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<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Note 14. Discontinued Operations Receivable and Liability</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt"><u>Discontinued Operations Liability</u>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     In October 1998 Cooper sold its Automotive Products business to Federal-Mogul Corporation
(“Federal-Mogul”). These discontinued businesses (including the Abex Friction product line
obtained from Pneumo-Abex Corporation (“Pneumo”) in 1994) were operated through subsidiary
companies, and the stock of those subsidiaries was sold to Federal-Mogul pursuant to a Purchase and
Sale Agreement dated August 17, 1998 (“1998 Agreement”). In conjunction with the sale,
Federal-Mogul indemnified Cooper for certain liabilities of these subsidiary companies, including
liabilities related to the Abex Friction product line and any potential liability that Cooper may
have to Pneumo pursuant to a 1994 Mutual Guaranty Agreement (the “Mutual Guaranty”) between Cooper
and Pneumo. On October 1, 2001, Federal-Mogul and several of its affiliates filed a Chapter 11
bankruptcy petition. The Bankruptcy Court for the District of Delaware confirmed Federal-Mogul’s
plan of reorganization and Federal-Mogul emerged from bankruptcy in December 2007. As part of
Federal-Mogul’s Plan of Reorganization, Cooper and Federal-Mogul reached a settlement agreement
that was subject to approval by the Bankruptcy Court resolving Federal-Mogul’s indemnification
obligations to Cooper. On September 30, 2008, the Bankruptcy Court issued its final ruling denying
Cooper’s participation in the proposed Federal-Mogul 524(g) trust resulting in Cooper implementing
the previously approved Plan B Settlement, where Cooper continued to resolve through the tort
system the asbestos related claims arising from the Abex Friction product line that it had sold to
Federal-Mogul in 1998. As discussed further below, on February 1, 2011, Cooper entered into a
settlement agreement that upon its closing on April 5, 2011 resolved Cooper’s liability under the
Mutual Guaranty with Pneumo.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     As part of its now resolved obligation to Pneumo for any asbestos-related claims arising from
the Abex Friction product line (“Abex Claims”), Cooper had rights, confirmed by Pneumo, to
significant insurance for such claims. Based on information provided by representatives of
Federal-Mogul and recent claims experience, from August 28, 1998 through March 31, 2011, a total of
149,688 Abex Claims were filed, of which 134,124 claims have been resolved leaving 15,564 Abex
Claims pending at March 31, 2011. During the three months ended March 31, 2011, 338 claims were
filed and 250 claims were resolved. Since August 28, 1998, the average indemnity payment for
resolved Abex Claims was $2,078 before insurance. A total of $195.7 million was spent on defense
costs for the period August 28, 1998 through March 31, 2011. Existing insurance coverage had been
providing approximately 30% recovery of the total defense and indemnity payments for Abex Claims
due to exhaustion of primary layers of coverage and litigation with certain excess insurers,
although, in certain periods, insurance recoveries have been higher due to new settlements with
insurers.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><u>2005 - 2007</u>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     In December 2005 Cooper reached an initial agreement in negotiations with the representatives
of Federal-Mogul, its bankruptcy committees and the future claimants (the “Representatives”)
regarding Cooper’s participation in Federal Mogul’s proposed 524(g) asbestos trust. By
participating in this trust, Cooper would have resolved its liability for asbestos claims arising
from Cooper’s former Abex Friction Products business. The proposed settlement agreement was
subject to court approval and certain other approvals. Future claims would have been resolved
through the bankruptcy trust.
