million
related to these activities. Cooper spent $47 million, $61.3 million and $46.7
million in 1995, 1994 and 1993, respectively. A total of $93 million during the
three years ended December 31, 1995 related to the revitalization and
integration of Champion Spark Plug. The majority of the remaining accruals are
anticipated to be spent in 1996 and 1997. Spending in 1996 and future years is
not expected to be at these historical levels, as most of the major projects
related to earlier acquisitions have been completed and recent acquisitions do
not involve significant restructuring activities. Cooper does not believe that
future spending will impair Cooper's overall financial flexibility. See Note 7
of the Notes to Consolidated Financial Statements for further information.
DEBT
The ratio of debt to total capitalization was 54.5%, 36.3% and 27.5% at year
end 1995, 1994 and 1993, respectively. The increase in the 1995 ratio reflects
the exchange, on January 1, 1995, of the $1.60 Convertible Exchangeable
Preferred Stock for 7.05% Convertible Subordinated Debentures and the $614.1
million reduction in shareholders' equity from the June 30, 1995 exchange of
Cooper Common shares for Cooper Cameron common shares. See Notes 8 and 18 of the
Notes to the Consolidated Financial Statements for further information on the
terms of the debentures and the exchange offer. The increase in the debt ratio
in 1994 reflects not only a higher debt level from the year-end acquisitions of
Abex Friction Products and Zanxx, but also reflects a reduction in shareholders'
equity from the
A-8
<PAGE>
September 1994 charge of $313 million for discontinued operations and the $153
million special dividend related to the spin-off of Gardner Denver Machinery
Inc. See Note 18 of the Notes to Consolidated Financial Statements for
additional information.
As a result of the higher-than-normal debt ratio discussed above, Cooper has
and will be placing increased emphasis on maximizing the cash flows from its
operations and reducing its investment in working capital. In addition, Cooper
continues to explore other actions to reduce the debt ratio and return it to
Cooper's target range of 35 to 45%.
CAPITAL EXPENDITURES AND COMMITMENTS
Spending on capital projects to reduce product costs, improve product
quality, increase manufacturing efficiency and operating flexibility, or expand
product capacity was $188 million in 1995, below the $209 million in 1994 and
equal to the $188 million in 1993. Projected commitments for capital
expenditures for 1996 amount to $206 million. The commitments for 1996 include
approximately $109 million for various cost-reduction and capacity-maintenance
projects, including machinery and equipment modernization and enhancement and
computer hardware and software projects, $53 million for capacity expansion, $14
million related to environmental matters and $30 million for other items.
RECENTLY ISSUED ACCOUNTING STANDARDS
Statements of Financial Accounting Standards No. 121 ("SFAS No. 121"),
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE DISPOSED OF and No. 123 ("SFAS No. 123"), ACCOUNTING FOR STOCK-BASED
COMPENSATION, were issued during 1995. Cooper will adopt SFAS No. 121 in the
first quarter of 1996 and, based on current circumstances, does not believe that
such adoption will have a material effect on its financial position or results
of operations. Cooper will continue to account for employee stock options in
accordance with APB Opinion No. 25, as permitted by SFAS No. 123. See Note 1 of
the Notes to Consolidated Financial Statements for further discussion of the
requirements of these Statements.
A-9
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Cooper Industries, Inc.
We have audited the accompanying consolidated balance sheets of Cooper
Industries, Inc. as of December 31, 1995 and 1994, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1995. 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, 1995 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, 1995, in conformity with generally accepted accounting
principles.
Houston, Texas /s/ Ernst & Young LLP
January 23, 1996
A-10
<PAGE>
COOPER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
(IN MILLIONS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Revenues................................................................................... $ 4,885.9 $ 4,588.0 $ 4,776.4
Costs and expenses
Cost of sales............................................................................ 3,232.9 3,026.4 3,163.0
Depreciation and amortization............................................................ 218.8 199.0 215.9
Selling and administrative expenses...................................................... 805.2 784.6 810.6
Nonrecurring gain on 1993 IPO of Belden Inc.............................................. -- -- (273.8)
Nonrecurring expenses.................................................................... -- -- 273.8
--------- --------- ---------
4,256.9 4,010.0 4,189.5
--------- --------- ---------
Operating earnings..................................................................... 629.0 578.0 586.9
Interest expense........................................................................... 151.0 73.3 80.9
--------- --------- ---------
Income from continuing operations before income taxes.................................. 478.0 504.7 506.0
Income taxes............................................................................... 197.4 211.9 207.0
--------- --------- ---------
Income from continuing operations...................................................... 280.6 292.8 299.0
Income from discontinued operations, net of taxes.......................................... -- .3 68.1
Charge for discontinued operations......................................................... (186.6) (313.0) --
--------- --------- ---------
Net income (loss).................................................................... $ 94.0 $ (19.9) $ 367.1
--------- --------- ---------
--------- --------- ---------
Income (loss) per Common share
Primary:
Income from continuing operations...................................................... $ 2.51 $ 2.10 $ 2.15
Income (loss) from discontinued operations............................................. (1.67) (2.74) 0.60
--------- --------- ---------
Net income (loss).................................................................... $ 0.84 $ (0.64) $ 2.75
--------- --------- ---------
--------- --------- ---------
Fully diluted:
Income from continuing operations...................................................... $ 2.41 $ 2.10 $ 2.15
--------- --------- ---------
--------- --------- ---------
Net income (loss).................................................................... $ 0.84 $ (0.64) $ 2.75
--------- --------- ---------
--------- --------- ---------
Cash dividends per Common share............................................................ $ 1.32 $ 1.32 $ 1.32
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
A-11
<PAGE>
COOPER INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
--------- ---------
(IN MILLIONS)
<S> <C> <C>
ASSETS
Cash and cash equivalents.............................................................................. $ 17.7 $ 25.3
Receivables............................................................................................ 992.7 904.4
Inventories............................................................................................ 963.5 988.5
Other.................................................................................................. 153.4 182.0
--------- ---------
Total current assets........................................................................... 2,127.3 2,100.2
--------- ---------
Net assets of discontinued operations.................................................................. -- 646.4
Property, plant and equipment, less accumulated depreciation........................................... 1,232.1 1,187.5
Intangibles, less accumulated amortization............................................................. 2,226.0 2,153.9
Investments in marketable equity securities............................................................ 406.2 158.4
Deferred income taxes and other assets................................................................. 72.3 154.3
--------- ---------
Total assets................................................................................... $ 6,063.9 $ 6,400.7
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term debt........................................................................................ $ 34.3 $ 179.2
Accounts payable and accrued liabilities............................................................... 1,180.5 1,133.1
Accrued income taxes................................................................................... 10.4 1.7
Current maturities of long-term debt................................................................... 157.2 19.1
--------- ---------
Total current liabilities...................................................................... 1,382.4 1,333.1
--------- ---------
Long-term debt......................................................................................... 1,865.3 1,361.9
Postretirement benefits other than pensions............................................................ 620.0 638.0
Other long-term liabilities............................................................................ 479.8 326.6
--------- ---------
Total liabilities.............................................................................. 4,347.5 3,659.6
--------- ---------
$1.60 Convertible Exchangeable Preferred stock, $1.00 par value........................................ -- 30.6
Common stock, $5.00 par value.......................................................................... 539.4 584.6
Capital in excess of par value......................................................................... 141.6 1,176.5
Retained earnings...................................................................................... 1,100.3 1,153.4
Unearned employee stock ownership plan compensation.................................................... (121.6) (147.4)
Other.................................................................................................. 56.7 (56.6)
--------- ---------
Total shareholders' equity..................................................................... 1,716.4 2,741.1
--------- ---------
Total liabilities and shareholders' equity..................................................... $ 6,063.9 $ 6,400.7
--------- ---------
--------- ---------
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
A-12
<PAGE>
COOPER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................................................... $ 94.0 $ (19.9) $ 367.1
Less: (income) loss from discontinued operations............................................ 186.6 312.7 (68.1)
--------- --------- ---------
Income from continuing operations........................................................... 280.6 292.8 299.0
Adjustments to reconcile to net cash provided by operating activities:
Depreciation.............................................................................. 141.7 128.2 145.2
Amortization.............................................................................. 77.1 70.8 70.7
Deferred income taxes..................................................................... 65.4 81.4 (15.5)
Nonrecurring gain on 1993 IPO of Belden Inc., net of tax.................................. -- -- (164.3)
Nonrecurring expense, net of tax.......................................................... -- -- 164.3
Gain on sales of marketable equity securities............................................. (11.7) -- --
Changes in assets and liabilities: (1)....................................................
Receivables............................................................................. (12.1) (71.3) (47.4)
Inventories............................................................................. 68.2 (60.4) 31.1
Accounts payable and accrued liabilities................................................ 16.6 25.6 39.7
Accrued income taxes.................................................................... (33.2) (8.0) (46.8)
Other assets and liabilities, net....................................................... (42.3) (138.4) 2.3
--------- --------- ---------
Net cash provided by operating activities............................................. 550.3 320.7 478.3
--------- --------- ---------
Cash flows from investing activities:
Cash paid for acquired businesses........................................................... (11.9) (280.6) (100.9)
Capital expenditures........................................................................ (188.4) (208.7) (188.4)
Proceeds from sales of property, plant and equipment........................................ 25.8 15.4 16.9
Proceeds from disposition of businesses..................................................... -- 27.7 396.1
Taxes paid in 1994 with respect to the 1993 gain on the sale of Belden Inc.................. -- (107.0) --
Proceeds from sales of marketable equity securities......................................... 14.4 -- --
Other....................................................................................... (.4) (2.9) (1.1)
--------- --------- ---------
Net cash provided by (used in) investing activities................................... (160.5) (556.1) 122.6
--------- --------- ---------
Cash flows from financing activities:
Proceeds from issuances of debt............................................................. 704.7 722.0 257.7
Repayments of debt.......................................................................... (890.3) (307.1) (710.7)
Dividends................................................................................... (164.0) (205.9) (203.4)
Debt issue costs............................................................................ (6.9) -- --
Purchase of treasury shares................................................................. -- (19.9) (4.5)
Activity under employee stock plans and other............................................... 1.1 21.7 16.8
--------- --------- ---------
Net cash provided by (used in) financing activities................................... (355.4) 210.8 (644.1)
--------- --------- ---------
Cash flows provided (used) by discontinued operations......................................... (47.7) 40.4 35.5
Effect of exchange rate changes on cash and cash equivalents.................................. 5.7 (3.5) 2.9
--------- --------- ---------
Increase (decrease) in cash and cash equivalents.............................................. (7.6) 12.3 (4.8)
Cash and cash equivalents, beginning of year.................................................. 25.3 13.0 17.8
--------- --------- ---------
Cash and cash equivalents, end of year........................................................ $ 17.7 $ 25.3 $ 13.0
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------
(1) Net of the effects of acquisitions, divestitures, translation and
nonrecurring items.
