<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number 1-1175
----------------------------------------------------------
Cooper Industries, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 31-4156620
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
600 Travis, Suite 5800 Houston, Texas 77002
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(713) 209-8400
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
- ------ -------
Number of shares outstanding of issuer's common stock as of October 31, 1999 was
94,160,185.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COOPER INDUSTRIES, INC.
CONSOLIDATED INCOME STATEMENTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- -------------------------
1999 1998 1999 1998
---------- ---------- ----------- ------------
(in millions, except per share data)
<S> <C> <C> <C> <C>
Revenues ................................. $ 982.2 $ 924.0 $ 2,864.4 $ 2,769.3
Cost of sales ............................ 664.4 621.8 1,926.2 1,863.5
Selling and administrative expenses ...... 160.8 151.0 473.7 462.5
Goodwill amortization .................... 11.5 11.2 34.3 32.4
Nonrecurring charges ..................... -- -- 3.7 --
Interest expense, net .................... 13.7 34.8 39.1 87.5
----------- ----------- ------------- -------------
Income from continuing operations .... 131.8 105.2 387.4 323.4
before income taxes
Income taxes ............................. 47.4 37.9 139.4 116.4
----------- ----------- ------------- -------------
Income from continuing operations ........ 84.4 67.3 248.0 207.0
Income from discontinued operations,
net of income taxes .................. -- 25.9 -- 84.2
----------- ----------- ------------- -------------
Net Income ........................... $ 84.4 $ 93.2 $ 248.0 $ 291.2
=========== =========== ============= =============
Income Per Common Share:
Basic:
Income from continuing operations .... $ .90 $ .59 $ 2.64 $ 1.76
Income from discontinued operations .. -- .23 -- .72
----------- ----------- ------------- -------------
Net Income ........................... $ .90 $ .82 $ 2.64 $ 2.48
=========== =========== ============= =============
Diluted:
Income from continuing operations .... $ .89 $ .59 $ 2.61 $ 1.74
Income from discontinued operations .. -- .22 -- .71
----------- ----------- ------------- -------------
Net Income ........................... $ .89 $ .81 $ 2.61 $ 2.45
=========== =========== ============= =============
Cash Dividends Per Common Share .......... $ .33 $ .33 $ .99 $ .99
=========== =========== ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
-2-
<PAGE> 3
COOPER INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------------ -----------------
ASSETS (in millions)
<S> <C> <C>
Cash and cash equivalents........................................................ $ 11.9 $ 20.4
Receivables...................................................................... 738.5 626.4
Inventories...................................................................... 540.7 533.3
Deferred income taxes and other current assets................................... 119.0 237.2
------------------ -----------------
Total current assets.................................................... 1,410.1 1,417.3
------------------ -----------------
Property, plant and equipment, less accumulated depreciation..................... 733.9 710.5
Intangibles, less accumulated amortization....................................... 1,516.1 1,478.0
Deferred income taxes and other noncurrent assets................................ 162.1 173.3
------------------ -----------------
Total assets............................................................ $ 3,822.2 $ 3,779.1
================== =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term debt.................................................................. $ 120.3 $ 118.1
Accounts payable................................................................. 347.4 378.7
Accrued liabilities.............................................................. 466.6 467.6
Accrued income taxes............................................................. 34.6 -
Current maturities of long-term debt............................................. 2.2 6.3
------------------ -----------------
Total current liabilities............................................... 971.1 970.7
------------------ -----------------
Long-term debt................................................................... 717.0 774.5
Postretirement benefits other than pensions...................................... 228.0 237.3
Other long-term liabilities...................................................... 211.9 233.0
------------------ -----------------
Total liabilities....................................................... 2,128.0 2,215.5
------------------ -----------------
Common stock, $5.00 par value.................................................... 615.0 615.0
Capital in excess of par value................................................... 672.3 674.0
Retained earnings................................................................ 1,945.0 1,790.0
Common stock held in treasury, at cost........................................... (1,454.6) (1,444.8)
Unearned employee stock ownership plan compensation.............................. (26.6) (40.6)
Accumulated other non-owner changes in equity.................................... (56.9) (30.0)
------------------ -----------------
Total shareholders' equity.............................................. 1,694.2 1,563.6
------------------ -----------------
Total liabilities and shareholders' equity.............................. $ 3,822.2 $ 3,779.1
================== =================
</TABLE>
The accompanying notes are an integral part of these statements.
