-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CexBLI5ozF99JmTdq3fhmfScqzLBkQDPacMZ34BaLZDp+6vt3t9eNrP2HNQh2Rjq Sj6KiEHmlfI9vN2funTcsw== 0000950129-00-001494.txt : 20000411 0000950129-00-001494.hdr.sgml : 20000411 ACCESSION NUMBER: 0000950129-00-001494 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COOPER INDUSTRIES INC CENTRAL INDEX KEY: 0000024454 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC LIGHTING & WIRING EQUIPMENT [3640] IRS NUMBER: 314156620 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-01175 FILM NUMBER: 582958 BUSINESS ADDRESS: STREET 1: 600 TRAVIS, SUITE 5800 STREET 2: FIRST CITY TWR CITY: HOUSTON STATE: TX ZIP: 77002 BUSINESS PHONE: 7132098400 MAIL ADDRESS: STREET 1: P.O. BOX 4446 CITY: HOUSTON STATE: TX ZIP: 77210 FORMER COMPANY: FORMER CONFORMED NAME: COOPER BESSEMER CORP DATE OF NAME CHANGE: 19710505 10-K405 1 COOPER INDUSTRIES, INC. - DATED 12/31/99 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-1175 COOPER INDUSTRIES, INC. (Exact name of Registrant as Specified in Its Charter) OHIO 31-4156620 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification Number) 600 TRAVIS, SUITE 5800, HOUSTON, TEXAS 77002 (Address of Principal Executive Offices) (Zip Code)
713/209-8400 (Registrant's Telephone Number, Including Area Code) Securities Registered Pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- --------------------- Common Stock, $5 par value The New York Stock Exchange Pacific Exchange Rights to Purchase Preferred Stock The New York Stock Exchange Pacific Exchange
Securities Registered Pursuant to Section 12(g) of the Act: NONE 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 [ ] 2 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate value of the registrant's voting stock held by non-affiliates of the registrant as of March 1, 2000 was $2,810,115,101. NUMBER OF SHARES OUTSTANDING OF REGISTRANT'S COMMON STOCK AS OF MARCH 1, 2000 -- 93,413,843 DOCUMENTS INCORPORATED BY REFERENCE Cooper Industries, Inc. Proxy Statement for the Annual Meeting of Shareholders to be held on April 25, 2000 (Part I -- Item 1, Part II -- Items 6, 7, 7A and 8, Part III -- Items 10, 11 and 12 and Part IV -- Item 14(a)(1)) Continuation of Page 1 3 PART I ITEM 1. BUSINESS; ITEM 2. PROPERTIES GENERAL The term "Cooper" refers to the registrant, Cooper Industries, Inc., which was incorporated under the laws of the State of Ohio on January 8, 1919. Cooper operates in two business segments: Electrical Products and Tools & Hardware. Cooper manufactures, markets and sells its products and provides services throughout the world. Cooper has manufacturing facilities in 19 countries and currently employs approximately 30,100 people. On December 31, 1999, the plants and other facilities used by Cooper throughout the world contained an aggregate of approximately 17,796,000 square feet of space, of which approximately 84 percent was owned and 16 percent was leased. The charts on the next page show the number of employees, square footage of facilities owned and leased and location of manufacturing facilities for each industry segment. Certain equipment and production facilities have been financed by industrial revenue bonds issued by local government authorities and are subject to security arrangements customary in such financings. 2 4
SQUARE FOOTAGE OF NUMBER AND NATURE OF FACILITIES PLANTS AND FACILITIES NUMBER OF -------------------------------------------- ----------------------- SEGMENT EMPLOYEES MANUFACTURING WAREHOUSE SALES OTHER OWNED LEASED - ------- --------- ------------- --------- ----- ----- ---------- --------- Electrical Products.................... 22,670 81 7 78 5 10,668,400 1,883,300 Tools & Hardware....................... 7,230 30 8 14 1 4,205,900 900,600 Other.................................. 200 - - - 1 - 137,800 ------ --- -- -- -- ---------- --------- Total....................... 30,100 111 15 92 7 14,874,300 2,921,700
MANUFACTURING PLANT LOCATIONS ----------------------------- EUROPE UNITED (OTHER UNITED SOUTH REPUBLIC SEGMENT STATES THAN UK) KINGDOM MEXICO AMERICA AUSTRALIA CANADA OF CHINA MALAYSIA - ------- ------ -------- ------- ------ ------- --------- ------ -------- -------- Electrical Products................... 37 12 14 10 3 2 1 1 1 Tools & Hardware...................... 16 7 0 4 2 1 - - - -- -- -- -- -- -- -- -- -- Total....................... 53 19 14 14 5 3 1 1 1
3 5 Operations in the United States are conducted by unincorporated divisions and wholly-owned subsidiaries of Cooper, organized by the two business segments. Activities outside the United States contribute significantly to the revenues and operating earnings of both segments of Cooper. These activities are conducted in major commercial countries by wholly-owned subsidiaries and jointly-owned companies, the management of which is structured through Cooper's two business segments. As a result of these international operations, sales and distribution networks are maintained throughout most of the industrialized world. Cooper generally believes that there are no substantial differences in the business risks associated with these international operations compared with domestic activities, although Cooper is subject to certain political and economic uncertainties encountered in activities outside the United States, including trade barriers, restrictions on foreign exchange and currency fluctuations. As the U.S. dollar strengthens against foreign currencies at a rate greater than inflation in those countries, Cooper may experience lower segment revenues and operating earnings. The five countries in which Cooper generates the most international revenues are Canada, Germany, France, Mexico and the United Kingdom. Cooper recently acquired operations in India and Malaysia and has several small joint ventures with operations in China. Investments in India, Malaysia and China are subject to greater risks related to economic and political uncertainties as compared to most countries where Cooper has operations. Exhibit 21.0 contains a list of Cooper's subsidiaries. Financial information with respect to Cooper's industry segments and geographic areas are contained in Note 14 of the Notes to Consolidated Financial Statements, incorporated herein by reference to pages A-36 through A-38 of Appendix A to the Cooper Proxy Statement for the 2000 Annual Meeting of Shareholders. A discussion of acquisitions and divestitures is included in Notes 2, 3, 6, 16 and 18 of the Notes to Consolidated Financial Statements, incorporated herein by reference to pages A-23 through A-27 and A-40 through A-41 of Appendix A to the Cooper Proxy Statement for the 2000 Annual Meeting of Shareholders. With its two business segments, Cooper serves three major markets: industrial, construction, and electrical power distribution. Markets for Cooper's products and services are worldwide, though the United States is the largest market. Within the United States, there is no material geographic concentration by state or region. Cooper experiences substantial competition in both of its business segments. The number and size of competitors vary considerably depending on the product line. Cooper cannot specify with exactitude the number of competitors in each product category or their relative market position. However, most operating units experience significant competition from both larger and smaller companies with the key competitive factors being price, quality, brand name and availability. Cooper considers its reputation as a manufacturer of a broad line of quality products and premier brands to be an important factor in its businesses. Cooper believes that it is among the leading manufacturers in the world of electrical distribution equipment, hazardous duty electrical equipment, emergency lighting, lighting fixtures, fuses, nonpower hand tools and industrial power tools. Cooper's research and development activities are for purposes of improving existing products and services and originating new products. During 1999, approximately $54.0 million was spent for research and development activities as compared with approximately $50.4 million in 1998 and $41.8 million in 1997. Cooper obtains and holds patents on products and designs in the United States and many foreign countries where operations are conducted or products are sold. Although in the aggregate Cooper's patents are important in the operation of its businesses, the loss by expiration or otherwise of any one patent or group of patents would not materially affect its business. 4 6 Cooper does not presently anticipate that compliance with currently applicable environmental regulations and controls will significantly change its competitive position, capital spending or earnings during 2000. Cooper has been a party to administrative and legal proceedings with governmental agencies that have arisen under statutory provisions regulating the discharge or potential discharge of material into the environment. Orders and decrees consented to by Cooper have contained agreed-upon timetables for fulfilling reporting or remediation obligations or maintaining specified air and water discharge levels in connection with permits for the operations of various plants. Cooper believes it is in compliance with the orders and decrees, and such compliance is not material to the business or financial condition of Cooper. For additional information concerning Cooper's accruals for environmental liabilities, see Note 6 of the Notes to Consolidated Financial Statements, incorporated herein by reference to pages A-26 and A-27 of Appendix A to the Cooper Proxy Statement for the 2000 Annual Meeting of Shareholders. Approximately 58 percent of Cooper's hourly production work force in the United States is employed in 43 manufacturing facilities, distribution centers and warehouses not covered by labor agreements. Numerous agreements covering approximately 42 percent of the hourly production employees exist with 21 bargaining units at 20 operations in the United States. Cooper also has agreements with various unions at 33 international operations. During 1999, new agreements were concluded covering hourly production employees at 6 operations in the United States. Cooper considers its employee relations to be excellent. Sales backlog at December 31, 1999 was approximately $389 million, all of which is for delivery during 2000, compared with backlog of approximately $385 million at December 31, 1998. The following describes the business conducted by each of Cooper's business segments. Additional information regarding the products, markets and distribution methods for each segment is set forth on the table at the end of this Item. Information concerning market conditions, as well as information concerning revenues and operating earnings for each segment, is incorporated herein by reference to pages A-1 through A-15 of Appendix A to the Cooper Proxy Statement for the 2000 Annual Meeting of Shareholders. ELECTRICAL PRODUCTS The Electrical Products segment manufactures, markets and sells electrical and circuit protection products, including fittings, enclosures, plugs, receptacles, lighting fixtures, fuses, emergency lighting, fire detection systems and security products for use in residential, commercial and industrial construction, maintenance and repair applications. The segment also manufactures, markets and sells products for use by utilities and in industry for electrical power transmission and distribution, including distribution switchgear, transformers, transformer terminations and accessories, capacitors, voltage regulators, surge arresters, pole line hardware and other related power systems components. The principal raw material requirements include copper, tin, lead, plastics, insulating materials, pig iron, aluminum ingots, steel, aluminum and brass. These raw materials are available from and supplied by numerous sources located in the United States and abroad. 5 7 Demand for Electrical Products follows general economic conditions and is generally sensitive to activity in the construction market, industrial production levels and spending by utilities for replacements, expansions and efficiency improvements. The segment's product lines are marketed directly to original equipment manufacturers and utilities and to a variety of end users through major distributor chains, retail home centers and thousands of independent distributors. TOOLS & HARDWARE The Tools & Hardware segment manufactures, markets and sells hand tools for industrial, construction and consumer markets; automated assembly systems for industrial markets; and electric and pneumatic industrial power tools for general industry, primarily automotive and aerospace manufacturers. The principal raw material requirements include flat and bar stock steel, brass, copper, tin plate, fiberglass, aluminum, iron castings, wood, plastic pellets and plastic sheet. These materials are available from and supplied by numerous sources in the United States and abroad. Demand for nonpowered hand tools, assembly systems and industrial power tools is driven by employment levels and industrial activity in major industrial countries and by consumer spending. In addition, demand for industrial power tools is influenced by automotive and aerospace production. The segment's products are sold by a company sales force, independent distributors and retailers. 6 8 COOPER INDUSTRIES, INC. PRODUCTS, MARKETS AND DISTRIBUTION METHODS BY SEGMENT ELECTRICAL PRODUCTS MAJOR PRODUCTS AND BRANDS* ARKTITE plugs and receptacles. ARROW HART wiring devices. ATLITE indoor commercial lighting. BLESSING, CSA, PRETRONICA and UNIVEL emergency lighting and power systems. BUSS electrical and electronic fuses. CAM-LOK electrical connectors. CAPRI-CODEC cable accessories and flexible conduits. CEAG emergency lighting systems. CHAMP and HAZARD-GARD HID and fluorescent lighting. COILTRONICS inductors and transformers. CONDULET fittings and outlet bodies. COOPER POWER SYSTEMS distribution transformers, power capacitors, voltage regulators, surge arresters and pole line hardware and SCADA master stations. CORELITE and NEO-RAY indirect lighting products. CROMPTON lighting fixtures and specialty lamps. CROUSE-HINDS AND CEAG electrical construction materials and CROUSE-HINDS aviation lighting products. EDISON and EDISON PRO relays. ELETROMEC DIN style fuses. EMERALD consumer recessed and track lighting. EMSA power transformers. FAIL-SAFE high abuse, clean room and vandal-resistant lighting fixtures. FULLEON, NUGELEC and TRANSMOULD fire detection systems. HALO recessed and track lighting fixtures. IRIS lighting systems. JSB, LUMINOX and MENVIER emergency lighting and fire detection systems. KARP, EDISON, MERCURY and B&S electrical fuses. KEARNEY fuses, connectors, tools and switches. KYLE distribution switchgear. LUMIERE specification grade landscape lighting. MAGNUM terminal strips and disconnect blocks. MCGRAW-EDISON and LUMARK indoor and outdoor lighting. METALUX fluorescent lighting. MOLDED PRODUCTS connectors and systems. MWS modular wiring systems. MYERS electrical hubs. NOVA reclosers, sectionalizers and switches. OPTIANCE fiber optic lighting. POLYTRON resettable fuses. PORTFOLIO architectural recessed lighting. MCGRAW-EDISON and RTE transformer components, cable accessories and fuses. REGENT security lighting systems. ROYER wiring devices, sockets and switches. SCANTRONIC and MENVIER security systems. SPECONE controls, lighting, plugs and receptacles. SURE-LITES and ATLITE exit and emergency lighting. SURGX ESD protection devices. THEPITT electrical outlet and switch boxes. TRANSX transient voltage protection devices. USL sports lighting. WESTERN POWER fiberglass. TOOLS & HARDWARE MAJOR PRODUCTS AND BRANDS* AIRETOOL, ASSEMBLY SYSTEMS, BUCKEYE, CLECO, COOPER AUTOMATION, DGD, DOLER, DOTCO, GARDNER-DENVER, GARDOTRANS, QUACKENBUSH, ROTOR TOOL and RECOULES industrial power tools and assembly equipment. APEX and GETA screwdriver bits, impact sockets and universal joints. CAMPBELL chain products. CRESCENT pliers and wrenches. DIAMOND farrier tools and horseshoes. EREM precision cutters and tweezers. KAHNETICS dispensing systems. LUFKIN measuring tapes. MASTER POWER industrial air tools. METRONIX servos and drive controls. NICHOLSON files and saws. PLUMB hammers. UTICA torque measuring and controls. WELLER soldering equipment. WIRE-WRAP solderless connection equipment. WISS and H.K. PORTER cutting products. XCELITE screwdrivers and nutdrivers. - --------------- * Brand names appearing in bold type are registered trademarks in the United States or abroad of Cooper Industries, Inc. or its subsidiaries, except the following which are unregistered trademarks: Assembly Systems, AtLite, Blessing, B&S, Capri-Codec, Cooper Automation, Corelite, Crompton, CSA, EMSA, Fail-Safe, Geta, Hazard-Gard Iris, Kahnetics, Kearney, Lumiere, Luminox Metronix, Molded Products, Myers, Neo-Ray, NOVA, Nugelec, Optiance, Polytron, Portfolio, Pretronica, Quackenbush, Recoules, Royer, SCADA, SpecOne, Thepitt, Transmould, TransX, Univel, USL and Western Power. Gardner-Denver and SurgX are registered trademarks of Gardner Denver Machinery Inc. and SurgX Corporation, respectively, and are used by Cooper Industries under license. 7 9 COOPER INDUSTRIES, INC. PRODUCTS, MARKETS AND DISTRIBUTION METHODS BY SEGMENT -- (CONTINUED) ELECTRICAL PRODUCTS MAJOR MARKETS Fuses and circuit protection products are sold to end-users in the construction, industrial, automotive and consumer markets and to manufacturers in the electrical, electronic and automotive industries. Lighting fixtures are utilized in residential construction, industrial and commercial building complexes, shopping centers, parking lots and sports facilities. Electrical power products are used in the utility and industrial markets. Electrical construction materials are used in commercial, residential and industrial projects, by utilities and wastewater treatment plants and in the process and energy industries. Emergency lighting, fire detection and security systems are installed in commercial and industrial applications. PRINCIPAL DISTRIBUTION METHODS Products are sold through distributors for use in general construction, plant maintenance, utilities, process and energy applications, shopping centers, parking lots, sports facilities, and data processing and telecommunications systems; through distributors and direct to manufacturers for use in electronic equipment for consumer, industrial, government and military applications; through distributors and direct to retail home centers; and direct to original equipment manufacturers of appliances, tools, machinery and electronic equipment. TOOLS AND HARDWARE MAJOR MARKETS Power tools and assembly systems are used by general industrial manufacturers, particularly durable goods producers and original equipment manufacturers, such as those in the aerospace and automobile industries. Hand tools are used in a variety of industrial, electronics, agricultural, construction and consumer applications. PRINCIPAL DISTRIBUTION METHODS Products are sold through distributors and agents to general industry, particularly automotive and aircraft; through distributors and wholesalers to hardware stores, home centers, lumberyards, department stores and mass merchandisers; and direct to original equipment manufacturers, home centers, specialty stores, department stores, mass merchandisers and hardware outlets. 8 10 ITEM 3. LEGAL PROCEEDINGS Cooper is subject to various suits, legal proceedings and claims that arise in the normal course of business. While it is not feasible to predict the outcome of these matters with certainty, management is of the opinion that their ultimate disposition should not have a material adverse effect on Cooper's financial statements. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of the fiscal year covered by this report, no matters were submitted to a vote of the shareholders. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Cooper's Common Stock (symbol -- CBE) is listed on the New York Stock Exchange and the Pacific Exchange. Options for Cooper's Common Stock are listed on the American Stock Exchange. As of March 1, 2000 there were 29,407 record holders of Cooper's Common Stock. The high and low quarterly sales price for the past two years of Cooper's Common Stock, as reported by Dow Jones & Company, Inc., are as follows:
QUARTER -------------------------------------------------- 1 2 3 4 -------- -------- -------- -------- 1999 High....... $48.3125 $56.6875 $56.7500 $48.8750 Low........ 41.0625 41.9375 46.0000 39.6250 1998 High....... $60.5000 $70.3750 $58.0000 $50.9375 Low........ 47.0000 54.3125 40.4375 36.8750
Annual cash dividends declared on Cooper's Common Stock during 1999 and 1998 were $1.32 a share ($.33 a quarter). On February 9, 2000, the Board of Directors increased the dividend rate and declared a quarterly dividend of $.35 a share (or $1.40 on an annualized basis), which will be paid April 3, 2000 to shareholders of record on March 1, 2000. 9 11 ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected historical financial data for Cooper for each of the five years in the period ended December 31, 1999. The selected historical financial information shown below has been derived from Cooper's audited consolidated financial statements. This information should be read in conjunction with Cooper's consolidated financial statements and notes thereto incorporated herein by reference to pages A-16 through A-42 of Appendix A to the Cooper Proxy Statement for the 2000 Annual Meeting of Shareholders.
YEARS ENDING DECEMBER 31, ---------------------------------------------------- 1999 1998 1997(1) 1996(1) 1995(1) -------- -------- -------- -------- -------- (IN MILLIONS, EXCEPT PER SHARE DATA) INCOME STATEMENT DATA: Revenues................................. $3,868.9 $3,651.2 $3,415.6 $3,380.5 $3,052.1 -------- -------- -------- -------- -------- Income from continuing operations........ $ 331.9 $ 335.9 $ 310.0 $ 285.1 $ 178.6 Income from discontinued operations (Automotive Products), net of taxes... -- 87.1 84.6 30.3 102.0 Charge for discontinued operations (Petroleum and Industrial Equipment)............................ -- -- -- -- (186.6) -------- -------- -------- -------- -------- Net income....................... $ 331.9 $ 423.0 $ 394.6 $ 315.4 $ 94.0 ======== ======== ======== ======== ======== INCOME PER COMMON SHARE DATA: Basic -- Income from continuing operations........ $ 3.53 $ 2.97 $ 2.64 $ 2.66 $ 1.60 Income from discontinued operations (Automotive Products)................. -- .77 .72 .28 .92 Charge for discontinued operations (Petroleum and Industrial Equipment)............................ -- -- -- -- (1.67) -------- -------- -------- -------- -------- Net income....................... $ 3.53 $ 3.74 $ 3.36 $ 2.94 $ .85 ======== ======== ======== ======== ======== Diluted -- Income from continuing operations........ $ 3.50 $ 2.93 $ 2.57 $ 2.52 $ 1.60 -------- -------- -------- -------- -------- Net income....................... $ 3.50 $ 3.69 $ 3.26 $ 2.77 $ .84 ======== ======== ======== ======== ======== BALANCE SHEET DATA (at December 31): Total assets............................. $4,143.4 $3,779.1 $5,507.3 $5,318.9 $5,461.2 Long-term debt, excluding current maturities............................ 894.5 774.5 1,272.2 1,737.7 1,865.3 Shareholders' equity..................... 1,743.1 1,563.6 2,683.5 1,967.2 1,787.8 CASH DIVIDENDS PER COMMON SHARE.......... $ 1.32 $ 1.32 $ 1.32 $ 1.32 $ 1.32
- --------------- (1) Includes the results of the Kirsch window treatment operation for the five-month period ended May 30, 1997 and the years ended December 31, 1996 and 1995. Kirsch was sold to Newell Co. on May 30, 1997. In October 1998, Cooper sold its Automotive Products segment for $1.9 billion in proceeds. The financial information in the above table excludes the results of the Automotive Products segment from income from continuing operations. The discontinued segment's results are presented separately in the caption, "Income from discontinued operations (Automotive Products), net of taxes." In 1995, Cooper divested the remaining businesses comprising its former Petroleum and Industrial Equipment segment through an exchange offer with shareholders for common stock of Cooper Cameron Corporation. 10 12 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Incorporated by reference to pages A-1 through A-15 of Appendix A to the Cooper Proxy Statement for the 2000 Annual Meeting of Shareholders. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Incorporated by reference to "Interest Rate and Foreign Currency Risk" on pages A-13 through A-15 of Appendix A to the Cooper Proxy Statement for the 2000 Annual Meeting of Shareholders. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Incorporated by reference to pages A-16 through A-42 of Appendix A to the Cooper Proxy Statement for the 2000 Annual Meeting of Shareholders, which is included as Exhibit 13.0 to this Form 10-K Annual Report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Incorporated by reference to pages 4 through 9 of the Cooper Proxy Statement for the 2000 Annual Meeting of Shareholders. ITEM 11. EXECUTIVE COMPENSATION Incorporated by reference to pages 13 through 22 of the Cooper Proxy Statement for the 2000 Annual Meeting of Shareholders. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated by reference to pages 3 and 10 of the Cooper Proxy Statement for the 2000 Annual Meeting of Shareholders. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Not applicable. 11 13 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. Financial Statements and Other Financial Data (incorporated by reference to the pages shown below in Appendix A to the Cooper Proxy Statement for the 2000 Annual Meeting of Shareholders and included in this Form 10-K Annual Report as Exhibit 13.0).