The Notes to Consolidated Financial Statements are an integral part of these
statements. See Note 17 for information on noncash investing and financing
activities.
A-13
<PAGE>
COOPER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
$1.60
CONVERTIBLE CAPITAL UNEARNED
EXCHANGEABLE IN EXCESS EMPLOYEE STOCK
PREFERRED COMMON OF PAR RETAINED OWNERSHIP PLAN
STOCK STOCK VALUE EARNINGS COMPENSATION OTHER
------------- ----------- --------- --------- --------------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1992.......................... $ 33.1 $ 567.0 $ 1,086.2 $ 1,359.1 $ (149.7) $ (33.1)
Net income....................................... 367.1
Common stock dividends........................... (150.3)
Preferred stock dividends........................ (53.1)
Acquisition of treasury stock, at cost........... (4.5)
Conversion of debentures......................... .1 2.8
Stock issued under employee stock plans.......... 4.0 28.3 .6
Principal payments by ESOP....................... 27.2
Translation loss................................. (21.5)
Adjustment for minimum pension liability......... (59.8)
Other activity................................... .3 4.8 3.7 (2.7)
------ ----------- --------- --------- ------- ---------
BALANCE DECEMBER 31, 1993.......................... 33.2 571.3 1,122.1 1,526.5 (125.2) (118.3)
Net loss......................................... (19.9)
Common stock dividends........................... (152.6)
Preferred stock dividends........................ (53.3)
Dividend -- stock of Gardner Denver Machinery
Inc............................................. (152.9)
Acquisition of treasury stock, at cost........... (19.9)
Conversion of $1.60 Preferred to Common.......... (2.7) 5.0 (20.1) 17.8
Conversion of debentures......................... .1 3.4
Stock issued under employee stock plans.......... .3 .4 3.5
Sale of additional shares to ESOP................ 8.0 74.3 (82.3)
Principal payments by ESOP....................... 53.4
Adjustment for minimum pension liability......... 12.3
Translation loss................................. (2.3)
Unrealized gain on investments in marketable
equity securities............................... 47.8
Other activity................................... (3.6) 5.6 6.7 2.5
------ ----------- --------- --------- ------- ---------
BALANCE DECEMBER 31, 1994.......................... 30.6 584.6 1,176.5 1,153.4 (147.4) (56.6)
Net income....................................... 94.0
Common stock dividends........................... (148.4)
Exchange of common stock for Cooper Cameron
common stock.................................... (47.5) (382.6) 2.6
Redemption of $1.60 Preferred for 7.05%
Convertible subordinated debentures............. (30.6) (664.4)
Stock issued under employee stock plans.......... 1.8 12.0
Principal payments by ESOP....................... 25.4
Adjustment for minimum pension liability......... 8.7
Translation loss................................. (15.0)
Unrealized gain on investments in marketable
equity securities............................... 119.6
Other activity................................... .5 .1 1.3 (2.2)
------ ----------- --------- --------- ------- ---------
BALANCE DECEMBER 31, 1995.......................... $ -- $ 539.4 $ 141.6 $ 1,100.3 $ (121.6) $ 56.7(1)
------ ----------- --------- --------- ------- ---------
------ ----------- --------- --------- ------- ---------
</TABLE>
- ---------------
(1) At December 31, 1995, "Other" included the minimum pension liability of
$(46.3) million, net of tax, cumulative translation adjustments of $(64.4)
million and the unrealized gain on Cooper's investments in marketable equity
securities of $167.4 million, net of tax.
The Notes to Consolidated Financial Statements are an integral part of these
statements.
A-14
<PAGE>
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Cooper
Industries, Inc. ("Cooper") and its majority-owned subsidiaries. Affiliated
companies are accounted for on the equity method where Cooper owns more than 20%
but less than 50% of the affiliate unless significant economic, political or
contractual considerations indicate that the cost method is appropriate.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, Cooper considers
all investments purchased with original maturities of three months or less to be
cash equivalents.
INVENTORIES
Inventories are carried at cost or, if lower, net realizable value. On the
basis of current costs, 70% and 75% of inventories at December 31, 1995 and
1994, respectively, were 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.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. 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 and patterns -- 5 to 10 years. 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 the
respective acquisition dates. The carrying value of Cooper's goodwill is
reviewed by division or, if feasible, by acquisition 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.
INVESTMENTS IN MARKETABLE EQUITY SECURITIES
Marketable equity securities received or retained in connection with the
divestiture of businesses are reflected as available-for-sale securities and are
stated at fair market value at each balance sheet date, with unrealized gains
and losses, net of tax, reported as a component of shareholders' equity. The
cost of securities sold is determined based on the specific identification
method for purposes of recording realized gains and losses.
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.
A-15
<PAGE>
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ENVIRONMENTAL REMEDIATION
Environmental remediation costs are accrued, except to the extent costs can
be capitalized, based on estimates of known environmental remediation exposures.
Capitalized environmental costs are depreciated generally utilizing a 15-year
life.
RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 121 ("SFAS No. 121"),
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE DISPOSED OF, was issued in March 1995. SFAS No. 121 requires impairment
losses to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amount. Cooper will adopt
SFAS No. 121 in the first quarter of 1996 and, based on current circumstances,
does not believe that such adoption will have a material effect on its financial
position or results of operations.
Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"),
ACCOUNTING FOR STOCK-BASED COMPENSATION, was issued in October 1995. SFAS No.
123 defines a fair value based method of accounting for employee stock options.
Under this fair value method, compensation cost is measured at the grant date
based on the fair value of the award and is recognized over the service period.
However, SFAS No. 123 allows an entity to continue to measure compensation cost
in accordance with APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES.
Cooper will continue to account for stock option grants in accordance with APB
Opinion No. 25, and, accordingly, recognizes no compensation expense for stock
options granted as the exercise price is equal to fair value at the date of
grant.
NOTE 2: NONRECURRING CONTINUING OPERATIONS ITEMS
In 1994 Cooper completed the sale of its aerospace business, Cameron Forged
Products, to Wyman-Gordon Company ("Wyman-Gordon") in exchange for 16.5 million
newly issued shares of Wyman-Gordon common stock (48% of Wyman-Gordon's issued
common stock) and $5 million in cash and notes. In connection with Cooper's
intention not to maintain this investment for a long period, in December 1995,
Cooper issued three-year mandatorily exchangeable notes, due January 1, 1999,
exchangeable into the 16.5 million shares (See Notes 6 and 8). Cooper has
limited representation on Wyman-Gordon's Board of Directors and is required,
except in certain circumstances, to vote its shares in accordance with the
position recommended by Wyman-Gordon's Board of Directors or proportionately
with the vote of the other shareholders. As a result, the Wyman-Gordon stock has
been accounted for as a marketable equity security. During the fourth quarter of
1993, Cooper charged pretax earnings approximately $65 million for a write-down
of the carrying value of the sold assets. For the nine months ended September
30, 1993, the Cameron Forged Products Division had revenues of $114 million and
a small pretax loss. The results subsequent to September 30, 1993 were not
included in Cooper's consolidated results. The historical revenues and earnings
of Cameron Forged Products, which were included in the Petroleum & Industrial
Equipment segment, have not been treated as part of discontinued operations in
order to reflect that Cooper's investment in this business continued in a new
form (See Notes 15 and 18).
On October 6, 1993, Cooper closed an initial public offering of 90.4% of the
common stock of Belden Inc. ("Belden"), formerly Cooper's Belden Division. This
sale generated net-of-tax cash proceeds of approximately $267 million and a
$273.8 million pretax gain ($164.3 million net of tax) or, $1.44 per fully
diluted share. In addition, depending upon the future profitability of Belden
and other factors, Cooper receives additional benefits over a 15-year period
from a tax sharing agreement between Cooper and Belden. The proceeds from the
tax sharing agreement are recorded in income when they are earned. Belden common
stock retained by Cooper is reflected as a marketable equity security. 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 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 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
A-16
<PAGE>
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
NOTE 3: ACQUISITIONS AND DIVESTITURES
In 1995, Cooper completed one large acquisition, two small product-line
acquisitions, and the divestiture, through an exchange offer with shareholders,
of the remaining businesses comprising its former Petroleum & Industrial
Equipment segment (See Note 18). Effective December 31, 1995, Cooper acquired
CEAG Sicherheitstechnik GmbH ("CEAG") from Asea Brown Boveri AG, Mannheim. The
total cost of the acquisition, which was paid on January 5, 1996, was
approximately $164 million. CEAG manufactures and markets explosion proof
electrical products and business security and emergency lighting products. The
two small product-line acquisitions had an aggregate cost of $13.5 million. A
total of $139.8 million of goodwill was recorded, on a preliminary basis, with
respect to the three acquisitions. One small acquisition was in the Automotive
Products segment and the two other acquisitions were in the Electrical Products
segment.
