-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, oFz8LsPG4TfIZZool4oxWp6MlO6KszRNlR6RBCxKmVJbhmS+Lpl4aYIRnCNbQxFX uXibzWjAciTMPbw0+JcX8Q== 0000950129-94-000244.txt : 19940404 0000950129-94-000244.hdr.sgml : 19940404 ACCESSION NUMBER: 0000950129-94-000244 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COOPER INDUSTRIES INC CENTRAL INDEX KEY: 0000024454 STANDARD INDUSTRIAL CLASSIFICATION: 3613 IRS NUMBER: 314156620 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-01175 FILM NUMBER: 94519355 BUSINESS ADDRESS: STREET 1: 1001 FANNIN STE 4000 STREET 2: FIRST CITY TWR CITY: HOUSTON STATE: TX ZIP: 77002 BUSINESS PHONE: 7137395400 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-K 1 10-K PERIOD ENDING 12/31/93 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, 1993 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) First City Tower, Suite 4000, Houston, Texas 77002 (Address of Principal Executive Offices) (Zip Code)
713/739-5400 (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 The Pacific Stock Exchange Preferred Stock - $1.60 Convertible Exchangeable The New York Stock Exchange Preferred Stock, $1 par value The Pacific Stock Exchange Rights to Purchase Preferred Stock The New York Stock Exchange The Pacific Stock Exchange 7% Convertible Subordinated Debentures due 2012 The New York Stock 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 _____ 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. ( ) 2 The aggregate value of the registrant's voting stock held by non-affiliates of the registrant as of March 8, 1994 was $5,240,891,595. Number of shares outstanding of registrant's Common Stock as of March 8, 1994 - 115,912,510 DOCUMENTS INCORPORATED BY REFERENCE Cooper Industries, Inc. Proxy Statement for the Annual Meeting of Shareholders to be held on April 26, 1994 (Part III - Items 10, 11 and 12) 1993 Annual Report to Shareholders (Part I - Item 1, Part II - Items 5, 6, 7 and 8, and Part IV - Item 14(a)(1)) -2- 3 PART I ITEM 1. BUSINESS; ITEM 2. PROPERTIES GENERAL The terms "Cooper" or "Company" refer to the registrant, Cooper Industries, Inc. Cooper was incorporated under the laws of the State of Ohio on January 8, 1919. The Company operates in five business segments: Electrical Products, Electrical Power Equipment, Tools & Hardware, Automotive Products and Petroleum & Industrial Equipment. Cooper manufactures, markets and sells its products and provides services throughout the world, operating facilities in 39 countries and currently employing approximately 49,500 people. On December 31, 1993, the plants and other facilities used by Cooper throughout the world contained an aggregate of approximately 45,435,000 square feet of space, of which approximately 85% was owned and 15% 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. Cooper believes its facilities are adequate and suitable for current and projected operations. Certain equipment and production facilities have been financed by industrial revenue or pollution control bonds issued by local government authorities and are subject to security arrangements customary in such financings. -3- 4
Square Footage of Number and Nature of Facilities Plants and Facilities ------------------------------- --------------------- Number of Segment Employees Manufacturing Warehouse Sales Other Owned Leased ------- --------- ------------- --------- ----- ----- ----- ------ Electrical Products 10,400 32 8 33 - 6,274,000 1,106,000 Electrical Power Equipment 4,400 13 3 50 2 3,950,000 84,000 Tools & Hardware 10,100 39 30 9 2 7,679,000 1,151,000 Automotive Products 13,500 46 16 17 6 7,401,000 2,792,000 Petroleum & Industrial Equipment 10,700 29 35 84 4 13,116,000 1,679,000 Other 400 - - - 1 - 203,000 ------ --- --- --- --- ----------- --------- Total 49,500 159 92 193 15 38,420,000 7,015,000
Manufacturing Plant Locations ----------------------------- Europe United South United (Other Segment States Canada Mexico America Kingdom Than UK) Australia Other ------- ------ ------ ------ ------- ------- -------- --------- ----- Electrical Products 20 2 5 - 3 1 1 - Electrical Power Equipment 12 - - - - - - 1 Tools & Hardware 25 2 - 2 1 7 2 - Automotive Products 31 2 4 1 1 5 1 1 Petroleum & Industrial Equipment 18 - - 1 5 4 - 1 --- --- --- --- --- --- --- --- Total 106 6 9 4 10 17 4 3
-4- 5 Operations in the United States are conducted by unincorporated divisions and subsidiaries of the Company, organized by the five business segments. Activities outside the United States contribute significantly to the revenues and operating earnings of all 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 the Company's five business segments. As a result of these international operations, sales and distribution networks are maintained throughout most of the industrialized world. Cooper believes that there are generally no substantial differences in the business risks associated with these international operations compared with domestic activities. Exhibit 21.0 is a list of Cooper's subsidiaries. Data with respect to Cooper's industry segments, domestic and international operations and export sales is contained in Note 15 of the Notes to Consolidated Financial Statements, incorporated herein by reference to pages 58 through 60 of Cooper's 1993 Annual Report to Shareholders. A discussion of acquisitions and divestitures is included in Notes 2 and 4 of the Notes to Consolidated Financial Statements, incorporated herein by reference to pages 44 through 45 and 46 of Cooper's 1993 Annual Report to Shareholders. With its five business segments, Cooper serves five major markets: industrial, construction, electrical power, automotive and oil and gas exploration, production and transmission. 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. 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 believes that it is among the leading manufacturers in the world of nonpower hand tools, industrial tools, chain products, drapery hardware and window coverings, automotive brakes, lamps, wire sets, spark plugs, wiper blades, steering, suspension, driveline and temperature control products, aviation ignition components, compression equipment for oil and natural gas applications, drilling-related equipment, oilfield valves and wellhead equipment, industrial machinery, primary electrical power equipment, hazardous duty electrical equipment, lighting products and fuses. Cooper's research and development activities are for purposes of improving existing products and services and originating new products. During 1993, approximately $42.1 million was spent for research and development activities as compared with approximately $42.3 million in 1992 and $43.6 million in 1991. Cooper obtains and holds patents on products and designs in the United States and many foreign countries where operations are conducted. 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. 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 1994. 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. -5- 6 Approximately 55% of the United States hourly production work force of Cooper is employed in 93 manufacturing facilities, distribution centers and warehouses not covered by labor agreements. Numerous agreements covering approximately 45% of the hourly production employees exist with 49 bargaining units at 46 operations in the United States and with various unions at 52 international operations. During 1993, new agreements were concluded covering hourly production employees at 15 operations in the United States. Cooper considers its employee relations to be excellent. Sales backlog at December 31, 1993 was approximately $804 million (of which approximately 2% is estimated for delivery after year-end 1994) compared with backlog of approximately $1,298 million at December 31, 1992. The following describes the business conducted by each of the Company's business segments. More information regarding the products, markets, distribution methods and market conditions for each segment is incorporated herein by reference to pages 2 and 3, 10 through 21 and 25 (excluding the last sentence of the first paragraph) through 35 of Cooper's 1993 Annual Report to Shareholders. Electrical Products The Electrical Products segment manufactures, markets and sells electrical products, including fittings, enclosures, plugs and receptacles, used in secondary electrical power distribution applications, such as general construction and industrial maintenance and repair, and by original equipment manufacturers. The segment also manufactures, markets and sells lighting fixtures used in general construction, renovation and repair applications and fuses for the electronics, transportation and consumer markets. 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. Demand for Electrical Products follows general economic conditions and is generally sensitive to activity in the construction and electronics markets and industrial production levels. The segment's product lines are marketed directly to original equipment manufacturers and through major distributor chains and thousands of independent distributors to a variety of end users. In the fall of 1993, the Company spun-off through an initial public offering of stock the Belden wire and cable operation, which was part of the Electrical Products segment and manufactured and marketed wire, cable and cord products for the electronics and electrical markets. Electrical Power Equipment The Electrical Power Equipment segment manufactures, markets and sells electrical products used in primary power transmission and distribution. Products include distribution switchgear, power and distribution transformers, transformer terminations and accessories, capacitors, voltage regulators, surge arrestors, pole-line hardware and other related power systems components. The principal raw material requirements include silicon steel, carbon steel and rod steel, magnet wire, copper coils and aluminum wire and sheets. These raw -6- 7 materials are available from and supplied by numerous sources located in the United States and abroad. Demand for Electrical Power Equipment is driven by general economic conditions, residential and commercial construction, and spending by utilities for replacements, expansions and efficiency improvements. The segment's products are marketed through distributors and directly to utilities and industrial end users. Tools & Hardware The Tools & Hardware segment manufactures, markets and sells hand tools and chain and clamp products for industrial, construction and consumer markets; air-powered and electric tools for general industry; and drapery hardware and custom window coverings for residential and commercial window treatment markets. The principal raw material requirements include rolled coiled steel, wood, plastic pellets, flat and bar stock steel, brass, copper, tin plate, fiberglass, greige goods, aluminum, iron castings and plastic sheet. These materials are available from and supplied by numerous sources in the United States and abroad. Historically, demand for nonpowered hand tools has been relatively stable and is driven by employment levels and industrial activity in major industrial countries. Demand for industrial power tools and many chain products is related to employment levels and the overall level of U.S. and European industrial activity. Demand for drapery hardware and window coverings is influenced by housing starts, turnover of existing housing units and consumer disposable income. The segment's products are sold by a company salesforce, independent distributors and retailers. Automotive Products The Automotive Products segment manufactures, markets and sells automotive brakes and lights, wire and cable, spark plugs, windshield wipers, steering, suspension, driveline and temperature control products and other products for the automotive aftermarket; lights, spark plugs and windshield wipers for original equipment manufacturers; and aviation ignition components. The principal raw material requirements include steel, iron, nickel, glass, aluminum, aluminum oxide, zinc, copper, rubber, plastic and chemicals. The materials are available from and supplied by numerous sources in the United States and abroad. Demand for automotive aftermarket products has been relatively stable and is driven by the number of vehicles produced, the age and number of vehicles on the road, and the number of vehicle miles driven. Demand for automotive products sold to original equipment manufacturers is driven by the number of vehicles produced. The segment's products are sold through distributors and wholesalers to aftermarket outlets and directly to original equipment manufacturers and retailers. Petroleum & Industrial Equipment The Petroleum & Industrial Equipment segment manufactures, markets and services engines, pumps and compressors used in the production, transmission, storage and processing of natural gas and oil; industrial air compressors, blowers and pumps; valves, wellhead equipment, blowout preventers, chokes and control -7- 8 systems, couplings and other components for oil and gas drilling, production and transmission activities; and forgings for a variety of specialized applications. Some of these products also have application in municipal and general industrial markets. The principal raw material requirements include iron castings and steel beams, rails, billets, rods, plates, castings and forgings. Major purchases include gasoline, diesel and aircraft derivative turbine engines, electric motors, micro-computing processors and motorized carriers. These materials are available from and supplied by numerous sources located primarily in the United States, except for aircraft derivative turbine engines which are obtained from Great Britain. Demand for Petroleum & Industrial Equipment products is sensitive to general economic conditions, environmental regulation and energy supply and demand. Repair parts and consumables have experienced relatively stable demand over time. Products and services are marketed by employee sales engineers, salesmen and through independent dealers, distributors and manufacturers' representatives located throughout the world. On January 10, 1994, the Company entered into a definitive agreement to sell the Cameron Forged Products Division of its Petroleum & Industrial Equipment segment to Wyman-Gordon Company, subject to the approval of Wyman-Gordon shareholders and certain other conditions. Immediately after the sale, Cooper will own a 48 percent interest in Wyman-Gordon. In October 1993, the Company announced its intention to spin-off the Gardner-Denver Industrial Machinery Division of its Petroleum & Industrial Equipment segment by distributing 100% of the common stock of Gardner Denver Machinery Inc. to holders of the Company's common stock. Gardner Denver Machinery Inc. manufactures and markets air compressors and blowers for industrial applications and equipment used in oil and gas production and well servicing, drilling and stimulation. The spin-off should be completed in April 1994. ITEM 3. LEGAL PROCEEDINGS The Company and certain of its current officers and directors are named in four alleged class action lawsuits brought in federal court in Houston on behalf of persons who purchased Cooper stock during the period from February 1, 1993 through January 25, 1994. The complaints appear to allege that the defendants, through certain public statements, misled investors respecting (i) deterioration in certain of the Company's markets and the demand for some of its products, and (ii) the Company's anticipated performance in 1994. The ultimate liability, if any, which may result from these lawsuits cannot be determined at this time. As previously reported, on December 8, 1988, the U.S. Environmental Protection Agency ("EPA"), Region VI, issued an Administrative Order to Cooper Industries, Inc., Flow Control Division concerning alleged federal Clean Water Act violations. The allegations concerned wastewater discharges from the Company's Missouri City, Texas plant to the local sewer system. The EPA sought a civil penalty and the submission of a compliance schedule from the Company. The Company previously submitted a compliance schedule and negotiated a consent decree with the EPA under which the Company agreed to pay a civil penalty of $139,000. The executed consent -8- 9 decree was filed with the court in May 1993 and became effective July 23, 1993. On July 30, 1993 Cooper paid the agreed civil penalty of $139,000. On October 4, 1993, the court issued an order of dismissal for this matter. During November 1992, the Cooper-Bessemer Rotating operation of the Company received a letter from the Ohio Attorney General's office alleging violations of the Ohio Right To Know, Toxic Release Inventory reporting requirements. The allegations arise out of an Ohio EPA audit of the facility on April 30, 1992. The State initially proposed a penalty of $212,240. After negotiations between the Company and the State, the State reduced its proposed penalty to $139,457. In February 1994, the Company requested that the State not proceed with this matter until the EPA issues its decision in a rule-making proceeding currently under review addressing similar federal regulatory issues. The State has indicated that it is interested in renewing settlement negotiations. In March 1993, the Wisconsin Department of Natural Resources (DNR) alleged violations by the Company's Pewaukee, Wisconsin plant of air pollution control regulations concerning organic compound emissions from two coating lines and a rotary tumble coater. In August 1993, the Company proposed a settlement agreement to the DNR under which the Company would test changes in processes and coating materials to lower the amount of emissions. If process and materials changes were found to be insufficient, the Company would assure compliance by other means. The DNR forwarded the matter to the Wisconsin Department of Justice (DOJ). In March 1994, the DOJ orally advised the Company that the State will seek a civil penalty of approximately $150,000 in addition to a compliance schedule such as the one that the Company proposed and penalties during the implementation of the compliance schedule. Negotiations are continuing with the DOJ. The Company is also subject to various other 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 the Company's financial position. 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 As of March 8, 1994, there were 36,124 record holders of Cooper's Common Stock and 2,121 record holders of Cooper's $1.60 Convertible Exchangeable Preferred Stock, which is convertible into Cooper Common Stock. Information regarding dividends, trading markets and market prices for Cooper's Stock is incorporated herein by reference to page 24 of Cooper's 1993 Annual Report to Shareholders. ITEM 6. SELECTED FINANCIAL DATA Incorporated by reference to pages 36 and 37, Notes 1 through 4, 9 and 13 of Notes to Consolidated Financial Statements on pages 43 through 46, 50 through 51 and 56 through 57, and Earnings Outlook on pages 34 through 35 of Cooper's 1993 Annual Report to Shareholders. -9- 10 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Incorporated by reference to pages 10 through 21 and 25 through 35 of Cooper's 1993 Annual Report to Shareholders, excluding the last sentence of the first paragraph on page 25. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Incorporated by reference to pages 38 through 62 of Cooper's 1993 Annual Report to Shareholders. 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 3 through 8 and 9 of the Cooper Proxy Statement for the 1994 Annual Meeting of Shareholders. ITEM 11. EXECUTIVE COMPENSATION Incorporated by reference to pages 10 through 16 of the Cooper Proxy Statement for the 1994 Annual Meeting of Shareholders. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated by reference to pages 2 and 8 of the Cooper Proxy Statement for the 1994 Annual Meeting of Shareholders. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Not applicable. 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 Cooper's 1993 Annual Report to Shareholders).
Page No. -------- Report of Independent Auditors .............................. 38 Cooper Industries, Inc. and Subsidiaries: Consolidated Results of Operations for Each of the Three Years in the Period Ended December 31, 1993 .. 39 Consolidated Financial Position as of December 31, 1993 and December 31, 1992 ............ 40
-10- 11 Consolidated Cash Flows for Each of the Three Years in the Period Ended December 31, 1993 ........ 41 Consolidated Changes in Shareholders' Equity for Each of the Three Years in the Period Ended December 31, 1993 .................................. 42 Notes to Consolidated Financial Statements ......... 43 - 62 Management's Discussion and Financial Review ....... 25 (excluding last sentence of first paragraph)-35 Financial History .................................. 36 - 37
With the exception of the financial statements, financial data and other information listed above or incorporated under Items 1, 5, 6, 7 and 8 of this Form 10-K, the 1993 Annual Report to Shareholders is not deemed filed as part of this report. The financial statement schedules listed below should be read in conjunction with the financial statements listed above. Financial statement schedules not included in this Form 10-K Annual Report have been omitted because they are not applicable or the required information is shown in the financial statements or notes hereto. Financial information with respect to subsidiaries not consolidated and 50% or less owned persons accounted for by the equity method has not been included since in the aggregate such subsidiaries and investments do not constitute a significant subsidiary. 2. Financial Statement Schedules (located on the following pages of this Report). Each Schedule is for each of the three years in the period ended December 31, 1993.