PAGE NO. ---- Report of Management........................................ A-16 Report of Independent Auditors.............................. A-17 Consolidated Income Statements for each of the three years in the period ended December 31, 1999....................... A-18 Consolidated Balance Sheets as of December 31, 1999 and 1998........................................................ A-19 Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 1999................. A-20 Consolidated Statements of Shareholders' Equity for each of the three years in the period ended December 31, 1999....... A-21 Notes to Consolidated Financial Statements.................. A-22 through A-42
Financial information with respect to subsidiaries not consolidated and 50 percent or less owned entities accounted for by the equity method has not been included because in the aggregate such subsidiaries and investments do not constitute a significant subsidiary. 2. Financial Statement Schedules Financial statement schedules are not included in this Form 10-K Annual Report because they are not applicable or the required information is shown in the financial statements or notes thereto. 12 14 3. Exhibits 3.1 Twenty-Seventh Amended Articles of Incorporation of Cooper Industries, Inc. (incorporated herein by reference to Exhibit 3.1 of Cooper's Form 8-K dated August 5, 1997). 3.2 Code of Regulations (By-Laws), as amended, of Cooper Industries, Inc. (incorporated herein by reference to Exhibit 3.2 of Cooper's Form 10-K for the year ended December 31, 1997). 4.1 Rights Agreement, dated as of August 5, 1997, between Cooper and First Chicago Trust Company of New York, as Rights Agent (incorporated herein by reference to Exhibit 4.1 to Cooper's Registration Statement on Form 8-A dated August 14, 1997). 10.1 1989 Director Stock Option Plan (incorporated herein by reference to Exhibit 28.1 to Registration Statement No. 2-33-29302). 10.2 Cooper Industries, Inc. Directors Deferred Compensation Plan (incorporated by reference to Exhibit 10.2 of Cooper's Form 10-K for the year ended December 31, 1997). 10.3 Cooper Industries, Inc. Directors Retirement Plan (incorporated by reference to Exhibit 10.3 of Cooper's Form 10-K for the year ended December 31, 1997). 10.4 Cooper Industries, Inc. Executive Restricted Stock Incentive Plan (incorporated by reference to Exhibit 10.4 of Cooper's Form 10-K for the year ended December 31, 1997). 10.5 Cooper Industries, Inc. Supplemental Excess Defined Benefit Plan (August 1, 1998 Restatement) (incorporated by reference to Exhibit 10(iii) of Cooper's Form 10-Q for the quarter ended September 30, 1998). 10.6 Cooper Industries, Inc. Supplemental Excess Defined Contribution Plan (August 1, 1998 Restatement) (incorporated by reference to Exhibit 10(iv) of Cooper's Form 10-Q for the quarter ended September 30, 1998). 10.7 Management Incentive Compensation Deferral Plan (incorporated by reference to Exhibit 10.7 of Cooper's Form 10-K for the year ended December 31, 1997). 10.8 Crouse-Hinds Company Officers' Disability and Supplemental Pension Plan (incorporated by reference to Exhibit 10.8 of Cooper's Form 10-K for the year ended December 31, 1997). 10.9 Cooper Industries, Inc. Amended and Restated Stock Incentive Plan (incorporated herein by reference to Exhibit 4.1 of Post-Effective Amendment No. 1 to Registration Statement No. 333-08277). 10.10 Form of Incentive Stock Option Agreement for Cooper Industries, Inc. Stock Incentive Plan.
13 15 10.11 Form of Nonqualified Stock Option Agreement for Cooper Industries, Inc. Stock Incentive Plan. 10.12 Form of Cooper Industries, Inc. Executive Stock Incentive Agreement (incorporated herein by reference to Exhibit 10.12 of Cooper's Form 10-K for the year ended December 31, 1995). 10.13 Cooper Industries, Inc. Second Amended and Restated Management Annual Incentive Plan (incorporated herein by reference to Exhibit 4.1 of Post-Effective Amendment No. 1 to Registration Statement No. 333-51441). 10.14 Cooper Industries, Inc. Directors' Stock Plan (incorporated herein by reference to Exhibit III to Cooper's Proxy Statement for the Annual Meeting of Shareholders held April 30, 1996). 10.15 Form of Directors' Nonqualified Stock Option Agreement for Directors' Stock Plan (incorporated herein by reference to Exhibit 10.18 of Cooper's Form 10-K for the year ended December 31, 1997). 10.16 Cooper Industries, Inc. Directors' Retainer Fee Stock Plan (incorporated herein by referenced to Exhibit 4.3 of Registration Statement No. 333-51439). 10.17 Form of Management Continuity Agreement between Cooper Industries, Inc. and key management personnel which applies if there is a Change of the Control of Cooper (incorporated herein by reference to Exhibit 10(ii) of Cooper's Form 10-Q for the quarter ended September 30, 1998). 10.18 Purchase and Sale Agreement between Cooper Industries, Inc. and Federal-Mogul Corporation dated August 17, 1998 (incorporated herein by reference to Exhibit 10(i) of Cooper's Form 10-Q for the quarter ended September 30, 1998). 12.0 Computation of Ratios of Earnings to Fixed Charges for the Calendar years 1995 through 1999. 13.0 Text of Appendix A to Cooper Industries, Inc. Proxy Statement for the Annual Meeting of Shareholders to be held April 25, 2000. 21.0 List of Cooper Industries, Inc. Subsidiaries. 23.0 Consent of Ernst & Young LLP. 24.0 Powers of Attorney from members of the Board of Directors of Cooper Industries, Inc. 27.0 Financial Data Schedule.
14 16 Cooper will furnish to the Commission supplementally upon request a copy of any instrument with respect to long-term debt of Cooper. Copies of the above Exhibits are available to shareholders of record at a charge of $.25 per page, minimum order of $10.00. Direct requests to: Cooper Industries, Inc. Attn: Corporate Secretary P.O. Box 4446 Houston, Texas 77210 (b) Reports on Form 8-K. During the last quarter of 1999, Cooper filed a report on Form 8-K dated October 21, 1999, which included a copy of a press release containing Cooper's financial results for the quarter ended September 30, 1999. 15 17 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. By: /s/H. JOHN RILEY, JR. ---------------------------------- (H. John Riley, Jr., Chairman, President and Chief Executive Officer) Date: March 29, 2000 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/H. JOHN RILEY, JR. Chairman, President and Chief March 29, 2000 - ----------------------------------------------------- Executive Officer (Principal (H. John Riley, Jr.) Executive Officer and Director) /s/D. BRADLEY MCWILLIAMS Senior Vice President and Chief March 29, 2000 - ----------------------------------------------------- Financial Officer (Principal (D. Bradley McWilliams) Accounting Officer) *LINDA A. HILL Director March 29, 2000 - ----------------------------------------------------- (Linda A. Hill) *JOHN D. ONG Director March 29, 2000 - ----------------------------------------------------- (John D. Ong) *SIR RALPH H. ROBINS Director March 29, 2000 - ----------------------------------------------------- (Sir Ralph H. Robins) *H. LEE SCOTT Director March 29, 2000 - ----------------------------------------------------- (H. Lee Scott) *DAN F. SMITH Director March 29, 2000 - ----------------------------------------------------- (Dan F. Smith) *JAMES R. WILSON Director March 29, 2000 - ----------------------------------------------------- (James R. Wilson) *By /s/DIANE K. SCHUMACHER - ----------------------------------------------------- (Diane K. Schumacher, as Attorney-In-Fact for each of the persons indicated)
16 18 COOPER INDUSTRIES, INC. 1999 ANNUAL REPORT ON FORM 10-K CROSS REFERENCE SHEET
PAGE REFERENCE PAGE IN INCORPORATED REFERENCE PROXY STATEMENT ITEM NO. AND DESCRIPTION IN FORM 10-K IN 10-K (EXHIBIT 13.0 TO 10-K) - ------------------------------------- ------------- ---------------------- Item 1. Business........................................ 2 through 8 A-1 through A-15 A-23 through A-27 A-36 through A-38 A-40 through A-41 Item 2. Properties...................................... 2 through 8 -- Item 3. Legal Proceedings............................... 9 -- Item 4. Submission of Matters to a Vote of Security Holders....................................... 9 -- Item 5. Market for Registrant's Common Equity and Related Stockholder Matters................... 9 -- Item 6. Selected Financial Data......................... 10 A-16 through A-42 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................... 11 A-1 through A-15 Item 7A. Quantitative and Qualitative Disclosures About Market Risk................................... 11 A-13 through A-15 Item 8. Financial Statements and Supplementary Data..... 11 A-16 through A-42 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........... 11 -- Item 10. Directors and Executive Officers of the Registrant.................................... 11 4 through 9 Item 11. Executive Compensation.......................... 11 13 through 22 Item 12. Security Ownership of Certain Beneficial Owners and Management................................ 11 3, 10 Item 13. Certain Relationships and Related Transactions.................................. 11 -- Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........................... 12 through 15 A-16 through A-42
19 EXHIBIT INDEX 3.1 Twenty-Seventh Amended Articles of Incorporation of Cooper Industries, Inc. (incorporated herein by reference to Exhibit 3.1 of Cooper's Form 8-K dated August 5, 1997). 3.2 Code of Regulations (By-Laws), as amended, of Cooper Industries, Inc. (incorporated herein by reference to Exhibit 3.2 of Cooper's Form 10-K for the year ended December 31, 1997). 4.1 Rights Agreement, dated as of August 5, 1997, between Cooper and First Chicago Trust Company of New York, as Rights Agent (incorporated herein by reference to Exhibit 4.1 to Cooper's Registration Statement on Form 8-A dated August 14, 1997). 10.1 1989 Director Stock Option Plan (incorporated herein by reference to Exhibit 28.1 to Registration Statement No. 2-33-29302). 10.2 Cooper Industries, Inc. Directors Deferred Compensation Plan (incorporated by reference to Exhibit 10.2 of Cooper's Form 10-K for the year ended December 31, 1997). 10.3 Cooper Industries, Inc. Directors Retirement Plan (incorporated by reference to Exhibit 10.3 of Cooper's Form 10-K for the year ended December 31, 1997). 10.4 Cooper Industries, Inc. Executive Restricted Stock Incentive Plan (incorporated by reference to Exhibit 10.4 of Cooper's Form 10-K for the year ended December 31, 1997). 10.5 Cooper Industries, Inc. Supplemental Excess Defined Benefit Plan (August 1, 1998 Restatement) (incorporated by reference to Exhibit 10(iii) of Cooper's Form 10-Q for the quarter ended September 30, 1998). 10.6 Cooper Industries, Inc. Supplemental Excess Defined Contribution Plan (August 1, 1998 Restatement) (incorporated by reference to Exhibit 10(iv) of Cooper's Form 10-Q for the quarter ended September 30, 1998). 10.7 Management Incentive Compensation Deferral Plan (incorporated by reference to Exhibit 10.7 of Cooper's Form 10-K for the year ended December 31, 1997). 10.8 Crouse-Hinds Company Officers' Disability and Supplemental Pension Plan (incorporated by reference to Exhibit 10.8 of Cooper's Form 10-K for the year ended December 31, 1997). 10.9 Cooper Industries, Inc. Amended and Restated Stock Incentive Plan (incorporated herein by reference to Exhibit 4.1 of Post-Effective Amendment No. 1 to Registration Statement No. 333-08277). 10.10 Form of Incentive Stock Option Agreement for Cooper Industries, Inc. Stock Incentive Plan. 10.11 Form of Nonqualified Stock Option Agreement for Cooper Industries, Inc. Stock Incentive Plan. 10.12 Form of Cooper Industries, Inc. Executive Stock Incentive Agreement (incorporated herein by reference to Exhibit 10.12 of Cooper's Form 10-K for the year ended December 31, 1995).
20 10.13 Cooper Industries, Inc. Second Amended and Restated Management Annual Incentive Plan (incorporated herein by reference to Exhibit 4.1 of Post-Effective Amendment No. 1 to Registration Statement No. 333-51441). 10.14 Cooper Industries, Inc. Directors' Stock Plan (incorporated herein by reference to Exhibit III to Cooper's Proxy Statement for the Annual Meeting of Shareholders held April 30, 1996). 10.15 Form of Directors' Nonqualified Stock Option Agreement for Directors' Stock Plan (incorporated herein by reference to Exhibit 10.18 of Cooper's Form 10-K for the year ended December 31, 1997). 10.16 Cooper Industries, Inc. Directors' Retainer Fee Stock Plan (incorporated herein by referenced to Exhibit 4.3 of Registration Statement No. 333-51439). 10.17 Form of Management Continuity Agreement between Cooper Industries, Inc. and key management personnel which applies if there is a Change of the Control of Cooper (incorporated herein by reference to Exhibit 10(ii) of Cooper's Form 10-Q for the quarter ended September 30, 1998). 10.18 Purchase and Sale Agreement between Cooper Industries, Inc. and Federal-Mogul Corporation dated August 17, 1998 (incorporated herein by reference to Exhibit 10(i) of Cooper's Form 10-Q for the quarter ended September 30, 1998). 12.0 Computation of Ratios of Earnings to Fixed Charges for the Calendar years 1995 through 1999. 13.0 Text of Appendix A to Cooper Industries, Inc. Proxy Statement for the Annual Meeting of Shareholders to be held April 25, 2000. 21.0 List of Cooper Industries, Inc. Subsidiaries. 23.0 Consent of Ernst & Young LLP. 24.0 Powers of Attorney from members of the Board of Directors of Cooper Industries, Inc. 27.0 Financial Data Schedule.
EX-10.10 2 FORM OF INCENTIVE STOCK OPTION AGREEMENT 1 EXHIBIT 10.10 COOPER INDUSTRIES, INC. [COOPER LOGO] INCENTIVE STOCK OPTION AGREEMENT
=================================================================================================================== NUMBER OF SHARES OF COOPER OPTION PRICE GRANTED TO: GRANT DATE INDUSTRIES COMMON STOCK PER SHARE EMPLOYEE NUMBER ---------- -------------------------- ------------ --------------- EXPIRATION DATE DIVISION --------------- -------- ===================================================================================================================
This Agreement is made between Cooper Industries, Inc., an Ohio corporation, having its principal office in Houston, Texas (the "Company"), and the undersigned, an employee of the Company or a subsidiary of the Company (the "Employee"). The parties hereto have agreed as follows: 1. Pursuant to the Cooper Industries, Inc. Stock Incentive Plan (the "Plan"), the Company grants to the Employee an Incentive Stock Option ("Option") to purchase the above stated number of shares of the Company's Common Stock, par value $5 per share (the "Shares"), at the price stated above, subject to the following conditions: (a) The Option rights are exercisable only if and after the Employee shall have remained in the employ of the Company for one year from the date of grant of this Option (the "Grant Date"). The Option shall become exercisable to the extent of only 33 1/3% of the aggregate number of Shares above specified, after one year, 66 2/3% after two years, and 100% after three years from the Grant Date. (b) During the lifetime of the Employee, the Option rights are exercisable only by the Employee, and, except as otherwise provided in Sections 2, 3 and 4 below, only if the Employee has remained continuously in the employ of the Company from the Grant Date. (c) The Option rights shall expire at the end of the period of 10 years commencing with the Grant Date, or upon such earlier expiration or termination date as may be provided by Sections 2, 3, 4 or 9 hereof and such Option rights shall not be exercisable thereafter. 2. If, after the expiration of one year from the Grant Date, the Employee shall cease to be employed by the Company for any reason other than death, disability or retirement, the Option rights shall terminate immediately. If, after the expiration of one year from the Grant Date, cessation of employment is occasioned by retirement in accordance with any retirement plan of the Company then in effect, then the Employee may exercise the Option rights following such retirement for a period of five years after retirement or until the Expiration Date, whichever is lesser. However, Incentive Stock Options must be exercised within 90 days from retirement in order to retain favorable tax treatment. Options exercised more than 90 days from retirement will be considered to be nonqualified exercises and applicable taxes will be collected at the time of exercise. 3. If, after the expiration of one year from the Grant Date, the Employee shall cease employment as the direct result of disability (as defined in the Company's qualified Salaried Pension Plan), all outstanding options granted to the Employee become exercisable immediately and the Employee may exercise such outstanding options for a period of one year after the cessation of employment resulting from disability or until the Expiration Date, whichever is lesser, irrespective of any restrictions to the contrary contained in Section 1(a) above. 4. If, after the expiration of one year from the Grant Date, the Employee shall die while in the employ of the Company, or while retired with exercisable Options under Section 2, all outstanding options granted to the Employee become exercisable immediately and the person entitled by will or the applicable laws of descent and distribution may exercise such outstanding Options for a period of one year after the date of death or until the Expiration Date, whichever is lesser, irrespective of any restrictions to the contrary contained in Section 1(a) above. 5. The Option may be exercised by delivering to the Company at its principal executive office (directed to the attention of the Secretary or Assistant Secretary) a written notice, signed by the Employee or a person entitled by will or the laws of descent and distribution to exercise the Option, as the case may be, of the election to exercise the Option and stating the number of Shares in respect of which it is then being exercised. The Option shall be deemed exercised as of the date the Company receives such notice. Such notice shall, and as an essential part thereof, be accompanied by the payment of the full purchase price of the Shares then to be purchased. In the event the Option shall be exercised, as provided herein, by any person other than the Employee, such notice shall be accompanied by appropriate evidence of the right of such person to exercise the Option. Payment of the full purchase price may be made in (a) cash, (b) shares of the Company's Common Stock ("Stock"), or (c) any combination of cash and Stock, provided that any Stock used by the Employee in payment of the purchase price must have been acquired (whether by purchase, exchange or otherwise) by the Employee and held for a period of more than six months, and provided further that the Company reserves the right to prohibit the use of Stock as payment of the purchase price. Stock used in payment of the purchase price shall be valued at the average of the high and low trading prices of such Stock on the New York Stock Exchange or as reported in the consolidated transaction reporting system for the date of exercise. Upon the proper exercise of the Option, the Company shall issue in the name of the person exercising the Option, and deliver to such person, a certificate for the Shares purchased. The Employee agrees that as holder of the Option he or she shall have no rights as shareholder in respect of any of the Shares as to which the Option shall not have been effectively exercised as herein provided and that no rights as a shareholder shall arise in respect of any Shares as to which the Option shall have been duly exercised until and unless a certificate for such Shares shall have been issued. 6. This Option shall not be exercisable if such exercise would violate: (a) Any applicable state securities law; (b) Any applicable registration or other requirements under the Securities Act of 1933, as amended (the "Act"), the Securities Exchange Act of 1934, as amended, or the listing requirements of any stock exchange; or (c) Any applicable legal requirement of any other governmental authority. Furthermore, if a registration statement with respect to the Shares to be issued upon the exercise of this Option is not in effect or if counsel for the Company deems it necessary or desirable in order to avoid possible violation of the Act, the Company may require, as a condition to its issuance and delivery of certificates for the Shares, the delivery to the Company of a written statement that the Employee is acquiring such Shares for investment only and not with a view to, or for resale in connection with, the distribution thereof; that such person understands that the Shares may be "restricted securities" as defined in Rule 144 issued under the Act; and that any resale, transfer or other disposition of said Shares will be accomplished only in compliance with Rule 144, the Act, or other or subsequent applicable rules and regulations thereunder. The Company may place on the certificates evidencing such Shares an appropriate legend reflecting the aforesaid statement and the Company may refuse to permit transfer of such certificates until it has been furnished evidence satisfactory to it that no violation of the Act or the rules and regulations thereunder would be involved in such transfer. 7. In consideration of the granting of this Option by the Company, the Employee agrees that he or she will remain in the employ of the Company for a period of not less than one year from the Grant Date unless during said period his or her employment shall be terminated on account of incapacity or with the consent of the Company. Nothing herein contained shall limit or restrict any right which the Company would otherwise have to terminate the employment of the Employee. 8. This Option and the Option rights granted hereunder are not assignable or transferable or subject to any disposition by the Employee otherwise than by will or by the laws of descent and distribution. 9. In the event of a reorganization, recapitalization or other change in the capital stock, corporate structure or business of the Company, the Board of Directors shall make appropriate adjustments to the number of Shares subject to the Option and the exercise price so as to maintain the proportionate interest of the Employee and preserve the value of the Option. In the event of a Change in Control of the Company, outstanding Options shall be settled by a cash payment in accordance with Section 18.2 of the Plan. 10. For purposes of this Agreement, employment by a parent or subsidiary of or a successor to the Company shall be considered employment by the Company. 11. The Committee shall have authority, subject to the express provisions of the Plan, to construe this Agreement and the Plan, to establish, amend and rescind rules and regulations relating to the Plan, and to make all other determinations in the judgment of said Committee necessary or desirable for the administration of the Plan. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in this Agreement in the manner and to the extent it shall deem expedient to carry the Plan into effect. All action by the Committee under the provisions of this paragraph shall be conclusive for all purposes. 2 12. The Employee hereby agrees to notify the Company promptly of the disposition, whether by sale, exchange or otherwise, of any Shares acquired pursuant to this Option within a period of one year from their acquisition. Such notice shall state the date and manner of disposition and the proceeds, if any, received by the Employee as a result thereof. 13. Notwithstanding any provisions hereof, this Agreement and the Option granted hereunder shall be subject to all of the provisions of the Plan as are in effect from time to time, which provisions are incorporated herein by reference. IN WITNESS WHEREOF, the parties hereto have executed this Agreement in duplicate as of the Grant Date first above written. COOPER INDUSTRIES, INC. BY ------------------------------------------------ EMPLOYEE SIGNATURE -------------------------------- SOCIAL SECURITY NO. ------------------------------- HOME ADDRESS -------------------------------------- - -------------------------------------------------- THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING SECURITIES THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. 1/10/00 ISOA EX-10.11 3 FORM OF NONQUALIFIED STOCK OPTION AGREEMENT 1 EXHIBIT 10.11 COOPER INDUSTRIES, INC. [COOPER LOGO] NONQUALIFIED STOCK OPTION AGREEMENT
=================================================================================================================== NUMBER OF SHARES OF COOPER OPTION PRICE GRANTED TO: GRANT DATE INDUSTRIES COMMON STOCK PER SHARE EMPLOYEE NUMBER ---------- -------------------------- ------------ --------------- EXPIRATION DATE DIVISION --------------- -------- ===================================================================================================================
This Agreement is made between Cooper Industries, Inc., an Ohio corporation, having its principal office in Houston, Texas (the "Company"), and the undersigned, an employee of the Company or a subsidiary of the Company (the "Employee"). The parties hereto have agreed as follows: 1. Pursuant to the Cooper Industries, Inc. Stock Incentive Plan (the "Plan"), the Company grants to the Employee a Nonqualified Stock Option ("Option") to purchase the above stated number of shares of the Company's Common Stock, par value $5 per share (the "Shares"), at the price stated above, subject to the following conditions: (a) The Option rights are exercisable only if and after the Employee shall have remained in the employ of the Company for one year from the date of grant of this Option (the "Grant Date"). The Option shall become exercisable to the extent of only 33 1/3% of the aggregate number of Shares above specified, after one year, 66 2/3% after two years, and 100% after three years from the Grant Date. (b) Except as otherwise provided in Sections 2, 3 and 4 below, the Employee or any permitted transferee of the Option under Section 8 ("Permitted Transferee"), may exercise the Option rights only if the Employee has remained continuously in the employ of the Company from the Grant Date. (c) The Option rights shall expire at the end of the period of 10 years commencing with the Grant Date, or upon such earlier expiration or termination date as may be provided by Sections 2, 3, 4 or 9 hereof and such Option rights shall not be exercisable thereafter. 2. If, after the expiration of one year from the Grant Date, the Employee shall cease to be employed by the Company for any reason other than death, disability or retirement, the Option rights shall terminate immediately. If, after the expiration of one year from the Grant Date, cessation of employment is occasioned by retirement in accordance with any retirement plan of the Company then in effect, then the Employee or any Permitted Transferee may exercise the Option rights following such retirement for a period of five years after retirement or until the Expiration Date, whichever is lesser. 3. If, after the expiration of one year from the Grant Date, the Employee shall cease employment as the direct result of disability (as defined in the Company's qualified Salaried Pension Plan), all outstanding options granted to the Employee become exercisable immediately and the Employee or any Permitted Transferee may exercise such outstanding options for a period of one year after the cessation of employment resulting from disability or until the Expiration Date, whichever is lesser, irrespective of any restrictions to the contrary contained in Section 1(a) above. 4. If, after the expiration of one year from the Grant Date, the Employee shall die while in the employ of the Company, or while retired with exercisable Options under Section 2, all outstanding options granted to the Employee become exercisable immediately and the person entitled to exercise such Options under Section 8 may exercise such outstanding Options for a period of one year after the date of death or until the Expiration Date, whichever is lesser, irrespective of any restrictions to the contrary contained in Section 1(a) above. 5. The Option may be exercised by delivering to the Company at its principal executive office (directed to the attention of the Secretary or Assistant Secretary) a written notice, signed by the Employee or a Permitted Transferee, as the case may be, of the election to exercise the Option and stating the number of Shares in respect of which it is then being exercised. The Option shall be deemed exercised as of the date the Company receives such notice, accompanied by the payment of the full purchase price of the Shares then to be purchased plus any applicable federal and state taxes. In the event the Option shall be exercised, as provided herein, by any person other than the Employee, such notice shall be accompanied by appropriate evidence of the right of such person to exercise the Option. Payment of the full purchase price may be made in (a) cash, (b) shares of the Company's Common Stock ("Stock"), or (c) any combination of cash and Stock, provided that any Stock used by the Employee in payment of the purchase price must have been acquired (whether by purchase, exchange or otherwise) by the Employee and held for a period of more than six months, and provided further that the Company reserves the right to prohibit the use of Stock as payment of the purchase price. Stock used in payment of the purchase price shall be valued at the average of the high and low trading prices of such Stock on the New York Stock Exchange or as reported in the consolidated transaction reporting system for the date of exercise. Payment of any applicable state and federal taxes must be made by the Employee upon exercise of the Option, even if the Option is exercised by a Permitted Transferee. Upon the proper exercise of the Option, the Company shall issue in the name of the person exercising the Option, and deliver to such person, a certificate for the Shares purchased. The Employee agrees that as holder of the Option he or she shall have no rights as shareholder in respect of any of the Shares as to which the Option shall not have been effectively exercised as herein provided and that no rights as a shareholder shall arise in respect of any Shares as to which the Option shall have been duly exercised until and unless a certificate for such Shares shall have been issued. 