<PAGE> 1
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 June 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 July 31, 2000 was
93,222,175.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COOPER INDUSTRIES, INC.
CONSOLIDATED INCOME STATEMENTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
2000 1999 2000 1999
--------- --------- --------- ---------
(in millions, where applicable)
<S> <C> <C> <C> <C>
Revenues ............................... $ 1,168.2 $ 957.5 $ 2,207.1 $ 1,882.2
Cost of sales .......................... 794.5 639.8 1,496.2 1,261.8
Selling and administrative expenses .... 189.4 156.6 365.8 312.9
Goodwill amortization .................. 14.7 11.5 28.1 22.8
Nonrecurring charges ................... -- -- -- 3.7
Interest expense, net .................. 26.6 12.2 44.9 25.4
--------- --------- --------- ---------
Income before income taxes ......... 143.0 137.4 272.1 255.6
Income taxes ........................... 50.1 49.4 95.3 92.0
--------- --------- --------- ---------
Net Income ......................... $ 92.9 $ 88.0 $ 176.8 $ 163.6
========= ========= ========= =========
Income per Common Share:
Basic .............................. $ 1.00 $ .93 $ 1.89 $ 1.74
========= ========= ========= =========
Diluted ............................ $ .99 $ .92 $ 1.88 $ 1.72
========= ========= ========= =========
Cash dividends per Common Share ........ $ .35 $ .33 $ .70 $ .66
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
-2-
<PAGE> 3
COOPER INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
-------- ------------
ASSETS (in millions)
<S> <C> <C>
Cash and cash equivalents ....................................... $ 22.5 $ 26.9
Receivables ..................................................... 898.1 740.3
Inventories ..................................................... 727.5 569.3
Deferred income taxes and other current assets .................. 139.8 130.1
-------- --------
Total current assets ................................... 1,787.9 1,466.6
-------- --------
Property, plant and equipment, less accumulated depreciation .... 856.9 768.0
Goodwill, less accumulated amortization ......................... 2,016.8 1,739.0
Deferred income taxes and other noncurrent assets ............... 191.7 169.8
-------- --------
Total assets ........................................... $4,853.3 $4,143.4
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term debt ................................................. $ 131.3 $ 191.2
Accounts payable ................................................ 417.6 393.4
Accrued liabilities ............................................. 499.6 492.5
Accrued income taxes ............................................ 15.5 6.6
Current maturities of long-term debt ............................ 51.2 2.1
-------- --------
Total current liabilities .............................. 1,115.2 1,085.8
-------- --------
Long-term debt .................................................. 1,527.7 894.5
Postretirement benefits other than pensions ..................... 216.8 224.4
Other long-term liabilities ..................................... 199.1 195.6
-------- --------
Total liabilities ...................................... 3,058.8 2,400.3
-------- --------
Common stock, $5.00 par value ................................... 615.0 615.0
Capital in excess of par value .................................. 667.3 671.7
Retained earnings ............................................... 2,109.8 1,998.1
Common stock held in treasury, at cost .......................... (1,481.4) (1,449.3)
Unearned employee stock ownership plan compensation ............. (11.4) (23.0)
Accumulated other non-owner changes in equity ................... (104.8) (69.4)
-------- --------
Total shareholders' equity ............................. 1,794.5 1,743.1
-------- --------
Total liabilities and shareholders' equity ............. $4,853.3 $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>
SIX MONTHS ENDED
JUNE 30,
------------------
2000 1999
------ ------
(in millions)
<S> <C> <C>
Cash flows from operating activities:
Net income ....................................................... $176.8 $163.6
Adjustments to reconcile to net cash provided by
operating activities:
Depreciation and amortization .................................... 83.9 71.8
Deferred income taxes ............................................ 10.6 1.4
Changes in assets and liabilities:(1)
Receivables .................................................. (81.4) (67.1)
Inventories .................................................. (72.8) (33.4)