Cooper completed one large acquisition, five small product-line acquisitions
and one divestiture in 1994, in addition to the divestitures discussed in Notes
2 and 18. 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 five smaller
acquisitions had an aggregate cost of $73.2 million. A total of $252.1 million
of goodwill was recorded, including 1995 revisions of $9.8 million, 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, for cash proceeds of $27.3 million,
of a small operation in the Automotive Products segment that was initially
acquired as part of the Moog acquisition in 1992 and distributed the common
stock of Gardner Denver Machinery Inc. to Cooper's shareholders (See Note 18).
Cooper completed five small product-line acquisitions and two divestitures
in 1993, in addition to the Belden transaction described in Note 2 . The
acquisitions had an aggregate cost of $110.2 million including $6.7 million of
assumed indebtedness. A total of $67.2 million of goodwill, including 1994
revisions of $13.6 million, 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. Proceeds from the divestitures of these two businesses totaled $26
million, including $19 million of notes and other amounts receivable in the
future, and resulted in the recognition of a $5.5 million after-tax gain.
The acquisitions 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.
NOTE 4: INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Raw materials................................................................................ $ 281.1 $ 265.1
Work-in-process.............................................................................. 227.5 203.5
Finished goods............................................................................... 500.9 563.7
Perishable tooling and supplies.............................................................. 55.0 55.4
--------- ---------
1,064.5 1,087.7
Excess of current standard costs over LIFO costs............................................. (95.2) (87.3)
Allowance for obsolete and slow-moving inventory............................................. (5.8) (11.9)
--------- ---------
Net inventories.............................................................................. $ 963.5 $ 988.5
--------- ---------
--------- ---------
</TABLE>
A-17
<PAGE>
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5: PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLES
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
---------- ---------
(IN MILLIONS)
<S> <C> <C>
Property, plant and equipment:
Land and land improvements................................................................ $ 83.3 $ 83.7
Buildings................................................................................. 561.8 539.5
Machinery and equipment................................................................... 1,173.6 1,078.5
Tooling, dies, patterns, etc.............................................................. 145.3 120.7
All other................................................................................. 204.9 190.5
Construction in progress.................................................................. 99.4 113.4
---------- ---------
2,268.3 2,126.3
Accumulated depreciation.................................................................... (1,036.2) (938.8)
---------- ---------
$ 1,232.1 $ 1,187.5
---------- ---------
---------- ---------
Intangibles:
Goodwill.................................................................................. $ 2,596.0 $ 2,459.3
Assets related to pension plans........................................................... 5.5 4.5
Other..................................................................................... 103.8 102.4
---------- ---------
2,705.3 2,566.2
Accumulated amortization.................................................................. (479.3) (412.3)
---------- ---------
$ 2,226.0 $ 2,153.9
---------- ---------
---------- ---------
</TABLE>
NOTE 6: INVESTMENTS IN MARKETABLE EQUITY SECURITIES
At December 31, 1994, Cooper's investment in marketable equity securities
consisted of its investments in Belden and Wyman-Gordon and, at December 31,
1995, also includes its investment in Cooper Cameron Corporation ("Cooper
Cameron"). In December 1995, Cooper issued DECS-SM- (Debt Exchangeable for
Common Stock) which, at maturity, are mandatorily exchangeable into shares of
Wyman-Gordon common stock or, at Cooper's option, into cash in lieu of shares.
The number of shares or the amount of cash will be based on the average market
value of Wyman-Gordon common stock on the 20 trading days prior to maturity on
January 1, 1999 (the "WGC Maturity Price"). If the WGC Maturity Price is greater
than or equal to $15.66 per share, the DECS will be exchangeable at maturity
into 14.2 million shares of Wyman-Gordon common stock. If the WGC Maturity Price
is less than or equal to $13.50 per share, the DECS will be exchangeable at
maturity into 16.5 million shares of Wyman-Gordon common stock. If the WGC
Maturity Price is between $13.50 and $15.66 per share, the DECS will be
exchangeable into a number of shares of Wyman-Gordon common stock between 14.2
million and 16.5 million, based on an exchange ratio. If the DECS are redeemed
for cash, the amount of cash will be equal to the number of Wyman-Gordon shares
exchangeable under the terms of the DECS times the WGC Maturity Price. The DECS
are a hedge of Cooper's investment in Wyman-Gordon common stock and will result
in Cooper realizing a minimum after tax gain of $100.6 million at maturity of
the DECS. The unrealized gain is included in shareholders' equity as an
unrealized gain on investments in marketable equity securities, net of tax, at
December 31, 1995.
The aggregate fair value of the marketable equity securities was $406.2
million and $158.4 million at December 31, 1995 and 1994, respectively. Gross
unrealized gains on investments in marketable equity securities were $257.6
million and $79.7 million at December 31, 1995 and 1994, respectively. During
1995, marketable equity securities were sold for proceeds of $14.4 million,
resulting in realized gains of $11.7 million.
A-18
<PAGE>
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7: ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Trade accounts payable and accruals.......................................................... $ 638.9 $ 655.6
Salaries, wages and related fringe benefits.................................................. 101.5 85.8
Product and environmental liability accruals................................................. 106.4 114.4
Contributions payable under employee benefit plans........................................... 72.4 49.9
Estimated costs of integration, plant shut-downs, facility relocations, realignments and
severance related to acquired businesses.................................................... 65.6 90.5
Other (individual items less than 5% of total current liabilities)........................... 195.7 136.9
--------- ---------
$ 1,180.5 $ 1,133.1
--------- ---------
--------- ---------
</TABLE>
At December 31, 1995, Cooper had accruals of $39.7 million with respect to
potential product liability claims and $127.5 million with respect to potential
environmental liabilities, including $60.8 million classified as a long-term
liability, based on Cooper's current estimate of the most likely amount of
losses that it believes will be incurred.
The product liability accrual consists of $20.5 million of known claims with
respect to ongoing operations, $14.4 million of known claims for previously
divested operations that are no longer a part of Cooper and $4.8 million which
represents 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 had insurance coverage for individual 1995 claims
beyond $3.0 million. Insurance levels have varied from year to year.
The environmental liability accruals include $62.5 million related to sites
owned by Cooper and $65.0 million for retained environmental liabilities related
to sites previously owned by Cooper and 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 $16.3 million of environmental costs with a net book
value of $12.7 million at December 31, 1995.
It has been Cooper's consistent practice to include the entire product
liability accrual and a majority of the environmental liability accrual as
current liabilities, although only approximately 10-20% of the balance
classified as current 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 balances from year to year reflects the effect of acquisitions and
divestitures as well as normal expensing and funding.
Cooper has not utilized any form of discounting in establishing its product
or environmental liability accruals. 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. 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.
In connection with acquisitions accounted for using the purchase method of
accounting, Cooper records, to the extent appropriate, accruals for the costs of
closing duplicate facilities, severing redundant personnel and integrating the
A-19
<PAGE>
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
acquired business into existing Cooper operations. Significant accruals include
systems integration costs, plant shut-down and realignment costs, and facility
relocations. The following table summarizes the accrual balances and activity
during each of the last three years.
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Activity during each year:
Balance beginning of year...................................................................... $ 122.3 $ 169.7 $ 170.5
Spending....................................................................................... (47.0) (61.3) (46.7)
Reclassifications.............................................................................. (27.8) (4.4) 15.5
Acquisitions -- initial allocation............................................................. .1 11.8 19.8
Acquisitions -- final allocation adjustment.................................................... 13.8 -- 17.6
Translation.................................................................................... 4.2 6.5 (7.0)
--------- --------- ---------
Balance end of year............................................................................ $ 65.6 $ 122.3 $ 169.7
--------- --------- ---------
--------- --------- ---------
Balances by category of accrual:
Systems integration............................................................................ $ 11.5 $ 16.8 $ 30.0
Plant shut-down and realignment................................................................ 43.2 94.6 113.6
Other facility relocations and severance....................................................... 8.5 6.9 18.9
Other realignment and integration.............................................................. 2.4 4.0 7.2
--------- --------- ---------
$ 65.6 $ 122.3 $ 169.7
--------- --------- ---------
--------- --------- ---------
Balances by acquisition:
Champion....................................................................................... $ 21.4 $ 79.4 $ 104.6
Moog Automotive................................................................................ 13.3 18.3 33.3
Triangle....................................................................................... 1.4 3.6 11.8
Abex Friction Products......................................................................... 13.3 1.9 --
Zanxx.......................................................................................... 2.0 2.4 --
Magneti Marelli................................................................................ 6.6 7.2 --
Other.......................................................................................... 7.6 9.5 20.0
--------- --------- ---------
$ 65.6 $ 122.3 $ 169.7
--------- --------- ---------
--------- --------- ---------
</TABLE>
Systems integration accruals represent the costs to terminate existing
contracts and integrate manufacturing, sales and marketing, financial and
payroll systems into existing Cooper systems. Integration costs include software
documentation, contract programming, consulting and training costs. Hardware and
new system development costs are capitalized. Plant shut-down and realignment
includes the costs to terminate personnel, shut down the facilities, terminate
leases and similar costs. The shutdown of the Champion Toledo and Detroit
manufacturing facilities resulted in spending of $.6 million, $7.1 million and
$7.6 million in 1995, 1994 and 1993, respectively. The remainder of the Champion
spending related primarily to downsizing and consolidating international
facilities in Mexico, Venezuela, Belgium and the United Kingdom totaling $26.3
million, $12.7 million and $5.7 million in 1995, 1994 and 1993, respectively.