Schedule Page No. -------- -------- V Property, Plant and Equipment S-1 to S-3 VI Accumulated Depreciation of Property, Plant and Equipment S-4 to S-6 IX Short-Term Borrowings S-7 to S-9 X Supplementary Income Statement Information S-10
3. Exhibits 3.1 Twenty-Fifth Amended Articles of Incorporation of Cooper Industries, Inc. (incorporated herein by reference to Exhibit 3.1 of the Company's Form 10-K for the year ended December 31, 1992). 3.2 Code of Regulations (By-Laws), as amended, of Cooper Industries, Inc. (incorporated herein by reference to Exhibit 3.2 of the Company's Form 10-K for the year ended December 31, 1992). -11- 12 4.1 Rights Agreement, dated as of February 17, 1987, between Cooper Industries, Inc. and First Chicago Trust Company of New York as Rights Agent, an amendment thereto dated August 14, 1989 (incorporated herein by reference to Exhibit 4.4 to Registration Statement No. 33-31941), and an amendment thereto dated November 6, 1990 (incorporated herein by reference to Exhibit 4.4 to Registration Statement No. 33-38808). 4.2 Rights Agreement, dated as of November 20, 1989, between Cooper Industries, Inc. and First Chicago Trust Company of New York as Rights Agent (incorporated herein by reference to Exhibit A to Registration Statement on Form 8-A filed on November 21, 1989), and an amendment thereto dated November 6, 1990 (incorporated herein by reference to Exhibit 4.5 to Registration Statement No. 33-38808). 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 herein by reference to Exhibit 10.2 of the Company's Form 10-K for the year ended December 31, 1992). 10.3 Cooper Industries, Inc. Directors Retirement Plan (incorporated herein by reference to Exhibit 10.3 of the Company's Form 10-K for the year ended December 31, 1992). 10.4 Cooper Industries, Inc. Executive Restricted Stock Incentive Plan (incorporated herein by reference to Exhibit 10.4 of the Company's Form 10-K for the year ended December 31, 1992). 10.5 Cooper Industries, Inc. Supplemental Excess Defined Benefit Plan (incorporated herein by reference to Exhibit 10.6 of the Company's Form 10-K for the year ended December 31, 1992). 10.6 Cooper Industries, Inc. Supplemental Excess Defined Contribution Plan (incorporated herein by reference to Exhibit 10.7 of the Company's Form 10-K for the year ended December 31, 1992). 10.7 Management Incentive Compensation Deferral Plan (incorporated herein by reference to Exhibit 10.8 of the Company's Form 10-K for the year ended December 31, 1992). 10.8 Crouse-Hinds Company Officers' Disability and Supplemental Pension Plan (incorporated herein by reference to Exhibit 10.9 of the Company's Form 10-K for the year ended December 31, 1992). 13.0 Text of Cooper Industries, Inc. 1993 Annual Report to Shareholders incorporated herein by reference. 21.0 List of Cooper Industries, Inc. Subsidiaries. 23.0 Consent of Ernst & Young. 24.0 Powers of Attorney from members of the Board of Directors of Cooper Industries, Inc. -12- 13 Cooper will furnish to the Commission supplementally upon request a copy of any instrument with respect to long-term debt of the Company. 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. No reports on Form 8-K were filed during the last quarter of 1993. -13- 14 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. Date: March 30, 1994 By /s/ROBERT CIZIK --------------------------------- (Robert Cizik, Chairman and Chief Executive Officer) 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/ ROBERT CIZIK Chairman and Chief Executive March 30, 1994 - --------------------------- Officer (Principal Executive (Robert Cizik) Officer) and Director /s/ DEWAIN K. CROSS Senior Vice President, Finance March 30, 1994 - --------------------------- (Principal Financial Officer) (Dewain K. Cross) /s/ DONALD R. SHELEY, JR. Vice President and Controller March 30, 1994 - --------------------------- (Principal Accounting Officer) (Donald R. Sheley, Jr.) /s/ ALAN E. RIEDEL Director March 30, 1994 - --------------------------- (Alan E. Riedel) /s/ H. JOHN RILEY, JR. Director March 30, 1994 - --------------------------- (H. John Riley, Jr.) *WARREN L. BATTS Director March 30, 1994 (Warren L. Batts) *CONSTANTINE S. NICANDROS Director March 30, 1994 (Constantine S. Nicandros) *CLIFFORD J. GRUM Director March 30, 1994 (Clifford J. Grum) *SIR RALPH H. ROBINS Director March 30, 1994 (Sir Ralph H. Robins) *A. THOMAS YOUNG Director March 30, 1994 (A. Thomas Young) * By /s/ DIANE K. SCHUMACHER ----------------------------------------- (Diane K. Schumacher, as Attorney-In-Fact for each of the persons indicated)
-14- 15 Cooper Industries, Inc. 1993 Annual Report on Form 10-K Cross Reference Sheet
Page Reference Page Reference Page Reference in Incorporated in Incorporated Item No. in Form 10-K in 10-K Annual Report Proxy Statement - --------------------- -------------- --------------- --------------- Item 1. Business 3-8 2, 3, 10-21, - 25-35, 44-45, 46, 58-60 Item 2. Properties 3-8 - - Item 3. Legal Proceedings 8-9 - - 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 24 - Item 6. Selected Financial Data 9 34-35,36-37, - 43-46,50-51,56-57 Item 7. Management's Discussion and Analysis of Finan- cial Condition and 10-21, Results of Operations 10 25-35 - Item 8. Financial Statements and Supplementary Data 10 38-62 - Item 9. Changes in and Disagree- ments with Accountants on Accounting and Financial Disclosure 10 - - Item 10. Directors and Executive Officers of the Registrant 10 - 3-8, 9 Item 11. Executive Compensation 10 - 10-16 Item 12. Security Ownership of Certain Beneficial Owners and Management 10 - 2, 8 Item 13. Certain Relationships and Related Transactions 10 - - Item 14. Exhibits, Financial Statement Schedules, 10-13, and Reports on Form 8-K S-1 et seq. 25-62 -
-15- 16 COOPER INDUSTRIES, INC. AND SUBSIDIARIES SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT FOR THE YEAR ENDED DECEMBER 31, 1993 (millions)
Column A Column B Column C Column D Column E Column F - -------- -------- -------- -------- -------- -------- Balance at Balance Beginning Additions Other At End Classification of Period at Cost Retirements Changes of Period - -------------- ---------- --------- ----------- ---------- --------- Land and land improvements $ 127.3 $ 5.5 $ 2.7 $ 2.3 (1) $ 123.2 (2.3)(2) 5.4 (3) (10.2)(4) (2.1)(5) Buildings 737.4 33.8 20.1 11.7 (1) 676.6 (8.2)(2) 12.4 (3) (90.4)(4) Machinery and equipment 1,518.8 129.3 45.2 2.9 (1) 1,338.0 (13.2)(2) 44.6 (3) (243.1)(4) (56.1)(5) Tooling, dies, patterns, etc. 135.2 24.9 1.4 1.7 (1) 119.1 (0.7)(2) 1.4 (3) (40.7)(4) (1.3)(5) All other 285.7 38.7 23.1 (0.5)(1) 265.7 (2.3)(2) 1.9 (3) (31.6)(4) (3.1)(5) Construction in progress 97.3 12.3 - 0.1 (1) 94.8 (0.7)(2) (11.4)(4) (2.8)(5) -------- ------ ----- ------- -------- $2,901.7 $244.5 $92.5 $(436.3) $2,617.4 ======== ====== ===== ======= ========
(1) Other (transfers to inventory, reclassifications between categories, etc.). (2) Effect of translation in accordance with SFAS No. 52. (3) Assets obtained in business acquisitions and the fair market value adjustments and related activity associated with those assets. (4) Assets reclassified to Net Assets of Businesses Held for Disposition and assets disposed of in business divestitures. (5) Reduction in carrying value of assets related to transformer product line. S-1 17 COOPER INDUSTRIES, INC. AND SUBSIDIARIES SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT FOR THE YEAR ENDED DECEMBER 31, 1992 (millions)
Column A Column B Column C Column D Column E Column F - -------- -------- -------- -------- -------- -------- Balance at Balance Beginning Additions Other At End Classification of Period at Cost Retirements Changes of Period - -------------- ---------- --------- ----------- ---------- --------- Land and land improvements $ 123.9 $ 6.1 $ 4.7 $ 1.9 (1) $ 127.3 (3.4)(2) 5.6 (3) (2.1)(4) Buildings 685.0 50.9 14.9 11.0 (1) 737.4 (19.9)(2) 23.1 (3) 2.2 (4) Machinery and equipment 1,373.4 129.3 43.8 6.8 (1) 1,518.8 (37.2)(2) 55.9 (3) 34.4 (4) Tooling, dies, patterns, etc. 130.4 6.9 2.9 (1.5)(1) 135.2 (1.9)(2) 0.9 (3) 3.3 (4) All other 262.0 43.8 17.9 (1.4)(1) 285.7 (5.8)(2) 5.0 (3) Construction in progress 107.7 (3.2) - (5.8)(1) 97.3 (1.9)(2) 0.5 (3) -------- ------ ----- ------ -------- $2,682.4 $233.8 $84.2 $ 69.7 $2,901.7 ======== ====== ===== ====== ========
(1) Other (transfers to inventory, reclassifications between categories, etc.). (2) Effect of translation in accordance with SFAS No. 52. (3) Assets obtained in business acquisitions and the fair market value adjustments and related activity associated with those assets. (4) Effect of adoption of FAS 109. S-2 18 COOPER INDUSTRIES, INC. AND SUBSIDIARIES SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT FOR THE YEAR ENDED DECEMBER 31, 1991 (millions)
Column A Column B Column C Column D Column E Column F - -------- -------- -------- -------- -------- -------- Balance at Balance Beginning Additions Other At End Classification of Period at Cost Retirements Changes of Period - -------------- ---------- --------- ----------- ---------- --------- Land and land improvements $ 122.0 $ 6.7 $ 6.3 $ 1.3 (1) $ 123.9 .2 (2) Buildings 654.5 48.1 10.9 (5.5)(1) 685.0 (1.2)(2) Machinery and equipment 1,225.4 130.6 28.6 23.6 (1) 1,373.4 (2.2)(2) 15.2 (3) 9.4 (4) Tooling, dies, patterns, etc. 114.9 4.5 1.3 12.5 (1) 130.4 (.2)(2) All other 229.2 49.5 15.9 (.1)(1) 262.0 (.7)(2) Construction in progress 126.9 (9.4) .1 (9.4)(1) 107.7 (.3)(2) -------- ------ ----- ----- -------- $2,472.9 $230.0 $63.1 $42.6 $2,682.4 ======== ====== ===== ===== ========
(1) Other (transfers to inventory, reclassifications between categories, etc.). (2) Effect of translation in accordance with SFAS No. 52. (3) Assets obtained in business acquisitions and fair market value adjustments and related activity associated with those assets. (4) Correction of prior year error in translation. S-3 19 COOPER INDUSTRIES, INC. AND SUBSIDIARIES SCHEDULE VI - ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT FOR THE YEAR ENDED DECEMBER 31, 1993 (millions)
Column A Column B Column C Column D Column E Column F - -------- -------- -------- -------- -------- -------- Additions Balance at Charged Balance Beginning to Costs Other At End Classification of Period and Expenses Retirements Changes of Period - -------------- ---------- ------------ ----------- ---------- --------- Land improvements $ 19.4 $ 1.9 $ 0.3 $ (0.1)(1) $ 15.0 (1.0)(2) (4.9)(3) Buildings 213.2 26.2 11.8 2.8 (1) 192.2 (1.1)(2) (37.1)(3) Machinery and equipment 801.5 111.8 35.9 0.6 (1) 731.6 (4.2)(2) (142.2)(3) Tooling, dies, patterns, etc. 11.6 24.6 0.6 0.8 (1) 27.7 (0.2)(2) (8.5)(3) All other 170.4 37.5 18.6 1.7 (1) 167.5 (1.3)(2) (22.2)(3) -------- ------ ----- ------- -------- $1,216.1 $202.0 $67.2 $(216.9) $1,134.0 ======== ====== ===== ======= ========
(1) Includes change in accumulated depreciation related to "other" asset activity. (2) Effect of translation in accordance with SFAS No. 52. (3) Assets reclassified to Net Assets of Businesses Held for Disposition and assets disposed of in business dispositions. S-4 20 COOPER INDUSTRIES, INC. AND SUBSIDIARIES SCHEDULE VI - ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT FOR THE YEAR ENDED DECEMBER 31, 1992 (millions)
Column A Column B Column C Column D Column E Column F - -------- -------- -------- -------- -------- -------- Additions Balance at Charged Balance Beginning to Costs Other At End Classification of Period and Expenses Retirements Changes of Period - -------------- ---------- ------------ ----------- ---------- --------- Land improvements $ 17.6 $ 2.0 $ 0.4 $ 0.8 (1) $ 19.4 (0.6)(3) Buildings 193.7 25.1 3.5 2.0 (1) 213.2 (4.2)(2) 0.1 (3) Machinery and equipment 701.4 123.8 33.0 9.0 (1) 801.5 (19.6)(2) 19.9 (3) Tooling, dies, patterns, etc. 7.1 6.4 1.5 0.3 (1) 11.6 (0.7)(2) All other 148.6 38.9 13.0 (0.8)(1) 170.4 (3.3)(2) -------- ------ ----- ------ -------- $1,068.4 $196.2 $51.4 $ 2.9 $1,216.1 ======== ====== ===== ====== ========
(1) Includes change in accumulated depreciation related to "other" asset activity. (2) Effect of translation in accordance with SFAS No. 52. (3) Effect of adoption of FAS 109. S-5 21 COOPER INDUSTRIES, INC. AND SUBSIDIARIES SCHEDULE VI - ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT FOR THE YEAR ENDED DECEMBER 31, 1991 (millions)
Column A Column B Column C Column D Column E Column F - -------- -------- -------- -------- -------- -------- Additions Balance at Charged Balance Beginning to Costs Other At End Classification of Period and Expenses Retirements Changes of Period - -------------- ---------- ------------ ----------- ---------- --------- Land improvements $ 15.5 $ 2.1 $ .3 $ .3 (1) $ 17.6 Buildings 174.5 24.3 3.0 (1.4)(1) 193.7 (.7)(2) Machinery and equipment 585.6 110.6 20.7 17.3 (1) 701.4 (.8)(2) 9.4 (3) Tooling, dies, patterns, etc. 4.6 2.5 .8 .8 (2) 7.1 All other 124.7 35.7 12.1 .8 (1) 148.6 (.5)(2) ------ ------ ----- ----- -------- $904.9 $175.2 $36.9 $25.2 $1,068.4 ====== ====== ===== ===== ========
(1) Includes change in accumulated depreciation related to "other" asset activity. (2) Effect of translation in accordance with SFAS No. 52. (3) Correction of prior year error in translation. S-6 22 COOPER INDUSTRIES, INC. AND SUBSIDIARIES SCHEDULE IX - SHORT-TERM BORROWINGS FOR THE YEAR ENDED DECEMBER 31, 1993
Column A Column B Column C Column D Column E Column F -------- -------- -------- -------- -------- -------- Weighted Average Maximum Average Weighted Interest Amount Amount Average Balance Rate Outstanding Outstanding Interest Rate Category of Aggregate at End at End During the During the During the Short-Term Borrowings of Period of Period(5) Period Period(1) Period(2)(5) - --------------------- --------- --------- ----------- ----------- ----------- (millions except percentages) Commercial paper $573.7 (3) 3.32% (4) $1,394.2 $1,120.0 3.22% (4) Payable to banks 346.7 (3) 4.91% 436.0 297.1 5.38%
(1) Computed as the sum of the daily aggregate amounts borrowed divided by 365 days. (2) Computed by dividing interest expense for the year for each "category of borrowing" by the amount computed in Column E. (3) At December 31, 1993, $573.7 million of commercial paper and $247.0 million of borrowings payable to banks were reclassified to long-term debt reflecting the Company's intention to refinance these amounts during the twelve-month period following the balance sheet date through either continued short-term borrowings or utilization of available credit facilities. (4) Includes applicable fees. (5) Weighted average interest rates in the table do not include incremental borrowing costs associated with interest rate swaps. During the period, an average of $547.1 million of borrowings were covered under interest rate swaps that converted floating- rate borrowings into fixed-rate borrowings at an interest rate approximately 0.5 percentage points higher than the floating rate. At year end, $500 million of borrowings were covered under interest rate swaps expiring early in 1994 at rates higher than the floating rate by approximately 0.3 percentage points. S-7 23 COOPER INDUSTRIES, INC. AND SUBSIDIARIES SCHEDULE IX - SHORT-TERM BORROWINGS FOR THE YEAR ENDED DECEMBER 31, 1992
Column A Column B Column C Column D Column E Column F -------- -------- -------- -------- -------- -------- Weighted Average Maximum Average Weighted Interest Amount Amount Average Balance Rate Outstanding Outstanding Interest Rate Category of Aggregate at End at End During the During the During the Short-Term Borrowings of Period of Period(5) Period Period(1) Period(2)(5) - --------------------- --------- --------- ----------- ----------- ------------- (millions except percentages) Commercial paper $1,096.1 (3) 3.55% (4) $1,794.4 $836.8 3.63% (4) Payable to banks 304.1 (3) 6.03% 967.8 399.6 7.12%
(1) Computed as the sum of the daily aggregate amounts borrowed divided by 366 days. (2) Computed by dividing interest expense for the year for each "category of borrowing" by the amount computed in Column E. (3) At December 31, 1992, $1,080.0 million of commercial paper and $120.0 million of borrowings payable to banks were reclassified to long-term debt reflecting the Company's intention to refinance these amounts during the twelve-month period following the balance sheet date through either continued short-term borrowings or utilization of available credit facilities. (4) Includes applicable fees. (5) Weighted average interest rates in the table do not include incremental borrowing costs associated with interest rate swaps. During the period, an average of $669.9 million of borrowings were covered under interest rate swaps that converted floating- rate borrowings into fixed-rate borrowings at an interest rate approximately 0.8 percentage points higher than the floating rate. At year end, $755 million of borrowings were covered under interest rate swaps expiring early in 1993 at rates higher than the floating rate by approximately 1.1 percentage points. S-8 24 COOPER INDUSTRIES, INC. AND SUBSIDIARIES SCHEDULE IX - SHORT-TERM BORROWINGS FOR THE YEAR ENDED DECEMBER 31, 1991
Column A Column B Column C Column D Column E Column F -------- -------- -------- -------- -------- -------- Weighted Average Maximum Average Weighted Interest Amount Amount Average Balance Rate Outstanding Outstanding Interest Rate Category of Aggregate at End at End During the During the During the Short-Term Borrowings of Period of Period Period Period(1) Period(2) - --------------------- --------- --------- ----------- ----------- ------------- (millions except percentages) Commercial paper $ - - $ 925.0 $399.1 6.29% (4) Payable to banks 952.2 (3) 7.30% 1,096.9 919.4 8.06%
(1) Computed as the sum of the daily aggregate amounts borrowed divided by 365 days. (2) Computed by dividing interest expense for the year for each "category of borrowing" by the amount computed in Column E. (3) At December 31, 1991, $758.9 million of borrowings payable to banks were reclassified to long-term debt reflecting the Company's intention to refinance these amounts during the twelve-month period following the balance sheet date through either continued short-term borrowings or utilization of available credit facilities. (4) Includes applicable fees. S-9 25 COOPER INDUSTRIES, INC. AND SUBSIDIARIES SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION FOR THE THREE YEARS ENDED DECEMBER 31, 1993
Column A Column B -------- -------- Charged to Costs and Expenses ------------------------------------ (millions) Item 1993 1992 1991 ---- ------ ------ ------ Maintenance and repairs $105.0 $108.8 $115.7 Depreciation of plant and equipment 202.0 196.2 175.2 Amortization of intangible assets 100.8 92.9 82.8
S-10 EX-13 2 ANNUAL REPORT 1 EXHIBIT 13.0 COOPER INDUSTRIES' MAJOR PRODUCTS AND MARKETS
MAJOR PRODUCTS MAJOR MARKETS PRINCIPAL DISTRIBUTION METHODS Electrical Products BUSS and EDISON fuses and fuse Secondary electrical power Through distributors for use in accessories. distribution; construction; and general construction, plant electronic signal transmission and maintenance, utilities, process and CROUSE-HINDS explosion-proof and control. energy applications, shopping centers, nonexplosion-proof parking lots, sports facilities, and fittings, enclosures, industrial data processing and telecommunications lighting, and plugs and receptacles; systems; through distributors and and ARROW HART wiring devices. direct to manufacturers for use in electronic equipment for consumer, Lighting fixtures sold under well- industrial, government and military known brand names, including CROUSE- applications; and direct to original HINDS, LUMARK, McGRAW-EDISON and equipment manufacturers of appliances, EDISON indoor and outdoor lighting; tools, machinery and electronic HALO recessed and track lighting; equipment. METALUX fluorescent lighting; and FAIL-SAFE vandal-resistant lighting. Electrical Power Equipment KYLE distribution switchgear. Primary electrical power transmission Direct and through distributors to and distribution. utilities and industrial end users. McGRAW-EDISON power and distribution transformers, capacitors, voltage regulators, surge arresters, pole-line hardware and related products. RTE power and distribution transformers, transformer terminations and accessories, and other related power system components. Tools & Hardware APEX screwdriver bits, impact sockets Industrial production; construction; Through distributors to general and universal joints. commercial; and consumer. industry, particularly automotive, appliance and aircraft maintenance; Hand tools sold under well-known brand through distributors and wholesalers names such as CAMPBELL chain and to hardware stores, home centers, fittings; CRESCENT and UTICA wrenches; lumber yards, department stores and DIAMOND pliers, horseshoes and farrier mass merchandisers; and direct to tools; EREM precision cutters and original equipment manufacturers, home tweezers; LUFKIN measuring tapes; centers, specialty stores, department NICHOLSON files and saws; PLUMB stores, mass merchandisers and hammers; WELLER soldering equipment hardware outlets. and torches; WISS snips and scissors; and XCELITE screwdrivers. DOTCO, GARDNER-DENVER and BUCKEYE power tools. KIRSCH drapery hardware and custom window coverings. Automotive Products ANCO windshield wiper products. Automotive repair and production; Through distributors and wholesalers aviation; and industrial. to after-market outlets; direct to BELDEN automotive wire and cable. retailers, mass merchandisers and original equipment manufacturers. CHAMPION spark plugs and igniters. EVERCO and MURRAY heating and air conditioning parts. MOOG steering and suspension components. PRECISION universal joints and GENERAL DRIVESHAFT driveline products. WAGNER brakes and lighting products.