-3-
<PAGE> 4
COOPER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------------------
1999 1998
------------------ -----------------
(in millions)
<S> <C> <C>
Cash flows from operating activities:
Net income.................................................................. $ 248.0 $ 291.2
Less income from discontinued operations.................................... - (84.2)
------------------ -----------------
Income from continuing operations........................................... 248.0 207.0
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization............................................... 108.4 101.1
Deferred income taxes....................................................... (4.9) 3.0
Changes in assets and liabilities:(1)
Receivables............................................................. (91.3) (51.8)
Inventories............................................................. (24.0) (21.0)
Accounts payable and accrued liabilities................................ (41.1) (48.6)
Accrued income taxes.................................................... 39.4 7.6
Other assets and liabilities, net....................................... 11.6 (7.0)
------------------ -----------------
Net cash provided by operating activities......................... 246.1 190.3
Cash flows from investing activities:
Cash paid for acquired businesses........................................... (124.5) (269.3)
Capital expenditures........................................................ (116.0) (102.9)
Cash paid for TLG, plc common stock......................................... - (42.4)
Proceeds from disposition of business....................................... 149.1 -
Proceeds from sales of property, plant and equipment........................ 7.7 5.4
------------------ -----------------
Net cash used in investing activities............................. (83.7) (409.2)
Cash flows from financing activities:
Proceeds from issuances of debt............................................. 6.3 1,216.5
Repayments of debt.......................................................... (68.8) (270.9)
Dividends................................................................... (93.3) (115.8)
Acquisition of treasury shares.............................................. (44.0) (733.2)
Activity under employee stock plans......................................... 29.9 39.9
------------------ -----------------
Net cash provided by (used in) financing activities............... (169.9) 136.5
Cash provided by discontinued operations........................................ - 72.5
Effect of exchange rate changes on cash and cash equivalents.................... (1.0) (1.2)
------------------ -----------------
Decrease in cash and cash equivalents........................................... (8.5) (11.1)
Cash and cash equivalents, beginning of period.................................. 20.4 30.3
------------------ -----------------
Cash and cash equivalents, end of period........................................ $ 11.9 $ 19.2
================== =================
</TABLE>
(1) Net of the effects of acquisitions, divestitures and translation.
The accompanying notes are an integral part of these statements.
-4-
<PAGE> 5
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ACCOUNTING POLICIES
Basis of Presentation - The financial information presented as of any
date other than December 31 has been prepared from the books and records without
audit. Financial information as of December 31 has been derived from Cooper's
audited financial statements, but does not include all disclosures required by
generally accepted accounting principles. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial information for the periods indicated, have
been included. For further information regarding Cooper's accounting policies,
refer to the Consolidated Financial Statements and related notes for the year
ended December 31, 1998 included as Appendix A to Cooper's Proxy Statement dated
March 10, 1999.
Derivative Financial Instruments and Hedging Activities - In June 1998,
the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities ("SFAS No. 133"). SFAS No. 133 requires that all derivatives be
recognized as assets and liabilities and measured at fair value. The accounting
for changes in the fair value of a derivative depends on the intended use of the
derivative and the resulting designation. SFAS No. 133 is effective for fiscal
years beginning after June 15, 2000 and early adoption is permitted. Cooper is
currently evaluating the effects of the new standard. Cooper does not anticipate
that the new standard will have an impact on net income. However, the new
standard requirement to mark to market certain of Cooper's financial instruments
utilized to hedge currency and commodity price risks will result in fluctuations
in the fair value being included in shareholders' equity, net of tax. Due to
Cooper's policies regarding financial instruments, it is not likely that the
adoption of the new standard will have a significant effect on Cooper's
Consolidated Balance Sheets.
NOTE 2. NONRECURRING CHARGES
During the fourth quarter of 1998, Cooper announced a voluntary and
involuntary severance program and committed to consolidate several facilities.
While both the voluntary and involuntary severance programs were announced in
1998, the amount that could be accrued in 1998 was limited to severance relating
to personnel actually severed in the fourth quarter and the severance provided
by Cooper's written formal policies. During the first quarter of 1999, Cooper
completed the voluntary program and accrued an additional $5.8 million primarily
representing the voluntary severance program premium over the severance provided
under Cooper's established policies. Cooper also accrued $1.5 million related to
severance and other costs for facility closures announced during the first
quarter of 1999. The additional accruals during the first quarter of 1999
totaled $7.3 million. In addition, during the first quarter of 1999, Cooper
reduced legal accruals by $2.8 million related to the favorable settlement of
certain litigation concerning lead in mini-blinds and reassessment of the
required reserve. Cooper also reached agreement and received $.8 million under
an insurance policy related to the unsuccessful offer to acquire TLG plc in
1998. Since the original charge related to the litigation was included as a
nonrecurring item in the Tools & Hardware segment and the costs related to TLG
plc were reflected as a nonrecurring corporate item, the reversal of the accrual
and the reimbursement of the expenses were reflected as nonrecurring items. The
net nonrecurring items for the first quarter of 1999 resulted in a $3.7 million
charge before income taxes and resulted in an after tax charge of $2.4 million
($.02 per diluted common share). No additional nonrecurring items occurred in
the second or third quarters of 1999. See "Nonrecurring Income and Expenses" in
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
-5-
<PAGE> 6
NOTE 3. ACQUISITIONS
During the first nine months of 1999, Cooper completed four
acquisitions in its Electrical Products segment and two small acquisitions in
its Tools & Hardware segment. The acquisitions include a business in the United
Kingdom and a business in France that expand the product offerings of the Cooper
Menvier division, two small domestic lighting businesses and two small Tools &
Hardware businesses.