6. This Option shall not be exercisable if such exercise would violate: (a) Any applicable state securities law; (b) Any applicable registration or other requirements under the Securities Act of 1933, as amended (the "Act"), the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or the listing requirements of any stock exchange; or (c) Any applicable legal requirement of any other governmental authority. Furthermore, if a registration statement with respect to the Shares to be issued upon the exercise of this Option is not in effect or if counsel for the Company deems it necessary or desirable in order to avoid possible violation of the Act, the Company may require, as a condition to its issuance and delivery of certificates for the Shares, the delivery to the Company of a written statement that the Employee or Permitted Transferee is acquiring such Shares for investment only and not with a view to, or for resale in connection with, the distribution thereof; that such person understands that the Shares may be "restricted securities" as defined in Rule 144 issued under the Act; and that any resale, transfer or other disposition of said Shares will be accomplished only in compliance with Rule 144, the Act, or other or subsequent applicable rules and regulations thereunder. The Company may place on the certificates evidencing such Shares an appropriate legend reflecting the aforesaid statement and the Company may refuse to permit transfer of such certificates until it has been furnished evidence satisfactory to it that no violation of the Act or the rules and regulations thereunder would be involved in such transfer. 7. In consideration of the granting of this Option by the Company, the Employee agrees that he or she will remain in the employ of the Company for a period of not less than one year from the Grant Date unless during said period his or her employment shall be terminated on account of incapacity or with the consent of the Company. Nothing herein contained shall limit or restrict any right which the Company would otherwise have to terminate the employment of the Employee. 8. This Option and the Option rights granted hereunder are not assignable or transferable or subject to any disposition by the Employee otherwise than: (a) by will or the laws of descent and distribution; (b) by gift to any trust or estate in which the Employee or the Employee's spouse or other immediate relative of the employee has more than a 50% beneficial interest, or to the Employee's spouse or other immediate relative of the Employee, provided that any such transfer is permitted subject to Rule 16b-3 issued pursuant to the Exchange Act as in effect when such transfer occurs; or (c) pursuant to a qualified domestic relations order (as defined by the Internal Revenue Code). In this Agreement, "immediate relative" shall mean any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, sister-in-law, brother-in-law, any adoptive relationship or any person sharing the Employee's household other than as a tenant or employee. The transfer of any Option rights under this Section 8 shall not be effective until the Employee has provided the Company with a written request for the transfer in a form acceptable to the Company and the Company has approved the transfer in writing. All Option rights transferred under this Section 8 shall continue to be subject to the terms and conditions of this Agreement and any Permitted Transferee has only the rights of the Employee contained herein, except that Option rights may not be transfered by a Permitted Transferee otherwise than by will or the laws of descent and distribution. 9. In the event of a reorganization, recapitalization or other change in the capital stock, corporate structure or business of the Company, the Board of Directors shall make appropriate adjustments to the number of Shares subject to the Option and the exercise price so as to maintain the proportionate interest of the Employee and preserve the value of the Option. In the event of a Change in Control of the Company, outstanding Options shall be settled in accordance with Section 18.2 of the Plan. 10. For purposes of this Agreement, employment by a parent or subsidiary of or a successor to the Company shall be considered employment by the Company. 2 11. The Committee shall have authority, subject to the express provisions of the Plan, to construe this Agreement and the Plan, to establish, amend and rescind rules and regulations relating to the Plan, and to make all other determinations in the judgment of said Committee necessary or desirable for the administration of the Plan. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in this Agreement in the manner and to the extent it shall deem expedient to carry the Plan into effect. All action by the Committee under the provisions of this paragraph shall be conclusive for all purposes. 12. Notwithstanding any provisions hereof, this Agreement and the Option granted hereunder shall be subject to all of the provisions of the Plan as are in effect from time to time, which provisions are incorporated herein by reference. IN WITNESS WHEREOF, the parties hereto have executed this Agreement in duplicate as of the Grant Date first above written COOPER INDUSTRIES, INC. BY ------------------------------------------------- EMPLOYEE SIGNATURE --------------------------------- SOCIAL SECURITY NO. -------------------------------- HOME ADDRESS --------------------------------------- - --------------------------------------------------- THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING SECURITIES THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. 01/10/00 NSOA EX-12.0 4 COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES 1 EXHIBIT 12.0 COOPER INDUSTRIES, INC. COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES (DOLLARS IN THOUSANDS) (UNAUDITED)
YEAR ENDED DECEMBER 31, -------------------------------------------------------- 1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- Interest Expense.................. $ 55,200 $101,900 $ 90,400 $142,100 $151,000 Estimated Interest Portion of Rent Expense (One-Third)............. 13,948 12,352 10,864 10,035 10,064 -------- -------- -------- -------- -------- Fixed Charges..................... $ 69,148 $114,252 $101,264 $152,135 $161,064 ======== ======== ======== ======== ======== Income From Continuing Operations Before Income Taxes............. $518,600 $523,600 $483,200 $470,700 $297,300 Add: Fixed Charges................ 69,148 114,252 101,264 152,135 161,064 Dividends From Less Than 50% Owned Companies.............. - - - 287 968 Less: Equity in (Earnings) Losses of Less Than 50% Owned Companies................... (1,069) 595 (320) (1,609) (996) -------- -------- -------- -------- -------- Earnings Before Fixed Charges..... $586,679 $638,447 $584,144 $621,513 $458,336 ======== ======== ======== ======== ======== Ratio of Earnings to Fixed Charges......................... 8.5x 5.6x 5.8x 4.1x 2.8x
EX-13.0 5 TEXT OF APPENDIX A TO PROXY FOR ANNUAL MEETING 1 EXHIBIT 13.0 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The year ended December 31, 1999 represented Cooper's first full year of performance as a company comprised of two key businesses: Electrical Products and Tools & Hardware. In May 1997, Cooper sold its Kirsch window treatment business and in October 1998, Cooper sold the Automotive Products segment. Following the divestiture of the Automotive Products segment, Cooper has focused on refining and growing its core businesses and positioning Cooper for future growth and long-term profitability. Cooper used the proceeds from the sale of the Automotive Products segment to reshape its capital structure through the purchase of 21.2 million shares of Cooper Common stock and the repayment of $900 million of debt in 1998. As a result, the reported results for 1999 are not comparable to the 1998 results other than for segment operating earnings and net income per share. In addition, actions taken to reduce the cost structure and improve productivity subsequent to the Automotive Products segment divestiture resulted in charges against earnings, expenses incurred as operations were consolidated and disruptions to the affected businesses. The following Management's Discussion and Analysis of Financial Condition and Results of Operations provides comparability of results where practical. Impact of Automotive Products Segment Divestiture The Automotive Products segment was sold on October 9, 1998 with Cooper receiving $1.9 billion in proceeds. Cooper received an additional $149.1 million in 1999 representing the reimbursement of Cooper's pre-closing cash funding of international automotive operations and the earnings and additional cash invested in the Automotive Products segment between March 31, 1998 and October 9, 1998. Cooper purchased 21.2 million shares of Cooper Common stock at a cost of $1.0 billion and repaid $900 million of debt during calendar year 1998 with the proceeds from the sale of the Automotive Products segment. The mix of debt repayment and Common stock purchases was designed to approximately replace in 1999 the loss of the Automotive Products segment diluted earnings per share of $.76 in 1998 through lower interest expense and lower average shares outstanding. As a result of the use of the proceeds to repay debt and purchase shares of Cooper Common stock, income from continuing operations and net income for the years ended December 31, 1999 and 1998 are not comparable. Cooper estimates that the effects of the utilization of the proceeds and lower corporate expenses resulting from the divestiture substantially replaced the earnings of the Automotive Products segment in 1999 on a per share basis. The discontinued segment's results for the period from January 1, 1998 to October 9, 1998 and the year ended December 31, 1997 are presented separately in a single caption, "Income from discontinued operations, net of income taxes." The cash flows from discontinued operations are summarized into a single line "Cash provided by (used in) discontinued operations" in the Consolidated Statements of Cash Flows. No debt was allocated to the discontinued operations and the income from discontinued operations does not include an allocation of Cooper's interest expense. For a discussion of the financial results of discontinued operations see "Discontinued Operations -- Automotive Products Segment". The book value of the Automotive Products segment's assets less the liabilities assumed by the buyer plus costs related to the transaction resulted in a small loss before income taxes. The loss before income taxes was offset by income tax benefits. Cooper's income tax basis exceeded the book carrying amount of the net assets exclusive of deferred income taxes thereby generating a capital loss carryforward. Cooper limited the amount of tax benefits recognized and recorded a deferred tax valuation allowance of $51.6 million based on an evaluation of the amount of capital loss carryforward that is expected to be realized before it expires. The valuation allowance represents the excess of the deferred tax asset arising from the capital loss carryforward over capital gains recognized during the three years prior to the sale and anticipated capital gains which could be generated in prudent feasible transactions prior to 2003. Acquisitions and Divestitures During the last three calendar years, Cooper's continuing operations have completed 27 acquisitions and two significant divestitures. The acquisitions have been in complementary product lines that enhance areas of strength, while the dispositions have been of noncore or under-performing businesses. On May 30, 1997, Cooper completed the sale of its Kirsch window treatment division for $216.0 million. For the five months ended May 30, 1997, Kirsch had revenues of $97.4 million and operating earnings of $4.8 million. The Kirsch operations are included in the continuing operations of Cooper until the date of the sale. In addition, on A-1 2 October 9, 1998, Cooper completed the sale of its Automotive Products segment for $1.9 billion. The Automotive Products segment is reflected as a discontinued operation in the Consolidated Financial Statements. Nonrecurring Income and Expenses During the past three years, Cooper has been transitioning into a business focused on higher growth and less volatility concentrated in electrical products and tools and hardware products. On May 30, 1997, Cooper completed the sale of its Kirsch window treatment division, an underperforming business that had migrated to more of a fashion business than the basic manufacture of drapery hardware and did not fit with the core electrical products and tools and hardware products businesses. Cooper realized a gain from the sale of this business. On October 9, 1998, Cooper completed the sale of its Automotive Products segment. In addition, over the past three years, Cooper has been realigning its product lines and operations and positioning itself to compete more efficiently in the global markets. In 1994, Cooper sold its Cameron Forged Products business to Wyman-Gordon Corporation ("Wyman-Gordon") and received Wyman-Gordon common stock as part of the consideration. In 1995, the Wyman-Gordon common stock was monetized through the issuance of DECS(SM) (Debt Exchangeable for Common Stock). Cooper realized gains from the sale of Cooper's marketable equity securities of Wyman-Gordon during 1998 and 1997. In 1998, Cooper also initiated an acquisition of TLG plc. The acquisition was not consummated as Cooper could not justify exceeding an offer made by another company. However, Cooper realized a gain from the sale of common stock it had acquired at its offer price. The nonrecurring gains before income taxes that Cooper recognized during the years ended December 31, 1998 and 1997 were as follows:
1998 1997 ------ ----- (IN MILLIONS) DECS(SM) and Wyman-Gordon common stock...................... $132.7 $23.2 TLG plc common stock........................................ 2.5 -- Sale of Kirsch.............................................. -- 69.8 ------ ----- $135.2 $93.0 ====== =====
By December 31, 1998, Cooper had sold all of its investments in marketable equity securities. 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). In 1998, Cooper recorded a charge of $53.6 million for nonrecurring and unusual items. Cooper completed its formal annual review of each of its operations in the fourth quarter of 1998 and developed plans to strengthen the competitiveness and efficiencies of each operation. In addition to the specific plans for actions of each operation committed to by management during the fourth quarter, Cooper also initiated and announced a voluntary and involuntary severance program. Cooper has a formal written severance policy for salaried personnel and, in certain operations, contractual severance obligations for hourly personnel. 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 established written policies. Cooper accrued a total of $26.4 million in severance in the fourth quarter of 1998. Excluding positions A-2 3 that will be eliminated but are not included in the severance accrual, a total of 1,759 positions will be eliminated, affecting all divisions and the Corporate office. Certain of the eliminated positions will be replaced by positions in lower cost manufacturing locations. As of December 31, 1998, a total of 124 positions had been eliminated. At December 31, 1998, a total of $25.4 million of the $26.4 million severance accrual remained to be expended. Cooper also recorded a charge of $11.1 million for impairment of the assets of two electrical product lines. Market conditions, including increased competition from imports, had reduced the profitability of both of these product lines to negative amounts. Due to the inability to recover the investments on an undiscounted cash flow basis, the long-lived assets were written down to the estimated fair market value based on prices for similar assets. The reduction in future depreciation expense as a result of the write-down was less than $2 million in 1999. Cooper also recorded $16.1 million in other charges, including facility exit costs. At December 31, 1998, a total of $7.8 million of the $16.1 million accrual remained to be expended. The nonrecurring charges in 1998 when combined with the nonrecurring gains result in a net $53.0 million gain after income taxes ($.46 per diluted common share) from nonrecurring and unusual items included in 1998 income from continuing operations. The following table reflects 1999 activity related to the first quarter 1999 and fourth quarter 1998 employee reduction and facility consolidation plan.
NO. OF ACCRUED FACILITY EMPLOYEES SEVERANCE CONSOLIDATION --------- ------------------------- (IN MILLIONS) Balance at December 31, 1998................................ 1,635 $ 25.4 $ 7.8 Voluntary Severance Program premium over normal severance... -- 5.8 -- Facility closings announced................................. 249 1.2 .3 Employees terminated........................................ (966) -- -- Cash expenditures........................................... -- (22.0) (3.4) ----- ------ ----- Balance December 31, 1999................................... 918 $ 10.4 $ 4.7 ===== ====== =====
Cooper anticipates incurring in excess of $11 million related to severance costs, facility exit costs and disruptions to operations that could not be accrued as of December 31, 1999. A majority of the $11 million relates to operating inefficiencies, training, personnel and inventory relocation costs, which are required to be expensed as incurred. These costs are expected to be incurred throughout 2000 and are anticipated to be modestly less than the savings from the anticipated cost reductions. Cooper anticipates that the accrued severance and facility consolidation accruals will be expended during 2000 as terminated employees are paid, the additional employees leave the employment of the Company 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. In 1997, Cooper incurred charges of $40.5 million for actions management committed to during the period after concluding an evaluation of geographic manufacturing and distribution facilities within the Tools & Hardware segment and information systems relating to year 2000 compliance efforts. The 1997 charges included impairment in the carrying value of assets and abandonment of assets of $24.2 million and accruals for continuing obligations for replaced systems and facility consolidations of $16.3 million. Cooper began consolidating certain international manufacturing and distribution facilities in the Tools & Hardware segment during 1997. Adjustments to the carrying value of assets and accruals were recorded for projects committed to by management. Severance and certain other costs related to projects committed to by management were not expensed until the affected employees were notified and the costs incurred. A majority of the consolidations were announced and such costs were accrued and expensed during 1997. Cash expenditures in 1998 for the payout of accrued severance and other expenditures related to the consolidations were not significant. However, as the projects were completed, Cooper incurred additional expenses from consolidation disruptions to operations and additional consolidation expenses. These additional expenses were expensed as incurred in 1997 and 1998 and were not significant. A-3 4 During 1997, Cooper also assessed the ability of existing information systems to function at the turn of the century. Three of Cooper's divisions implemented new enterprise systems with the remaining divisions modifying or replacing existing software. Where possible, businesses abandoned home-grown or highly customized applications with purchased, year 2000 compliant replacements or upgrades. In some situations, operations within a business abandoned existing software and migrated to consolidated hardware and software that was year 2000 compliant. Where these solutions were not possible, businesses either contracted with third parties or committed internal resources to ensure that all major systems were year 2000 compliant. Cooper recorded a $28.5 million charge in 1997 primarily related to the adjustment in the carrying value of abandoned hardware and software. While depreciation and amortization were reduced by the effect of the write-down, depreciation and amortization of new systems and equipment, as well as expenses incurred to revise current software to be year 2000 compliant and implementation costs of new systems exceeded the reduction in depreciation and amortization. The nonrecurring gains in 1997, combined with nonrecurring charges and a $6.1 million income tax benefit related to the settlements of certain state income tax matters, resulted in the inclusion in income from continuing operations of a net nonrecurring gain of $39.1 million after income taxes ($.32 per diluted share). With the exception of the sale of the Automotive Products segment and Kirsch, the actions committed to in the three years ended December 31, 1999 did not have a significant continuing impact on revenues. The cost savings in 2000 are anticipated to exceed the additional expenses anticipated to be incurred by less than $20 million and to be in excess of $40 million in years beyond 2000. See Note 2 of Notes to Consolidated Financial Statements for additional information on nonrecurring gains and charges. The statements concerning anticipated cost savings are forward-looking 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 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. Capitalization Effective January 1, 1995, Cooper exchanged all of its outstanding $1.60 Convertible Exchangeable Preferred Stock for $691.2 million of 7.05% Convertible Subordinated Debentures due 2015 and $3.8 million in cash related to fractional shares. During the first half of 1997, Cooper redeemed all of its outstanding 7.05% Convertible Subordinated Debentures with a total of $610 million converted to approximately 14.8 million shares of Cooper Common stock and approximately $80 million redeemed for cash. During 1997, Cooper purchased approximately 3.6 million shares of its Common stock for $191.5 million. This action was taken to maintain Cooper's debt-to-total capitalization ratio between 35% and 45%. During 1998, Cooper repurchased approximately 26.9 million shares of its Common stock at a cost of $1,348.1 million. A total of $1.0 billion of the purchases of Common stock in 1998 was directly related to the sale of the Automotive Products segment as discussed under "The Impact of the Automotive Products Segment Divestiture". The remaining 1998 Common stock repurchases were related to maintaining the debt-to-total capitalization ratio in the targeted range and eliminating the dilutive effect of Common stock issued under employee stock plans. During 1999, Cooper repurchased 800,000 shares of its Common stock at a cost of $44.0 million to eliminate the dilutive effect of Common stock issued under employee stock plans. At December 31, 1999, Cooper's debt-to-total capitalization ratio was 38.4%. YEAR 2000 AND EURO CONVERSION YEAR 2000 SYSTEMS ASSESSMENTS AND PREPAREDNESS The Year 2000 problem arose because many information systems and devices containing embedded technology use two digits rather than four digits to identify a year. Calculations in date-sensitive systems using two digits could result in system failures and errors that disrupt normal business operations during the year 2000. As of December 31, 1999, Cooper is complete with its efforts to remediate current systems or implement new systems that are year 2000 compliant. As a result of the Company's efforts during the three years ended December 31, 1999, disruptions to normal business operations have not occurred subsequent to December 31, 1999. A-4 5 EURO CONVERSION On January 1, 1999, the euro became the common currency of eleven of the fifteen member states of the European Union. The national currencies will remain legal tender in the participating countries until mid-year 2002. During the dual currency phase, businesses must be capable of conducting commercial transactions in either the euro or the national currency. After the dual currency phase, all businesses in participating countries must conduct all transactions in the euro and must convert their financial records and reports to be euro based. The euro introduction may affect cross-border competition by creating cross-border price transparency, beginning with the dual currency phase on January 1, 1999. Cooper estimates that approximately 10% of its 1999 revenues came from countries that adopted the euro. Cooper expects that the impact of the dual currency phase will not be material to its results of operations. Cooper has assessed its information technology systems and believes that they are capable of meeting the dual currency phase requirements. Cooper is assessing the risk to its business of the final phase of the euro conversion which begins during 2002, and currently is unable to determine whether the final phase of the euro conversion will have a material effect on Cooper's operations. RESULTS OF OPERATIONS The financial information and discussions that follow, along with the Consolidated Financial Statements and related footnotes, will aid in understanding Cooper's results of operations as well as its financial position, cash flows and indebtedness. REVENUES
YEAR ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- (IN MILLIONS) Electrical Products......................................... $3,060.9 $2,824.4 $2,568.3 Tools & Hardware............................................ 808.0 826.8 749.9 -------- -------- -------- Continuing Revenues............................... 3,868.9 3,651.2 3,318.2 Kirsch...................................................... -- -- 97.4 -------- -------- -------- Total Revenues.................................... $3,868.9 $3,651.2 $3,415.6 ======== ======== ========
1999 vs. 1998 Revenues Revenues in 1999 increased 6% over 1998. After excluding the effects of ten acquisitions, revenues were 2% ahead of the prior year. The continuing strengthening of the U.S. dollar against most functional currencies in which international operations conduct business reduced revenues measured in U.S. dollars by approximately $43 million or 1% compared to 1998. Annual revenues for the Electrical Products segment increased 8% from the prior year and contributed approximately 79% of Cooper's continuing revenues in 1999. Excluding recent acquisitions, segment revenues increased 5% from 1998. All Electrical Products' businesses, except electrical construction materials, improved revenues during 1999 over 1998. The strength of the U.S. economy and new product introductions resulted in strong overall growth in North American sales. European sales declined slightly primarily due to the strength of the U.S. dollar. Sales of lighting fixtures benefited from a continued strong residential and non-residential construction market and new product introductions. Sales of circuit protection products and electrical components benefited from increased sales to original equipment manufacturers. Increased shipments of electrical distribution equipment following the fourth quarter 1998 implementation of a new business system, also contributed to the year-over-year improvement. The Tools & Hardware segment contributed approximately 21% of Cooper's continuing revenues in 1999. Revenues decreased 2% from the prior year. Without the benefit of acquisitions, revenues declined 8% from the prior year. The negative impact of translation reduced revenues for the year by approximately 2%. Assembly equipment sales, both domestically and internationally, increased over the prior year. However, industrial tool sales to the aerospace industry declined dramatically from the prior year and industrial tool markets were weak throughout the year, both in North America and Europe. A-5 6 1998 vs. 1997 Revenues Revenues in 1998 increased 10% over 1997, excluding 1997 Kirsch revenues. Excluding the impact of eleven 1998 acquisitions and the carryover impact of 1997 acquisitions, continuing revenues for 1998 were flat when compared to 1997. The continued strengthening of the U.S. dollar against most functional currencies in which international operations conduct business reduced revenues measured in U.S. dollars by approximately $23 million or 1% compared to 1997. The strength of the dollar also had a negative unquantifiable impact on export sales. Annual revenues for the Electrical Products segment increased 10% from the prior year and contributed approximately 77% of Cooper's continuing revenues in 1998. Excluding the impact of acquisitions, revenues increased 1%. Revenue increases across most electrical businesses were strong early in the year. While demand for lighting fixtures remained strong in the later part of the year, beginning in the second quarter of 1998, demand for electrical construction materials and electrical distribution equipment softened. Demand for power systems equipment and electrical construction materials was negatively impacted by the global decline in energy and natural resources projects and the interruption of growth in Southeast Asia. Revenues were also negatively impacted by a weak year end buy-in of fuses by distributors to meet annual volume incentives and disruptions in shipments and the resultant build of backlog of electrical distribution equipment as a new enterprise-wide business system was placed in service at the power systems operation. The Tools & Hardware segment contributed approximately 23% of Cooper's continuing revenues in 1998. Revenues increased 10% over the prior year. Excluding the benefit of 1998 acquisitions, revenues decreased 3% compared to 1997. Lower shipments to domestic aerospace and automotive manufacturers and softness in the industrial and electronic markets resulted in the year-to-year decrease. Improved hand tool demand from consumer markets, strong demand for assembly equipment from international markets and new products provided a partial offset. Revenues were also unfavorably impacted by the implementation of new enterprise-wide business systems at both operations that comprise the Tools & Hardware segment. SEGMENT OPERATING EARNINGS Cooper measures the performance of its businesses exclusive of nonrecurring charges and financing expenses. All costs directly attributable to operating businesses are included in segment operating earnings. Corporate overhead costs, including costs of centrally managed functions, such as treasury, are not allocated to the businesses. See Note 14 of the Notes to Consolidated Financial Statements. Historically, Kirsch was part of the Tools & Hardware segment. Effective with the decision to divest this operation, its results were segregated from the continuing Tools & Hardware segment for internal management reporting.