The majority of the Moog Automotive spending was related to the shutdown of the
St. Louis manufacturing facility which totaled $.3 million, $9.5 million and
$1.2 million in 1995, 1994 and 1993, respectively. The shutdown of the Triangle
Duluth and Orangeburg manufacturing facilities resulted in spending of $2.0
million, $10.7 million and $.2 million in 1995, 1994 and 1993, respectively.
Other facility relocations and severance include costs to consolidate sales and
marketing operations of the acquired company into Cooper operations, termination
costs of redundant personnel and shut-down costs of redundant warehouses and the
acquired companies' headquarters. Other realignment and integration costs
include costs to liquidate joint ventures, exit product lines and miscellaneous
costs.
During the three years ended December 31, 1995, no accruals were reversed to
income. Reclassifications represent revisions to the initial accruals based on
updated estimates of the actual costs to be incurred in each project. The
reclassifications include excess amounts of $15.5 million in 1993 and a deficit
amount of $4.4 million in 1994, in each
A-20
<PAGE>
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
case reclassified from or to other accrued liability accounts. The 1995
reclassifications were substantially all related to termination and other
benefit payments due former employees reclassified to trade accounts payable and
accruals. Acquisitions-final allocation adjustment represent adjustments to
goodwill for finalization of the purchase price allocations recorded in the
previous year. Substantially all spending related to these accruals represented
cash outlays by Cooper. The amounts related to the acquisitions of Abex on the
last business day of December 1994 and Zanxx in November 1994 were preliminary
estimates that were finalized in 1995.
The acquisition of CEAG occurred December 31, 1995 and no plans have been
finalized to exit activities or involuntarily terminate employees. It is
unlikely that any significant accruals will be recorded related to CEAG's German
operations. The transfer of international operations held and managed by CEAG's
parent company will not occur until 1996, therefore, it is not possible to
estimate the extent, if any, of exit activities or involuntary terminations
related to these operations. The Abex and Zanxx acquisitions had insignificant
accruals for terminations and no significant individual exit plan costs were
accrued.
In 1995, the accounting principles related to purchase business combinations
were revised by the accounting profession. For acquisitions occurring after May
1995, accruals will not be established for certain systems integration costs and
for termination or relocation arrangements that are not communicated to
employees within one year from the acquisition date. Expensing versus accruing
systems integration costs at the acquisition date would have an immaterial
impact on Cooper's results of operations for the three years in the period ended
December 31, 1995. The impact of the new rules on accruing for termination costs
related to plant shutdowns, facility relocations and other realignments and
integration is not quantifiable. The impact from acquisitions consummated during
the last three years is probably insignificant as Cooper could have taken the
actions necessary to meet the requirements of the new rules. However, it would
have been impossible to meet the requirements for accrual of termination and
certain other costs related to the Champion acquisition due to the extensive
overcapacity and complexity of its operations. The new rules would have had and
will have a significant impact on the evaluation of the dilutive impact of
complex target acquisitions that require an extended period of time to implement
the consolidation and integration plans.
NOTE 8: LONG-TERM DEBT AND OTHER BORROWING ARRANGEMENTS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
--------- ---------
(IN MILLIONS)
<S> <C> <C>
6.18%* commercial paper and bank loans maturing at various dates through January 31, 1996.............. $ 355.5 $ 1,275.0
6.91% Pound Sterling bank loans maturing at various dates through January 29, 1996..................... 76.1 68.8
7.05% convertible subordinated debentures, due 2015.................................................... 690.0 --
6.41%-7.99% second series medium-term notes, due through 2010.......................................... 500.0 197.9
6.0% exchangeable notes, due 1999...................................................................... 222.8 --
5.95% floating-rate loan, due 1996..................................................................... 50.0 50.0
5.46%* floating-rate ESOP notes, due through 1999...................................................... 69.0 80.4
Capital lease obligations.............................................................................. 15.7 14.8
10.7% notes payable, due through 1998.................................................................. 9.2 13.1
Other.................................................................................................. 34.2 56.0
--------- ---------
2,022.5 1,756.0
Amounts allocated to discontinued operations........................................................... -- (375.0)
Current maturities..................................................................................... (157.2) (19.1)
--------- ---------
Long-term portion...................................................................................... $ 1,865.3 $ 1,361.9
--------- ---------
--------- ---------
</TABLE>
- ------------
* Weighted average interest rates at December 31, 1995. The commercial paper and
bank loans weighted average interest rate was 6.29% and the ESOP notes rate
was 5.61% at December 31, 1994.
A-21
<PAGE>
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Cooper has U.S. committed credit facilities of $925 million that expire in
2000, $30 million that expire in 1997 and $365 million that expire in 1996 and
30 million Pound Sterling credit facilities that expire in 1996. In January
1996, Cooper filed a "shelf" registration statement, which may be used to issue
up to $300 million of indebtedness from time to time.
At December 31, 1995, Cooper had $943.5 million of its $1.32 billion U.S.
committed credit facilities available, after considering commercial paper
backup, and 6 million of its 30 million Pound Sterling credit facilities
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 of the 55 million Pound 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. Retained earnings are unrestricted as to the payment of
dividends, except to the extent that payment would cause a violation of the
prescribed limit on the debt to total capitalization ratio.
Interest rates on Cooper's commercial paper and bank loans were generally
2.7% below the U.S. prime rate during both 1995 and 1994. Total interest paid
during 1995, 1994 and 1993 was $134 million, $85 million and $104 million,
respectively.
Commercial paper and bank loans of $431.6 million and $1.34 billion were
reclassified to long-term debt at December 31, 1995 and 1994, respectively,
reflecting Cooper's intention to refinance these amounts during the 12 month
period following the balance sheet date through either continued short-term
borrowing or utilization of available credit facilities.
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, is redeemable for cash at prices (expressed as
percentages of the principal amount) declining from 102.82% in 1996 to 100.00%
in 2000. The debentures require sinking fund payments of 5% of the aggregate
principal amount commencing in the year 2000.
In December 1995, Cooper issued $222.75 million in Exchangeable Notes due
January 1, 1999. At maturity, the notes are mandatorily exchangeable into shares
of Wyman-Gordon common stock owned by Cooper or, at Cooper's option, into cash
in lieu of shares (See Note 6).
The floating-rate ESOP notes are indebtedness of Cooper's ESOP. Cooper has
guaranteed the payment of the ESOP notes; accordingly, the notes are reported as
Cooper's debt (See Note 14 for further information regarding the ESOP).
Maturities of long-term debt for the five years subsequent to December 31,
1995 are $157.2 million, $93.5 million, $74.4 million, $237.3 million and $35.5
million, respectively. The future net minimum lease payments under capital
leases and obligations under operating leases are not significant.
NOTE 9: COMMON AND PREFERRED STOCK
COMMON STOCK
At December 31, 1995, 250,000,000 shares of Common stock were authorized of
which 107,876,821 and 116,923,095 shares were issued and outstanding at December
31, 1995 and 1994, respectively. A total of 114,254,133 shares were issued and
114,179,700 shares were outstanding at December 31, 1993. During the years ended
December 31, 1994 and 1993, 539,000 and 86,500 shares were purchased as treasury
stock at an average price of $36.92 and $52.02 per share, respectively. In
addition 32,216,423 and 32,702,613 shares were reserved at December 31, 1995 and
1994, respectively for the Dividend Reinvestment Plan, conversions of 7.05%
Convertible Subordinated Debentures, 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.
A-22
<PAGE>
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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.
PREFERRED STOCK
At December 31, 1995, 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 2,821,079 shares of $1.00 par value Preferred
stock. At December 31, 1995 and 1994, no shares of the No Par Preferred or $2.00
par value Preferred stock were issued or outstanding.
At December 31, 1994 and 1993, 33,376,420 shares of $1.00 par value
Preferred stock were designated as Convertible Exchangeable Preferred having a
$1.60 dividend rate ("$1.60 Preferred Stock") and 30,629,808 and 33,182,654 of
such shares were outstanding at December 31, 1994 and 1993, respectively.
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.
NOTE 10: STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN
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. Option activity is summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------------- ----------------- -----------------
<S> <C> <C> <C>
Shares under option at beginning of year............................. 2,951,660 3,131,234 2,179,998
Options granted to employees......................................... 903,700 250,000 1,624,200
Options exercised.................................................... (125,500) (106,348) (446,097)
Options canceled..................................................... (981,641) (323,226) (226,867)
----------------- ----------------- -----------------
Shares under option at end of year................................... 2,748,219 2,951,660 3,131,234
----------------- ----------------- -----------------
----------------- ----------------- -----------------
Price range of outstanding options................................... $39.06 - $56.50 $37.75 - $56.50 $28.28 - $56.50
Price range of options exercised..................................... $37.75 $28.28 - $46.31 $26.82 - $46.31
Shares exercisable at end of year.................................... 1,416,896 1,621,075 992,994
Options available for grant at end of year........................... 1,676,054 1,623,224 951,855
</TABLE>
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. During 1995, options for 4,000 shares were granted at $17.31
per share and options for 6,000 shares were exercised at $25.438 per share.
During 1994, options for 4,000 shares were granted at $14.69 per share and
options for 8,000 shares were exercised at $13.625 to $25.438 per share. During
1993, options for 4,000 shares were granted at $24.00 per share and no options
were exercised. At December 31, 1995, options under the director plan for 22,000
Common shares were exercisable at $14.69 to $27.125 per share, and 144,000
shares were reserved for future grants (148,000 at December 31, 1994).
A-23
<PAGE>
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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, 1995, 253,931 shares were sold to 4,012 employees at $37.94 per
share. On September 9, 1993, 475,256 shares were sold to 8,028 employees at
$49.56 per share. At December 31, 1995, subscriptions for 861,046 shares of
Common stock were outstanding at $35.33 per share or, if lower, the average
market price on September 8, 1997, which is the purchase date. At December 31,
1995, an aggregate of 2,757,062 shares of Common stock were reserved for future
offerings.
