<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, 2000
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, 2000 was
93,330,919.
<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,
----------------------- -------------------------
2000 1999 2000 1999
----------- --------- ----------- -----------
(in millions, where applicable)
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues .......................... $ 1,145.8 $ 982.2 $ 3,352.9 $ 2,864.4
Cost of sales ..................... 773.1 664.4 2,269.3 1,926.2
Selling and administrative
expenses ........................ 188.2 160.8 554.0 473.7
Goodwill amortization ............. 15.4 11.5 43.5 34.3
Nonrecurring charges .............. -- -- -- 3.7
Interest expense, net ............. 28.6 13.7 73.5 39.1
----------- --------- ----------- -----------
Income before income taxes .... 140.5 131.8 412.6 387.4
Income taxes ...................... 49.1 47.4 144.4 139.4
----------- --------- ----------- -----------
Net Income .................... $ 91.4 $ 84.4 $ 268.2 $ 248.0
=========== ========= =========== ===========
Income per Common Share:
Basic ......................... $ .98 $ .90 $ 2.87 $ 2.64
=========== ========= =========== ===========
Diluted ....................... $ .97 $ .89 $ 2.85 $ 2.61
=========== ========= =========== ===========
Cash dividends per Common Share ... $ .35 $ .33 $ 1.05 $ .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,
2000 1999
------------ ------------
ASSETS (in millions)
<S> <C> <C>
Cash and cash equivalents .................................. $ 24.7 $ 26.9
Receivables ................................................ 870.4 740.3
Inventories ................................................ 720.2 569.3
Deferred income taxes and other current assets ............. 100.9 130.1
---------- ----------
Total current assets .............................. 1,716.2 1,466.6
---------- ----------
Property, plant and equipment, less accumulated
depreciation ............................................. 853.7 768.0
Goodwill, less accumulated amortization .................... 1,996.7 1,739.0
Deferred income taxes and other noncurrent assets .......... 207.4 169.8
---------- ----------
Total assets ...................................... $ 4,774.0 $ 4,143.4
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term debt ............................................ $ 212.0 $ 191.2
Accounts payable ........................................... 391.6 393.4
Accrued liabilities ........................................ 482.4 492.5
Accrued income taxes ....................................... 7.1 6.6
Current maturities of long-term debt ....................... 51.2 2.1
---------- ----------
Total current liabilities ......................... 1,144.3 1,085.8
---------- ----------
Long-term debt ............................................. 1,375.5 894.5
Postretirement benefits other than pensions ................ 214.8 224.4
Other long-term liabilities ................................ 196.2 195.6
---------- ----------
Total liabilities ................................. 2,930.8 2,400.3
---------- ----------
Common stock, $5.00 par value .............................. 615.0 615.0
Capital in excess of par value ............................. 664.0 671.7
Retained earnings .......................................... 2,168.5 1,998.1
Common stock held in treasury, at cost ..................... (1,477.6) (1,449.3)
Unearned employee stock ownership plan compensation ........ (8.7) (23.0)
Accumulated other non-owner changes in equity .............. (118.0) (69.4)
---------- ----------
Total shareholders' equity ........................ 1,843.2 1,743.1
---------- ----------
Total liabilities and shareholders' equity ........ $ 4,774.0 $ 4,143.4
========== ==========
</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,
--------- ---------
2000 1999
--------- ---------
(in millions)
<S> <C> <C>
Cash flows from operating activities:
Net income ...................................................................... $ 268.2 $ 248.0
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization ................................................... 129.2 108.4
Deferred income taxes ........................................................... 27.0 (4.9)
Changes in assets and liabilities: (1)
Receivables ................................................................. (57.0) (91.3)
Inventories ................................................................. (69.1) (24.0)
Accounts payable and accrued liabilities .................................... (38.4) (41.1)
Accrued income taxes ........................................................ (1.0) 39.4
Other assets and liabilities, net ........................................... (1.5) 11.6
--------- ---------
Net cash provided by operating activities ............................. 257.4 246.1
Cash flows from investing activities:
Cash paid for acquired businesses ............................................... (560.2) (124.5)
Capital expenditures ............................................................ (130.9) (116.0)
Proceeds from disposition of business ........................................... -- 149.1
Proceeds from sales of property, plant and equipment ............................ 11.0 7.7
--------- ---------
Net cash used in investing activities ................................. (680.1) (83.7)
Cash flows from financing activities:
Proceeds from issuances of debt ................................................. 628.7 6.3
Repayments of debt .............................................................. (72.6) (68.8)
Dividends ....................................................................... (97.9) (93.3)
Acquisition of treasury shares .................................................. (39.3) (44.0)
Activity under employee stock plans ............................................. 1.4 29.9
--------- ---------
Net cash provided by (used in) financing activities ................... 420.3 (169.9)
Effect of exchange rate changes on cash and cash equivalents ........................ .2 (1.0)
--------- ---------
Decrease in cash and cash equivalents ............................................... (2.2) (8.5)
Cash and cash equivalents, beginning of period ...................................... 26.9 20.4
--------- ---------
Cash and cash equivalents, end of period ............................................ $ 24.7 $ 11.9
========= =========
</TABLE>
(1) Net of the effects of acquisitions 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, 1999 included as Appendix A to Cooper's Proxy Statement dated
March 8, 2000.