YEAR ENDED DECEMBER 31, ------------------------ 1999 1998 1997 ------ ------ ------ (IN MILLIONS) Segment Operating Earnings (internal management reporting -- excludes nonrecurring gains and charges): Electrical Products......................................... $516.7 $479.0 $461.6 Tools & Hardware............................................ 97.9 112.4 99.6 ------ ------ ------ Continuing Segment Operating Earnings............. 614.6 591.4 561.2 Kirsch...................................................... -- -- 4.8 ------ ------ ------ Total Segment Operating Earnings.................. $614.6 $591.4 $566.0 ====== ====== ======
Nonrecurring Gains and (Charges): Electrical Products......................................... $ (3.0) $(42.6) $(15.9) Tools & Hardware............................................ (4.3) (8.7) (22.5) ------ ------ ------ Continuing Segments............................... (7.3) (51.3) (38.4) Kirsch...................................................... 2.8 -- 69.8 ------ ------ ------ Total............................................. $ (4.5) $(51.3) $ 31.4 ====== ====== ======
A-6 7
YEAR ENDED DECEMBER 31, -------------------------- 1999 1998 1997 -------- ------ ------ (IN MILLIONS) Segment Operating Earnings (generally accepted accounting principles -- includes nonrecurring gains and charges): Electrical Products.......................................... $513.7 $436.4 $445.7 Tools & Hardware............................................. 93.6 103.7 77.1 ------ ------ ------ Continuing Segment Operating Earnings.............. 607.3 540.1 522.8 Kirsch....................................................... 2.8 -- 74.6 ------ ------ ------ Total Segment Operating Earnings................... $610.1 $540.1 $597.4 ====== ====== ======
1999 vs. 1998 Segment Operating Earnings Segment operating earnings in 1999 included nonrecurring charges of $7.3 million for accruals for the voluntary severance program premium, which could not be accrued when the program was initiated in the fourth quarter of 1998 and involuntary severance and other costs for facility closures announced during 1999. These charges are offset by a $2.8 million reduction in legal accruals related to favorable settlement of certain litigation concerning lead in mini-blinds and reassessment of the required reserve. Segment operating earnings in 1998 included nonrecurring charges of $51.3 million for adjustments to the carrying value of assets, accruals for facility consolidations and related severance and other obligations committed to by management. See "Nonrecurring Income and Expenses" in the "Overview" section and Note 2 of Notes to Consolidated Financial Statements. Excluding nonrecurring charges, segment operating earnings for 1999 increased 4% over 1998. Acquisitions contributed approximately $17 million or 3% to the increase in segment operating earnings over the prior year. The continuing strengthening of the U.S. dollar against most functional currencies in which international operations conduct business reduced segment operating earnings approximately $5 million or 1% compared to 1998. The Electrical Products segment operating earnings, excluding nonrecurring charges, increased 8% to $516.7 million from $479.0 million last year. Excluding the incremental effect of acquisitions, segment operating earnings were up 6% compared to last year. The operating earnings increase was driven mainly by increased sales of lighting products into the residential and non-residential construction markets and greater shipments of circuit protection and electrical components. Also contributing to the improvement in operating earnings were the benefits of cost reduction programs. The decline in shipments of hazardous construction materials and inefficiencies in the electrical distribution equipment business as the business implemented a new information system held down the increases for the segment as a whole. Excluding nonrecurring items, return on revenues was 16.9% in 1999 versus 17.0% in 1998. Excluding recently acquired businesses, the return on revenues was 17.1% in 1999. The Tools & Hardware segment operating earnings, excluding nonrecurring charges, reflected a 13% decline from last year. Without the benefit of acquisitions, operating earnings were 19% below the prior year. The increase in assembly equipment shipments over the prior year and the decrease in highly engineered industrial tools had a negative impact on product mix and resulting earnings. Also impacting operating earnings were manufacturing inefficiencies as operations adjusted to lower levels of production and from disruptions related to restructuring projects. Translation of international earnings reduced segment operating earnings approximately 2% compared to 1998. Excluding nonrecurring items, return on revenues decreased to 12.1% in 1999 compared to 13.6% in 1998. Recent acquisitions had a nominal impact. The decrease is primarily attributable to an unfavorable product mix and manufacturing inefficiencies as operations adjusted to lower levels of production and disruptions related to restructuring projects. 1998 vs. 1997 Segment Operating Earnings Segment operating earnings in 1998 included nonrecurring charges of $51.3 million for adjustments to the carrying value of assets, accruals for facility consolidations and related severance and other obligations committed to by management. Segment operating earnings in 1997 included nonrecurring charges of $38.4 million and a $69.8 million gain on the sale of Kirsch. See "Nonrecurring Income and Expenses" in the "Overview" section and Note 2 of Notes to Consolidated Financial Statements. Excluding nonrecurring charges from 1998 and nonrecurring gains and charges from 1997, continuing segment operating earnings for 1998 increased 4% over 1997. Excluding Kirsch from 1997 results, segment operating earnings increased 5% over 1997. Acquisitions contributed approximately $43 million or 8% to the segment operating earnings over the prior year. The Electrical Products segment operating earnings, excluding nonrecurring charges of $42.6 million in 1998 and $15.9 million in 1997, improved 4% over the prior year and contributed 81% of Cooper's continuing segment A-7 8 operating earnings. Acquisitions contributed approximately $28 million of the increase in earnings before nonrecurring items in 1998. Increased sales volume, performance improvements at the lighting products operations and contribution from recent acquisitions were the primary sources of earnings growth in 1998. Excluding the impact of acquisitions, operating earnings of substantially all electrical products businesses began the year with strong incremental improvement over the prior year. Beginning in the second quarter of 1998, the softening of demand for certain power systems equipment and electrical construction materials began to negatively impact comparable operating earnings. This trend continued in the second half of the year with indications of a more stable environment in the fourth quarter of 1998. The weak year end buy-in of fuses and the disruption of shipments of electrical distribution equipment from the implementation of new business systems also had a negative impact on the comparable operating earnings. Excluding nonrecurring items, return on revenues was 17% in 1998 versus 18% in 1997. Approximately half of the decrease in return on revenues was driven by the addition of acquisitions with lower returns on revenues. The remaining decrease was the result of the increase in sales of lighting fixtures, which carry a lower return on sales than the average, the slowing demand for higher margin construction materials and certain power distribution equipment and costs associated with the implementation of a business enterprise system for the power systems operations. The Tools & Hardware segment operating earnings, excluding nonrecurring items of $8.7 million in 1998 and $22.5 million in 1997, increased 13% from 1997 and contributed 19% of continuing segment operating earnings. Acquisitions contributed approximately $15 million in earnings in 1998. Excluding the impact of acquisitions, operating earnings began the year with relatively strong incremental earnings over the prior year. Softening demand in the industrial and electronic markets and in the aerospace and automotive markets negatively impacted year-over-year performance in the later half of the year. Excluding nonrecurring items, return on revenues increased to 13.6%, up three tenths of a point from the prior year. Acquisitions contributed a small portion of the increase in return on revenues with the remainder of the increase primarily driven by the favorable product mix in the first half of 1998, partially offset by costs associated with the implementation of new enterprise-wide business systems. OTHER INCOME AND EXPENSE
YEAR ENDED DECEMBER 31, ------------------------- 1999 1998 1997 ------ ------- ------ (IN MILLIONS) Segment Operating Earnings(1)............................... $610.1 $ 540.1 $597.4 General Corporate: Nonrecurring Gains........................................ .8 135.2 23.2 Nonrecurring Charges...................................... -- (2.3) (2.1) Expense................................................... (37.1) (47.5) (44.9) Interest Expense, net....................................... (55.2) (101.9) (90.4) ------ ------- ------ Income from Continuing Operations before Income Taxes..... $518.6 $ 523.6 $483.2 ====== ======= ======
- --------------- (1) Includes nonrecurring gains and nonrecurring charges. Nonrecurring Gains and Nonrecurring Charges See "Nonrecurring Income and Expenses" in the "Overview" section and Note 2 of Notes to Consolidated Financial Statements. General Corporate Expense General corporate expenses, excluding nonrecurring items, decreased $10.4 million in 1999. Reductions in personnel following the fourth quarter of 1998 divestiture of the Automotive Products segment, cost reduction efforts and lower benefit costs were the primary contributors to the reduction. General corporate expenses, excluding nonrecurring items, increased $2.6 million in 1998 over 1997 reflecting the impact of inflation on compensation and other expenses. Cost reductions related to the Automotive Products segment divestiture did not significantly impact the comparability of 1998 expense to 1997 due to the transaction activities subsequent to the sale. Interest Expense, net Interest expense, net decreased in 1999 to $55.2 million from $101.9 million in 1998 primarily as a result of utilizing $900 million of the Automotive Products sale proceeds to reduce debt. Interest expense, net, increased in 1998 to $101.9 million from $90.4 million in 1997 as additional debt incurred to fund acquisitions and stock repurchases more than offset the impact of the conversion during 1997 of $610 million of Cooper's 7.05% Convertible Subordinated Debentures to Cooper Common stock. The timing of Common stock A-8 9 repurchases and debt repayments related to the use of the proceeds from the sale of the Automotive Products segment resulted in significant fluctuations in the total debt of Cooper at specific points in time during 1998. INCOME FROM CONTINUING OPERATIONS Income from continuing operations before and after income taxes and diluted earnings per share from continuing operations are not comparable between 1999 and 1998 due to the sale of the Automotive Products segment in the fourth quarter of 1998 and the use of the proceeds to repurchase Cooper Common stock and repay debt. Cooper estimates that the effects of the utilization of the proceeds and lower expenses resulting from the divestiture substantially replaced the earnings per share of the Automotive Products segment in 1999. Cooper believes that the only meaningful comparison of the results for 1999 to 1998 is the comparison of the diluted earnings per share for 1999 to the diluted earnings per share inclusive of the Automotive Products segment earnings per share in 1998.
YEAR ENDED DECEMBER 31, ------------------------------------- 1999 1998 1997 --------- --------- --------- (IN MILLIONS, EXCEPT PER SHARE DATA) Income from continuing operations before income taxes....... $518.6 $523.6 $483.2 Excluding nonrecurring items.............................. $522.3 $442.0 $430.7 Income taxes................................................ $186.7 $187.7 $173.2 Excluding nonrecurring items.............................. $188.0 $159.1 $159.8 Income from continuing operations........................... $331.9 $335.9 $310.0 Excluding nonrecurring items.............................. $334.3 $282.9 $270.9 Diluted earnings per share from continuing operations....... $ 3.50 $ 2.93 $ 2.57 Excluding nonrecurring items.............................. $ 3.52 $ 2.47 $ 2.25 Diluted earnings per share -- net income.................... $ 3.50 $ 3.69 $ 3.26 Excluding nonrecurring items.............................. $ 3.52 $ 3.23 $ 3.16
1999 vs. 1998 Income from Continuing Operations Income from continuing operations before income taxes for 1999, excluding net nonrecurring items, increased 18% to $522.3 million from $442.0 million in 1998. The effective tax rate for 1999 was 36.0%, which was comparable to the 1998 rate of 35.8%. Excluding income taxes on both 1999 and 1998 nonrecurring items, the effective tax rates for 1999 and 1998 was 36.0%. Excluding the net after-tax impact from nonrecurring items in both years, income from continuing operations increased 18% to $334.3 million from $282.9 million in 1998. Diluted earnings per share from continuing operations increased 19% to $3.50 from $2.93 in 1998. Excluding the net nonrecurring item impacts of $(.02) per share in 1999 and $.46 per share in 1998, diluted earnings per share from continuing operations increased 43%. Diluted earnings per share -- net income decreased 5% in 1999. Excluding nonrecurring items diluted earnings per share -- net income increased 9% in 1999. 1998 vs. 1997 Income from Continuing Operations Income from continuing operations before income taxes for 1998, excluding net nonrecurring gains, increased 3% to $442.0 million from $430.7 million in 1997. The Automotive Products segment divestiture, as discussed in the Overview section, interest expense on Common stock repurchases and nonrecurring items all had significant impacts on the comparability of income from continuing operations before income taxes. The effective tax rate for 1998 was unchanged from the 1997 rate of 35.8%. Excluding income taxes on both 1998 and 1997 nonrecurring items and the 1997 tax benefit related to the favorable settlements of several state income tax issues, the effective tax rates for 1998 and 1997 were 36.0% and 37.1%, respectively. This rate reduction resulted from Cooper's ongoing tax planning efforts. Income from continuing operations increased 8% over the 1997 level. Excluding the net after-tax impact from nonrecurring items in both years, income from continuing operations increased 4% to $282.9 million from $270.9 million in 1997. Increased segment operating earnings more than offset higher interest expense contributing to the earnings increase. Diluted earnings per share from continuing operations increased 14% over the 1997 level. Excluding the net nonrecurring item impacts of $.46 per share in 1998 and $.32 per share in 1997, diluted earnings A-9 10 per share from continuing operations increased 10%. The Automotive Products segment divestiture, as discussed in the Overview section, interest expense on Common stock repurchases and nonrecurring items all had significant impacts on the comparability of income from continuing operations and earnings per share. PERCENTAGE OF REVENUES
YEAR ENDED DECEMBER 31, ------------------------ 1999 1998 1997 ------ ------ ------ Revenues.................................................... 100.0% 100.0% 100.0% Cost of Sales............................................... 67.3% 67.0% 66.8% Selling and Administrative.................................. 16.6% 16.9% 17.0%
1999 vs. 1998 Percentage of Revenues Cost of sales, as a percentage of revenues, in 1999 increased three tenths of a point from 1998. Recent acquisitions increased cost of sales as a percentage of revenues two tenths of a point in 1999. The remaining increase is primarily related to expenses from reorganization activities and related production inefficiencies and lower absorption of overhead costs due to reduced production levels in the Tools & Hardware segment. Selling and administrative expenses, as a percentage of revenues, were lower than the prior year by three tenths of a point. This reduction in selling and administrative expenses as a percentage of revenues for 1999 was primarily due to reduced corporate expenses following the fourth quarter 1998 divestiture of the Automotive Products business and cost improvement efforts, somewhat offset by the loss of leverage from lower revenues in the Tools & Hardware segment. 1998 vs. 1997 Percentage of Revenues Cost of sales, as a percentage of revenues, increased to 67.0% in 1998 from 66.8% in 1997. An unfavorable product mix, competitive conditions for certain electrical product lines and higher manufacturing costs related to implementation of new business systems in several businesses accounted for the increase. Selling and administrative expenses decreased slightly as a percentage of revenues. Excluding Kirsch in 1997, which had relatively higher selling and administrative expenses, selling and administrative expenses increased slightly as a result of softness in revenues in certain of the Electrical Products segment businesses. DISCONTINUED OPERATIONS -- AUTOMOTIVE PRODUCTS SEGMENT 1998 vs. 1997 Revenues Revenues for the discontinued Automotive Products segment from January 1, 1998 through October 9, 1998, the date of sale of the business, were $1,449.4 million compared to full year revenues for 1997 of $1,873.2 million. Market conditions prior to the sale reflected increased sales to worldwide original equipment manufacturers and improved steering and suspension sales offset by weak domestic aftermarket demand in most product lines. The net impact of the exchange of the temperature control business for the brake business of Standard Motor Products ("SMP") resulted in lower revenues during the period as a result of disruption in the marketplace during the transition. Also, revenues were affected by the bankruptcy of a large customer significantly reducing sales volume to this customer compared to 1997. In total, revenues for a comparable period in 1997 decreased approximately 1%. 1998 vs. 1997 Segment Operating Earnings The discontinued Automotive Products segment operating earnings from January 1, 1998 through October 9, 1998 were $143.7 million compared to $186.9 million, excluding nonrecurring charges, for the 1997 fiscal year. In comparison to a comparable period in 1997, operating earnings were slightly lower in 1998 than the prior year. The exchange of the temperature control business for the brake business of SMP had a significant impact on the comparability of operating earnings. The temperature control business typically had operating losses in the first and fourth quarters of each year with the majority of the operating earnings occurring in the second and third quarters. The comparability of the 1998 operating earnings to 1997 was also impacted by the increase in the allowance for doubtful accounts related to a customer that filed for bankruptcy in 1998 and the settlement of litigation matters. Segment operating earnings in 1997 including nonrecurring charges were $143.5 million. During 1997, the Automotive Products segment incurred charges of $43.4 million for actions management committed to during the period after concluding an evaluation of certain sales, marketing and distribution activities and information systems relating to year 2000 compliance efforts. The 1997 charges included adjustments to the carrying value of assets of $30.6 million and accruals for obligations for replaced systems and facility consolidations of $12.8 million. Adjustments to the carrying value of assets and accruals were recorded for projects committed to by management. Severance and certain other costs related to projects committed to by management are not expensed until the A-10 11 affected employees are notified. A majority of the consolidations were announced and such costs were accrued and expensed during 1997. The remaining committed but unannounced consolidations did not result in significant additional expenses. During 1997, Cooper began negotiations with SMP to exchange the Automotive Products segment's temperature control business for the brake products business owned by SMP. The 1997 nonrecurring charge includes adjustments to the carrying value of the assets of the Automotive Products segment's remanufacturing businesses, including a portion of the temperature control business, which were in the process of being divested. The exchange of the Automotive Products segment's temperature control business for the brake products business of SMP was completed on March 28, 1998. For accounting purposes, the exchange transaction was recorded as the sale of the Automotive Products segment's temperature control business and the purchase of the SMP's brake business. The fair market values of the temperature control business assets were equal to the net book value of the assets after the write-down of the assets in 1997. During 1997, the Automotive Products segment also assessed the impact of existing system capabilities to function at the turn of the century. One division implemented a new enterprise system and the other division revised and upgraded existing software to be year 2000 compliant. Where possible, businesses have abandoned homegrown or highly customized applications and purchased year 2000 compliant replacements or upgrades. In some situations, operations within a business abandoned existing software and migrated to consolidated hardware and software that is year 2000 compliant. A $15.1 million charge was recorded in 1997 primarily related to the adjustment in the carrying value of abandoned hardware and software. 1998 vs. 1997 Income from Discontinued Operations, Net of Taxes Income from discontinued operations, net of taxes, from January 1, 1998 through the October 9, 1998 sale date, was $87.1 million ($.76 per diluted share) compared to $84.6 million ($.69 per diluted share) for the 1997 fiscal year. Excluding nonrecurring charges of $26.9 million ($.22 per diluted share), income from discontinued operations, net of taxes, in 1997 was $111.5 million ($.91 per diluted share). EARNINGS OUTLOOK The following sets forth Cooper's general business outlook for 2000, based on current expectations. The comparative figures for 2000 include the effects of acquisitions made during 1999 and exclude 1999 nonrecurring items. Cooper expects revenues and operating earnings for the Electrical Products segment to increase by ten to fifteen percent. Revenues and operating earnings for the Tools & Hardware segment are expected to be relatively unchanged from the prior year. The above statements are forward looking, and actual results may differ materially. The above statements are based on a number of assumptions, risks and uncertainties. The primary economic assumptions include, without limitation: (1) modest growth in the domestic economy; (2) a modest improvement in European markets; (3) a modest increase in construction spending worldwide; (4) no significant change in raw material costs; (5) realization of anticipated benefits of cost reduction programs; and (6) no significant adverse changes in the relationship of the U.S. dollar to the currencies of countries in which Cooper does business. 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. PRICING AND VOLUME In each of Cooper's segments, the nature of many of the products sold is such that an accurate determination of the changes in unit volume of sales is neither practical nor, in some cases, meaningful. Each segment produces a family of products, within which there exist considerable variations in size, configuration and other characteristics. It is Cooper's judgment that, excluding the year-to-year effects of acquisitions and divestitures, unit volume increased in the Electrical Products segment and decreased in the Tools & Hardware segment in 1999. During the three-year period ending in 1999, Cooper was unable to increase prices to fully offset cost increases in selected product offerings in both segments. Cooper has been able to control costs through manufacturing improvements and other actions during this period so that the inability to increase prices has not significantly affected profitability in the segments. A-11 12 EFFECT OF INFLATION During each year, inflation has had a relatively minor effect on Cooper's results of operations. This is true primarily for three reasons. First, in recent years, the rate of inflation in Cooper's primary markets has been fairly low. Second, Cooper makes extensive use of the LIFO method of accounting for inventories. The LIFO method results in current inventory costs being matched against current sales dollars, such that inflation affects earnings on a current basis. Finally, many of the assets and liabilities included in Cooper's Consolidated Balance Sheets are recorded in connection with business combinations that are accounted for as purchases. At the time of such acquisitions, the assets and liabilities are adjusted to fair market value and, therefore, the cumulative long-term effect of inflation is reduced. LIQUIDITY AND CAPITAL RESOURCES Operating Working Capital For purposes of this discussion, operating working capital is defined as receivables and inventories less accounts payable. In 1999, operating working capital, as reported in the Consolidated Balance Sheet, increased $135 million. A majority of the increase resulted from recent acquisitions. Operating working capital turnover for 1999 of 4.6 turns declined from 5.0 turns in 1998. Higher operating working capital levels to support consolidation and cost reduction programs in several businesses and the impact of the new business system implementation at one of the electrical product businesses offset the benefits from ongoing improvement programs. In 1998, operating working capital increased $97 million, driven by increases in receivables and inventories of $30 million and $49 million, respectively, and a $19 million decrease in accounts payable. Operating working capital turnover for 1998 declined to 5.0 turns from 5.3 turns in 1997. The decline in operating working capital turnover was due to the timing of accounts payable disbursements and a build up of inventories as a result of implementing new business systems. Excluding 1998 acquisition activity, the increase in operating working capital was driven primarily by the timing of accounts payable disbursements. In 1997, operating working capital increased $31 million. Excluding acquisitions consummated in December 1997, operating working capital decreased $18 million primarily as a result of a $46 million decrease in inventories offset by a $26 million decrease in accounts payable. Excluding the impact of the December 1997 acquisitions, operating working capital turns increased from 4.9 to 5.3 turns in 1997, an 8% improvement. Cash Flows Net cash provided by operating activities in 1999 totaled $402 million. These funds, along with $149 million in cash received from the disposition of the Automotive Products segment, $31 million in cash received from the exercise of stock options and a net increase in debt of $182 million were used to fund capital expenditures of $166 million, acquisitions of $435 million, share repurchases of $44 million and dividends of $124 million. Net cash provided by continuing operating activities in 1998 totaled $333 million as cash generated from earnings was more than sufficient to offset increases in operating working capital. These funds, along with the $1.9 billion in proceeds from the Automotive Products segment sale and cash received from the exercise of stock options of $42 million were used to fund acquisitions of $294 million, capital expenditures of $142 million, dividends of $149 million, acquisitions of treasury stock of $1,348 million and a net reduction in total debt of $347 million. Net cash provided by continuing operating activities in 1997 totaled $325 million. These funds, along with $216 million in proceeds from the sale of Kirsch, an increase in debt of $213 million (net of acquisition related assumed debt) and $74 million provided by discontinued operations were used to finance net cash outflows for acquisitions of $366 million, capital expenditures of $117 million, dividends of $157 million and purchases of Cooper's Common stock of $192 million. Cooper currently anticipates a continuation of its long-term ability to annually generate in excess of $200 million in cash flow available for acquisitions, debt repayment and common stock repurchases. The preceding sentence contains forward-looking information, and actual results may differ materially. The statement is based on certain assumptions risks and uncertainties, 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 A-12 13 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. In connection with accounting for purchase business combinations, Cooper records, to the extent appropriate, accruals for the costs of closing duplicate facilities, severing redundant personnel and integrating the acquired businesses into existing Cooper operations. At December 31, 1999, Cooper had accruals totaling $10.8 million related to these activities. Cash flows from operating activities for each of the three years in the period ended December 31, 1999, is reduced by the amounts expended on the various accruals established in connection with each acquisition. Cooper spent $4.8 million, $5.7 million and $4.9 million in 1999, 1998 and 1997, respectively. See Note 6 of the Notes to Consolidated Financial Statements for further information. Debt During 1996, Cooper filed a shelf registration statement for $300 million of medium-term notes and issued $50 million of five-year notes. During 1998, Cooper issued the remaining $250 million of five-year notes at an average interest rate of 6.2% under the existing shelf registration statement. During 1999, Cooper completed a shelf registration statement to issue up to $500 million of debt securities. At December 31, 1999, all $500 million of the shelf registration was available to be issued. During 1997, Cooper called for redemption its 7.05% Convertible Subordinated Debentures. Cooper retired all $690 million of the outstanding debentures. Of these debentures, a total of $610 million was converted to approximately 14.8 million shares of Cooper Common stock and approximately $80 million was redeemed for cash. Cooper has targeted a 35% to 45% debt-to-total capitalization ratio and intends to utilize cash flows to maintain a minimum debt-to-capitalization ratio of approximately 35%. Excess cash will be utilized to purchase shares of Cooper's Common stock or fund acquisitions. The ratio of debt-to-total capitalization was 38.4%, 36.5% and 35.4% at year-end 1999, 1998 and 1997, respectively. Capital Expenditures and Commitments Capital expenditures on projects to reduce product costs, improve product quality, increase manufacturing efficiency and operating flexibility, or expand product capacity were $166 million in 1999, $142 million in 1998 and $117 million in 1997. Capital expenditures for 1999 and 1998 included significant expenditures for new systems implementations. Projected capital expenditures for 2000 are anticipated to exceed 1999 expenditures by approximately 25%. The projected high level of capital expenditures in 2000 results from two large manufacturing facilities in Mexico that are currently under construction. The 2000 anticipated capital spending represents approximately 54% for various cost-reduction and capacity-maintenance projects, including machinery and equipment modernization and enhancement and computer hardware and software projects; 14% for capacity expansion; 7% related to environmental matters; and 25% for other items. INTEREST RATE AND FOREIGN CURRENCY RISK Changes in interest rates and foreign currency exchange rates affect Cooper's earnings and cash flows. In certain countries where Cooper has significant investments and where practical, debt is either borrowed in the local functional currency or foreign currency forward contracts are entered into to, in effect, exchange U.S. dollar denominated debt into local functional currency debt. Borrowing in local functional currencies reduces the cash flow risk as a significant portion of cash flows generated by the operations are utilized to pay interest and principal on the debt and generally results in favorable local tax considerations. The earnings risk is also reduced since interest expense is in the same currency as the operating earnings that are generated. Cooper uses forward foreign currency exchange contracts to reduce the risk associated with changes in the exchange rates for firm commitments, where a product is manufactured or purchased in one country and sold or consumed in the manufacturing process in another country. Cooper's policy is to hedge firm commitments to eliminate this risk if natural hedges do not exist. Substantially all forward contracts expire within one year. Cooper believes that the effects of currency movements on the respective underlying hedged transactions offset any gain or loss on forward exchange contracts. A-13 14 The table below provides information about Cooper's financial instruments at December 31, 1999 that are sensitive to changes in interest rates. The table presents principal cash flows by expected maturity dates and weighted average interest rates for debt obligations.