NOTE 11: INCOME TAXES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1995 1994 1993
----------- ----------- -----------
(IN MILLIONS, EXCEPT FOR PERCENTAGES)
<S> <C> <C> <C>
U.S. and foreign components of income before income taxes:
U.S. operations......................................................................... $ 384.9 $ 405.7 $ 457.8
Foreign operations...................................................................... 93.1 99.0 48.2
----------- ----------- -----------
Income from continuing operations before income taxes................................. $ 478.0 $ 504.7 $ 506.0
----------- ----------- -----------
----------- ----------- -----------
Components of income tax expense:
Current:
U.S. Federal.......................................................................... $ 82.1 $ 85.3 $ 163.7
U.S. state and local.................................................................. 23.3 18.9 37.3
Foreign............................................................................... 26.6 26.3 21.5
----------- ----------- -----------
132.0 130.5 222.5
----------- ----------- -----------
Deferred:
U.S. Federal.......................................................................... 51.0 58.0 (6.4)
U.S. state and local.................................................................. 5.8 12.6 (5.5)
Foreign............................................................................... 8.6 10.8 (3.6)
----------- ----------- -----------
65.4 81.4 (15.5)
----------- ----------- -----------
----------- ----------- -----------
Income tax expense.................................................................... $ 197.4 $ 211.9 $ 207.0
----------- ----------- -----------
----------- ----------- -----------
Total income taxes paid................................................................... $ 158.2 $ 252.7 $ 157.3
----------- ----------- -----------
----------- ----------- -----------
Differences between the effective tax rate and the U.S.
Federal statutory rate:
U.S. Federal statutory rate........................................................... 35.0% 35.0% 35.0%
State and local income taxes.......................................................... 3.4 3.6 3.6
Foreign statutory rate differential................................................... (.5) (.6) (.6)
Nondeductible goodwill................................................................ 4.7 4.4 4.3
Effect of change in U.S. tax rate on recorded deferred tax balances................... -- -- (.8)
Other................................................................................. (1.3) (.4) (.6)
----------- ----------- -----------
Effective tax rate attributable to continuing operations............................ 41.3% 42.0% 40.9%
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
A-24
<PAGE>
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Components of deferred tax liabilities and assets:
Deferred tax liabilities:
Property, plant and equipment and intangibles........................................................ $ (175.0) $ (163.1)
Unrealized gains on investments in marketable equity securities...................................... (90.2) (31.9)
Inventories.......................................................................................... (63.2) (53.9)
Employee medical program funding..................................................................... (14.1) (19.9)
Employee stock ownership plan........................................................................ (16.6) (22.2)
Other................................................................................................ (85.7) (81.6)
--------- ---------
Total deferred tax liabilities..................................................................... (444.8) (372.6)
--------- ---------
Deferred tax assets:
Postretirement benefits other than pensions.......................................................... 248.0 255.2
Reserves and accruals................................................................................ 206.4 183.2
Net operating loss carryforwards..................................................................... 12.8 12.8
Other................................................................................................ 60.6 85.3
--------- ---------
Total deferred tax assets.......................................................................... 527.8 536.5
--------- ---------
Valuation allowances................................................................................. (16.3) (16.3)
--------- ---------
Net deferred tax assets............................................................................ $ 66.7 $ 147.6
--------- ---------
--------- ---------
</TABLE>
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. Cooper's liabilities for continuing operations at
December 31, 1995 and 1994 include the additional U.S. tax estimated to be
payable on substantially all unremitted earnings of foreign subsidiaries.
NOTE 12: PENSION PLANS
Cooper and its subsidiaries have numerous pension plans covering
substantially all domestic employees and pension and similar arrangements in
accordance with local customs covering employees at foreign locations. Aggregate
pension expense for continuing operations amounted to $40.7 million in 1995,
$46.1 million in 1994 and $44.3 million in 1993. The amount of expense with
respect to Cooper's various defined benefit pension plans is set forth in the
table below. For the years ended December 31, 1995, 1994 and 1993, expense with
respect to domestic and foreign defined contribution plans (primarily related to
various groups of hourly employees) amounted to $16.2 million, $22.8 million and
$23.2 million, respectively. Also included in pension expense are gains and
losses on curtailments and settlements and other matters.
<TABLE>
<CAPTION>
COMPONENTS OF DEFINED BENEFIT
PLAN PENSION EXPENSE
-------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Service cost -- benefits earned during the year.............................................. $ 21.6 $ 26.4 $ 26.2
Interest cost on projected benefit obligation................................................ 67.6 63.0 66.0
Actual return on assets...................................................................... (65.9) (14.3) (54.4)
Net amortization and deferral................................................................ 1.2 (51.8) (17.2)
--------- --------- ---------
Net pension cost............................................................................. $ 24.5 $ 23.3 $ 20.6
--------- --------- ---------
--------- --------- ---------
</TABLE>
A-25
<PAGE>
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,
-------------------- --------------------
1995 1994 1995 1994
--------- --------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Actuarial present value of:
Vested benefit obligation........................................................ $ (484.8) $ (467.0) $ (366.7) $ (335.6)
--------- --------- --------- ---------
--------- --------- --------- ---------
Accumulated benefit obligation................................................... $ (517.9) $ (491.1) $ (390.9) $ (360.5)
--------- --------- --------- ---------
--------- --------- --------- ---------
Projected benefit obligation..................................................... $ (537.6) $ (508.6) $ (395.6) $ (365.0)
Plan assets at fair value.......................................................... 588.1 529.0 274.3 264.6
--------- --------- --------- ---------
Projected benefit obligation (in excess of) less than plan assets.................. 50.5 20.4 (121.3) (100.4)
Unrecognized net (gain) loss....................................................... (7.3) 34.1 72.2 47.5
Unrecognized net (asset) obligation from adoption date............................. (10.3) (13.3) 5.6 6.6
Unrecognized prior service cost.................................................... (4.8) (5.2) 2.8 1.7
Adjustment required to recognize minimum liability................................. -- -- (82.8) (59.5)
--------- --------- --------- ---------
Pension asset (liability) at end of year........................................... $ 28.1 $ 36.0 $ (123.5) $ (104.1)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
COMPUTATIONAL ASSUMPTIONS
------------------------------------------------------
PROJECTED BENEFIT
NET PENSION COST OBLIGATION
--------------------------------- ------------------
1995 1994 1993 1995 1994
--------- --------- --------- ------ ---------
<S> <C> <C> <C> <C> <C>
Discount rate:
Domestic............................................................ 8 % 7 % 8 1/2 % 7 1/2 % 8 %
International....................................................... 7 1/2-9 6-7 3/4 7 1/2-9 6 1/2-8 1/4 7 1/2-9
Rate of increase in compensation levels:
Domestic............................................................ 5 5 5 1/2 5 5
International....................................................... 4-6 4-5 1/2 4-6 4-6 4-6
Expected long-term rate of return on assets:
Domestic............................................................ 8 1/2 8 1/2 9 -- --
International....................................................... 7 1/2-10 6-9 1/2 7 1/2-10 -- --
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 $82.8 million at December 31, 1995, and $59.5 million at
December 31, 1994, has been recorded in Cooper's consolidated balance sheet as a
long-term liability with a $5.5 million offsetting intangible asset at December
31, 1995, and $4.5 million at December 31, 1994. In addition, Cooper has
recorded a $46.3 million and $55.0 million reduction in shareholders' equity at
December 31, 1995 and 1994, respectively. 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 four defined benefit
plans for hourly employees during 1995, six during 1994 and four during 1993.
The settlements and curtailments resulted in a reversion to Cooper of surplus
assets totaling $1.0 million during 1995 and a net loss of $.5 million in 1993.
A-26
<PAGE>
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13: POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The benefits provided under Cooper's various postretirement plans other than
pensions, 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.
<TABLE>
<CAPTION>
AMOUNTS PER
FINANCIAL STATEMENTS
--------------------------
ACCUMULATED ITEMS NOT YET RECORDED LIABILITY FOR
POSTRETIREMENT IN FINANCIAL STATEMENTS POSTRETIREMENT
BENEFIT -------------------------- BENEFITS
OBLIGATION PRIOR SERVICE ACTUARIAL OTHER THAN NET ANNUAL
(APBO) COST NET GAIN PENSIONS EXPENSE
------------- ------------- ----------- ------------- -----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
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
-----------
-----------
Reclassification of amounts pertaining to Cameron Forged
Products.................................................. 9.1 (1.3) 4.4 12.2
------------- ------ ----------- -------------
BALANCE DECEMBER 31, 1993.................................. (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)
Benefit payments........................................... 32.8 32.8
Actuarial net loss......................................... (40.3) 40.3
Abex curtailments affecting goodwill....................... 3.3 3.3
Plan expense:
Service cost............................................. (.6) $ .6
Interest cost............................................ (36.5) 36.5
Amortization of actuarial net gain....................... 14.5 (14.5)
Amortization of prior service cost....................... 4.5 (4.5)
-----------
Net annual expense......................................... (18.1) $ 18.1
------------- ------ ----------- ------------- -----------
-----------
BALANCE DECEMBER 31, 1995.................................. $ (501.6) $ (26.5) $ (91.9) $ (620.0)
------------- ------ ----------- -------------
------------- ------ ----------- -------------
</TABLE>
A-27
<PAGE>
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1995 1994
---------- ----------
(IN MILLIONS, EXCEPT PERCENTAGES)
<S> <C> <C>
Amount of APBO related to:
Retired employees........................................ $ (482.5) $ (436.2)
Employees eligible to retire............................. (7.1) (8.7)
Other employees.......................................... (12.0) (15.4)
Actuarial assumptions:
Discount rate............................................ 6.65% 8.52%
Ensuing year to 2002 health care cost trend rate ......... 12% ratable to 5.5% 15% ratable to 5.5%
Effect of 1% change in health care cost trend rate:
Increase in APBO......................................... $ 43.4 $ 34.8
Increase in expense...................................... 2.9 3.4
</TABLE>
NOTE 14: 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 ("CO-SAV").