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, as amended by Statements
of Financial Accounting Standards No. 137 and 138, is effective for fiscal years
beginning after June 15, 2000. Cooper is currently evaluating the effects of the
new standard.
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). See "Nonrecurring Income and Expenses" in
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
-5-
<PAGE> 6
NOTE 3. ACQUISITIONS AND DIVESTITURES
During the first nine months of 2000, Cooper completed three
acquisitions in its Electrical Products segment and one small acquisition in its
Tools & Hardware segment for an aggregate cost of $560.2 million, subject to
adjustment as provided in the acquisition agreements. In March 2000, Cooper
acquired Eagle Electric. Eagle manufactures and sells electrical wiring devices
including switches, receptacles, plugs and connectors, cords and other
electrical accessories to the residential and commercial markets. In May 2000,
Cooper acquired B-Line Systems. B-Line Systems manufactures and markets support
systems and enclosures for electrical, mechanical and telecommunications/data
applications. Cooper also acquired a small Indian manufacturer of electrical
products and a small Hungarian assembly equipment manufacturer.
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 included a business in the United
Kingdom and a business in France that expanded the product offerings of the
Cooper Menvier division, two small domestic lighting businesses and two small
Tools & Hardware businesses.
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.
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 balance 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.
NOTE 4. INVENTORIES
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(in millions)
<S> <C> <C>
Raw materials ........................................................................ $ 234.8 $ 196.9
Work-in-process ...................................................................... 137.0 133.6
Finished goods ....................................................................... 405.6 299.5
Perishable tooling and supplies ...................................................... 20.7 20.1
------- -------
798.1 650.1
Excess of current standard costs over LIFO costs ..................................... (77.9) (80.8)
------- -------
Net inventories ........................................................... $ 720.2 $ 569.3
======= =======
</TABLE>
NOTE 5. LONG-TERM DEBT
At September 30, 2000, $750 million of commercial paper was classified
as long-term debt, reflecting Cooper's intention to refinance this amount during
the 12-month period following the balance sheet date through either continued
short-term borrowing or utilization of available revolving bank credit
facilities.
During 1999, Cooper completed a shelf registration statement to issue
up to $500 million of debt securities. At September 30, 2000, all $500 million
of the shelf registration was available to be issued.
-6-
<PAGE> 7
On October 25, 2000, Cooper issued Euro 300 million five-year bonds.
The bonds bear interest at 6.25% and mature in October 2005. The proceeds from
the borrowing were used to repay existing commercial paper debt.
NOTE 6. COMMON STOCK
During the first quarter of 2000, Cooper repurchased 1.1 million shares
of its common stock at a cost of $39.3 million.