2 2
MAJOR PRODUCTS MAJOR MARKETS PRINCIPAL DISTRIBUTION METHODS Petroleum & Industrial Equipment AJAX and SUPERIOR reciprocating Oil and natural gas exploration, Through distributors and direct to engines and compressors; and gas, production and transmission; onshore and offshore oil, natural gas, dual-fuel and diesel engines. continuous-duty and standby power and waterwell drilling contractors, generation; industrial; aerospace; and field operators, well-servicing CAMERON forged products, extrusions government. companies and pipelines; process and powdered metal products.(1) industries; municipalities; government agencies; industrial users; COOPER centrifugal air compressors. cogeneration developers; and general contractors. COOPER-BESSEMER gas turbines and compressors; integral gas engines and compressors; diesel, gas and dual-fuel engines; and EN-TRONIC controls. GARDNER-DENVER rotary screw and reciprocating industrial air and gas compressors, drilling equipment and pumps; DUROFLOW and SUTORBILT blowers and pumps; and OPI pumps.(2) Oilfield equipment for land, platform and subsea applications, including CAMERON, DEMCO, McEVOY and W-K-M valves and wellhead equipment; CAMERON blowout preventers and elastomers; and CAMERON, THORNHILL CRAVER and WILLIS chokes and control systems. PENNSYLVANIA PROCESS compressors.
(1) Effective January 10, 1994, Cooper entered into a definitive agreement to sell the Cameron Forged Products Division to Wyman-Gordon Company, subject to the approval of Wyman-Gordon shareholders and certain other conditions. (2) The Company plans to spin off the Gardner-Denver Industrial Machinery Division to Cooper common shareholders during the first quarter of 1994. Brand names that appear in bold type are registered trademarks of Cooper Industries except Fail-Safe, General Driveshaft, Thornhill Craver, Willis and Pennsylvania Process, which are unregistered trademarks of Cooper. Belden is a registered trademark of Belden Wire & Cable Company, and Gardner-Denver is a registered trademark of Gardner Denver Machinery Inc. Both trademarks are used by Cooper Industries, Inc. under license. 3 3 OPERATIONS REVIEW SEVERAL OF COOPER'S KEY MARKETS SHOWED IMPROVEMENT A gradual improvement in the domestic economy had a mixed but generally positive effect on demand for the Company's products during 1993. Cooper's primary markets are the industrial, construction, consumer, electric utility, automotive, and oil and gas markets. Four of these markets--industrial, construction, consumer and automotive--strengthened throughout 1993. The other markets remained weak. During the past year, the domestic economy was fueled by an upturn in residential construction and slow-but-consistent improvement in industrial production. This had a positive impact on sales for many Cooper product lines. In addition, industrial maintenance and repair projects continued to provide a base demand for all of our operations. International business was soft in 1993, primarily because of continued recession in the industrial countries of Europe, especially Germany. The important Canadian market was also stagnant for much of the year, only beginning to show a slight recovery later in the year. The Mexican economy, which had been growing in recent years, was more constrained because of concern about the North American Free Trade Agreement. SALES OF ELECTRICAL PRODUCTS WERE AIDED BY THE CONSTRUCTION UPTREND Sales of electrical products, especially lighting fixtures, were buoyed by the continued rebound in residential construction. Residential and commercial remodeling and energy-efficient lighting programs also boosted demand for these products. Fuse sales grew steadily following the slow increase in domestic industrial activity and improved plant capacity utilization. In addition, electronic equipment production was high worldwide, resulting in stronger demand for fuses and related telecommunications products. Orders for hazardous-duty electrical products were somewhat restrained by modest levels of plant and equipment spending in the process industries, such as chemicals and petroleum products. ELECTRICAL POWER EQUIPMENT DEMAND WAS MIXED Orders for Cooper's single-phase transformers and components strengthened somewhat, reflecting the much-delayed recovery of residential construction and low levels of electric utilities' inventories. Continued weakness in nonresidential construction limited domestic sales of three-phase and large power transformers. In addition, utilities have curbed their capital spending in response to regulatory changes and become more price-conscious in their equipment purchases. 10 4 FLAT TOOLS AND HARDWARE SALES REFLECTED MIXED MARKET CONDITIONS The upturn in the construction markets and a cautious increase in consumer spending aided domestic sales of hand tools and drapery hardware. However, the continued recession in Europe, and the corresponding drop in demand for hand and power tools there, offset much of these positive gains, resulting in flat sales for this segment of Cooper's business. Domestic sales of power tools to the automotive industry were strong, but sales to the aircraft industry were depressed due to cuts in defense spending and a weak commercial aviation market. SALES OF AUTOMOTIVE PRODUCTS MAINTAINED A STEADY PACE Replacement parts demand for Cooper's spark plugs, wiper blades, brakes, lights, steering and suspension products, and temperature control products was relatively steady throughout 1993. Domestic light vehicle production increased by almost 10% in 1993, stimulating orders from original equipment manufacturers for Cooper's lighting products and wiper blades. European new car sales, on the other hand, declined about 16%, primarily affecting demand for spark plugs. PETROLEUM EQUIPMENT MARKETS CONTINUED THEIR DECLINE, DESPITE DOMESTIC REBOUND A major positive in the domestic oil and gas market was the increase in exploration and development of natural gas reserves. This came after a period when domestic drilling had reached its lowest level in recorded 11 5 history. The growing need for gas, resulting in higher and more stable prices, was the primary driver of this upswing. The Clean Air Act also created opportunities for equipment conversions to Cooper's patented CleanBurn technology. Unfortunately, these improvements could not offset a downturn in the international market. Several major orders were shipped in 1993, the most significant of which was $80 million worth of compression equipment for government-sponsored oil and gas exploration projects in India. Orders worth $250 million also were booked for equipment to be installed in Canada, the North Sea, Morocco and Malaysia. Nevertheless, additional, major projects that were expected to be released in 1993 were delayed as a result of uncertainty in the world oil markets. Worldwide, total consumption of oil in 1993 was below 1992 levels, the first year-to-year decline since 1983. The decline in demand, coupled with unchecked production, resulted in a global oversupply. By early 1994, oil prices had fallen about one-third since March of 1993, with half the drop coming after October. Consequently, many exploration and development projects were delayed as the industry began to sense that the price slump was more than temporary. This affected demand for drilling and well completion equipment, turbines, engines and compressors made by Cooper. 12 6 OPERATING RESULTS REFLECT COMPETITIVE CONDITIONS, ASSET REVALUATIONS AND OPERATING IMPROVEMENT PROGRAMS Revenues for continuing businesses in the Electrical Products segment were higher than in 1992, reflecting strength in the industrial and residential construction markets. Reported revenues for the year were unchanged from 1992 levels, however, because of the sale of the Belden Division at the end of the third quarter of 1993 and the loss of its fourth-quarter revenues. Electrical Power Equipment revenues were flat. Although demand was stronger for distribution transformers for the residential market, it was offset by sluggishness in the nonresidential sector and the very depressed, large power transformer market. Revenues for the Tools & Hardware segment also were comparable to the previous year, as increased sales to professionals and consumers were offset by a slowdown in the industrial tool business. Sales to the aerospace market and to European automotive customers were especially hard-hit. Revenues for the Automotive Products segment were steady throughout 1993. The higher reported revenues include the contribution of Moog Automotive for the full year in 1993, compared with only one quarter in 1992. Revenues of the Petroleum & Industrial Equipment segment declined in 1993 because of depressed markets and the sale of the mining and construction product lines at the 13 7 beginning of the year. In addition, revenues of Cameron Forged Products were not included for the fourth quarter, because it was classified as a discontinued operation. Operating earnings of the Electrical Products segment were up 7%, despite the loss of Belden's earnings in the fourth quarter. Earnings of the Electrical Power Equipment segment were down more than 25% because of generally lower revenue levels and lower sales of higher-margin products. The Tools & Hardware segment reported improvements in operating earnings as a result of plant consolidation and operating efficiency-improvement programs. Operating earnings of the Automotive Products segment benefited from the inclusion of Moog for the full year. The operating earnings of the Petroleum & Industrial Equipment segment reflect the downturn in the oil and gas market discussed earlier. Operating earnings for all five business segments benefited from ongoing cost-improvement programs. COMPLEMENTARY ACQUISITIONS CONTINUED IN 1993 Cooper's strategy of acquiring businesses to complement existing operations or diversify the Company was developed in the 1960s and continues today. During 1993, Cooper made several complementary acquisitions. Mid-year, the Hawker Fusegear Group became part of the Bussmann Division. Hawker, which is headquartered in the United Kingdom, manufactures a comprehensive range of electrical fuses, along with related fusegear and connector products. The acquisition strengthened Cooper's position in the European circuit protection market. In August, the Triangle Tool Group and the Swiss line of Erem tools became part of the Cooper Hand Tools Division. Triangle Tool manufactures and distributes pliers, wrenches, farrier tools and horseshoes under the Utica, Bonney and Diamond brand names. The Erem line consists of high-quality precision pliers, tweezers, cutters and connector tools for the electronics market. All of these products complement Cooper's line of hand tools sold under the CooperTools umbrella. Also during the third quarter, Cooper purchased Chicago-based Fail-Safe Lighting Systems, a leading manufacturer of lighting fixtures for prisons, operating rooms, clean rooms and high-abuse applications. Fail-Safe adds to the growing Cooper Lighting line of recessed, track, fluorescent, indoor/outdoor and emergency lighting fixtures. In addition to these complementary acquisitions, Cooper also acquired controlling interest in two businesses in which the Company previously had a minority interest. Anco de Mexico, S.A. de C.V., which makes Anco wiper blades, was previously 40%-owned by Cooper. During 1993, Cooper purchased the 60% of Anco de Mexico that was not previously owned. Likewise, late in the fourth quarter, Cooper acquired the outstanding 58.5% interest in Home Fittings Espana, S.A., headquartered in Vitoria, Spain. 14 8 HOFESA manufactures a full line of drapery hardware products and fabricates alternate window treatments, such as venetian and vertical blinds, for sale primarily in Spain, Portugal, Italy, France and England. This business is now part of the Kirsch Division. These investments enable Cooper to have management control of these operations. RATIONALIZATION, REVITALIZATION AND REALIGNMENT PROGRAM DESIGNED TO IMPROVE COMPETITIVENESS Since late 1991, Cooper has been involved in a multi-step program designed to revitalize and realign the Company's operations to address the competitive pressures anticipated in the coming decade. This program includes the divestiture of certain noncore product lines, rationalization and consolidation of facilities, and ongoing improvements in operations and manufacturing processes. DIVESTITURES A key component of Cooper's revitalization and realignment program is divestment of noncore businesses and re-deployment of the Company's assets into areas of market strength. During 1993, the Company completed the sale of one division and announced plans to divest itself of two others. At the end of the third quarter, an initial public offering was made of stock in Belden Inc., formerly the Belden Division of Cooper. Belden, which manufactures electronic wire and cable and electrical wire and cord products, became part of Cooper in 1981 with the acquisition of Crouse-Hinds Company. There was little 15 9 synergy between Belden and Cooper's other electrical businesses because of different manufacturing processes and distribution networks. The completion of the initial public offering resulted in a one-time, pretax gain of $274 million, which was offset completely by writedowns and other management actions designed to improve the Company's long-term competitive position. In September, Cooper announced an agreement to sell the Cameron Forged Products Division to Wyman-Gordon Company. The definitive agreement was signed in January of this year. Cameron Forged Products makes high-quality, specialized forgings for the aerospace, nuclear, oil and gas, and defense industries. It was acquired in 1989 as part of Cameron Iron Works and is not a traditional manufacturing operation like Cooper's other businesses. In addition, there is little replacement parts business, which is an important aspect of Cooper's ongoing operations. Both Cameron Forged Products and Wyman-Gordon have been hurt by defense cutbacks and lower capital investments by the airline industry. The combined company should be able to compete more effectively. Cooper will own a 48% interest in Wyman-Gordon and will have representation on Wyman-Gordon's Board of Directors. The sale is subject to approval by Wyman-Gordon's shareholders and lenders and is expected to be completed during the second quarter. At the end of the third quarter, the Company announced plans to 16 10 spin off the Gardner-Denver Industrial Machinery Division to holders of Cooper Common stock in a tax-free transaction. The new company, Gardner Denver Machinery Inc., will be headquartered in Quincy, Illinois. Gardner-Denver Industrial Machinery manufactures air compressors for various industrial applications and equipment and pumps for oil and gas production, well-servicing, drilling and stimulation. It was acquired in 1979 as part of the Gardner-Denver Company. The Industrial Machinery Division that Cooper operates today primarily serves the industrial markets and no longer complements Cooper's other oilfield equipment operations. The spin-off is expected to be completed by the end of the first quarter. CONSOLIDATION OF OPERATIONS Throughout all five business segments, efforts to improve operations, reduce overhead costs and eliminate excess production capacities continue. The rationalization and integration of manufacturing for several product lines is underway: electrical fittings; electrical transformers; horseshoes and farrier tools; automotive steering and suspension products; and wellheads, valves and compressors. In all, a dozen facilities worldwide were closed in 1993, and several additional consolidation projects are planned for 1994 and 1995. Warehousing, distribution and customer service operations for several businesses are being upgraded in order to improve customer service and reduce handling and transaction costs. More and more, entire product 17 11 lines can be shipped from one location, enabling customers to place a single order for items manufactured at a variety of locations. During 1993, Cooper Automotive consolidated distribution of spark plugs, wiper blades, and automotive wire and cable into one modern facility. Crouse-Hinds began centralizing warehousing and distribution of its electrical products at an existing Cooper facility in Virginia. Customer service for Kirsch window products is now handled more efficiently from two cost-effective, 800-number telephone centers, eliminating the need for multiple branch offices. The marketing organizations of the automotive product lines also have been integrated. Sales of Cooper Automotive's spark plug, lighting, wiper blade and automotive wire and cable lines are now handled by a single aftermarket sales organization. European operations also were reorganized to improve customer responsiveness. Recently, Moog Automotive integrated its brake and chassis parts sales forces into one entity. These new organizations are more efficient and provide better customer service. OPERATIONS IMPROVEMENT PROGRAMS Lowering product costs is an ongoing process at Cooper. Throughout the Company's operations, new manufacturing technology is being introduced. Capital investment is being made in new equipment, manufacturing cells are being installed, and warehousing and inventory planning and production control systems are being automated and upgraded. Synchronous production techniques are being introduced at various plants. This flexible operating approach reduces cycle times while lowering costs and work-in-process inventories. All of these programs are linked to each division's strategy and long-term operating plan. Other projects are under way to enable Cooper's operations to maintain their positions as worldwide leaders in their respective markets. For example, the Bussmann Division recently completed the construction of a new, high-power technology center. It is the only facility in the world capable of three-phase performance evaluation of its own and others' advanced circuit protection devices under the most extreme, high-current or short-circuit conditions. The facility is capable of generating up to 300,000 amperes of current at 750 volts under carefully controlled conditions. As another example, an industrial engineering software package with a group technology feature, enhanced and installed by Cooper Energy Services, allows a production planner to recall parts with like characteristics, reducing planning time and resulting in more-consistent quality. Cooper Oil Tool Division began a major revamp of its management information system in 1993. Installation of a state-of-the-art product database and business application system is under way to integrate worldwide marketing, engineering, manufacturing, planning and reporting, and human resource systems to 18 12 streamline decision-making and improve customer service. TRAINING FOR QUALITY AND DEPENDABILITY Producing quality products is a top priority at Cooper. To assure that the Company's products meet demanding customer standards, every division has a training program for continuous quality improvement. In addition, nine more Cooper plants became ISO 9000 (International Standards Organization)-registered in 1993, bringing the total of registered plants to 33. Another 25 facilities expect to be registered in 1994. Using ISO 9000 as a base, many operations have developed a Total Quality Management process that includes statistical process control, team-building, problem-solving, design for manufacturability, and internal and external customer focus. Within their teams, shop-floor employees assume responsibility for planning, expediting, maintenance and problem-solving. Both productivity and quality improve significantly as a result. In addition to internal training for quality assurance, many operations have training programs for distributors, customers or other end users. For example, Cooper Lighting has continued its extensive training programs for customers at the "Source," its innovative lighting education center. During 1993, almost 5,000 people from around the world toured the center, which offers seminars for architects, designers, contractors and other customers on such topics as 19 13 lighting fundamentals and energy-efficient lighting systems. The Moog Technical Training Center has long been considered one of the best automotive training centers in the industry. Field sales clinics are held weekly to train professional installers. MARKETS ARE SHIFTING AND