2000 2001 2002 2003 2004 THEREAFTER TOTAL ---- ----- ----- ------ ------ ---------- ------ (IN MILLIONS, WHERE APPLICABLE) Long-term debt: Fixed rate................... $1.6 $51.8 $61.0 $153.8 $ 0.5 $349.8 $618.5 Average interest rate........ 6.3% 6.3% 6.4% 6.5% 6.5% 6.5% 6.3% Variable rate................ $0.5 $ 0.5 $ 0.5 $ 0.5 $220.5 $ 55.6 $278.1 Average interest rate........ 6.1% 6.1% 6.1% 6.1% 5.9% 5.0% 6.1%
Information about Cooper's foreign currency forward contracts in excess of $5 million at December 31, 1999 is presented below. The contracts mature during 2000. The notional amount is used to calculate the contractual payments to be exchanged under the contracts. The notional amount represents the U.S. dollar equivalent.
2000 ------------------------------- (IN MILLIONS, WHERE APPLICABLE) U.S. Dollar Functional Currency - ------------------------------- Sell U.S. Dollars/Buy German Deutschemark Notional amount........................................... $6.1 Average contract rate..................................... .52
The table below provides information about Cooper's financial instruments at December 31, 1998 that are sensitive to changes in interest rates. The table presents principal cash flows by expected maturity dates and weighted average interest rates for debt obligations.
1999 2000 2001 2002 2003 THEREAFTER TOTAL ---- ------ ----- ----- ------ ---------- ------ (IN MILLIONS, WHERE APPLICABLE) Long-term debt: Fixed rate................... $2.3 $ 1.2 $51.1 $60.7 $153.2 $348.7 $617.2 Average interest rate........ 6.3% 6.3% 6.4% 6.4% 6.5% 6.6% 6.4% Variable rate................ $4.0 $100.5 $ 0.5 $ 0.5 $ 0.9 $ 57.2 $163.6 Average interest rate........ 5.3% 5.3% 5.4% 5.3% 5.3% 5.4% 5.3%
A-14 15 The table below provides information about Cooper's foreign currency forward contracts in excess of $5 million at December 31, 1998. The contracts matured during 1999. The table presents the notional amounts and weighted average exchange rates. These notional amounts are used to calculate the contractual payments exchanged under the contracts. All amounts are presented in U.S. dollar equivalents.
1999 ------------------------------- (IN MILLIONS, WHERE APPLICABLE) U.S. Dollar Functional Currency - ------------------------------- Buy German Deutschemark/Sell U.S. Dollars Notional amount........................................... $132.2 Average contract rate..................................... .61 Sell German Deutschemark/Buy U.S. Dollars Notional amount........................................... $162.3 Average contract rate..................................... .60 Buy Pounds Sterling/Sell U.S. Dollars Notional amount........................................... $107.8 Average contract rate..................................... 1.65 Sell Pounds Sterling/Buy U.S. Dollars Notional amount........................................... $175.3 Average contract rate..................................... 1.66 Canadian Dollar Functional Currency - ----------------------------------- Buy U.S. Dollars/Sell Canadian Dollars Notional amount........................................... $ 18.4 Average contract rate..................................... .65 German Deutschemark Functional Currency - --------------------------------------- Sell Pounds Sterling/Buy German Deutschemark Notional amount........................................... $ 7.8 Average contract rate..................................... .61
See Note 15 of Notes to Consolidated Financial Statements for additional information regarding the fair value of Cooper's financial instruments. RECENTLY ISSUED ACCOUNTING STANDARDS See Note 1 of Notes to Consolidated Financial Statements. A-15 16 REPORT OF MANAGEMENT The management of Cooper Industries is responsible for the preparation, integrity and fair presentation of the accompanying Consolidated Financial Statements. The Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles and, as such, include amounts based on informed estimates and judgments of management. Management also prepared the other information included in the 2000 Proxy Statement and is responsible for its accuracy and consistency with the Consolidated Financial Statements. The Consolidated Financial Statements have been audited by an independent accounting firm, Ernst & Young LLP, which was given unrestricted access to all financial records and related data, including minutes of meetings of shareholders, the Board of Directors and committees of the Board. Management believes that all representations made to the independent auditors during their audit were valid and appropriate. Cooper maintains a system of internal control designed to provide reasonable assurance to Cooper's management and Board of Directors that assets are safeguarded against loss; transactions are authorized, executed and recorded in accordance with management's instructions; and accounting records are reliable for preparing published financial statements. The system of internal control includes: a documented organizational structure and division of responsibility; regular management review of financial performance and internal control activities; comprehensive written policies and procedures (including a code of conduct to foster a sound ethical climate) that are communicated throughout Cooper; and the careful selection, training and development of employees. Cooper's internal audit department monitors the operation of the internal control system and reports findings and recommendations to management and the Audit Committee of the Board of Directors. Prompt corrective action is taken to address control deficiencies and other opportunities for improving the internal control system. The Audit Committee of the Board of Directors, which is composed entirely of directors who are not employees of Cooper, meets periodically with management, the independent auditors, and the director of internal audit to discuss the adequacy of internal control and to review accounting, reporting, auditing and other internal control matters. The internal and independent auditors have unrestricted access to the Audit Committee. /s/ H. John Riley, Jr. /s/ D. Bradley McWilliams H. John Riley, Jr. D. Bradley McWilliams Chairman, President and Senior Vice President and Chief Executive Officer Chief Financial Officer
A-16 17 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Shareholders Cooper Industries, Inc. We have audited the accompanying consolidated balance sheets of Cooper Industries, Inc. as of December 31, 1999 and 1998, and the related consolidated income statements and statements of shareholders' equity and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Cooper Industries, Inc. at December 31, 1999 and 1998, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Houston, Texas January 27, 2000 A-17 18 COOPER INDUSTRIES, INC. CONSOLIDATED INCOME STATEMENTS
YEAR ENDED DECEMBER 31, ------------------------------------ 1999 1998 1997 ---------- ---------- ---------- (IN MILLIONS, EXCEPT PER SHARE DATA) Revenues.................................................... $3,868.9 $3,651.2 $3,415.6 Cost of sales............................................... 2,603.4 2,447.1 2,281.6 Selling and administrative expenses......................... 640.9 616.4 580.5 Goodwill amortization....................................... 47.1 43.8 32.4 Nonrecurring gains.......................................... -- (135.2) (93.0) Nonrecurring charges........................................ 3.7 53.6 40.5 Interest expense, net....................................... 55.2 101.9 90.4 -------- -------- -------- Income from continuing operations before income taxes................................................. 518.6 523.6 483.2 Income taxes................................................ 186.7 187.7 173.2 -------- -------- -------- Income from continuing operations...................... 331.9 335.9 310.0 Income from discontinued operations, net of income taxes.... -- 87.1 84.6 -------- -------- -------- Net income........................................ $ 331.9 $ 423.0 $ 394.6 ======== ======== ======== Income per Common share Basic: Income from continuing operations...................... $ 3.53 $ 2.97 $ 2.64 Income from discontinued operations.................... -- .77 .72 -------- -------- -------- Net income........................................ $ 3.53 $ 3.74 $ 3.36 ======== ======== ======== Diluted: Income from continuing operations...................... $ 3.50 $ 2.93 $ 2.57 Income from discontinued operations.................... -- .76 .69 -------- -------- -------- Net income........................................ $ 3.50 $ 3.69 $ 3.26 ======== ======== ======== Cash dividends per Common share............................. $ 1.32 $ 1.32 $ 1.32 ======== ======== ========
The Notes to Consolidated Financial Statements are an integral part of these statements. A-18 19 COOPER INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS
DECEMBER 31, --------------------- 1999 1998 --------- --------- (IN MILLIONS) ASSETS Cash and cash equivalents................................... $ 26.9 $ 20.4 Receivables................................................. 740.3 626.4 Inventories................................................. 569.3 533.3 Deferred income taxes and other current assets.............. 130.1 237.2 --------- --------- Total current assets.............................. 1,466.6 1,417.3 --------- --------- Property, plant and equipment, less accumulated depreciation.............................................. 768.0 710.5 Goodwill, less accumulated amortization..................... 1,739.0 1,470.7 Deferred income taxes and other noncurrent assets........... 169.8 180.6 --------- --------- Total assets...................................... $ 4,143.4 $ 3,779.1 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Short-term debt............................................. $ 191.2 $ 118.1 Accounts payable............................................ 393.4 378.7 Accrued liabilities......................................... 492.5 467.6 Accrued income taxes........................................ 6.6 -- Current maturities of long-term debt........................ 2.1 6.3 --------- --------- Total current liabilities......................... 1,085.8 970.7 --------- --------- Long-term debt.............................................. 894.5 774.5 Postretirement benefits other than pensions................. 224.4 237.3 Other long-term liabilities................................. 195.6 233.0 --------- --------- Total liabilities................................. 2,400.3 2,215.5 --------- --------- Common stock, $5.00 par value............................... 615.0 615.0 Capital in excess of par value.............................. 671.7 674.0 Retained earnings........................................... 1,998.1 1,790.0 Common stock held in treasury, at cost...................... (1,449.3) (1,444.8) Unearned employee stock ownership plan compensation......... (23.0) (40.6) Accumulated other non-owner changes in equity............... (69.4) (30.0) --------- --------- Total shareholders' equity........................ 1,743.1 1,563.6 --------- --------- Total liabilities and shareholders' equity........ $ 4,143.4 $ 3,779.1 ========= =========
The Notes to Consolidated Financial Statements are an integral part of these statements. A-19 20 COOPER INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, ----------------------------- 1999 1998 1997 ------- --------- ------- (IN MILLIONS) Cash flows from operating activities: Net income................................................ $ 331.9 $ 423.0 $ 394.6 Less: income from discontinued operations................. -- (87.1) (84.6) ------- --------- ------- Income from continuing operations......................... 331.9 335.9 310.0 Adjustments to reconcile to net cash provided by operating activities: Depreciation and amortization.......................... 147.6 137.5 122.0 Deferred income taxes.................................. 60.0 12.4 (6.6) Gain on sales of marketable equity securities and DECS exchange.............................................. -- (135.2) (23.2) Gain on disposition of Kirsch.......................... -- -- (69.8) Changes in assets and liabilities:(1) Receivables.......................................... (47.5) 1.9 (40.6) Inventories.......................................... (5.2) (31.1) (17.6) Accounts payable and accrued liabilities............. (25.9) 18.8 53.9 Accrued income taxes................................. 4.6 (6.9) 3.1 Other assets and liabilities, net.................... (63.6) (0.4) (6.5) ------- --------- ------- Net cash provided by operating activities......... 401.9 332.9 324.7 ------- --------- ------- Cash flows from investing activities: Proceeds from disposition of businesses................... 149.1 1,900.0 216.0 Cash paid for acquired businesses......................... (434.6) (293.7) (366.4) Capital expenditures...................................... (165.8) (142.4) (117.3) Purchase of TLG plc common stock.......................... -- (42.4) -- Proceeds from sales of marketable equity securities....... -- 44.9 -- Proceeds from sales of property, plant and equipment...... 11.2 5.9 5.2 ------- --------- ------- Net cash provided by (used in) investing activities...................................... (440.1) 1,472.3 (262.5) ------- --------- ------- Cash flows from financing activities: Proceeds from issuances of debt........................... 250.9 1,220.7 564.7 Repayments of debt........................................ (69.0) (1,567.8) (351.8) Acquisition of treasury shares............................ (44.0) (1,348.1) (191.5) Dividends................................................. (124.4) (148.8) (157.4) Activity under employee stock plans and other............. 30.7 41.7 15.6 ------- --------- ------- Net cash provided by (used in) financing activities...................................... 44.2 (1,802.3) (120.4) ------- --------- ------- Cash provided by (used in) discontinued operations.......... -- (12.2) 74.2 Effect of exchange rate changes on cash and cash equivalents............................................... 0.5 (0.6) (1.8) ------- --------- ------- Increase (decrease) in cash and cash equivalents............ 6.5 (9.9) 14.2 Cash and cash equivalents, beginning of year................ 20.4 30.3 16.1 ------- --------- ------- Cash and cash equivalents, end of year...................... $ 26.9 $ 20.4 $ 30.3 ======= ========= =======
- --------------- (1) Net of the effects of acquisitions, divestitures and translation. The Notes to Consolidated Financial Statements are an integral part of these statements. See Note 16 for information on noncash investing and financing activities. A-20 21 COOPER INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
CAPITAL UNEARNED ACCUMULATED IN EXCESS EMPLOYEE STOCK NON-OWNER COMMON OF PAR RETAINED TREASURY OWNERSHIP PLAN CHANGES IN STOCK VALUE EARNINGS STOCK COMPENSATION EQUITY TOTAL ------ --------- -------- --------- -------------- ----------- --------- (IN MILLIONS) BALANCE DECEMBER 31, 1996.................. $540.2 $150.1 $1,275.3 $ -- $(92.9) $ 94.5 $ 1,967.2 --------- Net income............................... 394.6 394.6 Minimum pension liability adjustment..... 23.6 23.6 Translation adjustment................... (4.2) (4.2) Decrease in unrealized gain on investments in marketable equity securities............................. (9.1) (9.1) Reclassification to realized gain........ (14.4) (14.4) --------- Net income and other non-owner changes in equity........................... 390.5 --------- Common stock dividends................... (157.4) (157.4) Conversion of 7.05% Convertible Subordinated debentures................ 73.9 536.3 610.2 Purchase of treasury shares.............. (191.5) (191.5) Stock issued under employee stock plans.................................. 0.7 (7.5) 40.9 34.1 ESOP shares allocated.................... 26.4 26.4 Other activity........................... 0.2 0.9 2.0 0.9 4.0 ----- -------- -------- --------- ---------- -------- --------- BALANCE DECEMBER 31, 1997.................. 615.0 679.8 1,514.5 (149.7) (66.5) 90.4 2,683.5 --------- Net income............................... 423.0 423.0 Minimum pension liability adjustment..... (1.1) (1.1) Translation adjustment................... (8.4) (8.4) Decrease in unrealized gain on investments in marketable equity securities............................. (26.0) (26.0) Reclassification to realized gain........ (84.9) (84.9) --------- Net income and other non-owner changes in equity........................... 302.6 --------- Common stock dividends................... (148.8) (148.8) Purchase of treasury shares.............. (1,348.1) (1,348.1) Stock issued under employee stock plans.................................. (6.3) 50.0 43.7 ESOP shares allocated.................... 25.9 25.9 Other activity........................... 0.5 1.3 3.0 4.8 ----- -------- -------- --------- ---------- -------- --------- BALANCE DECEMBER 31, 1998.................. 615.0 674.0 1,790.0 (1,444.8) (40.6) (30.0) 1,563.6 --------- Net income............................... 331.9 331.9 Minimum pension liability adjustment..... 1.1 1.1 Translation adjustment................... (40.5) (40.5) --------- Net income and other non-owner changes in equity........................... 292.5 --------- Common stock dividends................... (124.4) (124.4) Purchase of treasury shares.............. (44.0) (44.0) Stock issued under employee stock plans.................................. (1.6) 37.2 35.6 ESOP shares allocated.................... 17.6 17.6 Other activity........................... (0.7) 0.6 2.3 2.2 ----- -------- -------- --------- ---------- -------- --------- BALANCE DECEMBER 31, 1999.................. $615.0 $671.7 $1,998.1 $(1,449.3) $(23.0) $(69.4) $ 1,743.1 ===== ======== ======== ========= ========== ======== =========
The Notes to Consolidated Financial Statements are an integral part of these statements. A-21 22 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION: The Consolidated Financial Statements include the accounts of Cooper and its majority-owned subsidiaries. Affiliated companies are accounted for on the equity method where Cooper owns more than 20% but less than 50% of the affiliate unless significant economic, political or contractual considerations indicate that the cost method is appropriate. USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH EQUIVALENTS: For purposes of the Consolidated Statements of Cash Flows, Cooper considers all investments purchased with original maturities of three months or less to be cash equivalents. INVENTORIES: Inventories are carried at cost or, if lower, net realizable value. On the basis of current costs, 69% of inventories at December 31, 1999 and 1998 were carried on the last-in, first-out (LIFO) method. The remaining inventories, which are primarily located outside the United States, are carried on the first-in, first-out (FIFO) method. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated at cost. Depreciation is provided over the estimated useful lives of the related assets using primarily the straight-line method. This method is applied to group asset accounts, which in general have the following lives: buildings -- 10 to 40 years; machinery and equipment -- 3 to 18 years; and tooling, dies, patterns and other -- 3 to 10 years. GOODWILL: With minor exceptions, goodwill is amortized over 40 years from the respective acquisition dates. At each balance sheet date presented, management reviews the carrying value of long-lived assets and goodwill at the lowest level feasible whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If this review indicates that the carrying amount will not be recoverable, as determined based on undiscounted cash flows over the remaining amortization periods, an impairment loss is recognized. The impairment loss equals the excess of the carrying amount over the fair value of the asset. The fair value of the asset is based on prices for similar assets, if available, or discounted cash flows. DERIVATIVE FINANCIAL INSTRUMENTS: On a recurring basis, foreign currency forward exchange contracts and commodity contracts are entered into to reduce risks of adverse changes in foreign exchange rates and commodity prices. All contracts are hedges with the gain or loss on the contract recognized in the same period and in the same category of income or expense as the underlying hedged transaction. Cooper does not enter into speculative derivative transactions. Due to the short term of the contracts and a restrictive policy, contract terminations are rare and insignificant events which are accounted for through income in the period they occur. Cooper currently is not a party to any interest rate swap agreements used to manage its interest rate risk. Cooper's policy is to recognize the interest rate differential to be received or paid over the lives of the interest rate swap as an adjustment to interest expense. REVENUE RECOGNITION: Cooper recognizes sales when products are shipped. Accruals for sales returns and other allowances are provided at the time of shipment based upon experience. COMMON STOCK BASED COMPENSATION: Cooper follows the intrinsic value method of accounting for stock based compensation plans as prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES: In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS No. 133"). SFAS No. 133 requires that all derivatives be recognized as assets and liabilities and measured at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. SFAS No. 133 is effective for fiscal years beginning after June 15, 2000 and early adoption is permitted. Cooper is currently evaluating the effects of the new standard. Cooper does not anticipate that the new standard will have an impact on net income. However, the new standard requirement to A-22 23 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) mark to market certain of Cooper's financial instruments utilized to hedge currency and commodity price risks will result in fluctuations in the fair value being included in shareholders' equity, net of tax. Due to Cooper's policies regarding financial instruments, it is not likely that the adoption of the new standard will have a significant effect on Cooper's Consolidated Balance Sheets. NOTE 2: NONRECURRING ITEMS AND UNUSUAL ITEMS During the past three years Cooper has been transitioning into a business focused on higher growth and less volatile businesses concentrated in electrical products and tools and hardware. On May 30, 1997, Cooper completed the sale of its Kirsch window treatment division, a business that was underperforming and did not fit with the core electrical products and tools and hardware businesses. On October 9, 1998, Cooper completed the sale of its Automotive Products segment (Note 18). In addition, over the past three years, Cooper has been realigning its product lines and operations and positioning itself to compete more efficiently in the global markets. In 1994, Cooper sold its Cameron Forged Products business to Wyman-Gordon Corporation ("Wyman-Gordon") and received Wyman-Gordon common stock as part of the consideration. In 1995, the Wyman-Gordon common stock was monetized through the issuance of DECS(SM) (Debt Exchangeable for Common Stock) (Note 10). Cooper realized gains from the sale of Cooper's marketable equity securities of Wyman-Gordon and the DECS monetization during 1998 and 1997. In 1998, Cooper initiated an acquisition of TLG plc. The acquisition was not consummated as Cooper could not justify exceeding an offer made by another company. However, Cooper realized a gain from the sale of common stock it had acquired at its offer price (Note 3). Nonrecurring gains, before income taxes, during the years ended December 31, 1998 and 1997 were as follows:
YEAR ENDED DECEMBER 31, -------------- 1998 1997 ------ ----- (IN MILLIONS) DECS(SM) and Wyman-Gordon common stock...................... $132.7 $23.2 TLG plc common stock........................................ 2.5 -- Sale of Kirsch.............................................. -- 69.8 ------ ----- $135.2 $93.0 ====== =====
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 1999 totaled $7.3 million. In addition, during 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 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). In 1998, Cooper recorded a $53.6 million charge for nonrecurring and unusual items. Cooper completed its formal annual review of each of its operations in the fourth quarter of 1998 and developed plans to strengthen the competitiveness and efficiencies of each operation. In addition to the specific plans for actions of each operation A-23 24 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) committed to by management during the fourth quarter, Cooper also initiated and announced a voluntary and involuntary severance program. Cooper has a formal written severance policy for salaried personnel, and in certain operations, contractual severance obligations for hourly personnel. 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 established written policies. Cooper accrued a total of $26.4 million in severance in the fourth quarter of 1998. Cooper also recorded a charge of $11.1 million for impairment of the assets of two electrical product lines. Market conditions, including increased competition from imports, had reduced the profitability of both of these product lines to negative amounts. Due to the inability to recover the investments on an undiscounted cash flow basis, the long-lived assets were written down to the estimated fair market value based on prices for similar assets. Cooper also recorded $16.1 million in other charges, including facility exit costs. In addition to hourly and certain voluntary and involuntary salaried severance, considerable facility exit costs cannot be accrued until the closing of a facility is announced and the costs are incurred. The charges in 1998 when combined with the nonrecurring gains result in a net $53.0 million after income taxes ($.46 per diluted common share) of nonrecurring and unusual items included in income from continuing operations. See "Nonrecurring Income and Expenses" in Management's Discussion and Analysis of Financial Condition and Results of Operations for additional information related to the 1999 and 1998 severance and facility consolidation charges including spending, number of employees terminated and remaining accrual balances. In 1997, Cooper incurred charges of $40.5 million for actions management committed to during the period after concluding an evaluation of geographic manufacturing and distribution facilities within the Tools & Hardware segment and information systems relating to year 2000 compliance efforts. The 1997 charges include impairment in the carrying value of assets and abandonment of assets of $24.2 million and accruals for continuing obligations for replaced systems and facility consolidations of $16.3 million. The nonrecurring gains in 1997, combined with nonrecurring charges and a $6.1 million income tax benefit related to the settlements of certain state income tax matters (See Note 11), resulted in a net nonrecurring gain of $39.1 million after income taxes ($.32 per diluted share) being included in income from continuing operations. Cooper began consolidating certain international manufacturing and distribution facilities in the Tools & Hardware segment during 1997. Adjustments to the carrying value of assets and accruals were recorded for projects committed to by management. Severance and certain other costs related to projects committed to by management were not expensed until the affected employees were notified and the costs incurred. A majority of the consolidations were announced and such costs were accrued and expensed during 1997. During 1997, Cooper also assessed the ability of existing information system capabilities to function at the turn of the century. Three of Cooper's divisions implemented new enterprise systems with the remaining divisions modifying or replacing existing software. Where possible, businesses abandoned home-grown or highly customized applications with purchased, year 2000 compliant replacements or upgrades. In some situations, operations within a business abandoned existing software and migrated to consolidated hardware and software that was year 2000 compliant. Where these solutions were not possible, businesses either contracted with third parties or committed internal resources to ensure that all major systems were year 2000 compliant. Of the 1997 total charge, $28.5 million related to the adjustment in the carrying value of abandoned hardware and software and liabilities related to hardware and software. NOTE 3: ACQUISITIONS AND DIVESTITURES In 1999, Cooper completed eight acquisitions in its Electrical Products segment and two small acquisitions in its Tools & Hardware segment. The acquisitions include two businesses in the United Kingdom and a business in France that expand the product offerings of the Cooper European based division, three domestic lighting businesses and four other small product-line acquisitions. The acquisitions had an aggregate cost of $443.8 million. A total of $338.2 million in goodwill was recorded, on a preliminary basis, with respect to the acquisitions. In 1998, Cooper completed one large acquisition, ten small product-line acquisitions and the divestiture of the Automotive Products segment. Seven acquisitions were in the Tools & Hardware segment and four were in the A-24 25 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Electrical Products segment. In March 1998, the Company acquired INTOOL for a total cost of $227.2 million. INTOOL manufactures and sells pneumatic and electric assembly tools, precision-drilling equipment, fastening systems and portable and fixed mounted tools used in industrial, automotive, aerospace and energy markets. The ten small product line acquisitions had an aggregate cost of $67.6 million. A total of $245.7 million in goodwill was recorded, including an additional $10.5 million in 1999, with respect to the acquisitions. On October 9, 1998, Cooper completed the sale of its Automotive Products segment for $1.9 billion (See Note 18). On September 4, 1998, Cooper announced its offer to acquire TLG plc in a transaction valued at approximately $535 million. On September 28, 1998, Cooper announced that its offer to acquire TLG plc had expired and would not be extended due to a rival bid made to acquire TLG plc for approximately $585 million. During the third quarter of 1998, Cooper acquired common stock of TLG plc for $42.4 million. The common stock was tendered to the rival bidder in October 1998. Cooper realized a gain of approximately $1.6 million after income taxes in the fourth quarter of 1998 from the sale of the common stock. In 1997, Cooper completed one large acquisition, five small product-line acquisitions and the divestiture of Kirsch. In December 1997, Cooper acquired Menvier-Swain Group plc ("Menvier") for a total cost of approximately $274.5 million. Menvier manufactures and markets emergency lighting, fire detection and security systems, primarily in Europe. The five small product line acquisitions had an aggregate cost of $164.1 million. A total of $343.8 million of goodwill was recorded with respect to the acquisitions. All acquisitions were in the Electrical Products segment. On May 30, 1997, Cooper completed the sale of its Kirsch window treatment division for $216 million. For the five months ended May 30, 1997, Kirsch had revenues of $97.4 million and operating earnings of $4.8 million. Kirsch was part of the Tools & Hardware segment. The acquisitions have been accounted for as purchases and the results of the acquisitions are included in Cooper's consolidated income statements since the respective acquisition dates. The pro forma net income and earnings per share for 1999, 1998 and 1997, assuming the acquisitions had been made at the beginning of each year, would not be materially different from reported net income and earnings per share. NOTE 4: INVENTORIES