NOTE 7. SEGMENT INFORMATION
<TABLE>
<CAPTION>
REVENUES
--------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- ----------------------
2000 1999 2000 1999
--------- ------- --------- ---------
(in millions)
<S> <C> <C> <C> <C>
Electrical Products ............................................... $ 957.3 $ 786.0 $ 2,758.0 $ 2,265.6
Tools & Hardware .................................................. 188.5 196.2 594.9 598.8
--------- ------- --------- ---------
Total revenues ................................................. $ 1,145.8 $ 982.2 $ 3,352.9 $ 2,864.4
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
OPERATING EARNINGS
----------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2000 1999 2000 1999
------- ------- ------- -------
(in millions)
<S> <C> <C> <C> <C>
Electrical Products .................................................... $ 156.9 $ 133.8 $ 442.6 $ 386.1
Tools & Hardware ....................................................... 20.8 20.6 67.4 73.0
------- ------- ------- -------
Total management reporting .......................................... 177.7 154.4 510.0 459.1
Segment nonrecurring and unusual items:
Electrical Products ................................................. -- -- -- 3.0
Tools & Hardware .................................................... -- -- -- 1.5
------- ------- ------- -------
-- -- -- 4.5
Net segment operating earnings:
Electrical Products ................................................. 156.9 133.8 442.6 383.1
Tools & Hardware .................................................... 20.8 20.6 67.4 71.5
------- ------- ------- -------
177.7 154.4 510.0 454.6
General corporate expenses ............................................. 8.6 8.9 23.9 28.9
General corporate nonrecurring items ................................... -- -- -- (0.8)
Interest expense, net .................................................. 28.6 13.7 73.5 39.1
------- ------- ------- -------
Income before income taxes ............................................. $ 140.5 $ 131.8 $ 412.6 $ 387.4
======= ======= ======= =======
</TABLE>
-7-
<PAGE> 8
NOTE 8. NET INCOME PER COMMON SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2000 1999 2000 1999
------- ------- ------- -------
(in millions)
<S> <C> <C> <C> <C>
BASIC:
Net income applicable to Common stock ...... $ 91.4 $ 84.4 $ 268.2 $ 248.0
======= ======= ======= =======
Weighted average Common shares outstanding.. 93.4 94.0 93.5 94.1
======= ======= ======= =======
DILUTED:
Net income applicable to Common stock ...... $ 91.4 $ 84.4 $ 268.2 $ 248.0
======= ======= ======= =======
Weighted average Common shares outstanding.. 93.4 94.0 93.5 94.1
Incremental shares from assumed conversions:
Options, performance-based stock
awards and other employee awards .... 0.7 1.1 0.6 0.9
------- ------- ------- -------
Weighted average Common shares
and Common share equivalents ........... 94.1 95.1 94.1 95.0
======= ======= ======= =======
</TABLE>
Options and other employee awards are not considered in the calculations if the
effect would be antidilutive.
NOTE 9. NET INCOME AND OTHER NON-OWNER CHANGES IN EQUITY
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,
------------------- --------------------
2000 1999 2000 1999
------ ------- ------- -------
(in millions)
<S> <C> <C> <C> <C>
Net income ...................................... 91.4 $ 84.4 $ 268.2 $ 248.0
Foreign currency translation gains/(losses) ..... (13.2) 5.8 (48.6) (26.9)
------ ------- ------- -------
Net income and other non-owner .
changes in equity........................... 78.2 $ 90.2 $ 219.6 $ 221.1
====== ======= ======= =======
</TABLE>
-8-
<PAGE> 9
NOTE 10. SUPPLEMENTAL CASH FLOW INFORMATION
The table below provides supplemental information to the consolidated
statements of cash flows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
2000 1999
------- -------
(in millions)
Assets acquired and liabilities assumed or incurred from the acquisition of
businesses:
<S> <C> <C>
Fair value of assets acquired .............................................. $ 619.1 $ 150.9
Liabilities assumed or incurred ............................................ (58.9) (26.4)
------- -------
Cash used to acquire businesses ....................................... $ 560.2 $ 124.5
======= =======
</TABLE>
-9-
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 1999
Net income for the third quarter of 2000 was $91.4 million on revenues
of $1,145.8 million compared with 1999 third quarter net income of $84.4 million
on revenues of $982.2 million. Third quarter diluted earnings per share rose 9%
to $.97 from $.89 in 1999.
REVENUES:
Revenues for the third quarter of 2000 grew 17% compared to the third
quarter of 1999. After excluding the effects of acquisitions, revenues were 2%
below the third quarter of last year. The impact of foreign currency translation
reduced reported revenues by approximately 1% for the quarter.