Accounts payable and accrued liabilities ..................... (3.1) (22.6)
Accrued income taxes ......................................... 8.4 31.5
Other assets and liabilities, net ............................ 1.4 (10.2)
------ ------
Net cash provided by operating activities .............. 123.8 135.0
Cash flows from investing activities:
Cash paid for acquired businesses ................................ (562.7) (44.8)
Capital expenditures ............................................. (94.9) (76.0)
Proceeds from disposition of business ............................ -- 29.1
Proceeds from sales of property, plant and equipment ............. 7.5 6.5
------ ------
Net cash used in investing activities .................. (650.1) (85.2)
Cash flows from financing activities:
Proceeds from issuances of debt .................................. 628.1 6.3
Repayments of debt ............................................... (2.9) (4.1)
Dividends ........................................................ (65.3) (62.3)
Acquisition of treasury shares ................................... (39.3) --
Activity under employee stock plans .............................. 1.0 6.6
------ ------
Net cash provided by (used in) financing activities .... 521.6 (53.5)
Effect of exchange rate changes on cash and cash equivalents ......... 0.3 (2.0)
------ ------
Decrease in cash and cash equivalents ................................ (4.4) (5.7)
Cash and cash equivalents, beginning of period ....................... 26.9 20.4
------ ------
Cash and cash equivalents, end of period ............................. $ 22.5 $ 14.7
====== ======
</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 and early adoption is permitted. 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 six months of 2000, Cooper completed three acquisitions in
its Electrical Products segment and one small acquisition in its Tools &
Hardware segment. In March 2000, Cooper acquired Eagle Electric for $129.8
million. 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 for $425.3 million. 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 six months of 1999, Cooper completed two acquisitions in
its Electrical Products segment. The acquisitions included a small business in
France that expanded the product offerings of the Cooper Menvier division and a
small domestic lighting business.
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.
NOTE 4. INVENTORIES
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
-------- ------------
(in millions)
<S> <C> <C>
Raw materials ......................................... $229.7 $196.9
Work-in-process ....................................... 145.9 133.6
Finished goods ........................................ 409.3 299.5
Perishable tooling and supplies ....................... 20.5 20.1
------ ------
805.4 650.1
Excess of current standard costs over LIFO costs ...... (77.9) (80.8)
------ ------
Net inventories ............................ $727.5 $569.3
====== ======
</TABLE>
NOTE 5. LONG-TERM DEBT
At June 30, 2000, $900 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 June 30, 2000, all $500 million of the shelf
registration was available to be issued.
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.
-6-
<PAGE> 7
NOTE 7. SEGMENT INFORMATION
<TABLE>
<CAPTION>
REVENUES
----------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ -----------------
2000 1999 2000 1999
------- ------ ------ ------
(in millions)
<S> <C> <C> <C> <C>
Electrical Products ......................... $ 961.6 $ 751.1 $ 1,800.7 $ 1,479.6
Tools & Hardware ............................ 206.6 206.4 406.4 402.6
--------- ------- --------- ---------
Total revenues ........................... $ 1,168.2 $ 957.5 $ 2,207.1 $ 1,882.2
========= ======= ========= =========
</TABLE>
<TABLE>
<CAPTION>
OPERATING EARNINGS
----------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ -----------------
2000 1999 2000 1999
------- ------ ------ ------
(in millions)
<S> <C> <C> <C> <C>
Electrical Products ......................... $152.5 $130.9 $285.7 $252.3
Tools & Hardware ............................ 24.6 29.1 46.6 52.4
------ ------ ------ ------
Total management reporting ............... 177.1 160.0 332.3 304.7
Segment nonrecurring and unusual items:
Electrical Products ...................... -- -- -- 3.0
Tools & Hardware ......................... -- -- -- 1.5
------ ------ ------ ------
-- -- -- 4.5
Net segment operating earnings:
Electrical Products ...................... 152.5 130.9 285.7 249.3