During the first nine months of 1998, Cooper completed three
acquisitions in its Tools & Hardware segment and two small acquisitions in its
Electrical Products segment. In March 1998, Cooper acquired Intool for a total
cost of $217.5 million. Intool manufactures and sells pneumatic and electric
assembly tools, precision-drilling equipment, fastening systems and portable and
fixed mounted tools used in industrial, automotive, aerospace and energy
markets. The other acquisitions included two small businesses in France and
Germany that extended the global product lines of Cooper's Power Tools division
and two small Electrical Products businesses in Mexico.
The acquisitions have been accounted for as purchase transactions and
the results of the acquisitions are included in Cooper's consolidated income
statements from the date of acquisition.
NOTE 4. INVENTORIES
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
----------------- -------------------
(in millions)
<S> <C> <C>
Raw materials......................................... $ 201.2 $ 213.4
Work-in-process....................................... 134.8 114.7
Finished goods........................................ 265.2 275.6
Perishable tooling and supplies....................... 21.1 21.0
----------------- -------------------
622.3 624.7
Excess of current standard costs over LIFO costs...... (81.6) (91.4)
----------------- -------------------
Net inventories............................ $ 540.7 $ 533.3
================= ===================
</TABLE>
NOTE 5. LONG-TERM DEBT
During the second quarter of 1999, Cooper completed a shelf
registration statement to issue up to $500 million of debt securities. At
September 30, 1999, all $500 million of the shelf registration was available to
be issued.
NOTE 6. COMMON STOCK
During the third quarter of 1999, Cooper repurchased 800,000 shares of
its common stock at a cost of $44.0 million.
-6-
<PAGE> 7
NOTE 7. SEGMENT INFORMATION
<TABLE>
<CAPTION>
REVENUES
---------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
(in millions)
<S> <C> <C> <C> <C>
Electrical Products................................... $ 786.0 $ 724.0 $2,265.6 $2,153.9
Tools & Hardware...................................... 196.2 200.0 598.8 615.4
------------ ------------ ------------ ------------
Total revenues..................................... $ 982.2 $ 924.0 $2,864.4 $2,769.3
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
OPERATING EARNINGS
---------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
(in millions)
<S> <C> <C> <C> <C>
Electrical Products................................... $ 133.8 $ 124.5 $ 386.1 $ 364.0
Tools & Hardware...................................... 20.6 25.3 73.0 85.0
------------ ------------ ------------ ------------
Total management reporting......................... 154.4 149.8 459.1 449.0
Segment nonrecurring and unusual items:
Electrical Products................................ - - 3.0 -
Tools & Hardware................................... - - 1.5 -
------------ ------------ ------------ ------------
- - 4.5 -
Net segment operating earnings:
Electrical Products................................ 133.8 124.5 383.1 364.0
Tools & Hardware................................... 20.6 25.3 71.5 85.0
------------ ------------ ------------ ------------
154.4 149.8 454.6 449.0
General corporate expenses............................ 8.9 9.8 28.9 38.1
General corporate nonrecurring items.................. - - (.8) -
Interest expense, net................................. 13.7 34.8 39.1 87.5
------------ ------------ ------------ ------------
Consolidated income from continuing
operations before income taxes..................... $ 131.8 $ 105.2 $ 387.4 $ 323.4
============ ============ ============ ============
</TABLE>
-7-
<PAGE> 8
NOTE 8. NET INCOME PER COMMON SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
(in millions)
<S> <C> <C> <C> <C>
BASIC:
Income from continuing operations..................... $ 84.4 $ 67.3 $ 248.0 $ 207.0
Income from discontinued operations................... - 25.9 - 84.2
------------ ------------ ------------ ------------
Net income applicable to Common stock................. $ 84.4 $ 93.2 $ 248.0 $ 291.2
============ ============ ============ ============
Weighted average Common shares outstanding............ 94.0 113.5 94.1 117.2
============ ============ ============ ============
DILUTED:
Income from continuing operations..................... $ 84.4 $ 67.3 $ 248.0 $ 207.0
Income from discontinued operations................... - 25.9 - 84.2
------------ ------------ ------------ ------------
Net income applicable to Common stock................. $ 84.4 $ 93.2 $ 248.0 $ 291.2
============ ============ ============ ============
Weighted average Common shares outstanding............ 94.0 113.5 94.1 117.2
Incremental shares from assumed conversions:
Options, performance-based stock
awards and other employee awards............... 1.1 1.2 0.9 1.6
============ ============ ============ ============
Weighted average Common shares
and Common share equivalents...................... 95.1 114.7 95.0 118.8
============ ============ ============ ============
</TABLE>
NOTE 9. DISCONTINUED OPERATION
On October 9, 1998, Cooper completed the sale of the Automotive
Products segment for cash proceeds of $1.9 billion. During the first quarter of
1999, Cooper received an additional $29.1 million as a partial reimbursement of
Cooper's cash funding of international automotive operations prior to the
separation from Cooper. During the third quarter of 1999, Cooper received the
remaining balances due from the purchaser of the Automotive Products segment.