Third quarter 2000 Electrical Products revenues rose 22% from the same
period last year. All of the segment's businesses posted increased revenues with
the exception of the hazardous area construction materials business, which
continued to be impacted by capital spending trends in worldwide energy markets.
Excluding the incremental impact of acquisitions and an approximate 1% reduction
in revenues as a result of the strong U.S. Dollar, segment revenues were
essentially unchanged from the prior year. Solid growth in the circuit
protection business was driven by strong demand from telecommunications and
electronics customers. The lighting products business benefited from improved
demand across most product lines and modest price increases for core products.
Revenues in the Company's European lighting and security business were impacted
by plant consolidations and acquisitions.
Tools & Hardware segment revenues for the quarter were 4% below the
third quarter of 1999 due to customers rescheduling shipments of assembly
equipment both domestically and in Europe. Higher sales of hand tools in North
America and Latin America partially offset this development. A strong U.S.
Dollar reduced Tools & Hardware revenues during the quarter by approximately 3%.
COSTS AND EXPENSES:
Cost of sales, as a percentage of revenues, was 67.5% for the third
quarter of 2000 compared to 67.6% for the comparable 1999 quarter. Excluding the
impact of recent acquisitions, cost of sales as a percentage of revenues
improved to 66.6% in the third quarter 2000. Selling and administrative
expenses, as a percentage of revenues, for the third quarter of 2000 were 16.4%,
equal to the 1999 third quarter.
Goodwill amortization increased due to several acquisitions completed
during the past year. Interest expense, net for the third quarter of 2000
increased $14.9 million from the 1999 third quarter primarily as a result of
additional borrowings to fund acquisitions and stock repurchases, partially
offset by increased capitalized interest.
SEGMENT OPERATING EARNINGS:
Electrical Products segment third quarter 2000 operating earnings grew
17% to $156.9 million from $133.8 million for the same quarter of last year.
Acquisitions constituted approximately 15 percentage points of the improvement
for the quarter. Additional improvement was related to earnings growth in the
circuit protection business and productivity improvements throughout the
majority of the businesses.
-10-
<PAGE> 11
Tools & Hardware segment operating earnings were $20.8 million for the
2000 third quarter, compared to $20.6 million in the third quarter of 1999.
Improvements in manufacturing processes coupled with lower selling and
administrative expenses essentially offset the effects of the revenue shortfall
from the 1999 third quarter.
INCOME TAXES:
Taxes on income increased primarily as a result of increased taxable
income, partially offset by a slightly lower effective tax rate. The effective
tax rate was 35% for the quarter ended September 30, 2000 and 36% for the
quarter ended September 30, 1999.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 1999
Net income for the first nine months of 2000 was $268.2 million on
revenues of $3,352.9 million compared with 1999 nine-month net income of $248.0
million on revenues of $2,864.4 million. Net income for the first nine months of
1999 included $2.4 million, or $.02 per share, of nonrecurring net charges
primarily related to cost control and asset rationalization programs. See
"Nonrecurring Income and Expenses" below. Diluted earnings per share increased
9% to $2.85 from $2.61 in 1999.
REVENUES:
Revenues for the first nine months of 2000 rose 17% compared to the
first nine months of 1999. After excluding the effects of acquisitions, revenues
increased 2% when compared to the prior year period. The impact of foreign
currency translation reduced revenues by approximately 1% for the nine-month
period.
Year-to-date revenues for the Electrical Products segment were up 22%
from the same period last year. All businesses within the Electrical Products
segment experienced revenue growth over the prior year except for the hazardous
area construction materials business, which continues to be impacted by delayed
recovery in the energy related markets. Excluding recent acquisitions, segment
revenues were up 3% compared to last year. By further excluding the impact of
foreign currency translation, revenues for the Electrical Products segment grew
4% over the prior year. Continued strong demand for circuit protection and
electronic power management products, along with solid growth in lighting
products drove the core business revenue gains for the nine months compared to
1999.
Tools & Hardware segment revenues for the first nine months of 2000
were $594.9 million compared to $598.8 million for the same period of 1999.
Without the benefit of acquisitions, revenues decreased by 1% from the prior
year period. The impact of translation reduced revenues for the nine months
ended September 30, 2000 by approximately 2%.