</div>
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<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Although the final determination of whether Cooper would participate in the Federal-Mogul
524(g) trust was unknown, Cooper’s management concluded that, at the date of the filing of its 2005
Form 10-K, the most likely outcome in the range of potential outcomes was a settlement
approximating the December 2005 proposed settlement. Accordingly, the accrual for potential
liabilities related to the Automotive Products sale and the Federal-Mogul bankruptcy was $526.3
million at December 31, 2005. The December 31, 2005 discontinued operations accrual included
payments to a 524(g) trust over 25 years that were undiscounted, and included $215 million of
insurance recoveries where insurance in place agreements, settlements or policy recoveries were
probable.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Throughout 2006 and 2007 Cooper continued to believe that the most likely outcome in the range
of potential outcomes was a revised settlement with Cooper resolving its asbestos obligations
through participation in the proposed Federal-Mogul 524(g) trust. While the details of the
proposed settlement agreement evolved during the on-going negotiations throughout 2006 and 2007,
the underlying principles of the proposed settlement arrangements being negotiated principally
included fixed payments to a 524(g) trust over 25 years that were subject to reduction for
insurance proceeds received in the future.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     As a result of the then current status of settlement negotiations, Cooper recorded a $20.3
million after-tax discontinued operations charge, net of an $11.4 million income tax benefit, in
the second quarter of 2006 to reflect the revised terms of the proposed settlement agreement at
that time. The discontinued operations accrual was $509.1 million and $529.6 million as of
December 31, 2007 and 2006, respectively, and included payments to a 524(g) trust over 25 years
that were undiscounted, and included insurance recoveries of $230 million and $239 million,
respectively, where insurance in place agreements, settlements or policy recoveries were probable.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The U.S. Bankruptcy Court for the District of Delaware confirmed Federal-Mogul’s plan of
reorganization on November 8, 2007, and the U.S. District Court for the District of Delaware
affirmed the Bankruptcy Court’s order on November 14, 2007. As part of its ruling, the Bankruptcy
Court approved the Plan B Settlement between Cooper and Federal-Mogul, which would require payment
of $138 million to Cooper in the event Cooper’s participation in the Federal-Mogul 524(g) trust is
not approved for any reason, or if Cooper elected not to participate or to pursue participation in
the trust. The Bankruptcy Court stated that it would consider approving Cooper’s participation in
the Federal-Mogul 524(g) trust at a later time, and that its order confirming the plan of
reorganization and approving the settlement between Cooper and Federal-Mogul did not preclude later
approval of Cooper’s participation in the 524(g) trust. Accordingly, in an effort to continue
working towards approval of Cooper’s participation in the trust and to address certain legal issues
identified by the Court, Cooper, Pneumo-Abex, Federal-Mogul, and other plan supporters filed the
Modified Plan A Settlement Documents on December 13, 2007. The Modified Plan A Settlement
Documents would have required Cooper to make an initial payment of $248.5 million in cash to the
Federal-Mogul trust upon implementation of Plan A with additional annual payments of up to $20
million each due over 25 years. If the Bankruptcy Court had approved the modified settlement and
that settlement was implemented, Cooper, through Pneumo-Abex LLC, would have continued to have
access to Abex insurance policies.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><u>2008 - 2011</u>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     During the first quarter of 2008, the Bankruptcy Court concluded hearings on Plan A. On
September 30, 2008, the Bankruptcy Court issued its ruling denying the Modified Plan A Settlement
resulting in Cooper not participating in the Federal-Mogul 524(g) trust and instead proceeding with
the Plan B Settlement that had previously been approved by the Bankruptcy Court. As a result of
the Plan B Settlement, Cooper received the $138 million payment, plus interest of $3 million, in
October 2008 from the Federal-Mogul Bankruptcy estate and continued to resolve through the tort
system the asbestos related claims arising from the Abex Friction product line that it had sold to
Federal-Mogul in 1998. Additionally, under Plan B, Cooper continued to have access to Abex
insurance policies. As a result of the September 30, 2008 Bankruptcy Court ruling discussed above,
Cooper adjusted its accounting in the third quarter of 2008 to reflect the separate assets and
liabilities related to the on-going activities to resolve the potential asbestos related claims
through the tort system. Cooper recorded income from discontinued operations of $16.6 million, net
of a $9.4 million income tax expense, in the third quarter of 2008 to reflect the Plan B
Settlement. During 2009
Cooper recognized after tax gains from discontinued operations of $25.5 million, which is net
of a $16.2 million income tax expense, from negotiated insurance settlements consummated in 2009
that were not previously recognized. At December 31, 2010, 2009 and 2008, Cooper had a
discontinued operations accrual of $747.1 million, $784.5 million and $815.1 million, respectively,
and had related insurance receivables of $163.6 million, $179.3 million and $192.3 million,
respectively.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><i>Critical Accounting Assumptions Used in Determining the Plan B Liability and Receivable Estimates</i>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The amounts recognized by Cooper for its asbestos liability and related insurance receivables
under the Plan B settlement were not discounted and relied on assumptions that were based on
currently known facts and strategy. The value of the liability on a discounted basis net of the
amount of insurance recoveries likely to materialize in the future would be significantly lower
than the net amounts recognized in the balance sheet. Prior to the first quarter 2011 adjustment
for the April 5, 2011 settlement agreement with Pneumo discussed below, Cooper estimated that the
liability for pending and future indemnity and defense costs for the next 45 years was $736.3
million. This estimated liability was before any tax benefit and was not discounted as the timing
of the actual payments on resolution of claims through the tort system was not reasonably
predictable. The methodology used to project Cooper’s liability estimate relied upon a number of
assumptions including Cooper’s recent claims experience and declining future asbestos spending
based on past trends and publicly available epidemiological data, changes in various jurisdictions,
management’s judgment about the current and future litigation environment, and the availability to
claimants of other payment sources. Under the Plan B settlement, Cooper, through Pneumo-Abex LLC,
had access to Abex insurance policies with remaining limits on policies with solvent insurers in
excess of $660 million. Insurance recoveries reflected as receivables in the balance sheet
included recoveries where insurance-in-place agreements, settlements or policy recoveries were
considered probable. Prior to the first quarter 2011 adjustment for the April 5, 2011 settlement
agreement with Pneumo discussed below, Cooper’s receivable for recoveries of costs from insurers
amounted to $151.9 million.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The following table presents the cash activity under the Plan B Settlement through March 31,
2011 (prior to adjustment for the April 5, 2011 settlement agreement with Pneumo discussed below).