Cooper received $120.0 million representing the remaining reimbursement for
Cooper's pre-closing cash funding of international operations and the earnings
and additional cash invested in the Automotive Products segment between March
31, 1998 and October 9, 1998.
Cooper's results of operations and the related footnote information for
the three months and nine months ended September 30, 1998 exclude the results of
the Automotive Products segment from continuing operations' revenues and other
components of income and expense. The discontinued segment's results are
presented separately in a single caption, "Income from discontinued operations,
net of income taxes". Revenues from the discontinued Automotive Products segment
were $473.7 million and $1,400.8 million, respectively for the three months and
nine months ended September 30, 1998. Income from the discontinued Automotive
Products segment was $25.9 million (net of $17.1 million of income taxes) for
the three months ended September 30, 1998 and $84.2 million (net of $54.9
million of income taxes) for the nine months ended September 30, 1998.
The cash flows from discontinued operations are summarized into a
single line "Cash provided by discontinued operations" in the Consolidated
Statements of Cash Flows. No cash or debt was allocated to the discontinued
operations.
-8-
<PAGE> 9
NOTE 10. NET INCOME AND OTHER NON-OWNER CHANGES IN EQUITY
Net income and other non-owner changes in equity were $90.2 million and
$76.2 million, respectively during the three months ended September 30, 1999 and
1998 and $221.1 million and $265.1 million, respectively during the nine months
ended September 30, 1999 and 1998. The components of net income and other
non-owner changes in equity, net of related taxes, were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------- ---------------------------------
1999 1998 1999 1998
--------------- --------------- -------------- ---------------
(in millions)
<S> <C> <C> <C> <C>
Income from continuing operations............. $ 84.4 $ 67.3 $ 248.0 $ 207.0
Income from discontinued operations........... - 25.9 - 84.2
--------------- --------------- -------------- ---------------
Net income.................................... 84.4 93.2 248.0 291.2
Foreign currency translation
gains (losses)............................ 5.8 - (26.9) (9.4)
Unrealized losses on investments.............. - (17.0) - (16.7)
--------------- --------------- -------------- ---------------
Net income and other non-owner
changes in equity......................... $ 90.2 $ 76.2 $ 221.1 $ 265.1
=============== =============== ============== ===============
</TABLE>
NOTE 11. SUMMARY OF NONCASH INVESTING AND FINANCING ACTIVITIES
The following noncash transactions have been excluded from the
consolidated statements of cash flows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------------
1999 1998
----------------- -----------------
(in millions)
<S> <C> <C>
Assets acquired and liabilities assumed or incurred from the acquisition of
businesses:
Fair value of assets acquired............................................... $ 150.9 $ 302.2
Cash used to acquire businesses............................................. (124.5) (269.3)
----------------- -----------------
Liabilities assumed or incurred........................................ $ 26.4 $ 32.9
================= =================
</TABLE>
-9-
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
DISCONTINUED OPERATION
The Automotive Products segment was sold on October 9, 1998. The
discontinued segment's results for the three and nine month periods ended
September 30, 1998 are presented separately in a single caption, "Income from
discontinued operations, net of income taxes." The cash flows from discontinued
operations are summarized into a single line "Cash provided by discontinued
operations" in the Consolidated Statements of Cash Flows. No debt was allocated
to the discontinued operations and the income from discontinued operations does
not include an allocation of Cooper's interest expense. See Note 9 of the Notes
to Consolidated Financial Statements regarding the financial results of the
discontinued operation during the three and nine month periods ended September
30, 1998.
IMPACT OF AUTOMOTIVE PRODUCTS SEGMENT DIVESTITURE
The proceeds from the sale of the Automotive Products segment of $1.9
billion were utilized to purchase 21.2 million shares of Cooper Common stock at
a cost of $1.0 billion and to repay $900 million of debt during calendar year
1998. The mix of debt repayment and Common stock purchases was designed to
approximately replace the loss of the Automotive Products segment earnings per
share through lower interest expense and lower average shares outstanding.