COOPER IS RESPONDING The time-tested ways of doing business are rapidly changing, and traditional distribution methods are yielding to radical, new ways of getting products to both old and new customers. For example, "do-it-yourself" home centers have emerged as an alternate distribution channel for several Cooper product lines. Targeted marketing programs are required to reach different market segments. Through one innovative program, Cooper Lighting encourages retail customers to participate in the Environmental Protection Agency's Green Lights Program and helps them select lighting to improve the appearance of their product showrooms, reduce energy and maintenance costs, and gain public recognition for environmental leadership. In the drapery hardware and window coverings market, distribution channels are changing, as well, and there is a shift in the kinds of products these "new" customers are ordering. The current fashion is alternate window products, such as blinds, shades and shutters. Kirsch has focused its marketing programs on this growing segment of the market. In the power tools industry, automation is replacing single-point tool usage, requiring a shift toward automated fastening systems, such as those made by Cooper's Deutsche Gardner-Denver operation in Germany. These products are now being marketed more aggressively in the U.S. OUTLOOK FOR BUSINESS SEGMENTS SHORT-TERM OUTLOOK: GOOD FOR MOST OPERATIONS, BAD FOR ENERGY-RELATED ONES The near-term outlook for Cooper is both good and bad. The immediate future for most of Cooper's operations is relatively bright. The U.S. economy continues to improve, and there is evidence that some international economies may pick up later this year, as well. The Electrical Products segment will be favorably impacted by continued growth in the domestic economy. Demand for lighting fixtures should be even stronger, benefiting from increased housing starts and conversions to more energy-efficient lighting. Results of the Electrical Power Equipment segment, on the other hand, are expected to be flat over the short term, reflecting cautious utility spending and a sluggish nonresidential construction market following years of overbuilding. The Tools & Hardware segment should continue its steady performance, achieving some growth from improving cost structures in all of its operations. The window treatments business is also expected to grow, especially in Europe, following recent acquisitions there. The Automotive Products segment should experience modest 20 14 growth in unit demand, but price pressures are expected as the market consolidates. A turnaround in European original equipment and aftermarket demand is expected to begin later in 1994. The Petroleum & Industrial Equipment segment will be down because of the depressed petroleum markets and delays in major gas compression projects worldwide. LONG-TERM PROSPECTS ARE PROMISING Over the longer term, the outlook for Cooper's businesses is positive. Sales of electrical product lines should continue to grow, both internally and through acquisitions. The hand and power tool operations also should expand through acquisitions. The window treatments division is moving ahead with its internal development and international growth strategies. The automotive operations will benefit from new marketing programs and will continue to seek complementary product lines. Understandably, the petroleum equipment operations are concentrating on consolidations, cost reductions and product improvements, to be ready to take advantage of any upturn in their markets. Cooper Industries is preparing for the competitive environment of the '90s and beyond. The Company is adapting to changing trends in the marketplace and is investing in tools, training and technology to assure that we deliver the best value to our customers through top-quality, cost-effective products and superior service. 21 15 DIVIDEND AND STOCK INFORMATION DIVIDENDS Annual cash dividends declared during 1993 were $1.32 a share ($.33 a quarter) and during 1992 were $1.24 a share ($.31 a quarter). On February 16, 1994, the Board of Directors declared a quarterly dividend on Common shares of $.33 a share, which will be paid April 1, 1994, to shareholders of record March 8. The annual share dividend for the Convertible Exchangeable Preferred stock is $1.60 ($.40 a quarter). The Preferred dividend rate is fixed by the stated terms of the stock. STOCK INFORMATION Cooper Industries Common stock (symbol--CBE) and $1.60 Convertible Exchangeable Preferred stock (symbol--CBE p) are listed on the New York and Pacific stock exchanges. Cooper Industries options are listed on the American Stock Exchange. The high and low quarterly sales prices for the past two years of Cooper shares, as reported by Dow Jones & Company, Inc., are as follows:
1993 (by quarter) ------------------ 1 2 3 4 ----------------------------------------------------------- Common High $54.75 $51.875 $52.875 $54.125 Low 46.625 45.625 47.25 47.125 $1.60 Convertible Exchangeable Preferred High 33.875 32.00 32.75 32.25 Low 29.50 29.625 30.125 28.00 -----------------------------------------------------------
1992 (by quarter) ----------------- 1 2 3 4 ------------------------------------------------------------ Common High $59.375 $58.625 $52.50 $53.25 Low 53.25 45.50 41.75 45.375 $1.60 Convertible Exchangeable Preferred High 35.75 35.00 33.125 33.50 Low 32.125 29.00 27.875 29.50 ------------------------------------------------------------
24 16 MANAGEMENT'S DISCUSSION AND FINANCIAL REVIEW OVERVIEW During the last three years, the Company has completed a total of 13 acquisitions and 11 divestitures, with one additional divestiture and a spin-off pending. While the net effect of these transactions, combined with an erratic and often slow-growth global economy, has left the Company with essentially unchanged revenues and earnings during this period, Cooper is a much different company than it was in 1990 and better-prepared for the increasingly competitive world marketplace. The acquisitions have been in complementary product lines that enhance known areas of strength, while the dispositions have been of noncore or poor-performing businesses. The discussion that follows, as well as the financial statements and related footnotes, will aid in understanding the Company's results of operations as well as its financial position, cash flows, indebtedness and other key financial information. For further information about Cooper's products, markets, operations and future prospects, please refer to the Letter to Shareholders, the Operations Review, the section entitled "Investing in the Three Ts," and other discussions throughout this report. REVENUES 1993 REVENUES Revenues of $6.27 billion in 1993 were up 2% from the $6.13 billion in 1992. Higher revenues in the Automotive Products segment, resulting from the inclusion of a full year's revenues of Moog Automotive, more than offset the decline in Petroleum & Industrial Equipment revenues stemming from the weakness in worldwide petroleum markets and business dispositions. The Automotive Products segment generated revenues of $1.67 billion in 1993, which accounted for 27% of 1993 operating revenues, compared with $1.29 billion in 1992. This 30% increase was due to the inclu sion of 12 months of Moog Automotive revenues in 1993 versus only three months in 1992. Excluding the effects of Moog, revenues were down 1% compared with the preceding year. Sales to domestic original equipment manufacturers improved over 1992 resulting in higher sales of wiper and lighting products during 1993. However, declines in domestic and Canadian sales of brake products and in European sales of spark plugs and wiper products more than offset otherwise steady demand from the automotive aftermarket. Revenues from the Electrical Products segment were $1.57 billion, comprising 25% of the Company's operating revenues in 1993. Sales were flat compared with 1992 because of the inclusion of only nine months' revenues related to the Belden wire and cable business, which was sold at the end of the third quarter (see Note 2 of the Notes to Consolidated Financial Statements for further information). After excluding the revenues of Belden from both periods, and adjusting for the effects of 1993 acquisitions and a small 1992 divestiture, revenues in the segment improved by 6%. All major product offerings in the segment reported steady revenue gains, led by improved demand for fluorescent, industrial and airport lighting and for electrical circuit protection equipment. The Tools & Hardware segment, which comprised 13% of 1993 operating revenues, reported revenues of $808 million compared with $812 million in 1992. After excluding the effects of acquisitions made during 1993 and 1992, revenues were down 3%. The revenue decline resulted primarily from the combined effects of weak consumer confidence and severe price competition in window coverings markets, and sluggish European and export demand for power tools. These weaknesses more than offset the modest improvement in domestic hand tool sales caused by strengthening residential construction activity and industrial production. Revenues from the Electrical Power Equipment segment declined from $618 million in 1992 to $612 million in 1993, and represented 10% of the Company's operating revenues in 1993. Sales of this segment's products continued to be adversely affected by lower capital spending by utility customers and weak 25 17 pricing for distribution products. However, demand from utilities for maintenance and efficiency products continued at steady levels, and an increase in neighborhood development activity helped demand for distribution transformers and transformer components. The Petroleum & Industrial Equipment segment, which represented 25% of the Company's 1993 operating revenues, experienced a 13% decline in revenues to $1.60 billion from the $1.83 billion reported in 1992. Excluding the effects on the comparison attributable to the early 1993 disposition of the mining and construction operations and the inclusion of only nine months' revenues from Cameron Forged Products due to the impending disposition of that business, revenues declined 6% from the preceding year. International shipments for oil and gas production and transmission equipment tapered off throughout the year, with significant declines in the fourth quarter. Domestic exploration and production activity improved slightly as a result of the stronger natural gas market. Shipments of industrial air compressors and blowers improved slightly compared with the prior year as a result of an upturn in industrial demand and economic development activity in Asia and the Pacific Rim. 1992 REVENUES Cooper's 1992 revenues of $6.13 billion (excluding nonrecurring income items discussed below) were constant compared with 1991. Improvements in demand in the Electrical Products and Automotive Products segments, along with the acquisition of Moog Automotive, largely offset softness in Canadian and some European markets and a drop in demand in the domestic petroleum equipment market. Revenues in the Automotive Products segment were $1.29 billion, or 21% of total operating revenues during 1992, an increase of 12%, compared with the $1.15 billion reported in 1991. Excluding the effects of Moog Automotive, which was acquired during the fourth quarter of 1992 (see Note 4 of the Notes to Consolidated Financial Statements), revenues were up 2%. Aftermarket demand, which accounted for the vast majority of this segment's sales, improved moderately in most product areas. Demand from domestic original equipment manufacturers also improved, reflecting increased production of trucks and minivans. These increases were partially offset by weak European markets, primarily affecting spark plug sales. The Electrical Products segment contributed 26% of the Company's total operating revenues, improving 3% from $1.53 billion in 1991 to $1.57 billion in 1992 (up about 7% after adjusting both periods for recent divestitures). Higher levels of housing construction activity, as well as improved industrial production and maintenance and repair spending, favorably impacted sales of lighting fixtures, fuses and some electrical construction materials. Gains by electronics producers also contributed to increased sales of electronic wire and cable compared with the prior year. Electrical Power Equipment revenues improved to $618 million, representing 10% of total operating revenues for 1992, from the $599 million reported in 1991. Utility customers continued to spend on maintenance and efficiency improvement projects, however capital spending remained at low levels. In addition, the prior-year results were adversely impacted by a third-quarter work stoppage at the Company's large power transformer plant. Revenues from the Tools & Hardware segment declined 4% to $812 million, representing 13% of total operating revenues. Adjusted for recent acquisitions, revenues decreased approximately 7% compared with the prior year. Demand for the Company's hand- and air-powered tools fell as durable goods manufacturing activity slowed internationally. The rise in domestic residential construction activity and industrial production was modestly beneficial to the Company's domestic hand tools operations; however, reduced spending on residential redecorating and price competition depressed revenues in this segment's window treatments business. Revenues from the Petroleum & Industrial Equipment segment, which represented 30% of the Company's total operating revenues in 1992, fell 10% to $1.8 billion from the $2.0 billion reported in 1991. Weakness in domestic demand for petroleum equipment, coupled with the continued softness in aerospace and industrial equipment markets, led to declines in sales of the Company's well completion equipment, aerospace forgings, power engines and air compressors. International demand for oil and gas 26 18 production and transmission equipment in the North Sea, Middle East and Southeast Asia provided some offset to the factors noted above. 1991 REVENUES Revenues of $6.16 billion for the year ended December 31, 1991, were down 1% from the $6.22 billion reported in 1990. Increased revenues attributable to a continuing recovery in worldwide petroleum markets were more than offset by the effect of a weak domestic economy. Demand for many of the Company's products suffered during the year as the domestic economy declined, particularly in construction and industrial production markets. The Petroleum & Industrial Equipment segment contributed 33% of the Company's operating revenues in 1991. Revenues rose to $2.0 billion in 1991, representing a 10% increase. Worldwide demand for oil and gas production and transmission equipment increased significantly early in the year as the Persian Gulf war created uncertainties over supply. While international demand remained firm throughout the year, domestic activity decreased after the war due to the deterioration of the natural gas industry, which saw prices fall to their lowest levels in over a decade. International exploration and production activity grew in almost all geographic areas; however, the domestic petroleum market fell off considerably from the first half of the year. A decline in worldwide construction of chemical, paper and other basic industry plants caused demand for the Company's air compressors to subside. The weak condition in the domestic economy also depressed demand for other of the Company's industrial products, such as forgings for commercial aircraft and mining and construction equipment. Revenues from the Automotive Products segment remained unchanged at $1.15 billion for the year, representing 18% of total operating revenues. Modest declines in demand for spark plugs and brakes were somewhat offset by improved sales of wiper blades and lighting products. Market conditions in the automotive aftermarkets were highly competitive throughout the period as automotive parts distributors struggled to maintain market share in the midst of the recession. Demand for repair and replacement products held up early in the year, but began to reflect the softness in the domestic economy during the latter part of the year. The Electrical Products segment recorded a 5% decline in revenues during 1991 to $1.5 billion, or 25% of total operating revenues. Sales of lighting fixtures, fuses and some electrical distribution products lagged behind 1990's levels due to the weak domestic construction market. Uncertainty over the prospect of economic recovery affected demand for electrical construction materials; however, spending on repair and maintenance activities was relatively strong throughout the year. Original equipment and installer demand for electronic wire and cable declined. Revenues of the Tools & Hardware segment fell 7% to $843 million, or 14% of total operating revenues. Sales of hand tools and window treatments suffered domestically as residential construction activity and industrial production fell in response to the soft U.S. economy. International demand for certain of the Company's industrial power tools increased in European markets, providing a partial offset to domestic declines. An extended work stoppage (settled in October 1991) at the Company's factory that produces large power transformers contributed significantly to the 12% decline in revenues from the Electrical Power Equipment segment. This segment's revenues decreased to $599 million, representing 10% of Cooper's total operating revenues. Weak demand in residential construction resulted in lower sales of distribution transformers, thereby contributing to the decline in segment revenues. Demand for efficiency improvement products (such as distribution switchgear, capacitors and voltage regulators) was steady during the year. 27 19 NONRECURRING ITEMS At the end of the third quarter of 1993, the Company commenced the final phase of a multi-year program designed to revitalize ongoing operations and eliminate noncore businesses. The completion of the public offering of the stock of Belden Inc. provided a $274-million pretax gain. That gain was entirely offset by a number of management actions including the write-down of the Cameron Forged Products operations to reflect the agreed-upon sales price of this business to Wyman-Gordon Company; a write-down of internally developed capitalized software; a reduction in the carrying value of the machinery and equipment and certain other plant and equipment associated with the Company's transformer product line within the Electrical Power Equipment segment; and accruals of $99 million for a number of facility consolidations, shutdowns and rationalizations. The facility projects are planned for all of the Company's segments and involve operations in the United States, Canada and Europe. While the majority of the spending for these projects will occur in 1994 and 1995, some projects will not be completed until 1996. These actions are in addition to those provided for in the third quarter of 1992, as well as the realignment of the Cameron Iron Works and Champion Spark Plug operations undertaken in connection with those acquisitions. While the Cameron and Champion realignments are largely completed domestically, they are still in the early stages in Europe and other parts of the world. Although these projects involve significant expenditures, the spending is over several years, thus the various projects will not constitute a significant strain on the Company's overall financial resources or create a liquidity problem. Each of the projects was approved only after careful assessment that indicated that each project, when completed, will provide significant gains in productivity, operating efficiencies or other cost savings in the future. Coincident with the sale of Belden, the Company announced an agreement in principle to sell its Cameron Forged Products Division to Wyman-Gordon Company and its intention to spin off to Cooper's Common shareholders the Company's Gardner-Denver Industrial Machinery operations headquartered in Quincy, Illinois. These actions, along with the sale earlier during 1993 of the Company's Gardner-Denver Mining and Construction operations, completed the divestitures of noncore businesses. Additional information regarding 1993 nonrecurring income and expense items is set forth in Note 2 of the Notes to Consolidated Financial Statements. The Company's pretax earnings for 1992 include nonrecurring corporate income of $24.6 million and nonrecurring