DECEMBER 31, --------------- 1999 1998 ------ ------ (IN MILLIONS) Raw materials............................................... $196.9 $213.4 Work-in-process............................................. 133.6 114.7 Finished goods.............................................. 299.5 275.6 Perishable tooling and supplies............................. 20.1 21.0 ------ ------ 650.1 624.7 Excess of current standard costs over LIFO costs............ (80.8) (91.4) ------ ------ Net inventories................................... $569.3 $533.3 ====== ======
A-25 26 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 5: PROPERTY, PLANT AND EQUIPMENT AND GOODWILL
DECEMBER 31, ------------------- 1999 1998 -------- -------- (IN MILLIONS) Property, plant and equipment: Land and land improvements................................ $ 51.6 $ 56.7 Buildings................................................. 356.0 367.3 Machinery and equipment................................... 731.7 716.3 Tooling, dies and patterns................................ 168.0 151.8 All other................................................. 267.6 227.7 Construction in progress.................................. 117.7 110.0 -------- -------- 1,692.6 1,629.8 Accumulated depreciation.................................. (924.6) (919.3) -------- -------- $ 768.0 $ 710.5 ======== ======== Goodwill.................................................. $2,143.6 $1,830.4 Accumulated amortization.................................. (404.6) (359.7) -------- -------- $1,739.0 $1,470.7 ======== ========
NOTE 6: ACCRUED LIABILITIES
DECEMBER 31, --------------- 1999 1998 ------ ------ (IN MILLIONS) Salaries, wages and employee benefit plans.................. $201.2 $187.7 Product and environmental liability accruals................ 48.2 61.8 Commissions and customer incentives......................... 36.0 32.1 Facility integration of acquired businesses................. 10.8 15.6 Other (individual items less than 5% of total current liabilities).............................................. 196.3 170.4 ------ ------ $492.5 $467.6 ====== ======
At December 31, 1999, Cooper had accruals of $18.3 million with respect to potential product liability claims and $56.9 million with respect to potential environmental liabilities, including $27.0 million classified as a long-term liability, based on Cooper's current estimate of the most likely amount of losses that it believes will be incurred. The product liability accrual consists of $4.2 million of known claims with respect to ongoing operations, $9.3 million of known claims for previously divested operations and $4.8 million which represents an estimate of claims that have been incurred but not yet reported. While Cooper is generally self-insured with respect to product liability claims, Cooper has insurance coverage for individual 1999 claims above $3.0 million. Environmental remediation costs are accrued based on estimates of known environmental remediation exposures. Such accruals are adjusted as information develops or circumstances change. The environmental liability accrual includes $11.8 million related to sites owned by Cooper and $45.1 million for retained environmental liabilities related to sites previously owned by Cooper and third-party sites where Cooper was a potentially responsible party. Third-party sites usually involve multiple contributors where Cooper's liability will be determined based on an estimate of Cooper's proportionate responsibility for the total cleanup. The amount actually accrued for such sites is based on these estimates as well as an assessment of the financial capacity of the other potentially responsible parties. It has been Cooper's consistent practice to include the entire product liability accrual and a significant portion of the environmental liability accrual as current liabilities, although only approximately 10-20% of the balance A-26 27 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) classified as current is normally spent on an annual basis. The annual effect on earnings for product liability is essentially equal to the amounts disbursed. In the case of environmental liability, the annual expense is considerably smaller than the disbursements, since the vast majority of Cooper's environmental liability has been recorded in connection with acquired companies. The change in the accrual balances from year to year reflects the effect of acquisitions and divestitures as well as normal expensing and funding. Cooper has not utilized any form of discounting in establishing its product or environmental liability accruals. While both product liability and environmental liability accruals involve estimates that can have wide ranges of potential liability, Cooper has taken a proactive approach and has managed the costs in both of these areas over the years. Cooper does not believe that the nature of its products, its production processes, or the materials or other factors involved in the manufacturing process subject Cooper to unusual risks or exposures for product or environmental liability. Cooper's greatest exposure to inaccuracy in its estimates is with respect to the constantly changing definitions of what constitutes an environmental liability or an acceptable level of cleanup. In connection with acquisitions accounted for using the purchase method of accounting, Cooper records, to the extent appropriate, accruals for the costs of closing duplicate facilities, severing redundant personnel and integrating the acquired business into existing Cooper operations. Significant accruals include plant shut-down and realignment costs. The following table summarizes the accrual balances and activity during each of the last three years:
1999 1998 1997 ----- ----- ----- (IN MILLIONS) ACTIVITY DURING EACH YEAR: Balance, beginning of year.................................. $15.6 $ 6.2 $14.8 Spending.................................................... (4.8) (5.7) (4.9) Kirsch disposition.......................................... -- -- (0.4) Reclassifications........................................... -- -- (4.0) Acquisitions -- initial allocation.......................... 1.2 9.9 1.4 Acquisitions -- final allocation adjustment................. (0.3) 5.2 (0.1) Translation................................................. (0.9) -- (0.6) ----- ----- ----- Balance, end of year........................................ $10.8 $15.6 $ 6.2 ===== ===== ===== BALANCE BY CATEGORY OF ACCRUAL: Plant shut-down and realignment............................. $ 9.5 $13.4 $ 5.8 Facility relocations and severance.......................... 0.3 0.1 0.4 Other realignment and integration........................... 1.0 2.1 -- ----- ----- ----- $10.8 $15.6 $ 6.2 ===== ===== =====
Plant shut-down and realignment includes the costs to terminate personnel, shut down the facilities, terminate leases and similar costs. The spending related primarily to downsizing and consolidating facilities. Facility relocations and severance includes costs to consolidate sales and marketing operations of the acquired companies into Cooper operations, termination costs of redundant personnel and shut-down costs of redundant warehouses and the acquired companies' headquarters. Other realignment and integration costs includes costs to exit product lines and miscellaneous costs. During the three years ended December 31, 1999, accruals reversed to income were insignificant. Reclassifications in 1997 were related to lease obligations on closed facilities reclassified to other accrued liabilities. The 1998 acquisitions-initial allocation amount primarily relates to the INTOOL acquisition. Acquisitions-final allocation adjustment represents adjustments to goodwill for finalization of the purchase price allocations recorded in the previous year. The 1998 acquisitions-final allocation adjustment is due to the acquisition of Menvier in December 1997. The Menvier acquisition had insignificant accruals for terminations and no significant individual exit plan costs were accrued. Substantially all spending related to these accruals represented cash outlays by Cooper. A-27 28 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 7: LONG-TERM DEBT AND OTHER BORROWING ARRANGEMENTS
DECEMBER 31, --------------- 1999 1998 ------ ------ (IN MILLIONS) 6.35%* commercial paper maturing at various dates through February 2000............................................. $220.0 $100.0 6.41%-6.97% second series medium-term notes, due through 2010...................................................... 302.1 302.1 5.78%-6.45% third series medium-term notes, due through 2008...................................................... 300.0 300.0 5.65%* Pound Sterling notes payable maturing at various dates through 2005........................................ 27.9 29.3 ESOP notes, due 1999........................................ -- 3.5 Other....................................................... 46.6 45.9 ------ ------ 896.6 780.8 Current maturities.......................................... (2.1) (6.3) ------ ------ Long-term portion........................................... $894.5 $774.5 ====== ======
- --------------- * Weighted average interest rates at December 31, 1999. The weighted average interest rates on commercial paper and Pound Sterling bank loans and notes were 5.6% and 6.41%, respectively, at December 31, 1998. Cooper has U.S. committed credit facilities of $1,165 million, $665 million of which expires in 2000 and $500 million expires in 2004. At December 31, 1999, Cooper had $816.2 million of its $1,165 million U.S. committed credit facilities available, after considering commercial paper backup. At December 31, 1998, $866.1 million of its total $1.0 billion U.S. committed credit facilities was available after considering commercial paper backup. The agreements for the credit facilities require that Cooper maintain certain financial ratios, including a prescribed limit on debt as a percentage of total capitalization. Retained earnings are unrestricted as to the payment of dividends, except to the extent that payment would cause a violation of the prescribed limit on the debt-to-total capitalization ratio. During 1999, Cooper completed a shelf registration statement to issue up to $500 million of debt securities. At December 31, 1999, all $500 million of the shelf registration was available to be issued. Interest rates on Cooper's commercial paper and U.S. bank loans were generally 2.85% and 2.8% below the U.S. prime rate during 1999 and 1998, respectively. Total interest paid during 1999, 1998 and 1997 was $63 million, $100 million and $107 million, respectively. No interest expense has been allocated to discontinued operations. Commercial paper of $220 million and $100 million at December 31, 1999 and 1998, respectively, was reclassified to long-term debt reflecting Cooper's intention to refinance these amounts during the twelve-month period following the balance sheet date through either continued short-term borrowing or utilization of available credit facilities. The floating-rate ESOP notes were indebtedness of Cooper's ESOP. Cooper guaranteed the payment of the ESOP notes; accordingly, the notes were reported as Cooper's debt at December 31, 1998 (See Note 13). The ESOP notes were repaid during 1999. Maturities of long-term debt for the five years subsequent to December 31, 1999 are $2.1 million, $52.3 million, $61.5 million, $154.3 million and $221.0 million, respectively. The future net minimum lease payments under capital leases and obligations under operating leases are not significant. A-28 29 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 8: COMMON AND PREFERRED STOCK COMMON STOCK At December 31, 1999, 1998 and 1997, 250,000,000 shares of Common stock were authorized of which 94,199,620, 94,248,751 and 120,161,446 shares were issued and outstanding at December 31, 1999, 1998 and 1997, respectively. During the year ended December 31, 1999, Cooper purchased 800,000 shares as treasury stock at an average price of $54.99 per share and 708,270 shares were issued in connection with employee stock plans. During the year ended December 31, 1998, Cooper purchased 26,891,548 shares as treasury stock at an average price of $50.13 per share and 926,770 shares were issued in connection with employee stock plans. During 1997, Cooper issued 14,785,831 shares in exchange for the redemption of the 7.05% Convertible Subordinated Debentures. During the year ended December 31, 1997, Cooper purchased 3,645,017 shares as treasury stock at an average price of $52.54 per share and 813,387 of these shares were issued in connection with employee stock plans. At December 31, 1999, Cooper had 11,357,953 shares reserved for the Dividend Reinvestment Plan, grants and exercises of stock options, performance-based stock awards and subscriptions under the Employee Stock Purchase Plan and other plans. Under the terms of the Dividend Reinvestment Plan, any holder of Common stock may elect to have cash dividends and up to $24,000 per year in cash payments invested in Common stock without incurring any brokerage commissions or service charges. Under a Shareholder Rights Plan adopted by the Board of Directors in 1997, share purchase Rights were declared as a dividend at the rate of one Right for each share of Common stock. Each Right entitles the holder to buy one one-hundredth of a share of Series A Participating Preferred Stock at a purchase price of $225 per one one-hundredth of a share or, in certain circumstances Common stock having a value of twice the purchase price. Each Right becomes exercisable only in certain circumstances constituting a potential change of control on a basis considered inadequate by the Board of Directors. The Rights expire August 5, 2007 and, at Cooper's option, may be redeemed prior to expiration for $.01 per Right. PREFERRED STOCK At December 31, 1999 and 1998, Cooper was authorized to issue 1,340,750 shares of Preferred stock with no par value, 10,000,000 shares of $2.00 par value Preferred stock and 2,821,079 shares of $1.00 par value Preferred stock. At December 31, 1999 and 1998, no Preferred shares were issued or outstanding. NOTE 9: STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN Under Cooper stock option plans, officers, directors and key employees may be granted options to purchase Cooper's Common stock at no less than 100% of the market price on the date the option is granted. Options generally become exercisable ratably over a three-year period commencing one year from the date of grant and have a maximum term of ten years. The plans also provide for the granting of performance-based stock awards to certain key executives. A-29 30 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) A summary of the status of Cooper's fixed stock option plans for officers and employees as of December 31, 1999 and activity during the three years ended December 31, 1999 is presented below:
1999 1998 1997 -------------------- --------------------- -------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE --------- -------- ---------- -------- --------- -------- Outstanding at beginning of year............................ 2,144,104 $46.52 3,113,077 $43.55 3,189,083 $44.05 Granted........................... 1,018,700 $43.52 968,200 $56.63 974,900 $45.06 Exercised......................... (286,492) $39.82 (1,075,905) $45.00 (491,165) $41.67 Canceled.......................... (127,711) $50.13 (861,268) $49.02 (559,741) $50.68 --------- ---------- --------- Outstanding at end of year........ 2,748,601 $45.94 2,144,104 $46.52 3,113,077 $43.55 ========= ========== ========= Options exercisable at end of year............................ 1,128,905 782,509 1,361,573 Options available for grant at end of year......................... 3,289,602 4,264,190 4,706,406
OPTIONS OUTSTANDING OPTIONS EXERCISABLE - ------------------------------------------------------ ---------------------- WEIGHTED SHARES AVERAGE WEIGHTED SHARES WEIGHTED OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE RANGE OF AT CONTRACTUAL EXERCISE AT EXERCISE EXERCISE PRICES 12/31/99 LIFE PRICE 12/31/99 PRICE - --------------- ----------- ----------- -------- ----------- -------- $39.06 - $43.47 1,559,643 7.3 $41.86 568,843 $39.06 $45.06 - $56.63 1,188,958 7.4 $51.30 560,062 $49.44 --------- --------- 2,748,601 1,128,905 ========= =========
During 1999, options to purchase 11,000 shares of Common stock were granted to nonemployee directors at an exercise price of $49.03 and options for 4,000 shares were exercised at $14.69 per share. During 1998, options to purchase 11,000 shares of Common stock were granted to nonemployee directors at an exercise price of $63.78 and options for 4,000 shares were exercised at $24.00 per share. During 1997, options to purchase 9,000 shares of Common stock were granted to nonemployee directors at an exercise price of $45.44 and options for 6,000 shares were exercised at $27.13 per share. At December 31, 1999, options under the director plans for 18,000 Common shares were exercisable at $17.31 to $63.78 per share, and 146,800 shares were reserved for future grants. Participants in the Employee Stock Purchase Plan receive an option to purchase Common stock at a price that is the lesser of 85% of the market value on the offering date or 85% of the market value on the purchase date. On September 10, 1999, a total of 307,545 shares were sold to employees at $45.68 per share. At December 31, 1999, subscriptions for 640,824 shares of Common stock were outstanding at $44.63 per share or, if lower, 85% of the average market price on September 10, 2001, which is the purchase date. At December 31, 1999, an aggregate of 2,735,428 shares of Common stock were reserved for future issuance. Cooper follows the intrinsic value method of accounting for stock-based compensation plans as prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. Accordingly, no compensation expense is recognized under Cooper's fixed stock option plans or Employee Stock Purchase Plan. Compensation expense of $6.1 million, $6.6 million and $8.2 million was recognized in the consolidated income statements during 1999, 1998 and 1997, respectively for the performance-based stock awards. If compensation expense for all of Cooper's stock-based compensation plans was recognized using the alternative fair value method of accounting under Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, net income and earnings per share would have decreased by approximately 2.3% in 1999, 1.6% in 1998 and 1.2% in 1997. The fair value was estimated on the date of grant, using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 1999, 1998 and 1997, respectively: dividend yields of 3.0%, 2.3% and 2.8%, expected volatility of 26.4%, 22.2% and 20.1%, risk free interest rates of 5.0%, 5.6% and 6.4% and expected lives of 7 years in 1999, 1998 and 1997. A-30 31 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 10: ACCUMULATED NON-OWNER CHANGES IN EQUITY
MINIMUM UNREALIZED CUMULATIVE PENSION GAIN ON TRANSLATION LIABILITY INVESTMENTS ADJUSTMENT TOTAL --------- ----------- ----------- ------- (IN MILLIONS) Balance December 31, 1996.................................. $(26.4) $ 134.4 $(13.5) $ 94.5 Current year other non-owner changes in equity............. 23.6 (23.5) (4.2) (4.1) ------ ------- ------ ------- Balance December 31, 1997.................................. (2.8) 110.9 (17.7) 90.4 Current year other non-owner changes in equity............. (1.1) (110.9) (8.4) (120.4) ------ ------- ------ ------- Balance December 31, 1998.................................. (3.9) -- (26.1) (30.0) Current year other non-owner changes in equity............. 1.1 -- (40.5) (39.4) ------ ------- ------ ------- Balance December 31, 1999.................................. $ (2.8) $ -- $(66.6) $ (69.4) ====== ======= ====== =======
1999 1998 1997 --------------------------- ----------------------------- --------------------------- BEFORE TAX BEFORE TAX BEFORE TAX TAX (EXPENSE) NET TAX (EXPENSE) NET TAX (EXPENSE) NET AMOUNT BENEFIT AMOUNT AMOUNT BENEFIT AMOUNT AMOUNT BENEFIT AMOUNT ------ --------- ------ ------- --------- ------- ------ --------- ------ (IN MILLIONS) Minimum pension liability adjustment....................... $ 1.9 $(0.8) $ 1.1 $ (1.8) $ 0.7 $ (1.1) $39.3 $(15.7) $ 23.6 ------ ----- ------ ------- ----- ------- ------ ------ ------ Decrease in unrealized gain during the year......................... -- -- -- (40.6) 14.6 (26.0) (14.7) 5.6 (9.1) Less reclassification adjustment for realized gains............... -- -- -- (132.7) 47.8 (84.9) (23.2) 8.8 (14.4) ------ ----- ------ ------- ----- ------- ------ ------ ------ Net unrealized gain on investments...................... -- -- -- (173.3) 62.4 (110.9) (37.9) 14.4 (23.5) ------ ----- ------ ------- ----- ------- ------ ------ ------ Translation adjustment............. (62.3) 21.8 (40.5) (12.9) 4.5 (8.4) (6.4) 2.2 (4.2) ------ ----- ------ ------- ----- ------- ------ ------ ------ Other non-owner changes in equity........................... $(60.4) $21.0 $(39.4) $(188.0) $67.6 $(120.4) $(5.0) $ 0.9 $ (4.1) ====== ===== ====== ======= ===== ======= ====== ====== ======
In December 1995, Cooper issued 16.5 million DECS at $13.50 which, at maturity, were mandatorily exchangeable into shares of Wyman-Gordon common stock or, at Cooper's option, into cash in lieu of shares. The DECS were a hedge of Cooper's investment in Wyman-Gordon common stock. Prior to redemption, the unrealized gain on the investment in Wyman-Gordon common stock was included in accumulated non-owner changes in equity as an unrealized gain on investments in marketable equity securities, net of tax. Additionally, Cooper's long-term debt included an increase in the market value of Wyman-Gordon common stock related to the DECS. The offset to the debt increase, net of tax, decreased the unrealized gain on investments in marketable equity securities, net of tax. During 1997, Cooper exchanged a portion of the DECS for Wyman-Gordon common stock and realized a gain of $23.2 million ($14.4 million after income taxes). The remaining DECS were exchanged for Wyman-Gordon common stock upon redemption in December 1998 resulting in a realized gain of $132.7 million ($84.9 million after income taxes). A-31 32 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 11: INCOME TAXES
YEAR ENDED DECEMBER 31, ------------------------ 1999 1998 1997 ------ ------ ------ (IN MILLIONS, EXCEPT FOR PERCENTAGES) Components of income from continuing operations before income taxes: U.S. operations........................................... $390.7 $404.8 $405.5 Foreign operations........................................ 127.9 118.8 77.7 ------ ------ ------ Income from continuing operations before income taxes............................................ $518.6 $523.6 $483.2 ====== ====== ====== Components of income tax expense: Current: U.S. Federal........................................... $ 84.3 $122.8 $131.0 U.S. state and local................................... 6.2 18.1 16.0 Foreign................................................ 36.2 34.4 32.8 ------ ------ ------ 126.7 175.3 179.8 ------ ------ ------ Deferred: U.S. Federal........................................... 48.0 11.0 (4.5) U.S. state and local................................... 10.4 (2.7) (0.6) Foreign................................................ 1.6 4.1 (1.5) ------ ------ ------ 60.0 12.4 (6.6) ------ ------ ------ Income tax expense................................ $186.7 $187.7 $173.2 ====== ====== ====== Total income taxes paid..................................... $132.5 $184.4 $211.4 ====== ====== ====== Effective tax rate reconciliation: U.S. Federal statutory rate............................... 35.0% 35.0% 35.0% State and local income taxes.............................. 1.9 1.7 1.8 Foreign statutory rate differential....................... (1.5) (0.5) (1.0) Nondeductible goodwill.................................... 2.3 2.2 2.3 State tax settlements(1).................................. -- -- (1.3) Foreign Sales Corporation................................. (0.7) (1.0) (0.8) Tax credits............................................... (0.3) (0.8) (1.0) Other..................................................... (0.7) (0.8) 0.8 ------ ------ ------ Effective tax rate attributable to continuing operations....................................... 36.0% 35.8% 35.8% ====== ====== ======
- --------------- (1) During 1997, Cooper settled several state income tax matters and recognized a $6.1 million benefit in its income tax provision. A-32 33 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, ----------------- 1999 1998 ------- ------- (IN MILLIONS) Components of deferred tax liabilities and assets: Deferred tax liabilities: Property, plant and equipment and intangibles.......... $ (93.8) $ (64.6) Deferred gain on marketable equity securities.......... -- (47.9) Inventories............................................ (22.3) (24.9) Employee stock ownership plan.......................... (20.7) (19.2) Pension plans.......................................... (32.8) (27.4) Other.................................................. (24.9) (41.0) ------- ------- Total deferred tax liabilities.................... (194.5) (225.0) ------- ------- Deferred tax assets: Postretirement and other employee welfare benefits..... 90.7 94.2 Accrued liabilities.................................... 147.7 155.8 Minimum pension liability.............................. 1.8 2.6 Capital loss carryforward(1)........................... 88.6 157.3 Other.................................................. 37.0 20.5 ------- ------- Total deferred tax assets......................... 365.8 430.4 Valuation allowance(1).................................... (51.6) (51.6) ------- ------- Net deferred tax asset (liability)................ $ 119.7 $ 153.8 ======= =======
- --------------- (1) Cooper incurred a capital loss on the sale of the Automotive Products segment. The capital loss carryforward is available to offset capital gains through 2003. The U.S. Federal portion of the above provision includes U.S. tax expected to be payable on the foreign portion of Cooper's income before income taxes when such earnings are remitted. Cooper's liabilities for continuing operations at December 31, 1999 and 1998 include the additional U.S. tax estimated to be payable on substantially all unremitted earnings of foreign subsidiaries. NOTE 12: PENSION AND OTHER POSTRETIREMENT BENEFITS Cooper and its subsidiaries have numerous defined benefit pension plans and other postretirement benefit plans. The benefits provided under Cooper's various postretirement benefit plans other than pensions, all of which are unfunded, include retiree medical care, dental care, prescriptions and life insurance, with medical care accounting for approximately 90% of the total. Current employees, unless grandfathered under plans assumed in acquisitions, are not provided postretirement benefits other than pensions. The vast majority of the annual other postretirement benefit expense is related to employees who are already retired. A-33 34 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OTHER POSTRETIREMENT PENSION BENEFITS BENEFITS ----------------- ----------------- 1999 1998 1999 1998 ------- ------- ------- ------- (IN MILLIONS) Change in benefit obligation: Benefit obligation at January 1........................... $592.5 $547.3 $ 158.8 $ 156.1 Service cost.............................................. 15.4 13.3 0.2 0.3 Interest cost............................................. 38.1 39.0 10.4 10.3 Benefit payments.......................................... (34.8) (49.2) (13.6) (13.7) Actuarial (gains) losses.................................. (37.0) 32.9 (38.6) (0.5) Acquisitions.............................................. -- 6.7 -- 6.3 Other..................................................... (8.9) 2.5 (0.7) -- ------ ------ ------- ------- Benefit obligation at December 31........................... 565.3 592.5 116.5 158.8 ------ ------ ------- ------- Change in plan assets: Fair value of plan assets at January 1.................... 606.8 569.6 -- -- Actual return on plan assets.............................. 35.5 68.7 -- -- Employer contributions.................................... 8.1 6.4 13.6 13.7 Benefit payments.......................................... (32.0) (46.3) (13.6) (13.7) Acquisitions.............................................. -- 7.0 -- -- Other..................................................... (3.1) 1.4 -- -- ------ ------ ------- ------- Fair value of plan assets at December 31.................... 615.3 606.8 -- -- ------ ------ ------- ------- Funded status............................................... 50.0 14.3 (116.5) (158.8) Unrecognized actuarial gain................................. (36.6) (16.2) (104.7) (73.6) Unrecognized prior service cost............................. 0.1 (0.2) (3.2) (4.9) Other....................................................... 1.0 (0.3) -- -- ------ ------ ------- ------- Net amount recognized....................................... $ 14.5 $ (2.4) $(224.4) $(237.3) ====== ====== ======= ======= Amounts recognized in the balance sheet consist of: Prepaid benefit asset..................................... $ 80.7 $ 68.1 $ -- $ -- Accrued benefit liability................................. (72.7) (79.4) (224.4) (237.3) Intangible asset.......................................... 1.9 2.4 -- -- Accumulated other non-owner changes in equity............. 4.6 6.5 -- -- ------ ------ ------- ------- Net amount recognized....................................... $ 14.5 $ (2.4) $(224.4) $(237.3) ====== ====== ======= =======
The projected benefit obligation and accumulated benefit obligation for Cooper's unfunded defined benefit pension plans were $70.1 million and $65.6 million as of December 31, 1999, and $77.9 million and $71.7 million as of December 31, 1998, respectively.