As a result of the use of the proceeds to repay debt and purchase
shares of Cooper Common stock, income from continuing operations and net income
for the three and nine months ended September 30, 1999 and 1998 are not
comparable. Cooper estimates that the Automotive Products segment diluted
earnings per share of $.22 in the third quarter of 1998 were approximately
replaced in the three month period ended September 30, 1999 by the effects of
the utilization of the proceeds and lower corporate expenses resulting from the
divestiture. For the nine months ended September 30, 1998, the Automotive
Products segment diluted earnings per share were $.71 and the effects of the
utilization of the proceeds and lower corporate expenses resulting from the
divestiture were modestly inadequate in the nine month period ended September
30, 1999 to totally replace the earnings.
NONRECURRING INCOME AND EXPENSES
During the fourth quarter of 1998, Cooper announced a voluntary and
involuntary severance program and committed to consolidate several facilities.
While both the voluntary and involuntary severance programs were announced in
1998, the amount that could be accrued in 1998 was limited to severance relating
to personnel actually severed in the fourth quarter and the severance provided
by Cooper's written formal policies. During the first quarter of 1999, Cooper
completed the voluntary program and accrued an additional $5.8 million primarily
representing the voluntary severance program premium over the severance provided
under Cooper's established policies. Cooper also accrued $1.5 million related to
severance and other costs for facility closures announced during the first
quarter of 1999. The additional accruals during the first quarter of 1999
totaled $7.3 million. In addition, during the first quarter of 1999, Cooper
reduced legal accruals by $2.8 million related to the favorable settlement of
certain litigation concerning lead in mini-blinds and reassessment of the
required reserve. Cooper also reached agreement and received $.8 million under
an insurance policy related to the unsuccessful offer to acquire TLG plc in
1998. Since the original charge related to the litigation was included as a
nonrecurring item in the Tools & Hardware segment and the costs related to TLG
plc were reflected as a nonrecurring corporate item, the reversal of the accrual
and the reimbursement of the expenses were reflected as nonrecurring items. The
net nonrecurring items for the first quarter of 1999 resulted in a $3.7 million
charge before income taxes and an after tax charge of $2.4 million ($.02 per
diluted common share).
-10-
<PAGE> 11
The following table reflects the activity during 1999 related to the
1998 fourth quarter and the 1999 first quarter employee reduction and facility
consolidation plan.
<TABLE>
<CAPTION>
No. of Accrued Facility
Employees Severance Consolidation
------------- ------------ ----------------
(in millions)
<S> <C> <C> <C>
Balance at December 31, 1998...................................... 1,635 $ 25.4 $ 7.8
Voluntary Severance Program premium over normal severance......... - 5.8 -
Facility closings announced....................................... 249 1.2 .3
Employees terminated.............................................. (938) - -
Cash expenditures................................................. - (14.4) (2.2)
------------- ------------ ----------------
Balance September 30, 1999........................................ 946 $ 18.0 $ 5.9
============= ============ ================
</TABLE>
Cooper anticipates incurring in excess of $11 million related to
severance costs, facility exit costs and disruptions to operations that could
not be accrued as of September 30, 1999. A majority of the $11 million relates
to operating inefficiencies, training, personnel and inventory relocation costs
which are required to be expensed as incurred. These costs are spread over the
remainder of 1999 and into 2000 and are anticipated to be modestly less than the
savings from the anticipated cost reductions. Cooper anticipates that the
accrued severance and facility consolidation accruals will be ratably expended
over the remainder of 1999 and 2000 as severed employees are paid, additional
employees are severed and facility consolidations completed. This paragraph
contains forward-looking statements and actual results may differ materially.
The statements are based on certain assumptions including the number of
employees actually severed, the timing of the facility consolidations, the
magnitude of the disruption from facility consolidation and the ability to
achieve the projected cost reductions.
RESULTS OF CONTINUING OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 1998
Income from continuing operations for the third quarter of 1999 was
$84.4 million on revenues of $982.2 million compared with 1998 third quarter
income from continuing operations of $67.3 million on revenues of $924.0
million. Net income declined to $84.4 million in the third quarter of 1999 from
$93.2 million in 1998 due to the absence of the discontinued Automotive Products
segment earnings. Third quarter diluted earnings per share increased 10% to $.89
from $.81 in 1998.
REVENUES:
Revenues for the third quarter of 1999 increased 6% compared to the
third quarter of 1998. After excluding the effects of acquisitions, revenues
increased 3% when compared to the third quarter of last year.