Tools & Hardware ......................... 24.6 29.1 46.6 50.9
------ ------ ------ ------
177.1 160.0 332.3 300.2
General corporate expenses .................. 7.5 10.4 15.3 20.0
General corporate nonrecurring items ........ -- -- -- (0.8)
Interest expense, net ....................... 26.6 12.2 44.9 25.4
------ ------ ------ ------
Income before income taxes .................. $143.0 $137.4 $272.1 $255.6
====== ====== ====== ======
</TABLE>
-7-
<PAGE> 8
NOTE 8. NET INCOME PER COMMON SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ -----------------
2000 1999 2000 1999
------- ------ ------ ------
BASIC: (in millions)
<S> <C> <C> <C> <C>
Net income applicable to Common stock ............ $ 92.9 $ 88.0 $176.8 $163.6
====== ====== ====== ======
Weighted average Common shares outstanding ....... 93.3 94.2 93.5 94.1
====== ====== ====== ======
DILUTED:
Net income applicable to Common stock ............ $ 92.9 $ 88.0 $176.8 $163.6
====== ====== ====== ======
Weighted average Common shares outstanding ....... 93.3 94.2 93.5 94.1
Incremental shares from assumed conversions:
Options, performance-based stock
awards and other employee awards .......... 0.6 1.1 0.7 0.9
------ ------ ------ ------
Weighted average Common shares
and Common share equivalents ................. 93.9 95.3 94.2 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
Net income and other non-owner changes in equity were $68.6 million and
$81.2 million, respectively, during the three months ended June 30, 2000 and
1999 and $141.4 million and $130.9 million, respectively, during the six months
ended June 30, 2000 and 1999. The components of net income and other non-owner
changes in equity, net of related taxes, were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ -----------------
2000 1999 2000 1999
------- ------ ------ ------
(in millions)
<S> <C> <C> <C> <C>
Net income .................................. $ 92.9 $ 88.0 $176.8 $163.6
Foreign currency translation losses ......... (24.3) (6.8) (35.4) (32.7)
------ ------ ------ ------
Net income and other non-owner
changes in equity ....................... $ 68.6 $ 81.2 $141.4 $130.9
====== ====== ====== ======
</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>
SIX MONTHS ENDED
JUNE 30,
------------------
2000 1999
------ ------
(in millions)
<S> <C> <C>
Assets acquired and liabilities assumed or incurred from the
acquisition of businesses:
Fair value of assets acquired .......................... $618.9 $ 59.9
Liabilities assumed or incurred ........................ (56.2) (15.1)
------ ------
Cash used to acquire businesses ................... $562.7 $ 44.8
====== ======
</TABLE>
-9-
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1999
Net income for the second quarter of 2000 was $92.9 million on revenues of
$1,168.2 million compared with 1999 second quarter net income of $88.0 million
on revenues of $957.5 million. Second quarter diluted earnings per share
increased 7.6% to $.99 from $.92 in 1999.
REVENUES:
Revenues for the second quarter of 2000 increased 22% compared to the
second quarter of 1999. After excluding the effects of acquisitions, revenues
increased 4% when compared to the second quarter of last year. The impact of
foreign currency translation reduced reported revenues by approximately 1% for
the quarter.
Second quarter 2000 Electrical Products revenues rose 28% from the same
period last year as all businesses in the segment recorded increased revenues
with the exception of the hazardous area construction materials business, which
was impacted by the delayed recovery in energy sector capital spending.
Excluding the incremental impact of acquisitions, segment revenues were up 5%
compared to last year. The strong U.S. dollar reduced reported Electrical
Products segment revenues during the quarter by approximately 1%. The circuit
protection business grew at a double-digit rate as it continued to benefit from
growth within the telecommunications and electronics markets. The lighting
business also grew at a double-digit rate, benefiting from new products and a
strengthening pricing environment.
Tools & Hardware segment revenues for the quarter were slightly up from the
second quarter of 1999. Higher sales of hand tools reflected improvement in the
North American electronic and retail markets and increased demand from Latin
American markets. Shipments of assembly equipment in North America also
increased from the prior year. The timing of shipments of assembly equipment to
international customers essentially offset the improved hand tools performance.