OTHER POSTRETIREMENT PENSION BENEFITS BENEFITS ------------------------ --------------------- 1999 1998 1997 1999 1998 1997 ------ ------ ------ ----- ----- ----- (IN MILLIONS) Components of net periodic benefit cost: Service cost........................................ $ 15.4 $ 13.3 $ 13.8 $ 0.2 $ 0.3 $ 0.5 Interest cost....................................... 38.1 39.0 40.0 10.4 10.3 12.5 Expected return on plan assets...................... (50.7) (47.6) (44.5) -- -- -- Amortization of unrecognized transition asset....... (1.5) (1.5) (1.4) -- -- -- Amortization of prior service cost.................. 0.1 0.1 0.1 (1.5) (1.4) (1.8) Recognized actuarial (gain) loss.................... (0.8) (0.1) 2.2 (7.5) (6.6) (5.5) Curtailment......................................... 0.1 -- 0.5 -- -- -- ------ ------ ------ ----- ----- ----- Net periodic benefit cost........................... $ 0.7 $ 3.2 $ 10.7 $ 1.6 $ 2.6 $ 5.7 ====== ====== ====== ===== ===== =====
A-34 35 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OTHER POSTRETIREMENT PENSION BENEFITS BENEFITS ----------------------------- --------------- 1999 1998 1999 1998 ------------- ------------- ------ ------ Weighted average assumptions as of December 31: Discount rate............................................ 6.00% - 7.75% 5.50% - 6.75% 7.75% 6.75% Expected return on plan assets........................... 7.50% - 8.50% 8.50% - 9.00% -- -- Rate of compensation increase............................ 3.00% - 4.50% 3.00% - 5.00% -- --
For other postretirement benefit measurement purposes, a 7.8% annual increase in the per capita cost of covered health care benefits was assumed for 2000. The rate was assumed to decrease gradually to 5.5% for 2002 and remain at that level thereafter. A one-percentage-point change in the assumed health care cost trend rates would have the following effects:
1-PERCENTAGE- 1-PERCENTAGE- POINT INCREASE POINT DECREASE -------------- -------------- Effect on total of service and interest cost components..... $0.7 $(0.6) Effect on the postretirement benefit obligation............. $7.0 $(6.2)
During 1999, 1998 and 1997, expense with respect to domestic and foreign defined contribution plans (primarily related to various groups of hourly employees) totaled $17.5 million, $15.7 million and $13.3 million, respectively. NOTE 13: COOPER SAVINGS AND EMPLOYEE STOCK OWNERSHIP PLANS All full-time domestic employees, except for certain bargaining unit employees, are eligible to participate in the Cooper Retirement Savings and Stock Ownership Plan ("CO-SAV"). Under the terms of the Plan, employee savings deferrals are partially matched with contributions by Cooper of Common stock consisting of either an allocation of shares in Cooper's Employee Stock Ownership Plan ("ESOP") or treasury shares issued to the ESOP. The ESOP purchased Cooper Common stock which was financed through external borrowings and loans from Cooper (See Note 7). Cooper makes annual contributions to the ESOP to fund the payment of principal and interest on ESOP debt. Dividends received by the ESOP are used to pay debt service or purchase treasury shares. As the debt is repaid, unallocated shares are allocated to CO-SAV participants to satisfy Cooper's matching obligation or to replace dividends on allocated shares with Cooper Common shares. The ESOP debt matured in July 1999 and was fully repaid. The purchases funded by loans between the ESOP and Cooper are treated as eliminated intercompany loans for financial statement purposes. Dividends paid on unallocated shares of $1.0 million and $1.7 million during 1999 and 1998, respectively, were used to reduce the amount of cash required to fund principal and interest payments on ESOP debt. Dividends paid on allocated ESOP shares of $3.8 million and $5.6 million during 1999 and 1998, respectively, were used to pay additional principal and interest payments in order to allocate shares equivalent to the dividend amount to participants in the CO-SAV plan. Cooper contributed an additional $13.5 million and $21.8 million in cash to the ESOP during 1999 and 1998, respectively, to fund principal and interest payments on ESOP debt. The number of allocated, committed to be allocated, and unallocated ESOP shares at December 31, 1999 and 1998 is summarized below.
SHARES PURCHASED SHARES PURCHASED PRIOR TO 1994 IN 1994 --------------------- ----------------- 1999 1998 1999 1998 --------- --------- ------- ------- Allocated to CO-SAV participants........................... 2,872,743 2,813,078 631,574 559,967 Committed to be allocated.................................. 1,687 47,793 38,132 11,991 Unallocated................................................ 175,761 321,969 287,394 513,823
A-35 36 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The fair value of the unallocated ESOP shares was $18.7 million at December 31, 1999. Shares purchased by the ESOP prior to 1994 are accounted for in accordance with Statement of Position 76-3, Accounting Practices for Certain Employee Stock Ownership Plans and Emerging Issues Task Force Issue 89-8, Expense Recognition for Employee Stock Ownership Plans. Compensation expense is equal to Cooper's CO-SAV matching obligation, adjusted for the difference between the fair market value and cost of the shares committed to be allocated. Compensation expense is reduced by the amount of dividends paid on unallocated ESOP shares available for future matching. All shares issued to the ESOP are considered outstanding for purposes of computing earnings per share. Shares purchased by the ESOP in 1994 are accounted for in accordance with Statement of Position 93-6, Employers' Accounting for Employee Stock Ownership Plans ("SOP 93-6"). SOP 93-6 was effective for fiscal years beginning after December 15, 1993. Compensation expense is recognized at the fair value of the shares committed to be allocated which is equal to the amount of Cooper's CO-SAV matching obligation. Unearned employee stock ownership plan compensation is credited as shares are committed to be allocated based on the cost of the shares to the ESOP. The difference between the fair market value and cost of the shares committed to be allocated is recorded as an adjustment to capital in excess of par value. Dividends paid on unallocated shares are recorded as a reduction of ESOP debt, accrued interest or accrued employee benefits. Unallocated shares are not treated as outstanding in the earnings per share computation. Compensation expense for the CO-SAV plan and the ESOP was $18.6 million, $15.6 million and $13.1 million and interest expense on ESOP debt was $0.1 million, $0.4 million and $1.4 million in 1999, 1998 and 1997, respectively. NOTE 14: INDUSTRY SEGMENTS AND GEOGRAPHIC INFORMATION INDUSTRY SEGMENTS Cooper's continuing operations consist of two segments: Electrical Products and Tools & Hardware. Markets for Cooper's products and services are worldwide, with the United States being the largest market. The Electrical Products segment manufactures, markets and sells electrical and circuit protection products, including fittings, enclosures, plugs, receptacles, lighting fixtures, fuses, emergency lighting, fire detection systems and security products for use in residential, commercial and industrial construction, maintenance and repair applications. The segment also manufactures, markets and sells products for use by utilities and in industry for electrical power transmission and distribution. The Tools & Hardware segment manufactures, markets and sells hand tools and chain and clamp products for industrial, construction and consumer markets; and air-powered and electric tools for general industry, primarily automotive and aerospace manufacturers. Cooper also manufactured and marketed window treatments through its Kirsch division until its sale on May 30, 1997. Historically, Kirsch was included in the Tools & Hardware segment. Effective with the decision to divest the operation, its results were segregated from the continuing Tools & Hardware segment for internal management reporting. The performance of businesses are evaluated at the segment level and resources are allocated among the segments. The Cooper executive responsible for each segment further allocates resources between the various division operating units that compose the segment and, in international markets, determines the integration of product lines and operations across division operating units. The accounting policies of the segments are the same as those described in the summary of significant accounting policies in Note 1. Cooper manages cash, debt and income taxes centrally. Accordingly, Cooper evaluates performance of its segments and operating units based on the operating earnings exclusive of financing activities and income taxes. Nonrecurring and unusual items are excluded from the evaluations. The segments are managed separately because they manufacture and distribute distinct products. Intersegment sales and related receivables for each of the years presented were insignificant. A-36 37 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Financial information by industry segment was as follows:
REVENUES OPERATING EARNINGS TOTAL ASSETS ------------------------------ ------------------------- ------------------------------ YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, ------------------------------ ------------------------- ------------------------------ 1999 1998 1997 1999 1998 1997 1999 1998 1997 -------- -------- -------- ------ ------- ------ -------- -------- -------- (IN MILLIONS) Electrical Products.............. $3,060.9 $2,824.4 $2,568.3 $516.7 $ 479.0 $461.6 $2,969.5 $2,473.3 $2,441.7 Tools & Hardware................. 808.0 826.8 749.9 97.9 112.4 99.6 897.8 903.8 561.7 Kirsch........................... -- -- 97.4 -- -- 4.8 -- -- -- -------- -------- -------- ------ ------- ------ -------- -------- -------- Total management reporting..... $3,868.9 $3,651.2 $3,415.6 614.6 591.4 566.0 3,867.3 3,377.1 3,003.4 ======== ======== ======== Segment nonrecurring and unusual items.......................... (4.5) (51.3) 31.4 ------ ------- ------ Net segment operating earnings... 610.1 540.1 597.4 General Corporate: Nonrecurring gains............. 0.8 135.2 23.2 Nonrecurring charges........... -- (2.3) (2.1) Expense........................ (37.1) (47.5) (44.9) Interest expense................. (55.2) (101.9) (90.4) ------ ------- ------ Consolidated income from continuing operations before income taxes................... $518.6 $ 523.6 $483.2 ====== ======= ====== Corporate assets................. 276.1 402.0 530.2 Discontinued operations.......... -- -- 1,973.7 -------- -------- -------- Consolidated assets.............. $4,143.4 $3,779.1 $5,507.3 ======== ======== ========
ELECTRICAL TOOLS & CONSOLIDATED PRODUCTS HARDWARE KIRSCH CORPORATE TOTAL ---------- -------- ------ --------- ------------ 1999 (IN MILLIONS) Depreciation..................................... $ 69.6 $29.4 $ -- $ 1.5 $100.5 Goodwill amortization............................ 37.7 9.4 -- -- 47.1 Nonrecurring gains............................... -- -- -- 0.8 0.8 Nonrecurring charges............................. 3.0 1.5 -- -- 4.5 Capital expenditures............................. 117.5 36.5 -- 11.8 165.8 Investment in unconsolidated affiliates.......... 11.4 -- -- -- 11.4 1998 Depreciation..................................... $ 66.4 $25.9 $ -- $ 1.4 $ 93.7 Goodwill amortization............................ 35.9 7.9 -- -- 43.8 Nonrecurring gains............................... -- -- -- 135.2 135.2 Nonrecurring charges............................. 42.6 8.7 -- 2.3 53.6 Capital expenditures............................. 95.9 45.3 -- 1.2 142.4 Investment in unconsolidated affiliates.......... 8.6 -- -- -- 8.6 Other significant noncash item: Write-down of impaired long-lived assets...... 11.1 -- -- -- 11.1 1997 Depreciation..................................... $ 61.2 $22.3 $ 4.2 $ 1.9 $ 89.6 Goodwill amortization............................ 27.9 4.2 0.3 -- 32.4 Nonrecurring gains............................... -- -- 69.8 23.2 93.0 Nonrecurring charges............................. 15.9 22.5 -- 2.1 40.5 Capital expenditures............................. 79.2 35.6 1.4 1.1 117.3 Investment in unconsolidated affiliates.......... 0.4 2.0 -- -- 2.4 Other significant noncash item: Write-down of impaired long-lived assets...... 13.4 10.1 -- 0.7 24.2
A-37 38 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) GEOGRAPHIC INFORMATION Revenues and long-lived assets by country are summarized below. Revenues are attributed to geographic areas based on the location of the assets producing the revenues.
REVENUES LONG-LIVED ASSETS ------------------------------ ------------------------------ 1999 1998 1997 1999 1998 1997 -------- -------- -------- -------- -------- -------- (IN MILLIONS) United States........................... $2,944.5 $2,815.7 $2,730.4 $1,912.6 $1,756.3 $1,755.6 Germany................................. 223.1 226.1 197.7 149.5 171.4 149.0 United Kingdom.......................... 179.4 164.1 72.4 443.9 302.3 310.7 Canada.................................. 133.5 127.3 136.3 4.4 5.1 7.2 Other foreign countries................. 388.4 318.0 278.8 166.4 126.7 93.0 -------- -------- -------- -------- -------- -------- $3,868.9 $3,651.2 $3,415.6 $2,676.8 $2,361.8 $2,315.5 ======== ======== ======== ======== ======== ========
International revenues by destination, based on the location products were delivered, were as follows by segment:
INTERNATIONAL REVENUES -------------------------- 1999 1998 1997 -------- ------ ------ (IN MILLIONS) Electrical Products.......................................................... $ 775.9 $678.9 $612.7 Tools & Hardware............................................................. 351.0 286.6 290.5 Kirsch....................................................................... -- -- 29.1 -------- ------ ------ $1,126.9 $965.5 $932.3 ======== ====== ======
NOTE 15: OFF-BALANCE-SHEET RISK, CONCENTRATIONS OF CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS, INCLUDING DERIVATIVES As a result of having sales and purchases and other transactions denominated in currencies other than the functional currencies used by Cooper's businesses, Cooper is exposed to the effect of foreign exchange rate fluctuations on its cash flows and earnings. To the extent possible, Cooper utilizes natural hedges to minimize the effect on cash flows of fluctuating foreign currencies. When natural hedges are not sufficient, it is Cooper's policy to enter into forward foreign exchange contracts to hedge all significant transactions for periods consistent with the terms of the underlying transactions. Cooper does not engage in speculative transactions. While forward contracts affect Cooper's results of operations, they do so only in connection with the underlying transactions. Gains and losses on these contracts offset losses and gains on the transactions being hedged. The volume of forward activity engaged in by Cooper from year to year fluctuates in proportion to the level of worldwide cross-border transactions, and contracts generally have maturities that do not exceed one year. A-38 39 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The table below summarizes, by currency, the contractual amounts of Cooper's forward exchange contracts at December 31, 1999 and 1998.