COSTS AND EXPENSES:
Cost of sales, as a percentage of revenues, for the first nine months
of 2000 increased five tenths of a point from the comparable 1999 period. This
increase was primarily due to recent acquisitions. Excluding the impact of
acquisitions, cost of sales as a percentage of revenues was 66.9%, compared to
67.2% for the first nine months of last year. Selling and administrative
expenses, as a percentage of revenues, remained constant with the prior year.
Goodwill amortization increased due to the completion of several
acquisitions since September 30, 1999. Interest expense for the first nine
months of 2000 increased $34.4 million from the same period of last year
primarily as a result of additional borrowings to fund acquisitions and stock
repurchases, partially offset by increased capitalized interest.
-11-
<PAGE> 12
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).
The following table reflects the activity during the nine months ended
September 30, 2000 related to the 1998 fourth quarter and the 1999 first quarter
employee reduction and facility consolidation plans.
<TABLE>
<CAPTION>
No. of Accrued Facility
Employees Severance Consolidation
---------- --------- -------------
(in millions)
<S> <C> <C> <C>
Balance at December 31, 1999................. 918 $ 10.4 $ 4.7
Employees terminated......................... (125) - -
Cash expenditures............................ - (3.4) (1.6)
---- ------ ------
Balance at September 30, 2000................ 793 $ 7.0 $ 3.1
==== ====== ======
</TABLE>
Cooper anticipates incurring in excess of $5 million related to
severance costs, facility exit costs and disruptions to operations that could
not be accrued as of September 30, 2000. A majority of the $5 million relates to
operating inefficiencies, training, personnel and inventory relocation costs
which are required to be expensed as incurred during 2000 and 2001. Cooper
anticipates that the accrued severance and facility consolidation accruals will
be expended during 2000 and 2001 as terminated employees are paid, the
additional employees leave the employment of Cooper and facility consolidations
are completed. This paragraph contains forward-looking statements and actual
results may differ materially. The statements are based on a number of
assumptions, risks and uncertainties including the number of employees actually
severed, the timing of the facility consolidations, the magnitude of any
disruption from facility consolidations and the ability to achieve the projected
cost reductions. The estimates also assume, without limitation, no significant
change in competitive conditions and such other risk factors as are discussed
from time to time in Cooper's periodic filings with the Securities and Exchange
Commission.
SEGMENT OPERATING EARNINGS:
Year-to-date earnings for the Electrical Products segment rose 15% to
$442.6 million from $386.1 million for the same period last year, excluding
nonrecurring charges. Excluding recent acquisitions, segment earnings were up 4%
compared to last year. The earnings increase was driven mainly by increased
sales of circuit protection products into telecommunications and electronic
markets and cost savings across most business units.
The Tools & Hardware segment operating earnings were 8% less than the
same period last year, excluding nonrecurring charges. Without the benefit of
acquisitions, operating earnings were 9% below the
-12-
<PAGE> 13
prior year. Earnings for the period were impacted by slightly lower revenues and
expenses related to plant consolidations and other rationalization activities.
INCOME TAXES:
Taxes on income increased primarily as a result of increased taxable
earnings, partially offset by a lower tax rate. The effective tax rate was 35%
for the nine-month period ended September 30, 2000 and 36% for the nine-month
period ended September 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Cooper's operating working capital (defined as receivables and
inventories less accounts payable) increased $283 million during the first nine
months of 2000 compared to an increase of $151 million in the first nine months
of 1999. The increase in operating working capital for the first nine months of
2000 was primarily due to acquisitions. Operating working capital turnover for
the first nine months of 2000 was 4.2 turns declining from 4.5 turns in the same
period of 1999, also primarily due to recent acquisitions.
Cash flows from operating activities in the first nine months of 2000
totaled $257 million. These funds, along with a net $556 million of additional
debt, were used to fund acquisitions of $560 million, capital expenditures of
$131 million, share repurchases of $39 million and dividends of $98 million.
During the first nine months of 1999, cash provided by operating activities
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.
On February 10, 2000, Cooper increased the annual dividend rate on its
common stock by 8 cents per share to $1.40, or $.35 cents per quarter.
On October 25, 2000 Cooper issued Euro 300 million five-year bonds. The
bonds bear interest at 6.25% and mature in October 2005. The proceeds from the
borrowing were used to repay existing commercial paper debt.