expense of $57 million. The net effect of these nonrecurring items was fully offset by $32.4 million of income tax expense reductions. See Note 2 of the Notes to Consolidated Financial Statements for additional information. The $57 million of nonrecurring expense resulted from establishing accruals with respect to productivity improvement, consolidation and asset disposition programs in all of the Company's segments except Electrical Power Equipment. These programs, which started in 1993, will be largely completed by late 1994 or early 1995 and are expected to result in a favorable earnings payback in the form of reduced costs, increased efficiency and other ancillary benefits. Also, during the year ended December 31, 1992, the Company elected early adoption of Statement of Financial Accounting Standards (SFAS) No. 106 (Employers' Accounting for Postretirement Benefits Other Than Pensions), SFAS No. 109 (Accounting for Income Taxes) and SFAS No. 112 (Employers' Accounting for Postemployment Benefits). Applying the new provisions resulted in a one- time charge against first-quarter 1992 net earnings of $590 million, or $5.19 per fully diluted share. In addition, net income was decreased by $22 million, or 19 cents a share, to reflect the 1992 current-year effects of the new standards. See Note 3 of the Notes to Consolidated Financial Statements for further information. OPERATING EARNINGS 1993 OPERATING EARNINGS Operating earnings (defined as earnings before consideration of corporate income and expense, interest, taxes and nonrecurring items) declined 2% from $784 million in 1992 to $770 million in 1993. Significant declines in the earnings of the Company's Petroleum & Industrial Equipment and Electrical Power Equipment segments more than offset improvements in the Company's other business segments, 28 20 which served stronger markets during 1993. The 1992 segment totals have been revised to exclude 1992's third-quarter nonrecurring income and expense amounts, thereby making them comparable to the 1993 segment totals, which likewise exclude nonrecurring income and expense. The Automotive Products segment generated operating earnings of $189 million in 1993, compared with $139 million in 1992, with the entire increase being attributable to the inclusion of Moog for a full year in 1993 versus only one quarter in 1992. This segment's earnings represented 24% of the Company's total operating earnings. Absent Moog's revenues and earnings, operating earnings would have declined in line with the small revenues decrease discussed previously. The gross margin percentage (defined as revenues less cost of sales, as a percentage of revenues) improved slightly primarily due to the inclusion of Moog. Selling and administrative expenses as a percentage of revenues were only slightly less favorable than the prior year despite the higher ratio of such costs at the acquired Moog operations as compared to Cooper's existing operations. This reflected management's emphasis on keeping such spending in line with operating levels. Operating earnings of the Tools & Hardware segment increased 10% to $92 million in 1993 and represented 12% of operating earnings. Excluding the earnings gains from acquisitions, the segment's operating income improved in excess of 4% despite continued sluggishness in Europe and depressed conditions in North American window coverings markets. Profit improvement programs over the past several years and current spending controls provided the basis for the earnings improvement despite the small decline in revenues. The Electrical Products segment continued to post steady improvements in operating earnings, which grew 7% to $316 million, and comprised 41% of the Company's operating earnings, even with the inclusion of only nine months' earnings from the Belden wire and cable business. Excluding the results of Belden and the effects of acquisitions from both periods, operating earnings increased at almost twice the pace of the sales growth, improving 13% from the previous year. The segment's earnings also benefited from operating efficiencies and cost-containment measures that resulted in an improved gross margin percentage and a lower percentage of selling and administrative expenses per sales dollar. The Electrical Power Equipment segment experienced a 26% decline in operating earnings to $43 million, representing 6% of operating earnings. The decline was related to lower revenues, aggravated by the decline in demand for higher-margin power products and weak pricing for distribution transformers. Selling and administrative expenses in the segment declined both in absolute dollars and as a percentage of revenues, as management continued to decrease spending to respond to the lower market activity. Operating earnings for the Petroleum & Industrial Equipment segment declined significantly from the previous year, falling 38% from $209 million in 1992 to $130 million in 1993. This segment's operating earnings represented 17% of 1993 operating earnings. These results would not be significantly different if the divestitures occurring in each year were excluded. The primary reason for the earnings decline was the significant decrease in revenues, caused by continued decline in worldwide production and transmission projects and augmented by the fourth-quarter drop in oil prices. The depressed market conditions and the resulting pricing pressures caused margins to shrink faster than management's ability to adjust short-term operating levels. Although selling and administrative expenses declined significantly in the segment, they were slightly higher than the previous year when measured as a percentage of revenues due to the severity of the revenue decline. During 1993, the Company recorded $20 million in operating earnings attributable to LIFO inventory liquidations, compared with $16 million in 1992 and $11 million in 1991. The percentage of LIFO income recorded by each segment is set forth in Note 15 of the Notes to Consolidated Financial Statements. Total Company operating earnings were 12.3% of total revenues in 1993, compared with 12.8% in 1992 and 14.4% in 1991. 29 21 1992 OPERATING EARNINGS The following table shows the 1992 operating earnings of the Company's segments before and after the effects of the accounting changes discussed above and in Note 3 of the Notes to Consolidated Financial Statements. The discussion that follows focuses on the "Comparative Segment Totals." 1992 Operating Earnings by Segment
Add Back Effects of Comparative As Reported Accounting Segment (millions) in Note 15 Changes Totals - ---------- ---------- ------- ------ Electrical Products $295.0 $ 3.2 $298.2 Electrical Power Equipment 58.2 1.9 60.1 Tools & Hardware 83.4 2.2 85.6 Automotive Products 139.0 16.2 155.2 Petroleum & Industrial Equipment 208.8 5.3 214.1 ------ ----- ------ $784.4 $28.8 $813.2 ====== ===== ======
Operating earnings declined 8% from $884 million in 1991 to $813 million in 1992. Significant declines in the operating earnings of the Petroleum & Industrial Equipment and Tools & Hardware segments more than offset modest improvements in earnings from the Electrical Products, Automotive Products and Electrical Power Equipment segments. The Electrical Products segment generated operating earnings of $298 million in 1992, 37% of total operating earnings and a 9% improvement over the $273 million in the prior year. The improvement was primarily the result of higher sales volumes generated by the strong demand for lighting fixtures, fuses and electronic wire and cable discussed under "Revenues." Operating efficiencies also resulted in margin improvements and lower selling and administrative expenses per sales dollar, which supplemented the earnings improvement. The Automotive Products segment represented 19% of Cooper's total operating earnings for 1992, with operating earnings of $155 million, compared with $145 million in the prior year. This 7% increase over 1991 was attributable to the acquisition of Moog Automotive. Excluding the effects of the Moog acquisition, earnings for the year were flat. Lower overhead spending from cost controls throughout this segment was essentially offset by the effect on margins of sluggish spark plug sales. Earnings from the Electrical Power Equipment segment improved 5%, compared with the strike-affected results of 1991. Operating earnings rose from $57 million to $60 million during 1992, representing 7% of the Company's total operating earnings. Most of the earnings improvement was the result of the increase in revenues from the particularly depressed levels of 1991. Operating earnings in the Tools & Hardware segment declined from $98 million in 1991 to $86 million in 1992, and represented 11% of total operating earnings. Earnings were impacted primarily by the lower sales volumes. The gross margin on sales improved slightly as a result of operating adjustments made in response to the lower activity. Earnings from the Petroleum & Industrial Equipment segment decreased significantly from $311 million in 1991 to $214 million in 1992, a 31% decline. The earnings from this segment represented 26% of the Company's total operating earnings for the year. The decline in demand for domestic oil and gas exploration and production equipment due to the general condition of the domestic energy markets, coupled with weak markets for industrial equipment, had a significant, unfavorable impact on the earnings of this segment. Sales declined faster than the Company's ability to adjust selling and administrative expenses in the short term, further contributing to the decline. 30 22 1991 OPERATING EARNINGS Cooper's operating earnings fell 1% to $884 million during 1991 from $894 million in the prior year. The decline reflected the impact of lower sales of many of the Company's products, somewhat offset by benefits from profit improvement and cost management programs. In the Petroleum & Industrial Equipment segment, operating earnings improved 29%, climbing to $311 million in 1991 and contributing 35% of the Company's total operating earnings. In addition to increased revenues, earnings were enhanced by a higher gross margin percentage resulting from a high-volume order for compression equipment, as well as benefits from cost-reduction programs and other operating efficiencies. This segment also continued to glean benefits from the integration of the Cameron Iron Works acquisition. The Electrical Products segment's operating earnings declined 5% to $273 million in 1991, representing 31% of the Company's total operating earnings. The gross margin percentage improved due to controlled spending and profit from 1991 liquidation of LIFO inventory layers, coupled with the effect on the prior year of a restructuring charge at one of the Company's smaller operations. However, these benefits were offset by selling and administrative expenses that did not decrease in proportion to the revenue decline. Operating earnings from the Automotive Products segment fell short of the prior year's results by 6%, decreasing to $145 million in 1991. This total represented 16% of Cooper's total operating earnings for the year. Intense competition in the automotive aftermarket put pressure on operating margins and resulted in a slightly lower gross margin percentage. Lower selling and administrative expenses as a percentage of revenues, resulting from lower advertising and promotion costs and overall cost containment efforts at the spark plug operations, slightly offset the lower margins. However, higher depreciation and amortization related to 1990 and 1991 capital spending within this segment further reduced operating earnings during the year. Operations in the Tools & Hardware segment experienced a 23% decline in operating earnings to $98 million in 1991, representing 11% of total operating earnings. Earnings declined more than sales as the effects of the progressive erosion of demand from residential construction and industrial production markets outpaced management actions to reduce manufacturing labor and overhead costs. The Electrical Power Equipment segment recorded a significant decline in operating earnings from $82 million to $57 million, a decrease of 31%. These earnings represented 7% of Cooper's total operating earnings. The decrease was primarily attributable to lower volumes. Management control over costs helped keep the gross margin percentage in line with the prior year, although price competition resulted in a slight decline. Higher depreciation and amortization on capital improvements made during 1990 also contributed to decreased earnings for the period. NET INCOME (LOSS) 1993 NET INCOME The Company's net income of $367 million improved 2% compared with 1992's income before the cumulative effect of changes in accounting principles of $361 million. The increase from 1992 reflected the positive impacts of lower interest expense, higher amounts of income not allocable to a particular segment and lower general corporate expenses, partially offset by lower operating earnings as discussed above. Consolidated interest expense decreased 14% or $16.5 million primarily as a result of lower interest rates. (See Note 10 of the Notes to Consolidated Financial Statements for further information on the Company's debt structure and the statement of Consolidated Cash Flows for information regarding debt activity.) Other income increased from the prior year due to the inclusion of income from a tax sharing agreement between Cooper and Belden Inc. General corporate expenses declined as a result of management's focus on cost controls during the year. The effective tax rate increased 3.6 percentage points from 1992's rate, which was favorably impacted by the nonrecurring income items. 31 23 1992 NET INCOME (LOSS) Cooper's income before the cumulative effect of changes in accounting principles declined 8% to $361 million in 1992 from $393 million in 1991. The decrease reflected the impact of lower operating earnings and the 1992 current-year effect of the new accounting standards adopted during 1992, partially offset by lower interest expense. After considering the $590-million, one-time charge against income for the cumulative effect of changes in accounting principles, the Company experienced a net loss of $229 million, compared with net income of $393 million in 1991. Consolidated interest expense declined 28% to $116 million for the year. Lower debt levels during most of the year, largely due to strong operating cash flows, combined with lower effective borrowing rates for the decrease. General corporate expense increased $22 million and the effective tax rate declined by 3.5 percentage points, largely due to the nonrecurring income and expense items discussed above. 1991 NET INCOME Cooper's net income rose 9% to $393 million during 1991, up from $361 million reported during 1990. The increase reflected lower interest expense, lower general corporate expenses and a 1.3-percentage-point reduction in the effective tax rate, the cumulative effect of which offset the 1% decline in operating earnings discussed previously. Consolidated interest expense declined $53 million to $161 million for the year. Lower effective borrowing rates resulting from soft economic conditions and lower debt levels combined to produce the substantial decrease. General corporate expenses decreased $6 million from the prior year, primarily reflecting lower amounts of certain nonrecurring corporate costs. The effective tax rate declined primarily due to lower foreign taxes as a percentage of foreign earnings. The lower foreign tax rates reflected not only the benefits of statutory rate reductions in certain foreign countries, but also benefits derived from various tax planning strategies implemented over the previous several years. FULLY DILUTED EARNINGS PER SHARE Earnings per fully diluted share increased to $2.75 in 1993, up 1% from 1992's income before the cumulative effect of changes in accounting principles. The same factors discussed under "Net Income" and "Operating Earnings" above contributed to the change in fully diluted share earnings, partially offset by higher shares utilized in the calculation. The number of weighted average shares used in the fully diluted earnings per share computation was 114.2 million in 1993 compared with 113.8 million in 1992. In addition to normal annual activity, the increase in shares reflects the issuance of 475,256 shares in September 1993 in connection with the Company's biennial employee stock purchase program as further discussed in Note 14 of the Notes to Consolidated Financial Statements. Earnings per fully diluted share before the cumulative effect of changes in accounting principles decreased from $3.01 in 1991 to $2.71 in 1992. The cumulative effect of changes in accounting principles during 1992 amounted to $5.19 per fully diluted share, resulting in a net loss for the year of $2.48 per share. The same factors discussed under "Operating Earnings" and "Net Income (Loss)" above led to the decline in share earnings. The assumed conversion of the 7% debentures and the $1.60 Convertible Exchangeable Preferred into Common stock was antidilutive in 1992; therefore, conversion was not assumed in the 1992 computation of share earnings. Fully diluted share earnings increased from $2.81 in 1990 to $3.01 per fully diluted share for 1991. The diversity of Cooper's markets, combined with cost-reduction and cost-control programs, enabled the Company to minimize the decline in operating earnings during this period of economic slowness. Coupled with lower interest and taxes, these factors allowed the Company to post the 7% increase in share earnings. The 131.1 million shares utilized in the 1991 computation of fully diluted earnings per share increased in comparison to 1990, because the assumed conversions of the $1.60 Convertible Exchangeable Preferred and the 7% debentures to Common stock had a dilutive effect on the 1991 computation. As a result, the applicable interest expense on the debentures, net of tax, was added back to the net income and dividends on Preferred stock were not deducted, in determining fully diluted earnings per share. (See Note 18 of the Notes to Consolidated Financial Statements for further information.) 