Third quarter 1999 Electrical Products segment revenues increased 9%
from the same period last year. Excluding the incremental impact of
acquisitions, segment revenues were up 6% compared to last year. Leading the
year-over-year improvement were domestic sales of lighting fixtures due to
strong residential and non-residential construction markets. Circuit protection
products also experienced solid growth through increased penetration into the
electronics marketplace. Shipment of electrical distribution equipment continued
to improve as progress was made in gaining efficiencies following the
implementation of a business system in the fourth quarter of 1998. In the third
quarter of 1999, demand for electrical construction materials utilized in
projects stabilized at the lower levels experienced in the third quarter of
1998. The unfavorable impact of foreign currency translation reduced reported
Electrical Products segment revenues during the quarter by approximately 1%.
-11-
<PAGE> 12
Tools & Hardware segment revenues for the quarter were down 2% from the
third quarter of 1998. Excluding the incremental impact from acquisitions,
revenues were down 6%. Domestic aerospace and general industrial tool markets
remained weak during the quarter. A strong U.S. Dollar resulted in a negative
impact on revenues of approximately 3%.
COSTS AND EXPENSES:
Cost of sales, as a percentage of revenues, was 67.6% for the third
quarter of 1999 compared to 67.3% for the comparable 1998 quarter. Cost of sales
was impacted by reorganization activities and the related production
inefficiencies. Lower absorption of overhead costs due to reduced production
levels, primarily in the Tools & Hardware segment also impacted cost of sales.
Selling and administrative expenses, as a percentage of revenues, for the third
quarter of 1999 were comparable to the same period in 1998.
Goodwill amortization increased due to several acquisitions completed
since September 30, 1998. Interest expense, net for the third quarter of 1999
decreased $21.1 million from the same period of last year primarily as a result
of utilizing $900 million of the Automotive Products sale proceeds to reduce
debt.
SEGMENT OPERATING EARNINGS:
The Electrical Products segment third quarter 1999 operating earnings
increased 8% to $133.8 million from $124.5 million for the same quarter of last
year. Acquisitions contributed 2% towards the improvement in the quarter. The
increase in operating earnings was driven by the increase in sales, primarily of
lighting products and circuit protection devices.
Tools & Hardware segment operating earnings for the quarter reflect a
19% decrease from the prior year, primarily the result of reduced sales,
negative product mix and operating inefficiencies resulting from restructuring
projects. Excluding the impact of acquisitions, segment operating earnings were
23% below the third quarter of 1998.
INCOME TAXES:
The continuing effective tax rate was 36.0% for each of the quarters
ended September 30, 1999 and 1998.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 1998
Income from continuing operations for the nine months ended September
30, 1999 was $248.0 million on revenues of $2,864.4 million compared with 1998
nine month income from continuing operations of $207.0 million on revenues of
$2,769.3 million. Net income declined to $248.0 million during the nine months
ended September 30, 1999 from $291.2 million for the same period in 1998 due to
the absence of the discontinued Automotive Products segment earnings. Diluted
earnings per share increased 7% to $2.61 from $2.45 in 1998. Net income in 1999
includes a first quarter nonrecurring charge of $2.4 million on an after-tax
basis primarily resulting from the completion of the early retirement plan and
plant closings included in Cooper's cost control and asset rationalization
program announced in December 1998. The charge reduced diluted earnings per
share $.02 for the nine months ended September 30, 1999.
REVENUES:
Revenues for the nine months ended September 30, 1999 increased 3%
compared to the same period of 1998. After excluding the effects of
acquisitions, revenues were slightly ahead of the prior year period.
Year-to-date revenues for the Electrical Products segment increased 5%
from the same period last year. Excluding recent acquisitions, segment revenues
were up 3% compared to the first nine months of
-12-
<PAGE> 13
1998. All Electrical Products' businesses, except electrical construction
materials utilized in projects, improved revenues during 1999 over the
comparable period of 1998. This was due primarily to increased sales of lighting
fixtures from a continued strong residential and non-residential construction
market and growth in circuit protection products sales into the electronics
marketplace. Increased shipments of electrical distribution equipment following
the fourth quarter 1998 implementation of a new business system, also
contributed to the year-over-year improvement.
Tools & Hardware segment revenues for the nine months ended September
30, 1999 decreased 3%, compared to the same period of 1998. Without the benefit
of acquisitions, revenues declined 9% from the prior year period. The shortfall
was the result of continued sluggish demand in the domestic aerospace market and
in the industrial markets of Europe and North America. The negative impact of
translation reduced revenues for the nine months ended September 30, 1999 by
approximately 2%.
COSTS AND EXPENSES:
Cost of sales, as a percentage of revenues, for the nine months ended
September 30, 1999 declined one tenth of a point from the comparable 1998
period. Cost reductions in most businesses were the primary contributor to the
increase in margins. Selling and administrative expenses, as a percentage of
revenues, were lower than the prior year period by two tenths of a point. This
decrease in selling and administrative expenses as a percentage of revenues for
1999 was primarily due to reduced corporate expenses following the fourth
quarter 1998 divestiture of the Automotive Products business and cost
improvement efforts, somewhat offset by the loss of leverage from lower sales
revenues in the Tools & Hardware segment.