Anticipated cash flows from operating activities will more than fund
the operating cash requirements for the balance of the year. Cooper currently
anticipates a continuation of its long-term ability to annually generate
approximately $200 million in cash flow available for acquisitions, debt
repayment and common stock repurchases.
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 for the nine
months ended September 30, 2000 and 1999 was $2.1 million and $3.3 million,
respectively.
Cooper has targeted a 35% to 45% debt-to-capitalization ratio.
Available cash flows are utilized to fund acquisitions, pay down debt or to
purchase shares of Cooper Common stock. Cooper's debt-to-total capitalization
ratio was 47.1% at September 30, 2000, 33.1% at September 30, 1999 and 38.4% at
December 31, 1999. The May 1, 2000 acquisition of B-Line Systems resulted in a
higher than targeted debt-to-capitalization ratio. Cooper anticipates being
within the targeted range by December 31, 2000.
The statements above concerning anticipated cash flows and the
anticipated debt-to-capitalization ratio 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
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<PAGE> 14
U.S. dollar to the currencies of countries in which Cooper does business. The
statement also assumes, without limitation, no significant change in competitive
conditions and such other risk factors as are discussed from time to time in
Cooper's periodic filings with the Securities and Exchange Commission.
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,
-----------------------
2000 1999
------- -------
(in millions)
<S> <C> <C>
Electrical Products ........................................... $ 339.5 $ 322.0
Tools & Hardware .............................................. 116.8 84.1
------- -------
$ 456.3 $ 406.1
======= =======
</TABLE>
RECENTLY ISSUED ACCOUNTING STANDARDS
See Note 1 of Notes to Consolidated Financial Statements.
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<PAGE> 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In its Quarterly Report on Form 10-Q for the period ended March 31,
2000, Cooper disclosed that the U.S. Attorney for the District of
Connecticut ("U.S. Attorney") was investigating possible violations of
federal environmental laws at a previously owned plant in Beacon
Falls, Connecticut. The violations concerned the negligent discharge
of treated wastewater with contamination in excess of permitted
levels.
Following the investigation, Cooper, on behalf of Kirsch, Inc., a
former Cooper subsidiary, settled claims by the U.S. Attorney and the
Connecticut Department of Environmental Protection that the former
subsidiary violated certain criminal and civil provisions of the
federal Clean Water Act and similar Connecticut State Statutes at the
Beacon Falls plant during the period from December 1996 to April 1997.
Cooper sold the subsidiary and the Beacon Falls plant in May 1997. On
September 21, 2000 a Binding Plea Agreement with the U.S. Attorney was
filed with the United States District Court, District of Connecticut
and a Stipulation of Judgement with the Commissioner of Environmental
Protection for the State of Connecticut was filed which contained the
settlement agreements between Cooper and the state and federal
agencies. As a result of the settlement of the federal misdemeanor and
civil violations, Cooper has paid a fine of $1.5 million and has
agreed to make a contribution of $1 million to the Connecticut
Department of Environmental Protection for the Naugatuck River
Restoration Fund. Cooper cooperated fully with both state and federal
agencies in addressing this matter.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
12. Computation of Ratios of Earnings to Fixed Charges for the
Calendar Years 1999 through 1995 and the Nine Months Ended
September 30, 2000 and 1999.
27. Financial Data Schedule
(b) Reports on Form 8-K
Cooper filed a report on Form 8-K dated July 25, 2000, which
included a copy of a press release containing Cooper's financial
results for the second quarter of 2000.
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<PAGE> 16
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 15, 2000 /s/ D. BRADLEY McWILLIAMS
-------------------------------------- --------------------------------------
D. Bradley McWilliams
Senior Vice President and
Chief Financial Officer
Date: November 15, 2000 /s/ JEFFREY B. LEVOS
-------------------------------------- --------------------------------------
Jeffrey B. Levos
Vice President and Controller
and Chief Accounting Officer
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<PAGE> 17
EXHIBIT INDEX
Exhibit No.
12. Computation of Ratios of Earnings to Fixed Charges for the
Calendar Years 1999 through 1995 and the Nine Months Ended
September 30, 2000 and 1999.
27. Financial Data Schedule.