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="76%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6">Three Months Ended</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">March 31,</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6">(in millions)</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Cash Flow:
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Indemnity and defense payments
</div></td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(10.5</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(5.7</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Insurance recoveries
</div></td>
<td> </td>
<td> </td>
<td align="right">11.7</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Other
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(0.3</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(0.7</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Net cash flow under Plan B Settlement
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">0.9</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(6.4</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><u>2011 Settlement Agreement with Pneumo</u>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     On February 1, 2011, Cooper entered into a settlement agreement that upon closing would, among
other things, resolve its liability under the Mutual Guaranty with Pneumo. The settlement
agreement closed on April 5, 2011 following satisfaction of various closing conditions. The
settlement terminates the Mutual Guaranty between Cooper and Pneumo and creates a Settlement Trust.
After the closing of the settlement in April 2011 the Company and its subsidiaries have no further
obligations under the Mutual Guaranty. Under the settlement agreement, a subsidiary of Cooper will
make payments to the Settlement Trust totaling $307.5 million ($250 million at closing and the
remainder due in installments over four years, subject to certain adjustments). Cooper made the
$250 million initial payment to the Settlement Trust on April 5, 2011. Other payments due under
the settlement agreement total approximately $49.6 million, after certain reductions for indemnity
and defense payments made by Cooper subsequent to the February 1, 2011 settlement agreement and
prior to the closing on April 5, 2011. The remaining payments are due in installments at the
anniversary of the closing over the next four years as follows: $9.1 million in 2012, $17.0 million
in 2013, and $11.75 million in each of 2014 and 2015.
</div>
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</div>
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<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 6pt">     As discussed above, the Company had previously recorded an estimated accrual on an
undiscounted basis for pending and future indemnity and defense costs under the Mutual Guaranty. In
addition, the Company had recorded receivables for related insurance recoveries where
insurance-in-place agreements, settlements or policy recoveries were considered probable. As a
result of the settlement agreement, Cooper adjusted its previously recorded net liability for its
obligations under the Mutual Guaranty to the amounts payable under the settlement agreement and
related unpaid legal expenses as of March 31, 2011 resulting in the recognition of an after-tax
gain from discontinued operations of $190.3 million, which is net of a $105.6 million income tax
expense, in the first quarter of 2011. Cooper also has approximately $12.1 million in receivables
for non-Abex related insurance recoveries remaining on the balance sheet at March 31, 2011 due
through 2014 under previously recognized insurance settlements.
</div>
</div>
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<!-- Begin Block Tagged NotefalsefalsefalsefalsefalseOtherus-types:textBlockItemTypestringDisclosure includes the facts and circumstances leading to the completed or expected disposal, manner and timing of disposal, the gain or loss recognized in the income statement and the income statement caption that includes that gain or loss, amounts of revenues and pretax profit or loss reported in discontinued operations, the segment in which the disposal group was reported, and the classification (whether sold or classified as held for sale) and carrying value of the assets and liabilities comprising the disposal group. Includes all disposal groups, including those classified as components of the entity (discontinued operations).Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 144
-Paragraph 43-48
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