32 24 PRICING AND VOLUME In all 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 the Company's best judgment that, excluding the year-to-year effects of acquisitions and divestitures, during 1993, unit volume increased in the Electrical Products segment, was relatively unchanged in the Automotive Products segment, and decreased in each of the other segments; during 1992, unit volume increased in the Electrical Products and Automotive Products segments, was relatively unchanged in the Electrical Power Equipment segment, and decreased in the Tools & Hardware and Petroleum & Industrial Equipment segments; and during 1991, unit volume increased in the Petroleum & Industrial Equipment segment, was substantially unchanged in the Automotive Products segment, and decreased in each of the other segments. During 1993 and 1992, the Company experienced resistance to price increases in selected product offerings in all segments. The Company has been able to control costs during this period such that the resistance to price increases has not significantly impacted profitability in any segments except Electrical Power Equipment and Petroleum & Industrial Equipment (Tools & Hardware and Petroleum & Industrial Equipment in 1992). During 1991, the first full year of the economic decline domestically, the Company began to experience difficulty passing on all cost increases, particularly in the Electrical Power Equipment, Tools & Hardware and Automotive Products segments. LIQUIDITY AND CAPITAL RESOURCES WORKING CAPITAL During 1993, "operating working capital" (defined as receivables and inventories less accounts payable and accrued liabilities, excluding the initial effects of acquisitions and divestitures, as well as foreign currency translation, nonrecurring income and expense items and the cumulative effect of accounting changes) increased $3 million. Higher receivables at year-end 1993 more than offset reductions in inventories and increases in accounts payable and accrued liabilities compared with the previous year end. The increase in receivables and the reduction in inventories primarily occurred in the Petroleum & Industrial Equipment segment and was largely due to the timing of several large compressor projects that shipped during the month of December. The increase in accounts payable and accrued liabilities was due to normal operating activities. During 1992, operating working capital increased by $29 million. This change was comprised of the effects of lower receivables and inventories and lower accounts payable and accrued liabilities. The decrease in receivables and inventories primarily was due to effective working capital management. The lower accounts payable and accrued liabilities resulted primarily from normal operating activity. During 1991, operating working capital increased $92 million. Slightly higher receivables and lower accounts payable and accrued liabilities were the primary contributors to the increase. Receivables increased in the Petroleum & Industrial Equipment segment, primarily as a result of higher revenues. Other segments reported flat or decreased receivables. Accounts payable and accrued liabilities decreased, primarily due to spending associated with integration and consolidation programs within the acquired Champion and Cameron operations. Inventories declined, partially offsetting the above changes, reflecting lower production levels in response to soft economic conditions. Excluding the 1993 revenues of Belden, Gardner-Denver Industrial Machinery Division and Cameron Forged Products Division, operating working capital as a percentage of revenues at year-end 1993 was 18.0%. The percentage was 19.8% at year-end 1992 (17.3% after adjusting for the fourth-quarter 1992 acquisition of Moog Automotive) and 19.9% at year-end 1991. CASH FLOWS During 1993, cash flows from operating activities were $578 million. These cash flows were augmented by proceeds from the disposition of businesses of $413 million (including approximately $390 33 25 million from the sale of Belden), proceeds from sales of fixed assets of $26 million and proceeds from activity under stock option and other plans of $12 million. These cash flows allowed the Company to fund capital expenditures of $275 million, dividends of $203 million and acquisitions of $101 million (see Note 4 of the Notes to Consolidated Financial Statements) and to reduce indebtedness by $453 million. As discussed under "Nonrecurring Items" above, during the past two years, the Company has accelerated consideration of a number of projects that will involve significant spending over the next several years. The Company does not believe that the resources required for the projects will strain the Company's overall liquidity or capital resources. In January 1994, the Company announced that it expected earnings for 1994 to decline from 1993 by as much as 25%. Although the earnings decline will result in lower cash flows for 1994, the cash flow reduction is not expected to inhibit the Company's ability to meet its cash requirements or its ability to respond to opportunities that may arise. See "Earnings Outlook" below for further discussion. During 1992, cash flows from operating activities totaled $653 million. These positive cash flows, along with $39 million of proceeds from business divestitures, $32 million from sales of plant and equipment and $45 million from stock option and other plans, allowed the Company to expend $638 million on acquisitions and $274 million on capital expenditures and to pay $193 million of dividends, while only increasing outstanding indebtedness, exclusive of debt assumed in acquisitions, by $334 million. During 1991, positive cash flows included $554 million from operating activities, $37 million of proceeds from sales of plant and equipment and from dispositions of businesses held for sale and $36 million from stock option and other plans. These activities provided cash that allowed the Company to fund capital expenditures of $266 million, pay dividends of $180 million and reduce outstanding indebtedness by $158 million. Cash increased $6 million, net of a $2-million translation effect, during the year. DEBT The ratio of debt to total capitalization at December 31, 1993, was 33.7%, compared with 42.0% at year-end 1992 and 34.2% at year-end 1991. The decrease from the previous year was due to debt reductions associated with the sale of Belden and the classification of $75 million of indebtedness allocated to Gardner-Denver Industrial Machinery Division in "Net assets of businesses held for disposition" at December 31, 1993. See Note 2 of the Notes to Consolidated Financial Statements for further information regarding the disposition of Belden and the planned spin-off of Gardner-Denver Industrial Machinery Division. As of December 31, 1993, the Company had entered into several interest rate swap agreements maturing at various dates through February 22, 1994, that effectively converted $500 million of floating-rate borrowings into fixed-rate borrowings that will have an effective borrowing rate of approximately 3.73%. See Note 10 of the Notes to Consolidated Financial Statements for further information. FINANCIAL POSITION The Company's financial position reflects the various factors discussed previously under "Revenues," "Nonrecurring Items," "Operating Earnings" and "Liquidity and Capital Resources." The decreases in plant and equipment, intangibles and postretirement benefits other than pensions primarily reflect the sale of Belden during 1993 and the transfers of the respective balances related to Gardner-Denver Industrial Machinery and Cameron Forged Products to net assets of businesses held for disposition at December 31, 1993. Other changes in the various components of the Company's financial position were the result of normal operating activities. EARNINGS OUTLOOK During January 1994, the Company announced that share earnings could be down by as much as 25% in 1994 in comparison to 1993. After taking into account the businesses divested in 1993 and the planned divestitures, the projected drop in share earnings is entirely due to a downturn in the Petroleum & Industrial Equipment segment, caused by the significant late-1993 drop in oil prices and the resulting impact on worldwide exploration and production projects, which affect demand for the Company's oilfield equipment. These 34 26 effects are being compounded by the impact of delays in several, major, gas compression projects worldwide. The impact of this decline is expected to more than exceed projected earnings improvements in the Electrical Products and Tools & Hardware segments. The Company anticipates steady performance in the Electrical Power Equipment and Automotive Products operations. Nearly $35 million of the $156 million provided for management projects over the last two years, as well as remaining realignment reserves provided in connection with the Cameron Iron Works acquisition, will result in significant capacity and cost structure modifications within the Petroleum & Industrial Equipment segment over the next several years. These changes are expected to have a softening effect on the 1994 downturn and longer term to improve the Company's ability to participate profitably in a market turnaround when it occurs. CAPITAL EXPENDITURES AND COMMITMENTS Capital projects to reduce product costs, improve product quality, increase manufacturing efficiency and operating flexibility, or expand production capacity resulted in expenditures of $275 million in 1993, compared with $274 million in 1992 and $266 million in 1991. At December 31, 1993, commitments for capital expenditures amounted to $270 million, compared with $288 million and $285 million at year-end 1992 and 1991, respectively. The commitments for 1994 include approximately $42 million for capacity expansion, $136 million for machinery and equipment modernization and enhancement, $23 million for various computer hardware and software projects, $13 million for environmental projects, and $56 million for other items. EFFECT OF INFLATION During each year, inflation has had a relatively minor effect on Cooper's reported 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 Financial Position were recorded in business combinations that were accounted for as purchases. At the time of such acquisitions, the assets and liabilities were adjusted to a fair market value and, therefore, the cumulative long-term effect of inflation is reduced. 35 27 FINANCIAL HISTORY
(in millions where applicable) OPERATING RESULTS 1993 1992(1) 1991 1990 1989(3) --------- --------- --------- --------- -------- Revenues $ 6,273.8 $ 6,133.9 $ 6,162.6 $ 6,222.2 $5,129.4 --------- --------- --------- --------- -------- Cost of sales 4,233.6 4,139.6 4,129.4 4,187.9 3,451.3 Depreciation and amortization 302.8 289.1 258.0 238.5 188.9 Selling and administrative expenses 1,012.9 977.1 945.4 953.0 831.9 Interest expense 99.1 115.6 161.2 214.2 182.6 Nonrecurring income (273.8) (24.6) - - - Nonrecurring expense 273.8 57.0 - - - --------- --------- --------- --------- -------- Total costs and expenses 5,648.4 5,553.8 5,494.0 5,593.6 4,654.7 --------- --------- --------- --------- -------- Income before income taxes and cumulative effect of changes in accounting principles 625.4 580.1 668.6 628.6 474.7 Income taxes 258.3 218.8 275.4 267.2 206.9 --------- --------- --------- --------- -------- Income before cumulative effect of changes in accounting principles 367.1 361.3 393.2 361.4 267.8 Cumulative effect on prior years of changes in accounting principles - (590.0) - - - --------- --------- --------- --------- -------- Net income (loss) 367.1 (228.7) 393.2 361.4 267.8 Preferred dividends (53.1) (52.8) (50.9) (50.0) (4.5) --------- --------- --------- --------- -------- Net income (loss) applicable to Common stock $ 314.0 $ (281.5) $ 342.3 $ 311.4 $ 263.3 ========= ========= ========= ========= ======== INCOME (LOSS) PER COMMON SHARE Primary Income before cumulative effect of changes in accounting principles $ 2.75 $ 2.71 $ 3.04 $ 2.81 $ 2.51 Cumulative effect on prior years of changes in accounting principles - (5.19) - - - --------- --------- --------- --------- -------- Net income (loss) $ 2.75 $ (2.48) $ 3.04 $ 2.81 $ 2.51 ========= ========= ========= ========= ======== Fully diluted Income before cumulative effect of changes in accounting principles $ 2.75 $ 2.71 $ 3.01 $ 2.81 $ 2.49 Cumulative effect on prior years of changes in accounting principles - (5.19) - - - --------- --------- --------- --------- -------- Net income (loss) $ 2.75 $ (2.48) $ 3.01 $ 2.81 $ 2.49 ========= ========= ========= ========= ======== CASH DIVIDENDS PER COMMON SHARE $ 1.32 $ 1.24 $ 1.16 $ 1.08 $ 1.00 --------- --------- --------- --------- -------- AVERAGE COMMON SHARES OUTSTANDING Primary 114.2 113.8 112.5 110.8 105.1 Fully diluted 114.2 113.8 131.1 110.9 105.9 --------- --------- --------- --------- -------- OTHER DATA Working capital $ 879.3 $ 1,187.2 $ 1,197.8 $ 1,041.3 $1,017.5 Long-term debt 1,254.3 1,815.7 1,479.2 1,684.4 1,828.6 Total indebtedness 1,515.9 2,072.8 1,761.2 1,972.8 2,085.4 Capital expenditures 275.1 273.5 266.3 273.6 190.6 Net plant and equipment 1,483.4 1,685.6 1,614.0 1,568.0 1,647.9 Total assets 7,147.8 7,575.6 7,148.6 7,167.5 6,745.0 Shareholders' equity 2,984.6 2,866.9 3,394.9 3,065.7 2,696.6 Book value per Common share 19.54 18.66 23.60 21.45 18.21 Year-end price/earnings ratio 17.9 17.5(2) 19.0 14.6 16.1 Return on revenues 5.9% 5.9%(2) 6.4% 5.8% 5.2% Return on average shareholders' equity 12.5% 12.7% 12.2% 12.5% 13.5% Total debt as a percent of total capitalization 33.7% 42.0% 34.2% 39.2% 43.6% Number of employees 49,500 52,900 53,900 57,500 58,100 Number of record shareholders (Common and Preferred) 38,800 37,800 39,500 34,500 35,900 --------- --------- --------- --------- --------
(1) During 1992, Cooper acquired Moog Automotive Group, Inc. in a transaction that was accounted for as a purchase. In addition, certain amounts have been reclassified to provide a consistent presentation. (2) Based on income before the cumulative effect of changes in accounting principles. 36 28
(in millions where applicable) OPERATING RESULTS 1988(4) 1987 1986 1985(5) 1984 1983 -------- -------- -------- -------- -------- -------- Revenues $4,258.3 $3,585.8 $3,433.3 $3,067.2 $2,029.9 $1,850.3 -------- -------- -------- -------- -------- -------- Cost of sales 2,904.3 2,430.2 2,302.0 2,071.0 1,357.9 1,250.3 Depreciation and amortization 154.7 135.4 127.1 105.8 73.6 67.9 Selling and administrative expenses 701.9 622.6 615.9 534.5 368.4 363.1 Interest expense 111.9 86.1 103.1 97.7 20.6 28.5 Nonrecurring income - - - - - - Nonrecurring expense - - - - - - -------- -------- -------- -------- -------- -------- Total costs and expenses 3,872.8 3,274.3 3,148.1 2,809.0 1,820.5 1,709.8 -------- -------- -------- -------- -------- -------- Income before income taxes and cumulative effect of changes in accounting principles 385.5 311.5 285.2 258.2 209.4 140.5 Income taxes 161.1 137.7 137.5 123.1 102.5 69.3 -------- -------- -------- -------- -------- -------- Income before cumulative effect of changes in accounting principles 224.4 173.8 147.7 135.1 106.9 71.2 Cumulative effect on prior years of changes in accounting principles - - - - - - -------- -------- -------- -------- -------- -------- Net income (loss) 224.4 173.8 147.7 135.1 106.9 71.2 Preferred dividends - - - (16.0) (16.0) (16.0) -------- -------- -------- -------- -------- -------- Net income (loss) applicable to Common stock $ 224.4 $ 173.8 $ 147.7 $ 119.1 $ 90.9 $ 55.2 ======== ======== ======== ======== ======== ======== INCOME (LOSS) PER COMMON SHARE Primary Income before cumulative effect of changes in accounting principles $ 2.21 $ 1.73 $ 1.52 $ 1.39 $1.06 $ .64 Cumulative effect on prior years of changes in accounting principles - - - - - - -------- -------- -------- -------- -------- -------- Net income (loss) $ 2.21 $ 1.73 $ 1.52 $ 1.39 $ 1.06 $ .64 ======== ======== ======== ======== ======== ======== Fully diluted Income before cumulative effect of changes in accounting principles $ 2.20 $ 1.73 $ 1.51 $ 1.38 $ 1.06 $ .64 Cumulative effect on prior years of changes in accounting principles - - - - - - -------- -------- -------- -------- -------- -------- Net income (loss) $ 2.20 $ 1.73 $ 1.51 $ 1.38 $ 1.06 $ .64 ======== ======== ======== ======== ======== ======== CASH DIVIDENDS PER COMMON SHARE $ .90 $ .84 $ .80 $ .76 $ .76 $ .76 -------- -------- -------- -------- -------- -------- AVERAGE COMMON SHARES OUTSTANDING Primary 101.7 100.2 97.2 85.4 85.4 85.8 Fully diluted 101.9 100.5 97.5 86.1 85.8 86.3 -------- -------- -------- -------- -------- -------- OTHER DATA Working capital $ 800.1 $ 706.8 $ 698.7 $ 826.3 $ 573.9 $ 600.0 Long-term debt 1,170.3 884.4 863.6 1,158.3 156.8 175.0 Total indebtedness 1,299.9 980.3 951.6 1,283.7 177.5 243.1 Capital expenditures 128.2 100.9 109.5 115.8 68.5 86.2 Net plant and equipment 1,115.2 1,016.6 937.7 973.2 685.5 683.3 Total assets 4,384.0 3,800.4 3,400.0 3,635.9 1,953.7 1,949.4 Shareholders' equity 1,771.7 1,592.9 1,419.9 1,318.0 1,240.1 1,250.6 Book value per Common share 17.47 15.90 14.66 13.56 12.56 12.44 Year-end price/earnings ratio 12.3 16.0 13.7 15.1 13.3 26.9 Return on revenues 5.3% 4.8% 4.3% 4.4% 5.3% 3.8% Return on average shareholders' equity 13.3% 11.5% 10.8% 10.6% 8.6% 5.7% Total debt as a percent of total capitalization 42.3% 38.1% 40.1% 49.3% 12.5% 16.3% Number of employees 46,300 43,200 40,200 46,000 30,000 30,000 Number of record shareholders (Common and Preferred) 32,600 50,900 28,100 29,900 30,900 33,100 -------- -------- -------- -------- -------- --------
(3) During 1989, Cooper acquired Champion Spark Plug Company and Cameron Iron Works, Inc. in transactions that were accounted for as purchases. (4) During 1988, Cooper acquired RTE, Beswick and Imo Delaval's Enterprise Engine parts and repair business in transactions that were accounted for as purchases. (5) During 1985, Cooper acquired McGraw-Edison Company in a transaction that was accounted for as a purchase. 37 29 REPORT OF INDEPENDENT AUDITORS THE BOARD OF DIRECTORS AND SHAREHOLDERS COOPER INDUSTRIES, INC. We have audited the accompanying statements of consolidated financial position of Cooper Industries, Inc. as of December 31, 1993 and 1992, and the related statements of consolidated results of operations, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 1993. 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 generally accepted auditing standards. 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, 1993 and 1992, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. As discussed in Note 3 of the Notes to Consolidated Financial Statements, in 1992 the Company changed its methods of accounting for postretirement benefits other than pensions, income taxes and postemployment benefits. /s/ ERNST & YOUNG Houston, Texas January 24, 1994 38 30 CONSOLIDATED RESULTS OF OPERATIONS (in millions except per-share data)
Year Ended December 31, ----------------------------------------------- 1993 1992(1) 1991 --------- --------- --------- REVENUES $ 6,273.8 $ 6,133.9 $ 6,162.6 --------- --------- --------- COSTS AND EXPENSES Cost of sales 4,233.6 4,139.6 4,129.4 Depreciation and amortization 302.8 289.1 258.0 Selling and administrative expenses 1,012.9 977.1 945.4 Interest expense 99.1 115.6 161.2 Nonrecurring income (273.8) (24.6) - Nonrecurring expense 273.8 57.0 - --------- --------- --------- 5,648.4 5,553.8 5,494.0 --------- --------- --------- Income before income taxes and cumulative effect of changes in accounting principles 625.4 580.1 668.6 Income taxes 258.3 218.8 275.4 --------- --------- --------- Income before cumulative effect of changes in accounting principles 367.1 361.3 393.2 Cumulative effect on prior years of changes in accounting principles - (590.0) - --------- --------- --------- NET INCOME (LOSS) $ 367.1 $ (228.7) $ 393.2 ========= ========= ========= INCOME (LOSS) PER COMMON SHARE Primary-- Income before cumulative effect of changes in accounting principles $ 2.75 $ 2.71 $ 3.04 Cumulative effect on prior years of changes in accounting principles - (5.19) - --------- --------- --------- NET INCOME (LOSS) $ 2.75 $ (2.48) $ 3.04 ========= ========= ========= Fully diluted-- Income before cumulative effect of changes in accounting principles $ 2.75 $ 2.71 $ 3.01 Cumulative effect on prior years of changes in accounting principles - (5.19) - --------- --------- --------- NET INCOME (LOSS) $ 2.75 $ (2.48) $ 3.01 ========= ========= ========= CASH DIVIDENDS PER COMMON SHARE $ 1.32 $ 1.24 $ 1.16 ========= ========= =========
(1) Certain amounts have been reclassified to provide a consistent presentation of nonrecurring income and expense. The Notes to Consolidated Financial Statements are an integral part of these statements. 39 31 CONSOLIDATED FINANCIAL POSITION (in millions except share data)
December 31, ---------------------------- 1993 1992 --------- --------- CURRENT ASSETS Cash and cash equivalents $ 13.0 $ 17.8 Receivables 1,105.2 1,086.1 Inventories 1,247.2 1,481.8 Other 216.4 251.4 --------- --------- 2,581.8 2,837.1 --------- --------- CURRENT LIABILITIES Short-term debt 99.7 200.2 Accounts payable and accrued liabilities 1,323.6 1,347.4 Accrued income taxes 117.3 45.4 Current maturities of long-term debt 161.9 56.9 --------- --------- 1,702.5 1,649.9 --------- --------- WORKING CAPITAL 879.3 1,187.2 Net assets of businesses held for disposition 225.0 - Plant and equipment, at cost less accumulated depreciation 1,483.4 1,685.6 Intangibles, less accumulated amortization 2,589.5 2,810.4 Deferred income taxes, investments and other assets 268.1 242.5 --------- --------- TOTAL ASSETS LESS CURRENT LIABILITIES 5,445.3 5,925.7 --------- --------- Long-term debt 1,254.3 1,815.7 Postretirement benefits other than pensions 743.1 875.3 Other long-term liabilities 463.3 367.8 --------- --------- NET ASSETS $ 2,984.6 $ 2,866.9 ========= ========= SHAREHOLDERS' EQUITY $1.60 Convertible Exchangeable Preferred stock, $1.00 par value; 33,376,420 shares authorized (liquidating value at December 31, 1993--$753.2 million) $ 33.2 $ 33.1 Common stock, $5.00 par value; 250,000,000 shares authorized 571.3 567.0 Capital in excess of par value 1,122.1 1,086.2 Retained earnings 1,526.5 1,359.1 Unearned employee stock ownership plan compensation (125.2) (149.7) Minimum pension liability (73.6) (7.7) Translation component (65.8) (21.1) Common stock held in treasury, at cost (3.9) - --------- --------- $ 2,984.6 $ 2,866.9 ========= =========
The Notes to Consolidated Financial Statements are an integral part of these statements. 40 32 CONSOLIDATED CASH FLOWS (in millions)