A strong U.S. Dollar reduced total Tools & Hardware revenues during the quarter
by approximately 3%.
COSTS AND EXPENSES:
Cost of sales, as a percentage of revenues, was 68.0% for the second
quarter of 2000 compared to 66.8% for the comparable 1999 quarter. The increase
in the cost of sales percentage was primarily due to the impact of acquisitions
made during the past twelve months. Excluding this impact, cost of sales as a
percentage of revenues was 67.0% for the 2000 second quarter. Selling and
administrative expenses, as a percentage of revenues, for the second quarter of
2000 were 16.2% compared to 16.4% for the same period in 1999.
Goodwill amortization increased due to several acquisitions completed
during the past year. Interest expense, net for the second quarter of 2000
increased $14.4 million from the 1999 second quarter primarily as a result of
additional borrowings to fund acquisitions and stock repurchases, partially
offset by increased capitalized interest.
-10-
<PAGE> 11
SEGMENT OPERATING EARNINGS:
Electrical Products segment second quarter 2000 operating earnings
increased 16.5% to $152.5 million from $130.9 million for the same quarter of
last year. Acquisitions constituted approximately 11 percentage points of the
improvement for the quarter. The remaining improvement over last year was
primarily attributable to accelerated earnings growth in the circuit protection
business.
Tools & Hardware segment operating earnings were $24.6 million for the 2000
second quarter, compared to $29.1 million in the second quarter of 1999.
Earnings for the period were impacted by expenses related to Cooper's continued
rationalization of its Tools & Hardware businesses.
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 June 30, 2000 and 36% for the quarter
ended June 30, 1999.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1999
Net income for the first six months of 2000 was $176.8 million on revenues
of $2,207.1 million compared with 1999 six-month net income of $163.6 million on
revenues of $1,882.2 million. Net income for the first six 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 9.3% to $1.88
from $1.72 in 1999.
REVENUES:
Revenues for the first six months of 2000 increased 17% compared to the
first six months of 1999. After excluding the effects of acquisitions, revenues
increased 4% when compared to the prior year period. The impact of foreign
currency translation reduced revenues by approximately 1% for the six-month
period.
Year-to-date revenues for the Electrical Products segment increased 22%
from the same period last year. All businesses within the Electrical Product
segment experienced revenue growth over the prior year except for the hazardous
area construction materials business, which was impacted by the delayed recovery
in energy related markets. Excluding recent acquisitions, segment revenues were
up 5% compared to last year. By further excluding the impact of foreign currency
translation, revenues for the Electrical Products segment grew 6% 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 first half of the year compared to 1999.
For the first half of 2000, Tools & Hardware segment revenues increased 1%
compared to the same period of 1999. Without the benefit of acquisitions,
revenues remained consistent with the prior year period. The impact of
translation reduced revenues for the six months ended June 30, 1999 by
approximately 2%.
COSTS AND EXPENSES:
Cost of sales, as a percentage of revenues, for the first six months of
2000 increased eight 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 67.0%, equal to last
year. Selling and administrative expenses, as a percentage of revenues, remained
constant compared to last year.
Goodwill amortization increased due to several acquisitions completed since
June 30, 1999. Interest expense, net for the first six months of 2000 increased
$19.5 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 six months ended June
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 .............. (14) -- --
Cash expenditures ................. -- (1.6) (1.4)
----- ----- -----
Balance June 30, 2000 ............. 904 $ 8.8 $ 3.3
===== ===== =====
</TABLE>
Cooper anticipates incurring in excess of $6 million related to severance
costs, facility exit costs and disruptions to operations that could not be
accrued as of June 30, 2000. A majority of the $6 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 increased 13% to
$285.7 million from $252.3 million for the same period last year, excluding
nonrecurring charges. Excluding recent acquisitions, segment earnings were up 5%
compared to last year. The earnings increase was driven mainly by increased
sales of electronic power management devices into telecommunications and
electronic markets.