Goodwill amortization increased due to the acquisition of Intool in
March 1998 and several other acquisitions completed during 1998 and 1999.
Nonrecurring expense for the nine months ended September 30, 1999 related
primarily to severance on completion of the voluntary severance program
announced in the fourth quarter of 1998 and severance obligations on plant
closings announced during the first quarter of 1999. Interest expense, net for
the nine months ended September 30, 1999 decreased $48.4 million from the same
period of last year primarily as a result of utilizing $900 million of the
Automotive Products sale proceeds to reduce debt.
SEGMENT OPERATING EARNINGS:
Year-to-date operating earnings for the Electrical Products segment
increased 6% to $386.1 million, excluding nonrecurring charges, from $364.0
million for the same period last year. Excluding the incremental effect of
acquisitions, segment operating earnings were up 5% compared to last year. The
operating earnings increase was driven mainly by increased sales of lighting
products into the residential and non-residential construction markets and
greater shipments of circuit protection devices into the electronics markets.
Also contributing to the improvement in operating earnings were the benefits of
cost reduction programs.
Excluding nonrecurring charges, the Tools & Hardware segment operating
earnings reflected a 14% decline from the same period last year. Without the
benefit of acquisitions, operating earnings were 21% below the prior year.
Continued weak demand from the domestic aerospace market and industrial tool
market had a negative impact on product mix. Also impacting operating earnings
were manufacturing inefficiencies as operations adjusted to lower levels of
production and production disruptions related to restructuring projects.
INCOME TAXES:
The continuing effective tax rate was 36.0% for each of the nine month
periods ended September 30, 1999 and 1998.
-13-
<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES
Cooper's operating working capital (defined as receivables and
inventories less accounts payable) increased $151 million during the nine months
ended September 30, 1999 compared to an increase of $153 million in the same
period of 1998. Operating working capital turnover for the nine months ended
September 30, 1999 of 4.5 turns declined from 4.9 turns in the same period of
1998. The decline in turnover was due to higher operating working capital levels
to support consolidation and cost reduction programs in several businesses and
the impact of the new business system implementation at one of the electrical
product businesses. Operating working capital increased during the nine months
ended September 30, 1999 primarily due to an increase in accounts receivable and
reduced accounts payable. Receivables increased primarily due to higher revenues
and information systems conversions at one of the electrical product businesses.
Cash flows from operating activities during the nine months ended
September 30, 1999 totaled $246 million. These funds, along with $149 million in
cash received from the disposition of the Automotive Products segment and $30
million in cash received from the exercise of stock options, were used to fund
capital expenditures of $116 million, acquisitions of $125 million, a decrease
in debt of $63 million, share repurchases of $44 million and dividends of $93
million. During the nine months ended September 30, 1998, cash provided by
operating activities totaled $190 million. These funds, along with an increase
in debt of $946 million, cash provided by discontinued operations of $73 million
and cash received from the exercise of stock options of $40 million were used to
fund acquisitions of $269 million, capital expenditures of $103 million,
dividends of $116 million, share repurchases of $733 million and an investment
in TLG, plc common stock of $42 million.
These funds together with the anticipated cash flows from operating
activities will more than fund the operating cash requirements for the balance
of the year. Cooper does not currently anticipate a negative trend in its
long-term ability to generate in excess of $200 million in cash flow before debt
repayment and acquisitions each year. The preceding two sentences contain
forward-looking information, and actual results may differ materially. The
statements are based on certain assumptions, including no significant change in
the composition of Cooper's business segments, no material change in the amount
of revenues and no significant adverse changes in the relationship of the U.S.
dollar to the currencies of countries in which Cooper does business.
In connection with acquisitions accounted for as purchases, Cooper
records, to the extent appropriate, accruals for the costs of closing duplicate
facilities, severing redundant personnel and integrating the acquired businesses
into existing Cooper operations. Cash flows from operating activities are
reduced by the amounts expended against the various accruals established in
connection with each acquisition. Spending against these accruals was $3.3
million during each of the nine months ended September 30, 1999 and 1998,
respectively.
In the fourth quarter of 1998, Cooper reshaped its capital structure to
offset the discontinued Automotive Products segment's contribution to earnings
per share and to maintain a strong balance sheet that provides capacity for
future growth. Cooper has targeted a 35% to 45% debt-to-capitalization ratio,
with excess cash being utilized to fund acquisitions or to purchase shares of
Cooper Common stock. Cooper's debt-to-total capitalization ratio was 33.1% at
September 30, 1999 and 36.5% at December 31, 1998.