DECEMBER 31, -------------- 1999 1998 ----- ------ (IN MILLIONS) British Pound Sterling(1)................................... $ -- $290.9 German Deutschemark(2)...................................... 7.2 298.2 Canadian Dollar............................................. 0.6 18.6 Euros....................................................... 3.9 -- Mexican Pesos............................................... 3.4 1.5 Swiss Francs................................................ 2.4 3.8 Dutch Guilder............................................... 1.5 3.5 Italian Lira................................................ -- 2.0 Australian Dollar........................................... 0.7 2.7 Other....................................................... 1.1 4.6 ----- ------ $20.8 $625.8 ===== ======
- --------------- (1) $276.9 of the 1998 British Pound Sterling forward contracts were entered into in the fourth quarter of 1998 and matured in May 1999. (2) $260.2 million of the 1998 German Deutschemark contracts were entered into in the fourth quarter of 1998 and matured in January 1999. In the normal course of business, Cooper has letters of credit, performance bonds and other guarantees which are not reflected in the consolidated balance sheets. In the past, no significant claims have been made against these financial instruments. Management believes the likelihood of performance under these instruments is minimal and expects no material losses to occur in connection with these instruments. In 1999, Cooper entered into an executory contract with a third party that provides Cooper the right, but not the obligation, to purchase U.S. government obligations shortly before maturity on January 16, 2001. In the worst case scenario, Cooper could realize a $7.3 million loss under the agreement. At December 31, 1999, if Cooper had exercised its rights under the agreement, a small gain would have been realized. Cooper's other off-balance-sheet risks are not material. CONCENTRATIONS OF CREDIT RISK Concentrations of credit risk with respect to trade receivables are limited due to the wide variety of customers and no one customer exceeding 4.5% of accounts receivable. Credit risk is also limited by the world-wide markets into which Cooper's products are sold, as well as their dispersion across many different geographic areas. FAIR VALUE OF FINANCIAL INSTRUMENTS Cooper's financial instruments consist primarily of cash and cash equivalents, trade receivables, trade payables, debt instruments and foreign currency forward contracts. The book values of cash and cash equivalents, trade receivables and trade payables are considered to be representative of their respective fair values. Cooper had approximately $1.1 billion and $899 million of debt instruments at December 31, 1999 and 1998, respectively. The book value of these instruments was approximately equal to fair value at December 31, 1999 and 1998. Based on year-end exchange rates and the various maturity dates of the foreign currency forward contracts, Cooper estimates that the contract value is representative of the fair value of these items at December 31, 1999 and 1998. A-39 40 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 16: SUMMARY OF NONCASH INVESTING AND FINANCING ACTIVITIES The following noncash transactions have been excluded from the consolidated statements of cash flows:
YEAR ENDED DECEMBER 31, --------------------------- 1999 1998 1997 ------- ------- ------- (IN MILLIONS) Assets acquired and liabilities assumed or incurred From the acquisition of businesses: Fair value of assets acquired...................................... $ 522.9 $ 349.8 $ 505.1 Cash used to acquire businesses, net of cash acquired.............. (434.6) (293.7) (366.4) ------- ------- ------- Liabilities assumed or incurred...................................... $ 88.3 $ 56.1 $ 138.7(1) ======= ======= ======= Noncash increase in net assets from: Conversion of 7.05% Convertible Subordinated Debentures Into Cooper Common stock........................................ $ -- $ -- $ 610.0 Exchange of DECS for Wyman-Gordon common stock..................... -- 235.2 33.8
- --------------- (1) Includes $46.2 million of notes payable exchanged for Menvier-Swain common stock. NOTE 17: NET INCOME PER COMMON SHARE
BASIC DILUTED ----------------------------- ----------------------------- YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, ----------------------------- ----------------------------- 1999 1998 1997 1999 1998 1997 ------- -------- -------- ------- -------- -------- ($ IN MILLIONS, SHARES IN THOUSANDS) Income from continuing operations...... $ 331.9 $ 335.9 $ 310.0 $ 331.9 $ 335.9 $ 310.0 Income from discontinued operations.... -- 87.1 84.6 -- 87.1 84.6 Interest expense on 7.05% Convertible Subordinated Debentures, net of income taxes......................... -- -- -- -- -- 5.8 ------- -------- -------- ------- -------- -------- Net income applicable to Common stock................................ $ 331.9 $ 423.0 $ 394.6 $ 331.9 $ 423.0 $ 400.4 ======= ======== ======== ======= ======== ======== Weighted average Common shares outstanding.......................... 94,046 113,266 117,459 94,046 113,266 117,459 ======= ======== ======== Incremental shares from assumed conversions: Options, performance-based stock awards and other employee awards............................ 896 1,392 1,201 7.05% Convertible Subordinated Debentures........................ -- -- 4,270 ------- -------- -------- Weighted average Common shares and Common Share equivalents............. 94,942 114,658 122,930 ======= ======== ========
NOTE 18: DISCONTINUED OPERATION On October 9, 1998, Cooper completed the sale of the Automotive Products segment for cash proceeds of $1.9 billion. During 1999, Cooper received an additional $149.1 million representing reimbursement of Cooper's pre-closing cash funding of international automotive operations and the earnings and additional cash invested in the Automotive Products segment between March 31, 1998 and October 9, 1998. Cooper's results of operations and the related footnote information for all periods presented herein excludes the results of the Automotive Products segment from continuing operations' revenues and other components of income and expense. The discontinued segment's results are presented separately in a single caption, "Income from discontinued operations, net of income taxes". The Consolidated Statements of Cash Flows reflect the cash flows A-40 41 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) from discontinued operations in a single line "Cash flows provided by (used in) discontinued operations". No cash or debt has been allocated to the discontinued operations. Revenues from the discontinued Automotive Products segment were $1.5 billion for the period from January 1, 1998 to October 9, 1998 and $1.9 billion for the year ended December 31, 1997. Income from the discontinued Automotive Products segment was $87.1 million (net of $56.6 million of income taxes) for the period from January 1, 1998 to October 9, 1998 and $84.6 million (net of $58.9 million of income taxes) during the year ended December 31, 1997. The pre-tax loss on the sale of $18.8 million was offset by a tax benefit. Cooper sold the common stock of the entity that held a majority of the Automotive Products segment assets domiciled in the United States and certain investments in foreign subsidiaries. In certain countries, the assets, net of liabilities or investments in subsidiaries, were sold by existing Cooper entities. Cooper's total income tax basis exceeded the book carrying amount of the net assets exclusive of deferred income tax assets which generated a capital loss carryforward. For financial reporting purposes, the sale of the common stock versus a sale of the net assets of the Automotive Products segment resulted in a realization of items (primarily goodwill amortization) that had reduced the book carrying amount without a corresponding income tax benefit. Cooper limited the amount of tax benefits recognized based on an evaluation of the amount of the capital loss carryforward that is expected to be realized before it expires. NOTE 19: UNAUDITED QUARTERLY OPERATING RESULTS
1999 (BY QUARTER) --------------------------------------- 1 2 3 4 ------- ------- ------- --------- (IN MILLIONS, EXCEPT PER SHARE DATA) Revenues.................................................... $924.7 $957.5 $982.2 $1,004.5 Cost of sales............................................... 622.0 639.8 664.4 677.2 Selling and administrative expenses......................... 156.3 156.6 160.8 167.2 Goodwill amortization....................................... 11.3 11.5 11.5 12.8 Nonrecurring charges........................................ 3.7 -- -- -- Interest expense............................................ 13.2 12.2 13.7 16.1 ------ ------ ------ -------- Income before income taxes.................................. 118.2 137.4 131.8 131.2 Income taxes................................................ 42.6 49.4 47.4 47.3 ------ ------ ------ -------- Net income.................................................. $ 75.6 $ 88.0 $ 84.4 $ 83.9 ====== ====== ====== ======== Income per Common share: Basic..................................................... $ .80 $ .93 $ .90 $ .89 Diluted(1)................................................ $ .80 $ .92 $ .89 $ .89
- --------------- (1) Includes net nonrecurring charges of $.02 per share in the first quarter. A-41 42 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1998 (BY QUARTER) -------------------------------------- 1 2 3 4 ------- ------- ------- -------- (IN MILLIONS, EXCEPT PER SHARE DATA) Revenues.................................................... $894.1 $951.2 $924.0 $ 881.9 Cost of sales............................................... 601.9 639.8 621.8 583.6 Selling and administrative expenses......................... 154.8 156.7 151.0 153.9 Goodwill amortization....................................... 10.1 11.1 11.2 11.4 Nonrecurring gains.......................................... -- -- -- (135.2) Nonrecurring charges........................................ -- -- -- 53.6 Interest expense............................................ 25.3 27.4 34.8 14.4 ------ ------ ------ ------- Income from continuing operations before income taxes....... 102.0 116.2 105.2 200.2 Income taxes................................................ 36.7 41.8 37.9 71.3 ------ ------ ------ ------- Income from continuing operations........................... 65.3 74.4 67.3 128.9 Income from discontinued operations, net of taxes........... 26.7 31.6 25.9 2.9 ------ ------ ------ ------- Net income.................................................. $ 92.0 $106.0 $ 93.2 $ 131.8 ====== ====== ====== ======= Income per Common share Basic: Income from continuing operations......................... $ .55 $ .62 $ .59 $ 1.27 Income from discontinued operations....................... .22 .27 .23 .03 ------ ------ ------ ------- Net income................................................ $ .77 $ .89 $ .82 $ 1.30 ====== ====== ====== ======= Diluted: Income from continuing operations(1)...................... $ .54 $ .62 $ .59 $ 1.26 Income from discontinued operations....................... .22 .26 .22 .03 ------ ------ ------ ------- Net income................................................ $ .76 $ .88 $ .81 $ 1.29 ====== ====== ====== =======
- --------------- (1) Includes gains, net of nonrecurring expenses on the redemption of the DECS and sale of investments of $.52 per share in the fourth quarter. A-42 EX-21.0 6 LIST OF SUBSIDIARIES 1 Exhibit 21.0 December 31, 1999 SUBSIDIARIES Cooper has no parent. The subsidiaries of Cooper are listed in groupings that indicate the nature and management of the operations of each. Unless noted herein, all subsidiaries are wholly owned by Cooper or one of its subsidiaries.
Place of Name Incorporation ---- ------------- A. GENERAL CORPORATE ADMINISTRATION ----------------------------------- BZ Holdings Inc. Delaware, U.S. CI Finance, Inc. Delaware, U.S. CI Leasing Company Delaware, U.S. Cooper (U.K.) Limited Delaware, U.S. Cooper Brands, Inc. Delaware, U.S. Cooper Bussmann Finance, Inc. Delaware, U.S. Cooper CPS Corporation Delaware, U.S. Cooper Enterprises LLC Delaware, U.S. Cooper Finance Group L.P. United Kingdom Cooper Finance, Inc. Delaware, U.S. Cooper Industries (Canada) Inc. Ontario, Canada Cooper Industries Australia Pensions Pty Ltd Australia Cooper Industries Australia Pty Limited Australia Cooper Industries Finanzierungs-GbR Germany Cooper Industries Foreign Sales Company, Limited Barbados Cooper Industries Foundation Ohio, U.S. Cooper Industries France SARL France Cooper Industries International Company Delaware, U.S. Cooper Industries, Inc. Delaware, U.S. Cooper International Company Delaware, U.S. Cooper Investment Group L.P. United Kingdom Cooper PAC Corporation Delaware, U.S. Cooper Pensions Limited United Kingdom Cooper Power Systems Finance, Inc. Delaware, U.S. Cooper Power Tools Finance, Inc. Delaware, U.S. Cooper Securities, Inc. Texas, U.S. Cooper Technologies Company Delaware, U.S. Cooper Trading, Inc. Delaware, U.S. Cooper Western Hemisphere Company Delaware, U.S. Coopind Inc. Delaware, U.S.
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Place of Name Incorporation ---- ------------- B. ELECTRICAL PRODUCTS ---------------------- Alpha Lighting, Inc. Delaware, U.S. Arrow-Hart, S.A. de C.V. Mexico Atlite Inc. Delaware, U.S. Blessing International B.V. Netherlands Broomco (1644) Limited United Kingdom Bussmann do Brasil Ltda. Brazil Bussmann International, Inc. Delaware, U.S. Bussmann, S.A. de C.V. Mexico CALP International, Inc. Florida, U.S. Capri Codec S.A. France CEAG Apparatebau Hundsbach GmbH & Co. KG Germany CEAG Apparatebau Hundsbach Verwaltungsgesellschaft mbH Germany CEAG Benelux B.V. Netherlands CEAG Crouse-Hinds Asia Pacific Pte. Ltd. Singapore CEAG Electronics GmbH Germany CEAG Flameproof Control Gears Private Limited (51% owned by CEAG Sicherheitstechnik GmbH) India CEAG Middle East Limited Liability Company (49% owned by Cooper Industries International Company) Dubai, U.A.E. CEAG Norge AS Norway CEAG NORTEM, S.A. Spain CEAG Sicherheitstechnik GmbH Germany Ceramica Creus, S.A. de C.V. Mexico Coiltronics, Inc. Florida, U.S. Coiltronics International Corporation Florida, U.S. Componentes de Iluminacion, S.A. de C.V. Mexico Connectron, Inc. New Jersey, U.S. Cooper Bussmann, Inc. Delaware, U.S. Cooper Corelite, Inc. Delaware, U.S. Cooper Crouse-Hinds (UK) Ltd. United Kingdom Cooper Electrical Australia Pty. Limited Australia Cooper Elektrische Ausrustungen GmbH Germany Cooper Elektrische Ausrustungen GmbH & Co. Offene Germany Handelsgesellschaft Cooper Industries GmbH Germany Cooper Industries (U.K.) Limited United Kingdom Cooper Lighting de Mexico, S.A. de C.V. Mexico Cooper Lighting, Inc. Delaware, U.S.A. Cooper Lighting Internacional, S. de R.L. de C.V. Mexico Cooper Menvier B.V. Netherlands Cooper Menvier France SARL France Cooper Menvier S.A. France Cooper Power Systems do Brasil Ltda. Brazil Cooper Power Systems Pty. Ltd. Australia Cooper Power Systems, Inc. Delaware, U.S. Cooper Power Systems Overseas, Inc. Delaware, U.S.
3
Place of Name Incorporation ---- ------------- Cooper Power Systems, S. de R.L. de C.V. Mexico Cooper Power Systems Transportation Company Wisconsin, U.S. Cooper Security Limited United Kingdom Cooper (UK) Group plc United Kingdom Cortek Internacional, S.A. Costa Rica Crompton Lighting Holdings Limited United Kingdom Crompton Lighting Limited United Kingdom Crouse-Hinds Domex, S.A. de C.V. Mexico Crouse-Hinds Inc. Delaware, U.S. CTIP Inc. Delaware, U.S. Digital Lighting Holdings Limited (50% owned by Alpha Lighting, Inc.) British Virgin Islands Dunfermline Company Ireland Edison Fusegear, Inc. Delaware, U.S. Electromanufacturas, S.A. de C.V. Mexico Fulleon Limited United Kingdom Iluminacion Cooper de las Californias S.A. de C.V. Mexico Industrias AMB, S.A. de C.V. Mexcio Industrias Royer, S.A. de C.V. Mexico JSB Electrical plc United Kingdom Mannin Circuits Limited Isle of Man McGraw-Edison Company Delaware, U.S. McGraw-Edison Development Corporation Delaware, U.S. Menvier A/S Denmark Menvier CSA Srl Italy Menvier Electronics International Pty Ltd. Australia Menvier Group plc United Kingdom Menvier Limited United Kingdom Menvier Notstrom-Und Systemtechnik GmbH Germany Menvier Overseas Holdings Limited United Kingdom Menvier Research Limited Ireland NOEMY Societe Civile Immobiliere France North American Consumter Products, Inc. Delaware, U.S. PCV Incorporated Delaware, U.S. PDS Edison Power Systems Co., Ltd. China (60% owned by Cooper Power Systems, Inc.) Pretronica Precisao Electronica Lda. Portugal Pretronica II - Companhia de Seguranca, Lda. Portugal Regent Far East Limited Hong Kong Regent Holding Corp. Delaware, U.S. Regent Lighting Corporation Delaware, U.S. RLS Incorporated Delaware, U.S. RTE Far East Corporation Taiwan
4
Place of Name Incorporation ---- ------------- Scantronic Holdings Limited United Kingdom Scantronic International Limited United Kingdom Si-Tronic Srl (49% owned by Scantronic International Limited) Italy Silver Light International Limited (50% owned by Cooper International Company) British Virgin Islands Transmould Limited Ireland Univel EPE Greece Western Power Products, Inc. Oregon, U.S. York-Lite Electronics, Inc. Texas, U.S.
5
Place of Name Incorporation ---- ------------- C. TOOLS & HARDWARE ------------------- Airetool and Yost Superior Realty, Inc. Ohio, U.S. (50% owned by Cooper Power Tools, Inc.) Collins Associates Ltd. British Virgin Islands Cooper (Great Britain) Ltd. United Kingdom Cooper Italia S.p.A. Italy Cooper Power Tools B.V. Netherlands Cooper Power Tools GmbH Beteiligungen Germany Cooper Power Tools, Inc. Delaware, U.S.A. Cooper Power Tools de Mexico, S.A. de C.V. Mexico Cooper Power Tools GmbH & Co. Germany Cooper Tools B.V. Netherlands Cooper Tools de Mexico, S. de R.L. de C.V. Mexico Cooper Tools GmbH Germany Cooper Tools Industrial Ltda. Brazil Cooper Tools Manufacturing, S. de R.L. de C.V. Mexico Cooper Tools Pty. Limited Australia Cooper Tools S.A. France Cooper Tools, Inc. Delaware, U.S. Deutsche Gardner-Denver Beteiligungs-GmbH Germany Disston Co. de Mexico, S.A. de C.V. Mexico Empresa Andina de Herramientas, S.A. Colombia Erem S.A. Switzerland GETA-Werk Gebr. Teipel GmbH Germany Lufkin Europa B.V. Netherlands Metro Mex, S.A. de C.V. Mexico Metronix Messgerate und Elektronik GmbH Germany Nicholson Mexicana, S.A. de C.V. Mexico Recoules S.A. France Societe Civile Immobiliere PRECA France Societe Civile Immobiliere R.M. France The Cooper Group, Inc. Delaware, U.S.
6
Place of Name Incorporation ---- ------------- D. INACTIVE SUBSIDIARIES ------------------------ Aerocharter (Coventry) Limited (50% owned by Menvier Group plc) United Kingdom B & S Fuses Limited United Kingdom Bussmann (U.K.) Limited United Kingdom Carlton Santee Corp. California, U.S CSP Industries GmbH Germany Contronic Inc. Canada Crouse-Hinds de Venezuela, C.A. Venezuela DFL Fusegear Limited United Kingdom Firecom Limited United Kingdom Gardner-Denver (Aust.) Pty. Limited Australia Gardner-Denver International, C.A. Venezuela Homelink Telecom Limited United Kingdom Inmobiliaria Cisco, S.A. Mexico JSB Mains Lighting Limited United Kingdom Kearney-National (Canada) Limited Ontario, Canada Les Appareillages Electriques Kearney Inc. Quebec, Canada Menvier (CJS) Ltd. United Kingdom Menvier Security Limited United Kingdom Menvier-Amberlec Systems Limited United Kingdom McGraw-Edison Export Corporation Delaware, U.S. MSG Leasing Limited United Kingdom Premium Safety Products Limited United Kingdom REC Werkzeugbeteiligungs--GmbH (60% owned by Recoules S.A.) Germany REC-Werkzeug Gmb Vertriebsgesellschaft & Co. (60% owned by Recoules S.A.) Germany Regalsafe Limited United Kingdom Scantronic (Singapore) Pte Ltd. Singapore Scantronic Benelux B.V. Netherlands Scantronic B.V. Netherlands Scantronic Holdings Inc. (CAN) Canada Scantronic International Holdings B.V. Netherlands Scantronic Limited United Kingdom Scantronic Spain S.A. Spain Synchrobell Limited United Kingdom WPC Corporation, Inc. Delaware, U.S.
EX-23.0 7 CONSENT OF ERNST & YOUNG LLP 1 Exhibit 23.0 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of Cooper Industries, Inc. of our report dated January 27, 2000, included in Appendix A to the Cooper Industries, Inc. Proxy Statement for the 2000 Annual Meeting of Shareholders. We also consent to the incorporation by reference in the following Registration Statements on Form S-8 or Form S-3 of Cooper Industries, Inc. and in each related Prospectus of our report dated January 27, 2000, with respect to the consolidated financial statements incorporated herein by reference. Registration Statement No. Purpose No. 2-71732 Form S-8 Registration Statement for Shares issuable pursuant to Substitute Deferred Compensation Agreements in connection with the acquisition of Crouse-Hinds Company No. 2-33-14542 Form S-8 Registration Statement for Cooper Industries, Inc. 1985 and 1989 Employee Stock Purchase Plans No. 2-33-29302 Form S-8 Registration Statement for 1989 Director Stock Option Plan No. 333-02847 Form S-8 Registration Statement for Cooper Industries, Inc. Directors' Stock Plan No. 333-08277 Form S-8 Registration Statement for Cooper Industries, Inc. Amended and Restated Stock Incentive Plan No. 333-24237 Form S-3 Registration Statement for Cooper Industries, Inc. Dividend Reinvestment and Stock Purchase Plan No. 333-51439 Form S-8 Registration Statement for Cooper Industries, Inc. Director's Retainer Fee Stock Plan No. 333-51441 Form S-8 Registration Statement for Cooper Industries, Inc. Second Amended and Restated Management Annual Incentive Plan /s/ Ernst & Young LLP Houston, Texas March 29, 2000 EX-24.0 8 POWERS OF ATTORNEY 1 Exhibit 24.0 POWER OF ATTORNEY COOPER INDUSTRIES, INC. KNOW ALL MEN BY THESE PRESENTS, that the undersigned director or officer of Cooper Industries, Inc. ("Cooper"), an Ohio corporation, does hereby make, constitute and appoint Diane K. Schumacher and Terrance V. Helz, and each of them acting individually, his true and lawful attorney with power to act without the other and with full power of substitution, to execute, deliver and file, for and on behalf of the undersigned, and in his name and in his capacity or capacities as aforesaid, the Cooper Annual Report on Form 10-K with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and any other documents in support thereof or supplemental thereto, with respect to the fiscal year ended December 31, 1999, and any and all amendments thereto. The undersigned hereby grants to said attorneys and each of them full power and authority to do and perform each and every act and thing whatsoever as said attorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneys may do or cause to be done by virtue of these presents. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 8th day of February 2000. /s/ Linda A. Hill ---------------------------------- Linda A. Hill 2 POWER OF ATTORNEY COOPER INDUSTRIES, INC. KNOW ALL MEN BY THESE PRESENTS, that the undersigned director or officer of Cooper Industries, Inc. ("Cooper"), an Ohio corporation, does hereby make, constitute and appoint Diane K. Schumacher and Terrance V. Helz, and each of them acting individually, his true and lawful attorney with power to act without the other and with full power of substitution, to execute, deliver and file, for and on behalf of the undersigned, and in his name and in his capacity or capacities as aforesaid, the Cooper Annual Report on Form 10-K with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and any other documents in support thereof or supplemental thereto, with respect to the fiscal year ended December 31, 1999, and any and all amendments thereto. The undersigned hereby grants to said attorneys and each of them full power and authority to do and perform each and every act and thing whatsoever as said attorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneys may do or cause to be done by virtue of these presents. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 8th day of February 2000. /s/ John D. Ong ---------------------------------- John D. Ong 3 POWER OF ATTORNEY COOPER INDUSTRIES, INC. KNOW ALL MEN BY THESE PRESENTS, that the undersigned director or officer of Cooper Industries, Inc. ("Cooper"), an Ohio corporation, does hereby make, constitute and appoint Diane K. Schumacher and Terrance V. Helz, and each of them acting individually, his true and lawful attorney with power to act without the other and with full power of substitution, to execute, deliver and file, for and on behalf of the undersigned, and in his name and in his capacity or capacities as aforesaid, the Cooper Annual Report on Form 10-K with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and any other documents in support thereof or supplemental thereto, with respect to the fiscal year ended December 31, 1999, and any and all amendments thereto. The undersigned hereby grants to said attorneys and each of them full power and authority to do and perform each and every act and thing whatsoever as said attorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneys may do or cause to be done by virtue of these presents. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 8th day of February 2000. /s/ Sir Ralph H. Robins ------------------------------ Sir Ralph H. Robins 4 POWER OF ATTORNEY COOPER INDUSTRIES, INC. KNOW ALL MEN BY THESE PRESENTS, that the undersigned director or officer of Cooper Industries, Inc. ("Cooper"), an Ohio corporation, does hereby make, constitute and appoint Diane K. Schumacher and Terrance V. Helz, and each of them acting individually, his true and lawful attorney with power to act without the other and with full power of substitution, to execute, deliver and file, for and on behalf of the undersigned, and in his name and in his capacity or capacities as aforesaid, the Cooper Annual Report on Form 10-K with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and any other documents in support thereof or supplemental thereto, with respect to the fiscal year ended December 31, 1999, and any and all amendments thereto. The undersigned hereby grants to said attorneys and each of them full power and authority to do and perform each and every act and thing whatsoever as said attorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneys may do or cause to be done by virtue of these presents. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 8th day of February 2000. /s/ H. Lee Scott ------------------------------ H. Lee Scott 5 POWER OF ATTORNEY COOPER INDUSTRIES, INC. KNOW ALL MEN BY THESE PRESENTS, that the undersigned director or officer of Cooper Industries, Inc. ("Cooper"), an Ohio corporation, does hereby make, constitute and appoint Diane K. Schumacher and Terrance V. Helz, and each of them acting individually, his true and lawful attorney with power to act without the other and with full power of substitution, to execute, deliver and file, for and on behalf of the undersigned, and in his name and in his capacity or capacities as aforesaid, the Cooper Annual Report on Form 10-K with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and any other documents in support thereof or supplemental thereto, with respect to the fiscal year ended December 31, 1999, and any and all amendments thereto. The undersigned hereby grants to said attorneys and each of them full power and authority to do and perform each and every act and thing whatsoever as said attorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneys may do or cause to be done by virtue of these presents. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 8th day of February 2000. /s/ Dan F. Smith ----------------------------- Dan F. Smith 6 POWER OF ATTORNEY COOPER INDUSTRIES, INC. KNOW ALL MEN BY THESE PRESENTS, that the undersigned director or officer of Cooper Industries, Inc. ("Cooper"), an Ohio corporation, does hereby make, constitute and appoint Diane K. Schumacher and Terrance V. Helz, and each of them acting individually, his true and lawful attorney with power to act without the other and with full power of substitution, to execute, deliver and file, for and on behalf of the undersigned, and in his name and in his capacity or capacities as aforesaid, the Cooper Annual Report on Form 10-K with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and any other documents in support thereof or supplemental thereto, with respect to the fiscal year ended December 31, 1999, and any and all amendments thereto. The undersigned hereby grants to said attorneys and each of them full power and authority to do and perform each and every act and thing whatsoever as said attorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneys may do or cause to be done by virtue of these presents. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 8th day of February 2000. /s/ James R. Wilson ----------------------------------- James R. Wilson EX-27.0 9 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 26,900 0 740,300 0 569,300 1,466,600 1,692,600 (924,600) 4,143,400 1,085,800 894,500 0 0 615,000 1,128,100 4,143,400 3,868,900 3,868,900 2,603,400 2,603,400 0 0 55,200 518,600 186,700 331,900 0 0 0 331,900 3.53 3.50
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