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.
Cooper makes annual contributions to the ESOP to fund the payment of
principal and interest on ESOP debt (See Note 8). All dividends received by the
ESOP are used to pay debt service. As the debt is repaid, shares are allocated
to participants to satisfy Cooper's matching obligation or to replace dividends
on allocated shares with Cooper Common shares.
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 shares released. Compensation expense is
reduced by the amount of dividends paid on unallocated 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 by the ESOP in 1994, compensation expense is recorded equal to the
amount of Cooper's matching obligation, with the difference between the fair
market value and cost of shares released recorded as an adjustment to capital in
excess of par value. Dividends paid on unallocated shares are recorded as a
reduction of ESOP debt and accrued interest. Unallocated shares are not treated
as outstanding for the purpose of computing earnings per share.
Dividends paid on unallocated shares purchased prior to 1994 of $3.1 million
and $3.6 million during 1995 and 1994, respectively, were used to reduce the
amount of cash required to fund principal and interest payments on ESOP debt.
Dividends paid on allocated ESOP shares purchased prior to 1994 of $4.4 million
and $5.0 million during 1995 and 1994, respectively, 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 an
additional $10.1 million and $19.3 million in cash to the ESOP during 1995 and
1994, respectively, to fund principal and interest payments on debt associated
with shares purchased prior to 1994.
During 1994, Cooper sold 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
financial statement purposes are treated as eliminated intercompany loans. The
fair value of the remaining unallocated ESOP shares purchased during 1994 was
$27.0 million at December 31, 1995. The number of allocated, committed to be
released, and unallocated ESOP shares at December 31, is summarized below.
<TABLE>
<CAPTION>
SHARES PURCHASED
------------------------------------------
IN 1994 PRIOR TO 1994
-------------------- --------------------
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Allocated....................................................................... 670,673 372,519 3,111,732 3,821,500
Committed to be released........................................................ 14,961 129,618 131,245 51,527
Unallocated..................................................................... 733,946 1,073,578 1,882,940 2,365,058
</TABLE>
Compensation expense with respect to the CO-SAV plan and the ESOP was $21.7
million, $22.6 million and $14.0 million and interest expense on ESOP debt was
$4.2 million, $3.4 million and $3.0 million in 1995, 1994 and 1993,
respectively.
A-28
<PAGE>
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15: INDUSTRY SEGMENTS, DOMESTIC AND INTERNATIONAL OPERATIONS
INDUSTRY SEGMENTS
Cooper's operations consist of three segments: Electrical Products, Tools &
Hardware and Automotive Products. Markets for Cooper's products and services are
worldwide, though the United States is the largest market. The Electrical
Products segment manufactures and markets electrical and electronic distribution
and circuit protection products and lighting fixtures 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.
Intersegment sales and related receivables for each of the years presented
were immaterial.
Financial information by industry segment was as follows:
<TABLE>
<CAPTION>
REVENUES OPERATING EARNINGS IDENTIFIABLE ASSETS
------------------------------- ------------------------------- --------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, DECEMBER 31,
------------------------------- ------------------------------- --------------------
1995 1994 1993 1995 1994 1993 1995 1994
--------- --------- --------- --------- --------- --------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Electrical Products (1)................. $ 2,089.7 $ 2,034.8 $ 2,177.5 $ 355.5 $ 326.3 $ 203.7 $ 2,000.4 $ 1,788.6
Tools & Hardware (1).................... 962.4 897.9 807.9 111.2 102.4 75.1 759.7 797.4
Automotive Products (1)................. 1,796.6 1,622.1 1,670.0 180.7 190.1 162.4 2,635.3 2,654.2
--------- --------- --------- --------- --------- --------- --------- ---------
4,848.7 4,554.8 4,655.4 647.4 618.8 441.2 5,395.4 5,240.2
Cameron Forged Products (2)............. -- -- 109.7 -- -- 1.7 -- --
Other (1)............................... 37.2 33.2 11.3 37.2 33.2 209.6
--------- --------- ---------
Consolidated revenues................... $ 4,885.9 $ 4,588.0 $ 4,776.4
--------- --------- ---------
--------- --------- ---------
General corporate....................... (55.6) (74.0) (65.6) 646.0 472.8
--------- --------- ---------
Operating earnings...................... 629.0 578.0 586.9
Interest expense........................ (151.0) (73.3) (80.9)
--------- --------- ---------
Consolidated income from continuing
operations before income taxes......... $ 478.0 $ 504.7 $ 506.0
--------- --------- ---------
--------- --------- ---------
Business held for divestiture........... -- 19.5
Discontinued operations................. -- 646.4
Investments in unconsolidated
affiliates............................. 22.5 21.8
--------- ---------
Consolidated assets..................... $ 6,063.9 $ 6,400.7
--------- ---------
--------- ---------
<CAPTION>
1993
---------
<S> <C>
Electrical Products (1)................. $ 1,739.3
Tools & Hardware (1).................... 757.4
Automotive Products (1)................. 2,208.8
---------
4,705.5
Cameron Forged Products (2)............. 74.9
Other (1)...............................
Consolidated revenues...................
General corporate....................... 474.9
Operating earnings......................
Interest expense........................
Consolidated income from continuing
operations before income taxes.........
Business held for divestiture........... 17.6
Discontinued operations................. 1,068.1
Investments in unconsolidated
affiliates............................. 20.7
---------
Consolidated assets..................... $ 6,361.7
---------
---------
</TABLE>
- ------------
(1) The 1993 operating earnings amount includes nonrecurring expenses of $155.3
million for Electrical Products, $16.5 million for Tools & Hardware and
$26.5 million for Automotive Products and nonrecurring income of $198.3
million for other operating earnings.
(2) The 1993 amounts reflect Cooper's investment in the Cameron Forged Products
business (See Note 2).
A-29
<PAGE>
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
DEPRECIATION AMORTIZATION CAPITAL EXPENDITURES
---------------------- ------------------- ----------------------
YEAR ENDED DECEMBER YEAR ENDED DECEMBER YEAR ENDED DECEMBER
31, 31, 31,
---------------------- ------------------- ----------------------
1995 1994 1993 1995 1994 1993 1995 1994 1993
------ ------ ------ ----- ----- ----- ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Electrical Products......................................... $ 45.5 $ 43.1 $ 58.5 $30.2 $29.3 $29.5 $ 62.4 $ 74.6 $ 78.0
Tools & Hardware............................................ 32.4 30.8 29.4 8.5 7.4 6.7 31.6 38.5 29.4
Automotive Products......................................... 61.4 51.3 50.4 37.7 32.1 32.3 85.7 94.4 72.3
Corporate................................................... 2.4 3.0 6.9 .7 2.0 2.2 8.7 1.2 8.7
------ ------ ------ ----- ----- ----- ------ ------ ------
$141.7 $128.2 $145.2 $77.1 $70.8 $70.7 $188.4 $208.7 $188.4
------ ------ ------ ----- ----- ----- ------ ------ ------
------ ------ ------ ----- ----- ----- ------ ------ ------
</TABLE>
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.
Export sales to unaffiliated customers included in domestic sales were $268.5
million in 1995, $267.2 million in 1994 and $273.8 million in 1993. Of total
export sales of continuing operations, approximately 39% in 1995, 36% in 1994
and 41% in 1993 were to Asia, Africa, Australia and the Middle East; 27% in
1995, 26% in 1994 and 24% in 1993 were to Canada and Europe; and 34% in 1995,
38% in 1994 and 35% in 1993 were to Latin America. Domestic and international
financial information was as follows:
<TABLE>
<CAPTION>
REVENUES OPERATING EARNINGS IDENTIFIABLE ASSETS
---------------------------- ------------------------- ----------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, DECEMBER 31,
---------------------------- ------------------------- ----------------------------
1995 1994 1993 1995 1994 1993 1995 1994 1993
-------- -------- -------- ------- ------- ------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Domestic (1)............................ $4,068.0 $3,800.7 $4,028.9 $ 540.8 $ 511.0 $ 374.2 $4,171.2 $4,232.9 $3,845.2
-------- -------- -------- ------- ------- ------- -------- -------- --------
International
Europe................................ 537.5 495.4 385.3 56.1 62.8 26.9 959.2 676.6 562.0
Canada................................ 250.8 212.4 254.7 10.7 3.2 .1 131.9 139.5 115.2
Other................................. 225.7 219.6 207.1 39.9 45.1 44.6 280.5 295.6 349.9
-------- -------- -------- ------- ------- ------- -------- -------- --------
Sub-total International............. 1,014.0 927.4 847.1 106.7 111.1 71.6 1,371.6 1,111.7 1,027.1
Eliminations:
Transfers to International............ (165.4) (138.6) (174.5) (62.1) (45.1) (53.7)
Transfers to Domestic................. (67.9) (34.7) (46.1) (75.4) (49.2) (103.2)
Other................................. (.1) (3.3) (4.6) (9.9) (10.1) (9.9)
-------- -------- -------- ------- ------- ------- -------- -------- --------
4,848.7 4,554.8 4,655.4 647.4 618.8 441.2 5,395.4 5,240.2 4,705.5
Cameron Forged Products(2).............. -- -- 109.7 -- -- 1.7 -- -- 74.9
Other (1)............................... 37.2 33.2 11.3 37.2 33.2 209.6
-------- -------- --------
Consolidated revenues................... $4,885.9 $4,588.0 $4,776.4
-------- -------- --------
-------- -------- --------
General corporate....................... (55.6) (74.0) (65.6) 646.0 472.8 474.9
------- ------- -------
Operating earnings...................... 629.0 578.0 586.9
Interest expense........................ (151.0) (73.3) (80.9)
------- ------- -------
Consolidated income from continuing
operations before income taxes......... $ 478.0 $ 504.7 $ 506.0
------- ------- -------
------- ------- -------
Businesses held for divestiture......... -- 19.5 17.6
Discontinued operations................. -- 646.4 1,068.1
Investments in unconsolidated
affiliates............................. 22.5 21.8 20.7
-------- -------- --------
Consolidated assets..................... $6,063.9 $6,400.7 $6,361.7
-------- -------- --------
-------- -------- --------
</TABLE>
- ---------------
(1) The 1993 domestic operating earnings amount includes nonrecurring expenses
of $198.3 million and other operating earnings includes nonrecurring income
of $198.3 million.