-14-
<PAGE> 15
BACKLOG
Sales backlog represents the dollar amount of all firm open orders for
which all terms and conditions pertaining to the sale have been approved such
that a future sale is reasonably expected. Sales backlog by segment was as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30
-----------------------------------------
1999 1998
------------------- -------------------
(in millions)
<S> <C> <C>
Electrical Products............................ $ 322.0 $ 287.0
Tools & Hardware............................... 84.1 83.9
------------------- -------------------
$ 406.1 $ 370.9
=================== ===================
</TABLE>
YEAR 2000
As of September 30, 1999, Cooper estimates that it is over 99% complete
with its efforts to remediate current systems or implement new systems that are
year 2000 compliant exclusive of recent acquisitions. Cooper is in the process
of evaluating systems of recently acquired businesses, but believes that the
business critical systems are or will be substantially year 2000 compliant by
the end of 1999.
Cooper's current review of the risk to its operations because a key
third party may not be year 2000 compliant, has not resulted in the
identification of risks that require significant contingency plans. The review
will continue throughout 1999 and if a significant risk is identified, Cooper
will develop contingency plans to address the risk.
-15-
<PAGE> 16
PART II - OTHER INFORMATION
Item 6. Exhibit and Reports on Form 8-K
(a) Exhibits
12. Computation of Ratios of Earnings to Fixed
Charges for the Calendar Years 1998 through
1994 and the Nine Months Ended September 30,
1999 and 1998.
27. Financial Data Schedule
(b) Reports on Form 8-K
Cooper filed a report on Form 8-K dated July 22,
1999, which included a copy of a press release
containing Cooper's financial results for the second
quarter of 1999.
Cooper filed a report on Form 8-K dated August 10,
1999 which updated Cooper's general business outlook
for 1999.
-16-
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Cooper Industries, Inc.
-----------------------------------------
(Registrant)
Date: November 12 , 1999 /s/ D. Bradley McWilliams
- ------------------------------------ -----------------------------------------
D. Bradley McWilliams
Senior Vice President and
Chief Financial Officer and duly
authorized signatory
-17-
<PAGE> 18
EXHIBIT INDEX
Exhibit No.
12. Computation of Ratios of Earnings to Fixed Charges for the
Calendar Years 1998 through 1994 and the
Nine Months Ended September 30, 1999 and 1998.
27. Financial Data Schedule.
<PAGE> 1
EXHIBIT 12
COOPER INDUSTRIES, INC.
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(Dollar Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------------- -------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Expense $ 39,100 $ 87,500 $ 101,900 $ 90,400 $ 142,100 $ 151,000 $ 73,300
Estimated Interest Portion of
Rent Expense 10,736 9,144 12,352 10,864 10,035 10,064 10,321
--------- --------- --------- --------- --------- --------- ---------
Fixed Charges $ 49,836 $ 96,644 $ 114,252 $ 101,264 $ 152,135 $ 161,064 $ 83,621
========= ========= ========= ========= ========= ========= =========
Income From Continuing
Operations Before Income Taxes $ 387,400 $ 323,400 $ 523,600 $ 483,200 $ 470,700 $ 297,300 $ 314,600
Add: Fixed Charges 49,836 96,644 114,252 101,264 152,135 161,064 83,621
Dividends From Less Than
50% Owned Companies - - - - 287 968 549
Less: Equity in (Earnings) / Losses
of Less Than 50% Owned
Companies (240) 145 595 (320 ) (1,609) (996) (1,776)
--------- --------- --------- --------- --------- --------- ---------
Earnings Before Fixed Charges $ 436,996 $ 420,189 $ 638,447 $ 584,144 $ 621,513 $ 458,336 $ 396,994
========= ========= ========= ========= ========= ========= =========
Ratio of Earnings to Fixed Charges 8.8x 4.3x 5.6x 5.8x 4.1x 2.8x 4.7x
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 11,900
<SECURITIES> 0
<RECEIVABLES> 738,500
<ALLOWANCES> 0
<INVENTORY> 540,700
<CURRENT-ASSETS> 1,410,100
<PP&E> 1,681,700
<DEPRECIATION> 947,800
<TOTAL-ASSETS> 3,822,200
<CURRENT-LIABILITIES> 971,100
<BONDS> 717,000
0
0
<COMMON> 615,000
<OTHER-SE> 1,079,200
<TOTAL-LIABILITY-AND-EQUITY> 3,822,200
<SALES> 2,864,400
<TOTAL-REVENUES> 2,864,400
<CGS> 1,926,200
<TOTAL-COSTS> 1,926,200
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,100
<INCOME-PRETAX> 387,400
<INCOME-TAX> 139,400
<INCOME-CONTINUING> 248,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 248,000
<EPS-BASIC> 2.64
<EPS-DILUTED> 2.61
</TABLE>