Year Ended December 31, ----------------------------------------------- 1993 1992(1) 1991 --------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 367.1 $ (228.7) $ 393.2 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 202.0 196.2 175.2 Amortization 100.8 92.9 82.8 Deferred income taxes (7.7) 109.4 49.5 Postretirement benefits other than pensions (8.0) 29.2 - Nonrecurring income, net of tax (164.3) (37.0) - Nonrecurring expense, net of tax 164.3 37.0 Cumulative effect of changes in accounting principles - 590.0 - Changes in assets and liabilities:(2) Receivables (114.2) 79.9 (12.9) Inventories 68.5 114.5 25.8 Accounts payable and accrued liabilities 43.1 (222.9) (104.6) Accrued income taxes (50.9) 21.4 (8.1) Other assets and liabilities, net (23.2) (129.3) (46.6) --------- --------- --------- Net cash provided by operating activities 577.5 652.6 554.3 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Cash paid for acquired businesses (100.9) (637.7) (15.0) Capital expenditures (275.1) (273.5) (266.3) Proceeds from sales of plant and equipment 25.5 31.6 22.4 Proceeds from disposition of businesses 412.5 38.9 15.0 Other (.9) 1.5 (0.8) --------- --------- --------- Net cash provided by (used for) investing activities 61.1 (839.2) (244.7) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Additions to debt 257.7 749.2 341.7 Reductions of debt (710.7) (415.2) (499.6) Dividends (203.4) (193.3) (179.9) Activity under stock option and other plans 12.3 44.7 36.3 --------- --------- --------- Net cash provided by (used for) financing activities (644.1) 185.4 (301.5) --------- --------- --------- EFFECT OF TRANSLATION ON CASH AND CASH EQUIVALENTS .7 (.4) (2.2) --------- --------- --------- Increase (decrease) in cash and cash equivalents (4.8) (1.6) 5.9 Cash and cash equivalents, beginning of year 17.8 19.4 13.5 --------- --------- --------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 13.0 $ 17.8 $ 19.4 ======== ======== ========
(1) Certain amounts have been reclassified to provide a consistent presentation of nonrecurring items. (2) Net of the effects of acquisitions, divestitures, translation, nonrecurring items and the cumulative effect of changes in accounting principles. The Notes to Consolidated Financial Statements are an integral part of these statements. See Note 17 for information on noncash investing and financing activities. 41 33 CONSOLIDATED CHANGES IN SHAREHOLDERS' EQUITY (in millions)
$1.60 Unearned Convertible Capital in Employee Stock Minimum Common Exchangeable Common Excess of Retained Ownership Plan Pension Translation Stock Held in Preferred Stock Stock Par Value Earnings Compensation Liability Component Treasury --------------- ------ ---------- -------- -------------- --------- ----------- ------------- BALANCE DECEMBER 31, 1990 $31.4 $548.5 $ 933.1 $1,561.4 $ (149.9) $ - $ 141.2 $ - Net income 393.2 Cash dividends: Preferred stock--$1.60 (50.9) Common stock (129.0) Dividend reinvestment program .2 1.5 Shares issued for: Conversions of debentures 1.5 33.1 Exercise of stock options 3.5 11.6 Employee stock purchase plan 6.1 28.7 Employee stock ownership plan: Principal payments by ESOP 27.7 Excess of cash contributions over expense (.2) Sale of additional shares 2.7 24.1 (26.8) Tax effect of: Disqualifying stock dispositions 3.1 Dividends paid to the ESOP 2.8 Translation loss (3.6) Other (.1) ----- ------ -------- -------- -------- ------ ------- ----- BALANCE DECEMBER 31, 1991 32.9 561.0 1,035.1 1,777.5 (149.2) - 137.6 - Net loss (228.7) Cash dividends: Preferred Stock--$1.60 (52.8) Common stock (140.5) Dividend reinvestment program .3 2.4 Shares issued for: Conversions of debentures .2 3.7 Exercise of stock options 2.3 9.3 Executive restricted stock incentive plan .9 6.2 Employee stock ownership plan: Principal payments by ESOP 26.1 Excess of cash contributions over expense (.4) Sale of additional shares 2.3 23.9 (26.2) Tax effect of: Disqualifying stock dispositions 3.4 Dividends paid to the ESOP 3.6 Translation loss (158.7) Adjustment for minimum pension liability (7.7) Other .2 2.2 ----- ------ -------- -------- -------- ------ ------- ----- BALANCE DECEMBER 31, 1992 33.1 567.0 1,086.2 1,359.1 (149.7) (7.7) (21.1) - Net income 367.1 Cash dividends: Preferred Stock--$1.60 (53.1) Common stock (150.3) Dividend reinvestment program .3 2.2 Acquisition of treasury stock, at cost (4.5) Shares issued for: Conversions of debentures .1 2.8 Exercise of stock options 1.6 7.1 .6 Employee stock purchase plan 2.4 21.2 Employee stock ownership plan: Principal payments by ESOP 27.2 Excess of cash contributions over expense (2.7) Tax effect of: Disqualifying stock dispositions 2.3 Dividends paid to the ESOP 3.7 Translation loss (44.7) Adjustment for minimum pension liability (65.9) Other .3 ----- ------ -------- -------- -------- ------ ------- ----- BALANCE DECEMBER 31, 1993 $33.2 $571.3 $1,122.1 $1,526.5 $ (125.2) $(73.6) $ (65.8) $(3.9) ===== ====== ======== ======== ======== ====== ======= =====
The Notes to Consolidated Financial Statements are an integral part of these statements. 42 34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: SUMMARY OF MAJOR ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and all majority-owned subsidiaries, except for certain insignificant subsidiaries, the investments in which are recorded under the cost method because of restrictions upon the transfer of earnings and other economic uncertainties. Investments of 50% or less in affiliated companies are accounted for on the equity method, unless significant economic or political considerations indicate that the cost method is appropriate. INVENTORIES Inventories are carried at cost or, if lower, net realizable value. On the basis of current costs, 73% of inventories in 1993 and 72% in 1992 are carried on the last-in, first-out (LIFO) method. The remaining inventories are carried on the first-in, first-out (FIFO) method. PLANT AND EQUIPMENT 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, etc.--5 to 10 years. Prior to the fourth quarter of 1992, no provision was made for depreciation of tooling, dies, patterns and similar assets related to general operations, as replacement of these items was charged to expense. The depreciable life for the majority of the Company's machinery and equipment was changed from 10 to 12 years effective July 1, 1993. INTANGIBLES Intangibles consist primarily of goodwill related to purchase acquisitions which, with minor exceptions, is being amortized over 40 years from their respective acquisition dates. INCOME TAXES Beginning with the year 1992, the Company determined tax expense and other deferred tax information in compliance with Statement of Financial Accounting Standards (SFAS) No. 109 (Accounting for Income Taxes). Prior years have not been restated and accordingly reflect the procedures required by APB Opinion No. 11--Accounting for Income Taxes, as amended. Income tax expense includes U.S. and foreign income taxes, including U.S. Federal taxes on undistributed earnings of foreign subsidiaries to the extent such earnings are planned to be remitted. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS Beginning with the year 1992, the Company determined the accounting effect of postretirement benefits other than pensions (primarily retiree medical costs) in accordance with the provisions of SFAS No. 106 (Employers' Accounting for Postretirement Benefits Other Than Pensions). Such benefits in years prior to 1992 were accounted for primarily on a pay-as-you-go basis, except for the portion of such costs accrued in connection with the Company's 1989 acquisitions. POSTEMPLOYMENT BENEFITS Beginning with the year 1992, the Company accounted for the benefits payable to employees when they leave the Company other than by reason of retirement in accordance with the provisions of SFAS No. 112 (Employers' Accounting for Postemployment Benefits). Except for an actuarial determination of the termination benefits payable to domestic salaried employees, the Company's accounting in years prior to 1992 was the same as that required by SFAS No. 112. ENVIRONMENTAL REMEDIATION AND COMPLIANCE Environmental remediation costs are accrued, except to the extent costs can be capitalized, based on estimates of known environmental remediation exposures. Environmental compliance costs include maintenance and operating costs with respect to pollution control facilities, cost of ongoing monitoring programs and similar costs. Such costs are expensed as incurred. Capitalized environmental costs are depreciated generally utilizing a 15-year life. INTEREST RATE SWAP AGREEMENTS The Company uses interest rate swaps to manage its interest rate risk. The interest rate differential to be received or paid is recognized over the lives of the interest rate swaps as an adjustment to interest expense. OTHER For purposes of the statement of Consolidated Cash Flows, the Company considers all investments purchased with original maturities of three months or less to be cash equivalents. 43 35 NOTE 2: NONRECURRING ITEMS On October 6, 1993, the Company closed an initial public offering of 90.4% of the stock of Belden Inc., formerly the Company's Belden Division. This sale, which was recorded in the third quarter, generated net-of-tax cash proceeds of approximately $267 million and a $273.8-million pretax ($164.3 million net of tax) gain or $1.44 per fully diluted share. In addition, depending upon the future profitability of Belden and other factors, the Company will receive over a 15-year period additional benefits from a tax sharing agreement between the Company and Belden Inc. The proceeds from the tax sharing agreement will be recorded in income when they are earned. The Company's remaining 9.6% interest in Belden Inc., the sale of which is prohibited during the first six months and restricted (other than when registered as permitted by agreements with Belden) during the first two years following the public offering, has been accounted for as a marketable equity security with an initial investment value of $12.4 million and a December 31, 1993 market value of $46.6 million. Belden, which was included in the Electrical Products segment, had revenues of $281 million and pretax profits of approximately $38 million for the nine-month period ended September 30, 1993. The gain from the Belden sale was fully offset by a loss recorded with respect to the anticipated sale of the Cameron Forged Products Division and by the effects of a series of management actions designed to enhance the Company's future profitability. These actions included $99 million of accruals with respect to a series of productivity improvement and consolidation programs; a $65-million reduction in the depreciable value of the machinery and equipment and certain other plant and equipment related to the production of transformers, a large product line within the Company's Electrical Power Equipment segment; and a $56-million reduction in the carrying value of the Company's internally developed capitalized software. In addition, the Company increased the depreciable life on all existing and future additions of machinery and equipment from 10 to 12 years effective July 1, 1993. On January 10, 1994, the Company entered into a definitive agreement for the sale of its Cameron Forged Products Division to Wyman-Gordon Company in exchange for approximately 16.5 million newly issued shares of Wyman-Gordon Company's common stock and $5 million in cash and notes. In anticipation of this sale, which had been agreed to in principle in mid-September, the Company reclassified the net assets of Cameron Forged Products Division to a long-term asset under the caption "Net assets of businesses held for disposition" and charged pretax earnings approximately $54 million for a write-down of the carrying value of those assets. Although Cooper will own approximately 48% of Wyman-Gordon Company, this investment is not intended to be maintained for a long period. Consequently, while the sale of the Wyman-Gordon Company shares is restricted, Cooper will have certain registration rights with respect to the stock in addition to its rights pursuant to Rule 144 of the Securities Act. In addition, Cooper will have only limited representation on Wyman-Gordon Company's Board of Directors and will be required, except in certain circumstances, to vote its shares in accordance with the position recommended by Wyman-Gordon Company's Board of Directors or proportionately with the vote of the other shareholders. As a result, when consummated, the Wyman-Gordon Company stock will be accounted for as a marketable equity security. At December 31, 1993, the market value of the common stock that Cooper will receive was $76.3 million, based on the year-end closing price of the Wyman-Gordon Company common stock. For the nine months ended September 30, 1993, Cameron Forged Products Division, which was included in the Company's Petroleum & Industrial Equipment segment, had revenues of $114 million and a small pretax loss. The results for the fourth quarter, which were consistent with those for the nine-month period, have not been included in the Company's consolidated results. The Company anticipates that this transaction, which is subject to Wyman-Gordon Company shareholder approval, will be consummated in early 1994. In mid-October 1993, the Company announced its intention to spin off to the Company's Common shareholders its Gardner-Denver Industrial Machinery Division headquartered in Quincy, Illinois. The Company formed a new corporation called Gardner Denver Machinery Inc. and then transferred the assets and liabilities of the division into this entity. The stock of the newly formed corporation will be distributed on the basis of one share of common stock, par value $.01 per share, for every 25 shares of Cooper Common 44 36 stock owned as of a yet-to-be determined record date. Pursuant to the income tax and accounting rules pertaining to this transaction, the Company will not have a gain or loss with respect to the transaction and the stock received by the Company's shareholders will not be taxable until sold. At December 31, 1993, the net assets of the business, including approximately $75 million of indebtedness, amounted to approximately $150 million, which amount has been included in a long-term asset caption titled "Net assets of businesses held for disposition" pending completion of the distribution. For the year ended December 31, 1993, the Gardner-Denver Industrial Machinery Division, after deducting allocated interest expense, had a small pretax profit on revenues of $156 million. The Company anticipates that the distribution will be made during the first quarter of 1994. The Company's net results for 1992 included approximately $22 million, net of tax, of nonrecurring corporate income, as well as a one-time, $15-million income tax expense reduction. In anticipation of a continuing slow-growth global economy, the Company accelerated consideration of a number of productivity improvement, consolidation and asset disposition programs. The Company decided to implement several such programs that were contemplated for later in the 1990s, resulting in a provision of $37 million, net of tax, which offset the favorable effects of these gains. The 1992 nonrecurring income items included recognition of income with respect to investments made during the 1982 downturn in the petroleum sector. These investments were made under unusually favorable circumstances, which ultimately allowed disposition at a profit. Although portions of this profit were recognized previously, a significant amount was deferred pending the resolution of various uncertainties that were resolved during 1992. Additionally, the Company received an interest refund from the U.S. government with respect to the settlement of a pending income tax matter. The one-time income tax expense reduction resulted from a reassessment of the amount of tax accruals that need to be retained in order to fully provide for the additional U.S. tax that would be payable when the earnings of the Company's foreign subsidiaries are remitted. NOTE 3: CHANGES IN ACCOUNTING PRINCIPLES During the fourth quarter of 1992, the Company elected to adopt effective for all of 1992 and future years the accounting provisions of SFAS No. 106 (Employers' Accounting for Postretirement Benefits Other Than Pensions), SFAS No. 109 (Accounting for Income Taxes) and SFAS No. 112 (Employers' Accounting for Postemployment Benefits). Earnings for 1992 included the cumulative effect ($590 million, net of tax, or $5.19 per fully diluted share) as of January 1, 1992, necessary to adjust the Company's net assets for compliance with the new standards. The results of operations for 1993 have also been determined in accordance with the new standards. Each of these changes is discussed in greater detail below. SFAS NO. 106-EMPLOYERS' ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS This standard, which was required to be adopted by the Company no later than January 1, 1993, provides that the Company follow an accrual method of accounting for the benefits other than pensions (primarily medical costs) provided to employees after retirement. The results of operations for 1992 included a charge of $669.1 million pretax ($408.2 million, net of tax, or $3.59 per fully diluted share) for the immediate recognition of the net transition obligation with respect to benefits earned by active and retired employees prior to January 1, 1992. Additionally, postretirement costs were recorded based on an actuarially determined accrual method as opposed to the Company's previous pay-as-you-go method of accounting for such costs. The effect was to decrease 1992's full-year net earnings by $17.8 million, or $.15 per fully diluted share. The remaining disclosure information required by SFAS No. 106 is set forth in Note 13. SFAS NO. 109-ACCOUNTING FOR INCOME TAXES This standard, which also was required to be adopted by the Company no later than January 1, 1993, requires a liability, as opposed to a deferred, method of accounting for income taxes. The results of operations for 1992 included a net tax charge of $166.2 million ($1.47 per fully diluted share) in order to provide a net deferred tax credit with respect to the aggregate of the differences between the book and tax basis of the Company's assets and liabilities. The direction and magnitude of this 45 37 adjustment resulted from the large, fair market value adjustments recorded for book purposes, but not for tax purposes, with respect to certain acquisitions, including Gardner-Denver, McGraw-Edison and, more recently, Champion Spark Plug and Cameron Iron Works. Additionally, income tax expense and certain other adjustments for 1992 were determined in accordance with the provisions of the new standard. The effect was to decrease 1992 pretax income by $2.8 million while increasing tax expense by $1.2 million, for a combined reduction of $.04 per fully diluted share. The remaining disclosure information required by SFAS No. 109 is set forth in Note 9. SFAS NO. 112--EMPLOYERS' ACCOUNTING FOR POSTEMPLOYMENT BENEFITS This standard, which was not required to be adopted by the Company until January 1, 1994, provides that the Company follow an accrual method of accounting for the benefits payable to employees when they leave the Company other than by reason of retirement. Because most of these benefits were already accounted for by the Company on an accrual method, this new standard had a relatively small cumulative effect--$25.6 million ($15.6 million, net of tax, or $.13 per fully diluted share)--and a negligible effect on 1992's earnings. NOTE 4: ACQUISITIONS AND DIVESTITURES In addition to the transactions described in Note 2, the Company completed five small product-line acquisitions and four divestitures in 1993. The acquisitions, which had an aggregate cost of $110.2 million including $6.7 million of assumed indebtedness, have been accounted for as purchases, with the resulting revenues and earnings included in the Company's Consolidated Results of Operations since the respective acquisition dates. A total of $53.6 million of goodwill was recorded on a preliminary basis with respect to the five acquisitions. Two of the acquisitions were in the Electrical Products segment, two were in the Tools & Hardware segment and one was in the Automotive Products segment. During 1993, the Company completed the previously announced divestiture of its Gardner-Denver Mining and Construction operations (formerly included in the Petroleum & Industrial Equipment segment). The Company also sold two businesses that were being carried as businesses held for sale and a small business that was previously included in the Petroleum & Industrial Equipment segment. Including $30 million of notes and other amounts receivable in the future, proceeds from these four divestitures totaled $53.5 million and resulted in the recognition of a $5.6 million after-tax gain. During 1992, the Company completed one large acquisition, four small product-line acquisitions and two divestitures. Effective October 1, 1992, the Company acquired Moog Automotive Group, Inc. from IFINT S.A. The total cost of the acquisition, including $233.8 million of indebtedness that was largely repaid at the acquisition date, was $612.4 million. Moog Automotive is a leading manufacturer of steering, suspension, driveline and temperature control parts for the automotive and light truck aftermarket. The Moog acquisition, along with the four smaller acquisitions, which had an aggregate cost of $42.0 million, have been accounted for as purchases and the results of the acquisitions are included in the Company's Consolidated Results of Operations since the respective acquisition dates. The four smaller acquisitions were all in the Tools & Hardware segment. A total of $414.8 million of goodwill, including 1993 revisions, has been recorded with respect to the five acquisitions. During 1992, the Company sold its Distribution Equipment Division and one other small operation, the results of which were previously reported in the Electrical Products segment. Proceeds from these divestitures totaled $38.9 million and resulted in the recognition of a $5.8 million after-tax gain. The Company completed three relatively small acquisitions and four divestitures in 1991. Neither the acquisitions nor the divestitures were material to the Company's Consolidated Financial Position or Results of Operations. The acquisitions, which had an aggregate cost of $17.8 million, were accounted for as purchases, with the resulting revenues and earnings included in the Company's Consolidated Results of Operations since the respective acquisition dates. The cost of the acquisitions, as finally determined, exceeded the fair market value of the assets acquired and liabilities assumed by $5.1 million. 