(2) The 1993 amounts reflect Cooper's investment in the Cameron Forged Products
business (See Note 2).
A-30
<PAGE>
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Revenues by destination represent revenues by the location products were
delivered by Cooper. International revenues by destination and international
assets by segment were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------------------------- -------------------------- --------------------------
INTERNATIONAL INTERNATIONAL INTERNATIONAL INTERNATIONAL INTERNATIONAL INTERNATIONAL
REVENUES ASSETS REVENUES ASSETS REVENUES ASSETS
------------ ------------ ------------ ------------ ------------ ------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Electrical Products.................... $ 355.2 $ 401.3 $ 319.2 $ 158.2 $ 367.3 $ 151.8
Tools & Hardware....................... 354.8 226.3 288.9 244.9 247.0 213.1
Automotive Products.................... 506.6 661.0 454.2 670.0 468.6 584.8
------------ ------------ ------------ ------------ ------------ ------------
$ 1,216.6 $ 1,288.6 $ 1,062.3 $ 1,073.1 $ 1,082.9 $ 949.7
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
NOTE 16: OFF-BALANCE-SHEET RISK, CONCENTRATIONS OF CREDIT RISK AND FAIR VALUE
OF FINANCIAL INSTRUMENTS, INCLUDING DERIVATIVES
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 speculative transactions. 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 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, 1995 and 1994.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Deutschemark................................................................ $ 1.8 $ 14.0
Pound Sterling.............................................................. 6.6 28.2
Guilder..................................................................... 4.7 10.7
Canadian Dollar............................................................. 19.4 .4
Belgian Franc............................................................... 5.1 5.0
Other....................................................................... 12.0 15.0
--------- ---------
$ 49.6 $ 73.3
--------- ---------
--------- ---------
</TABLE>
Deferred gains and losses on forward foreign exchange contracts based upon
anticipated transactions were not material at December 31, 1995 and 1994.
In an effort to reduce interest expense on Cooper's fixed-rate borrowings,
Cooper entered into an interest rate swap in 1991, which matured in February
1996, that converted a $50 million fixed rate borrowing into a floating-rate
borrowing resulting in an effective interest rate of 6.2% during 1995.
In the normal course of business, Cooper has letters of credit, performance
bonds and other guarantees which are not reflected in the consolidated balance
sheets. In the past, no significant claims have been made against these
financial instruments. Management believes the likelihood of performance under
these instruments is minimal and expects no material losses to occur in
connection with these instruments. Cooper's other off-balance-sheet risks are
not material.
A-31
<PAGE>
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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, 1995 and 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 $2.1 billion and $1.6 billion
of debt instruments at December 31, 1995 and 1994, respectively. The book value
of these instruments was approximately equal to fair value at December 31, 1995
and 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, 1995 and 1994.
NOTE 17: SUMMARY OF NONCASH INVESTING AND FINANCING ACTIVITIES
The following noncash transactions have been excluded from the consolidated
statements of cash flows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
------------ --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Assets acquired and liabilities assumed or incurred from the acquisition of businesses:
Fair value of assets acquired............................................................... $ 249.9 $ 325.7 $ 166.4
Cash used to acquire businesses............................................................. (11.9) (280.6) (100.9)
------ --------- ---------
Liabilities assumed or incurred............................................................... $ 238.0(1) $ 45.1 $ 65.5
------ --------- ---------
------ --------- ---------
Noncash increase (decrease) in net assets from:
Retirement of Cooper Common shares exchanged for Cooper Cameron
Common shares.............................................................................. $ 427.5 $ -- $ --
Exchange of $1.60 Convertible Exchangeable Preferred Stock into 7.05% convertible
subordinated debentures.................................................................... 691.2 -- --
Employee stock ownership plan:
Principal payments and difference between Cooper expense and cash contributions........... 25.4 60.1 24.5
Unearned ESOP compensation................................................................ -- (82.3) --
Common stock issued for:
Employee stock ownership plan............................................................. -- 82.3 --
Executive restricted stock incentive plan................................................. -- 2.5 --
Acquired companies........................................................................ -- -- .3
Employee stock purchase plan.............................................................. 9.7 -- 23.6
Unrealized gain on investments, net of tax:
Adoption of SFAS No. 115.................................................................. -- 20.5 --
Change in unrealized value of investments in marketable equity securities................. 119.6 27.3 --
Distribution of Gardner Denver Machinery Inc. stock......................................... -- (152.9) --
Issuance of $1.60 Preferred Stock for conversion of debentures.............................. -- 3.5 2.9
</TABLE>
- ---------------
(1) Includes approximately $164 million at December 31, 1995 for the
acquisition of CEAG (See Note 3).
A-32
<PAGE>
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 18: DISCONTINUED OPERATIONS
In September 1994, Cooper announced its decision to establish its Petroleum
& Industrial Equipment segment as an independent publicly traded company, Cooper
Cameron, through an exchange offer with Cooper's common shareholders. The
exchange offer was completed on June 30, 1995, at which time 9.5 million shares
of Cooper Common stock were exchanged for 85.5% of Cooper Cameron common stock.
The Petroleum & Industrial Equipment segment split-off has been accounted for as
a discontinued operation and, accordingly, its operating results are reported as
discontinued operations in the consolidated statements of operations.
Since the transaction was structured as an exchange of shares, Cooper
charged its 1994 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.
During the third quarter of 1994, Cooper recorded a charge of $313 million, net
of $7.9 million of taxes ($2.74 per share) for the estimated loss on the
split-off of Cooper Cameron. The charge 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 discontinued segment
during the period from the measurement date until the anticipated completion
date during the middle of the second quarter of 1995, as well as the estimated
costs associated with separating Cooper Cameron from Cooper.
During the second quarter of 1995, Cooper recorded an additional charge of
$186.6 million, with no tax benefit, to reflect the actual loss on the split-off
of Cooper Cameron. This additional charge was composed of the difference between
the historical cost of Cooper's investment in Cooper Cameron remaining after the
September 1994 estimated charge and the market value of Cooper Cameron common
stock during the first few days the common stock traded on a national exchange
($162.8 million), additional Cooper Cameron operating losses during the period
October 1, 1994 through June 30, 1995 ($20.3 million) and additional transaction
costs ($3.5 million). The additional operating losses and transaction costs
resulted primarily from the delay in completing the exchange transaction and the
recording by Cooper Cameron of a $17 million pretax charge in the second quarter
of 1995 for the write-down of receivables due from customers in Iran.
In October 1993, Cooper announced its decision to spin off its
Gardner-Denver Industrial Machinery Division to Cooper's Common shareholders.
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. The Gardner-Denver
Industrial Machinery Division was historically a part of the Petroleum &
Industrial Equipment segment. Accordingly, its results for 1994 and 1993 have
been reflected as part of discontinued operations. 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.
Income from discontinued operations reflects interest expense of $11.9
million on debt of $375 million during the six months ended June 30, 1995 and
$20.0 million and $18.2 million on debt of $445 million during the years ended
December 31, 1994 and 1993, respectively. The interest rates utilized were the
actual rates for borrowings specifically identifiable with the respective
businesses, with Cooper's average cost of commercial paper borrowing applied to
the residual. Debt allocated to discontinued operations ($70 million allocated
to GDMI and $375 million allocated to Cooper Cameron) was considered to be fixed
and related historically to the discontinued operations. 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.
Cooper retained a 14.5% interest in Cooper Cameron which has been accounted
for as a marketable equity security. Cooper has committed that it will vote the
Cooper Cameron common stock retained in proportion to the votes cast by other
shareholders and dispose of the shares no later than five years subsequent to
June 30, 1995. Revenues from
A-33
<PAGE>
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
discontinued operations were $523.1 million for the six-month period ended on
the exchange date of June 30, 1995 and $1.11 billion and $1.50 billion during
the years ended December 31, 1994 and 1993, respectively. Income from
discontinued operations was $.3 million, net of $3.0 million of income taxes
during 1994 and $68.1 million, net of $51.3 million of income taxes during 1993.