The Tools & Hardware segment operating earnings reflected an 11% decline
from the same period last year, excluding nonrecurring charges. Without the
benefit of acquisitions, operating earnings were 13%
-12-
<PAGE> 13
below the prior year. Expenses related to plant consolidations and other
rationalization activities were the primary factors for the decrease.
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 six-month period ended June 30, 2000 and 36% for the six-month period
ended June 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Cooper's operating working capital (defined as receivables and inventories
less accounts payable) increased $292 million during the first six months of
2000 compared to an increase of $96 million in the first six months of 1999. The
increase in operating working capital for the first six months of 2000 is
primarily due to acquisitions. Operating working capital turnover for the first
six months of 2000 was 4.2 turns declining from 4.5 turns in the same period of
1999, also primarily due to the effect of acquisitions. Turnover for the period
was impacted by lower turnover in the acquired businesses.
Cash flows from operating activities in the first six months of 2000
totaled $124 million. These funds, along with a net $625 million of additional
debt, were used to fund acquisitions of $563 million, capital expenditures of
$95 million, share repurchases of $39 million and dividends of $65 million.
During the first six months of 1999, cash provided by operating activities
totaled $135 million. These funds, along with the reimbursement of $29 million
related to the funding of international automotive operations prior to the
separation from Cooper, were used to fund capital expenditures of $76 million,
acquisitions of $45 million and dividends of $62 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.
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 $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 six
months ended June 30, 2000 and 1999 was $1.7 million and $1.2 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
48.8% at June 30, 2000, 35.3% at June 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, assuming no additional significant acquisitions.
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 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.
-13-
<PAGE> 14
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>
June 30,
-----------------
2000 1999
------ ------
(in millions)
<S> <C> <C>
Electrical Products ..... $376.8 $325.8
Tools & Hardware ........ 104.2 84.3
------ ------
$481.0 $410.1
====== ======
</TABLE>
RECENTLY ISSUED ACCOUNTING STANDARDS
See Note 1 of Notes to Consolidated Financial Statements.
-14-
<PAGE> 15
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of shareholders was held on April 25, 2000 in
Houston, Texas. Two proposals, as described in Cooper's Proxy
statement dated March 8, 2000, were voted upon at the meeting.
Following is a brief description of the matters voted upon and the
results of voting.
1. Proposal for the election of three directors for terms expiring
in 2003:
<TABLE>
<CAPTION>
Clifford J. Grum Sir Ralph H. Robins James R. Wilson
---------------- ------------------- ---------------
<S> <C> <C> <C>
Votes For: 77,131,304 74,353,182 77,149,947
Votes Withheld: 1,290,630 4,068,752 1,271,987
</TABLE>
2. Proposal to review Cooper's code or standards for its
international operations:
<TABLE>
<S> <C>
Votes For: 4,646,330
Votes Against: 61,802,895
Abstain: 4,730,111
Non-Vote: 7,242,598
</TABLE>
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 Six Months Ended
June 30, 2000 and 1999.
27. Financial Data Schedule
(b) Reports on Form 8-K
Cooper filed a report on Form 8-K dated April 18, 2000 announcing
that Cooper had reduced the size of its board of directors to ten
members.
Cooper filed a report on Form 8-K dated April 20, 2000, which
included a copy of a press release containing Cooper's financial
results for the first quarter of 2000.
Cooper filed a report on Form 8-K dated May 1, 2000 announcing
the acquisition of B-Line Systems.
-15-
<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: August 11, 2000 /s/ D. Bradley McWilliams
----------------------------------- ----------------------------------------
D. Bradley McWilliams
Senior Vice President and
Chief Financial Officer
Date: August 11, 2000 /s/ Jeffrey B. Levos
----------------------------------- ----------------------------------------
Jeffrey B. Levos
Vice President and Controller
and Chief Accounting Officer
-16-
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
12. Computation of Ratios of Earnings to Fixed Charges for the Calendar Years 1999 through
1995 and the Six Months Ended June 30, 2000 and 1999.
27. Financial Data Schedule.
</TABLE>