NOTE 19: NET INCOME (LOSS) PER COMMON SHARE
<TABLE>
<CAPTION>
PRIMARY FULLY DILUTED
------------------------------- -------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
------------------------------- -------------------------------
1995 1994 1993 1995(1) 1994 1993
--------- --------- --------- --------- --------- ---------
($ IN MILLIONS, SHARES IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Income from continuing operations........................... $ 280.6 $ 292.8 $ 299.0 $ 280.6 $ 292.8 $ 299.0
Income from discontinued operations......................... -- .3 68.1 -- .3 68.1
Charge for discontinued operations.......................... (186.6) (313.0) -- (186.6) (313.0) --
Dividends applicable to $1.60 Preferred Stock............... -- (53.3) (53.1) -- (53.3) (53.1)
Interest expense on 7.05% Convertible Subordinated
Debentures................................................. -- -- -- 29.2 -- --
--------- --------- --------- --------- --------- ---------
Net income (loss) applicable to Common stock................ $ 94.0 $ (73.2) $ 314.0 $ 123.2 $ (73.2) $ 314.0
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Average Common shares and Common share equivalents.......... 111,952 114,218 114,201 111,952 114,218 114,201
--------- --------- ---------
--------- --------- ---------
Additional shares assuming conversion of the 7.05%
Convertible Subordinated Debentures........................ 16,731 -- --
--------- --------- ---------
Average Common shares and Common share equivalents.......... 128,683 114,218 114,201
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ---------------
(1) The 1995 fully diluted net income per Common share calculation is
antidilutive, therefore primary net income per Common share is reflected as
the fully diluted net income per share amount in the Consolidated
Statements of Operations.
A-34
<PAGE>
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 20: UNAUDITED QUARTERLY OPERATING RESULTS
<TABLE>
<CAPTION>
1995 (BY QUARTER)
------------------------------------------
1 2 3 4
--------- --------- --------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues....................................................................... $ 1,123.2 $ 1,268.1 $ 1,206.4 $ 1,288.2
Costs and expenses:
Cost of sales................................................................ 748.3 834.7 800.5 849.4
Depreciation and amortization................................................ 51.5 54.6 55.1 57.6
Selling and administrative expenses.......................................... 190.9 198.9 196.8 218.6
--------- --------- --------- ---------
990.7 1,088.2 1,052.4 1,125.6
--------- --------- --------- ---------
Operating earnings........................................................... 132.5 179.9 154.0 162.6
Interest expense............................................................... 38.3 39.5 37.0 36.2
--------- --------- --------- ---------
Income from continuing operations before income taxes.......................... 94.2 140.4 117.0 126.4
Income taxes................................................................... 38.9 57.6 47.7 53.2
--------- --------- --------- ---------
Income from continuing operations.............................................. 55.3 82.8 69.3 73.2
Charge for discontinued operations............................................. -- (186.6) -- --
--------- --------- --------- ---------
Net income (loss).............................................................. $ 55.3 $ (103.8) $ 69.3 $ 73.2
--------- --------- --------- ---------
--------- --------- --------- ---------
Income (loss) per Common Share:
Primary:
Continuing operations...................................................... $ 0.48 $ 0.71 $ 0.65 $ 0.68
Discontinued operations.................................................... -- (1.60) -- --
--------- --------- --------- ---------
Net income (loss).......................................................... $ 0.48 $ (0.89) $ 0.65 $ 0.68
--------- --------- --------- ---------
--------- --------- --------- ---------
Fully diluted:
Continuing operations...................................................... $ 0.47 $ 0.68 $ 0.62 $ 0.65
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income (loss).......................................................... $ 0.47 $ (0.89) $ 0.62 $ 0.65
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
A-35
<PAGE>
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
1994 (BY QUARTER)
------------------------------------------
1 2 3 4
--------- --------- --------- ---------
(IN 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
--------- --------- --------- ---------
930.0 1,019.8 989.9 1,070.3
--------- --------- --------- ---------
Operating earnings........................................................... 107.8 154.1 146.5 169.6
Interest expense............................................................... 16.2 16.9 18.8 21.4
--------- --------- --------- ---------
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
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income (loss).......................................................... $ 0.31 $ 0.62 $ (2.20) $ 0.63
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
A-36
<PAGE>
PROXY
COOPER INDUSTRIES, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
APRIL 30, 1996
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS [LOGO]
The undersigned shareholder of Cooper Industries, Inc. ("Cooper")
appoints Diane K. Schumacher and Karen E. Herbert, or either of them,
proxies, with full power of substitution to vote all shares of stock which
the shareholder would be entitled to vote if present at the Annual Meeting of
Shareholders of Cooper on Tuesday, April 30, 1996, at 11:00 a.m. (Central
Standard Time) in the Austin Room, Four Seasons Hotel, 1300 Lamar Street,
Houston, Texas, and at any adjournments thereof, with all powers the
shareholder would possess if present. The shareholder hereby revokes any
proxies previously given with respect to such meeting.
THIS PROXY WILL BE VOTED AS SPECIFIED ON THE REVERSE SIDE, BUT IF NO
SPECIFICATION IS MADE, IT WILL BE VOTED FOR THE NOMINEES FOR DIRECTOR
(W.L. BATTS, L.A. HILL, C.S. NICANDROS, H.J. RILEY, JR.) AND PROPOSALS 2,
3 AND 4 AND WILL BE VOTED AGAINST PROPOSAL 5 AND IN THE DISCRETION OF THE
PROXIES ON OTHER MATTERS AS MAY COME BEFORE THE MEETING OR ANY ADJOURNMENT
THEREOF.
This card also constitutes voting instructions for any shares held for
the shareholder in the following: Cooper's Dividend Reinvestment and Stock
Purchase Plan; the Cooper Industries, Inc. Stock Ownership Plan and the
Cooper Industries, Inc. Savings Plans, as described in the Notice of Meeting
and Proxy Statement.
(Please date and sign on the reverse side)
- ------------------------------------------------------------------------------
-FOLD AND DETACH HERE-
<PAGE>
/X/ PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
<TABLE>
<CAPTION>
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE FOR ALL NOMINEES. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 2, 3 AND 4.
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1. Election of FOR WITHHELD FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
Directors. / / / / 2. Approval of / / / / / / 4. Approval of / / / / / /
Nominees: Stock Incentive Directors' Stock
W.L. Batts, Plan Plan
L.A. Hill, THE BOARD OF DIRECTORS RECOMMENDS A VOTE
C.S. Nicandros, 3. Approval of / / / / / / AGAINST PROPOSAL 5.
H.J. Riley, Jr. Management Annual
Incentive Plan FOR AGAINST ABSTAIN
To withhold your vote for any 5. Shareholder / / / / / /
nominee(s), write the name(s) here: proposal relating
to maquiladora
operations in
Mexico
- --------------------------------------- I plan to attend the meeting / /
PLEASE SIGN EXACTLY AS NAME APPEARS
HEREON. JOINT OWNERS SHOULD EACH SIGN.
WHEN SIGNING AS ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE
GIVE FULL TITLE AS SUCH.
------------------------------------------
------------------------------------------
SIGNATURE(S) DATE
</TABLE>
- ------------------------------------------------------------------------------
-FOLD AND DETACH HERE-
THIS IS YOUR PROXY.
YOUR VOTE IS IMPORTANT [LOGO]
SERVICES AVAILABLE TO COOPER SHAREHOLDERS
AT COOPER INDUSTRIES, WE ARE CONSTANTLY WORKING TO
IMPROVE THE QUALITY OF OUR SHAREHOLDER SERVICES THROUGH
THE FOLLOWING PROGRAMS:
ELECTRONIC FUNDS TRANSFER
(DIRECT DEPOSIT) OF DIVIDENDS
- -Dividend monies deposited directly into your bank
account.
- -No worry of lost dividend checks.
- -Immediate access of dividend money, no mail delays.
- -Verification of dividend receipts on monthly bank
statement.
DIVIDEND REINVESTMENT PLAN
- -Dividends automatically reinvested in your account to
purchase additional shares of Cooper common stock.
- -No commission or service charge is paid to purchase
shares.
- -Whole and fractional shares will be credited to your
account.
- -Optional cash payments for purchase of additional shares
of Cooper common stock can be made, regardless of whether
dividends are being reinvested.
A TELEPHONE RESPONSE CENTER IS AVAILABLE AT COOPER'S
TRANSFER AGENT, FIRST CHICAGO TRUST, TO PROVIDE
SHAREHOLDERS PERSONAL ASSISTANCE WITH:
- -Verifying the number of Cooper shares in your account.
- -Lost or stolen stock certificates.
- -Name changes on stock registration in the event of
marriage, death and estate transfers, gifts of stock to
minors in custodial accounts. . .any transfer of stock
ownership.
- -Inquiries about lost or stolen dividend checks &
1099-DIV's.
- -Any shareholder inquiries concerning Cooper common stock
will be answered courteously and promptly.
Call First Chicago Trust Company of New York
at (201) 324-1225, or write:
First Chicago Trust Company of New York
P.O. Box 2500
Jersey City, NJ 07303-2500
For hearing impaired: (201) 222-4955
E-mail address: [email protected]
World Wide Web address: http://www.fetc.com
<PAGE>
EXHIBIT INDEX
Exhibit No.
- -----------
27. Financial Data Schedule for the year ended December 31, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S AUDITED CONSOLIDATED FINANCIAL STATEMENTS INCLUDED AS APPENDIX A TO
THE PROXY STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 17,700
<SECURITIES> 0
<RECEIVABLES> 992,700
<ALLOWANCES> 0
<INVENTORY> 963,500
<CURRENT-ASSETS> 2,127,300
<PP&E> 2,268,300
<DEPRECIATION> 1,036,200
<TOTAL-ASSETS> 6,063,900
<CURRENT-LIABILITIES> 1,382,400
<BONDS> 1,865,300
0
0
<COMMON> 539,400
<OTHER-SE> 1,177,000
<TOTAL-LIABILITY-AND-EQUITY> 6,063,900
<SALES> 4,885,900
<TOTAL-REVENUES> 4,885,900
<CGS> 3,232,900
<TOTAL-COSTS> 3,232,900
<OTHER-EXPENSES> 141,700
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 151,000
<INCOME-PRETAX> 478,000
<INCOME-TAX> 197,400
<INCOME-CONTINUING> 280,600
<DISCONTINUED> (186,600)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 94,000
<EPS-PRIMARY> .84
<EPS-DILUTED> .84
</TABLE>