46 38 NOTE 5: COMMON AND PREFERRED STOCK COMMON STOCK At December 31, 1993, 250,000,000 shares of Common stock were authorized. Of this total, 114,254,133 shares were issued and 114,179,700 were outstanding at December 31, 1993 (113,400,841 and 112,201,774 were issued and outstanding at December 31, 1992 and 1991, respectively). During the year ended December 31, 1993, a total of 86,500 shares were purchased as treasury stock at an average price of $52.82 per share. In addition, 35,363,582 shares were reserved for the Dividend Reinvestment Plan, conversions of Preferred stock, grants and exercises of stock options, subscriptions under the Employee Stock Purchase Plan and other plans, and shares to be issued in connection with future acquisitions. Under a Shareholder Rights Plan adopted by the Board of Directors in 1987, share purchase Rights were declared as a dividend at the rate of one Right for each share of Common stock. Each Right has an exercise price of $87.50, entitles the holder to buy securities, including in certain circumstances Common stock, having a value of twice the exercise price, and 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 February 27, 1997, and, at the Company's option, may be redeemed prior to expiration for $.005 per Right. Under the terms of a Dividend Reinvestment Plan that became effective in 1991, any holder of Common stock or $1.60 Convertible Exchangeable Preferred stock may elect to have cash dividends and/or up to $24,000 per year in cash payments invested in Common stock without incurring any brokerage commissions or service charges. PREFERRED STOCK The Company is authorized to issue 1,340,750 shares of Preferred stock with no par value (No Par Preferred), 10,000,000 shares of $2.00 par value Preferred stock and 36,197,499 shares of $1.00 par value Preferred stock. At December 31, 1993, no shares of the No Par Preferred or $2.00 par value Preferred stock were issued or outstanding. At December 31, 1993, 33,376,420 shares of $1.00 par value Preferred stock have been designated as Convertible Exchangeable Preferred having a $1.60 dividend rate. Of this total, 33,182,654 shares were outstanding at December 31, 1993 (33,054,184 and 32,888,343 at December 31,1992 and 1991, respectively). Each share of Convertible Exchangeable Preferred is convertible into .55 share of Common stock and has a liquidating preference of $22.70. Each Convertible Exchangeable Preferred share may be redeemed at the option of the Company at any time after January 1, 1995, at prices declining from $23.50 in 1995 to $22.70 in 2000 and thereafter. The Preferred stock may be exchanged, at the option of the Company, on any quarterly dividend payment date after January 1, 1995, for $22.70 principal amount of 7.05% convertible debentures maturing on January 1, 2015. The holders of the $1.60 Preferred stock are entitled to a one-tenth vote per share upon all matters presented to the shareholders and generally vote as a single class along with the Common shareholders, except in matters affecting control of the Company or the rights of the Convertible Exchangeable Preferred shareholders, where they vote as a separate class. Under a Shareholder Rights Plan adopted by the Board of Directors in 1989, the same share purchase Rights referred to above were declared as a dividend at the rate of .55 Rights for each share of $1.60 Preferred stock. At December 31, 1993, 189,360 shares of $1.60 Convertible Exchangeable Preferred were reserved for the conversions of the 7% convertible subordinated debentures and for issuance of fractional shares from exchange of Cameron Iron Works common stock. 47 39 NOTE 6: INVENTORIES
December 31, ------------ (millions) 1993 1992 ---- ---- Raw materials $323.7 $ 364.5 Work-in-process 353.0 431.6 Finished goods 725.4 889.9 Perishable tooling and supplies 57.0 66.9 -------- ------- 1,459.1 1,752.9 Excess of current standard costs over LIFO costs (185.9) (235.5) Progress payments (12.0) (23.7) Allowance for obsolete and slow-moving inventory (11.6) (11.9) Other (2.4) - -------- -------- Net inventories $1,247.2 $1,481.8 ======== ========
During each year, reductions in inventory quantities resulted in liquidations of LIFO inventory layers carried at lower costs prevailing in prior years as compared with the cost of that year's purchases. The effect was to increase income before the cumulative effect of changes in accounting principles by $12.3 million ($.11 per fully diluted share) in 1993, $10.8 million ($.09 per fully diluted share) in 1992 and $6.8 million ($.05 per fully diluted share) in 1991. NOTE 7: ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
December 31, ------------ (millions) 1993 1992(1) ---- ------- Trade accounts and accruals $ 673.1 $ 718.0 Salaries, wages and related fringe benefits 154.8 178.0 Product and environmental liability accruals 121.2 111.8 Contributions payable under employee benefit plans 66.7 63.7 Estimated costs of facility relocation, restructuring and other nonrecurring items 176.9 138.6 Other (individual items less than 5% of total current liabilities) 130.9 137.3 -------- -------- $1,323.6 $1,347.4 ======== ========
(1) Certain amounts have been reclassified to provide a consistent presentation. At December 31, 1993, Cooper had accruals of $36.5 million ($39.4 million at December 31, 1992) with respect to potential product liability claims and $84.7 million ($72.4 million at December 31, 1992) with respect to potential environmental liabilities based on the Company's current estimate of the most likely amount of losses that it believes will be incurred. Of the $36.5 million of product liability accruals, $20.1 million relate to known claims with respect to continuing operations, $9.1 million relate to known claims for operations that are no longer a part of Cooper and $7.3 million relate to a minimum estimate of claims that have been incurred but not yet reported. While Cooper is generally self-insured with respect to product liability claims, the Company had insurance coverage for individual 1993 claims beyond $1 million for oilfield equipment and $3 million for other products. Insurance levels have varied from year to year as the Company has grown. The recorded product liability accruals are net of amounts covered under insurance policies. Of the $84.7 million of environmental liability accruals, $33.6 million relate to sites owned by Cooper and $51.1 million relate to sites either previously owned by Cooper but where Cooper has retained the environmental liability, or third-party sites where Cooper was a contributor. Third-party sites usually involve multiple contributors where Cooper's liability will be determined based on an estimate of Cooper's proportionate 48 40 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. Environmental liabilities are not generally subject to insurance recovery and, therefore, the amount by which the accrual has been reduced for insurance coverage is small. In addition, the Company has capitalized a total of $23.3 million with respect to environmental matters with an undepreciated net book value of $20.6 million at December 31, 1993 ($18.0 million at December 31, 1992). It has been the Company's consistent practice to include the entire accrual for these liabilities as a current liability although only approximately 10-20% of the balance will be 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 the Company's environmental liability has been recorded in connection with acquired companies. The change in the accrual balance from year to year reflects not only this normal expensing and funding but also the effect of acquisitions and divestitures. In establishing its accruals for both product liability and environmental liability, the Company has not utilized any form of discounting. 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 such that the actual liabilities, absent law changes, have generally been lower than the estimates. 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 the Company 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. See "Environmental Remediation and Compliance" under Note 1 for additional information. NOTE 8: PLANT AND EQUIPMENT AND INTANGIBLES
December 31, ------------ (millions) 1993 1992 ---- ---- Plant and equipment: Land and land improvements $123.2 $127.3 Buildings 676.6 737.4 Machinery and equipment 1,338.0 1,518.8 Tooling, dies, patterns, etc. 119.1 135.2 All other 265.7 285.7 Construction in progress 94.8 97.3 -------- -------- 2,617.4 2,901.7 Accumulated depreciation (1,134.0) (1,216.1) -------- -------- $1,483.4 $1,685.6 ======== ======== Intangibles: Goodwill $2,945.3 $3,102.2 Assets related to pension plans 8.8 6.9 Other 98.1 140.9 -------- -------- 3,052.2 3,250.0 Accumulated amortization (462.7) (439.6) -------- -------- $2,589.5 $2,810.4 ======== ========
49 41 NOTE 9: INCOME TAXES
Year Ended December 31, ----------------------- (millions except percentages) 1993 1992 1991 ----- ---- ---- Income before income taxes and cumulative effect of changes in accounting principles: U.S. operations $544.7 $431.0 $496.5 Foreign operations 80.7 149.1 172.1 ------ ------ ------ Income before income taxes and cumulative effect of changes in accounting principles $625.4 $580.1 $668.6 ====== ====== ====== DEFERRED LIABILITY METHOD METHOD ---------------- ------- Income taxes: 1993 1992 1991 Currently payable: ---- ---- ---- U.S. Federal $191.6 $60.9 $118.5 U.S. state and local 45.1 19.9 32.8 Foreign 23.2 36.6 74.6 ------ ------ ------ 259.9(1) 117.4 225.9 ------ ------ ------ Deferred: U.S. Federal (11.3) 76.5 52.0 U.S. state and local (5.6) 14.5 - Foreign 9.2 18.4 (2.5) ------ ------ ------ (7.7) 109.4 49.5 ------ ------ ------ Other: Tax benefit of foreign exchange transaction losses credited to translation component of equity 6.2 - - Effect of change in U.S. Federal tax rate on recorded deferred tax balances (4.7) - - U.S. Federal adjustment of foreign unremitted earnings accrual - (15.0) - ESOP dividends and disqualifying stock dispositions: U.S. Federal 3.6 6.3 - U.S. state and local 1.0 .7 - ------ ------ ------ 6.1 (8.0) - ------ ------ ------ Income tax expense $258.3 $218.8 $275.4 ====== ====== ====== Items giving rise to deferred income taxes: Employee medical program funding $(2.8) $13.5 $ 11.4 Employee stock ownership plan 1.0 3.5 18.0 Excess of tax over book depreciation 9.9 5.0 11.4 Postretirement benefits other than pensions 4.0 (7.7) - Reserves and accruals (35.5) 74.3 - Utilization of net operating loss carryforwards 7.4 10.4 - Other 8.3 10.4 8.7 ------ ------ ------ Deferred income taxes $(7.7) $109.4 $49.5 ====== ====== ====== Effective tax rate reconciliation: U.S. Federal statutory rate 35.0% 34.0% 34.0% State and local income taxes 3.7 3.6 3.0 Foreign statutory rate differential (.6) (.3) .6 Nondeductible goodwill 5.0 4.8 3.8 Effect of change in U.S. tax rate on recorded deferred tax balances (.8) - - Nontaxable investment income - (1.2) - Unremitted earnings accrual adjustment - (2.6) - All other (individually less than 5% of the expected tax provision) (1.0) (.6) (.2) ------ ------ ------ Indicated effective tax rate 41.3% 37.7% 41.2% ====== ====== ====== Total income taxes paid $157.3 $112.4 $121.0 ====== ====== ======
(1) Includes $122 million with respect to the sale of Belden. See Note 2 for further information. 50 42
December 31, ------------ (millions) 1993 1992 ---- ---- Components of deferred tax balances: Deferred tax liabilities: Plant and equipment and intangibles $(201.3) $(239.7) LIFO inventory (108.2) (134.7) Employee medical program funding (22.3) (23.4) Employee stock ownership plan (24.6) (23.0) Other (79.4) (93.6) ------- ------ Total deferred tax liabilities (435.8) (514.4) ------- ------ Deferred tax assets: Postretirement benefits other than pensions 297.2 341.4 Reserves and accruals 263.8 250.4 Net operating loss carryforwards 16.1 25.0 Other (88.4) 67.9 ------- ------ Total deferred tax assets 665.5 684.7 ------- ------ Valuation allowances (16.3) (17.3) ------- ------ Net deferred tax assets $213.4 $153.0 ======= ======
Income tax expense and the information shown above for 1993 and 1992 have been determined in accordance with the provisions of SFAS No. 109 (Accounting for Income Taxes) which basically provides for a "liability" approach to taxes. Income taxes for 1991 have not been restated and are accordingly reflected above based on a "deferred" approach to taxes. The major difference between the two approaches as reflected in the information above is that items that were previously accounted for on a "net-of-tax" basis (primarily acquisition-date reserves and accruals of acquired businesses and fair market value adjustments of inventories and fixed assets) are now considered to be "temporary differences" that give rise to larger deferred tax amounts in the provision disclosure. The adoption of SFAS No. 109 has not changed the actual amount of income tax that the Company pays nor, except for the $1.2 million for the year 1992 described in Note 3, has it changed the Company's income tax expense. Net of valuation allowances, the Company has recorded $3.3 million of domestic net operating loss carryforwards at December 31, 1993, with the earliest expiration date being 2000. The Company reduced U.S. Federal taxes actually payable and goodwill by $16 million in 1991 for utilization of tax loss carryforwards related to the Cameron acquisition. At the end of 1992, the Cameron tax loss carryforwards were fully utilized. The U.S. Federal portion of the above provision includes U.S. tax expected to be payable on the foreign portion of the Company's income before income taxes when such earnings are remitted. During the third quarter of 1992, the Company completed its assessment of the effects of various legal entity restructurings, capital investment alterations and other actions that have been taken over the last three to five years as part of efforts to optimize the Company's foreign tax structure. The effect of the Company's assessment was a $15-million reduction in the Company's income tax accrual with respect to the unremitted earnings of its foreign subsidiaries. The Company's remaining accrual is sufficient to cover the additional U.S. tax estimated to be payable on the earnings that the Company anticipates will be remitted. Through December 31, 1993, this amounted to essentially all unremitted earnings of the Company's foreign subsidiaries. 51 43 NOTE 10: LONG-TERM DEBT AND OTHER BORROWING ARRANGEMENTS
December 31, ------------ (millions) 1993 1992 ------- -------- 3.43%* commercial paper and bank loans maturing at various dates through February 9, 1994 $750.0 $1,200.0 5.99% Pounds Sterling bank loans maturing at various dates through February 18, 1994 70.7 - 7.84%-7.98% first series medium-term notes, due through 1995 41.9 65.9 7.70%-7.99% second series medium-term notes, due through 1998 197.9 197.9 3.44% floating-rate loan, due 1996 50.0 50.0 7.875% notes, due 1997** 100.0 100.0 10.7% notes payable, due through 1998 16.9 20.8 3.14%* floating-rate ESOP notes, due through 1999 90.7 117.6 7% convertible subordinated debentures, due 2012 4.2 7.2 Capitalized lease obligations 31.3 41.3 Other 62.6 71.9 -------- -------- 1,416.2 1,872.6 Current maturities** (161.9) (56.9) -------- -------- Long-term portion $1,254.3 $1,815.7 ======== ========
*Weighted average interest rates at December 31, 1993. (In 1992, 3.73% for commercial paper and bank loans and 3.49% for the ESOP notes.) **The Company issued a call notice for this borrowing and subsequently refinanced it with commercial paper in January 1994. Accordingly, the principal balance of $100 million is included in current maturities at December 31, 1993. The Company has U.S. committed credit facilities totaling $1.25 billion that expire in 1997, U.S. committed credit facilities totaling $510 million that expire in 1994, Pounds Sterling credit facilities totaling 25 million Pounds Sterling that expire in 1996 and 30-million Pounds Sterling credit facilities expiring in 1994. At December 31, 1993, the Company had an effective "shelf" registration statement, which may be used to issue up to $302 million of indebtedness from time to time. At December 31, 1993, $1.04 billion of the total $1.76-billion U.S. committed credit facilities was available after considering commercial paper backup, and 7.2 million Pounds Sterling of the 55-million Pounds Sterling credit facilities was available. At December 31, 1992, Cooper had $648 million of its $1.91-billion credit facilities available, after considering commercial paper backup, and 1.0 million of its 40-million Pounds Sterling credit facilities was available. 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. Interest rates on the Company's commercial paper and bank loans were generally at 2.7% below the U.S. prime rate during 1993 (2.6% during 1992). Total interest paid during 1993, 1992 and 1991 was $104 million, $128 million and $157 million, respectively. At December 31, 1993, $821 million of commercial paper and bank loans ($1.2 billion in 1992) was reclassified to long-term debt, reflecting the Company's intention to refinance this amount during the twelve-month period following the balance sheet date through either continued short-term borrowing or utilization of available credit facilities. 52 44 The 7% convertible subordinated debentures were assumed by Cooper in 1989 in connection with the Cameron acquisition. The debentures are convertible into Cooper $1.60 Convertible Exchangeable Preferred stock at the rate of one share of Preferred stock for every $23.00 face amount of debentures. The floating-rate ESOP notes are indebtedness of Cooper's ESOP. Because payment of the ESOP notes is guaranteed by Cooper, the ESOP notes are reported with Cooper's indebtedness. (See Note 11 for further information regarding the ESOP.) The Company entered into interest rate swaps, which became effective in early 1993 and mature at various dates through February 22, 1994, that converted $500 million of its floating-rate borrowings into fixed-rate borrowings for a one-year period. Under the terms of these swaps, the Company's effective borrowing rate for this $500 million during the one-year period will be approximately 3.73%. Based on the most restrictive provision contained in the Company's loan agreements, retained earnings of approximately $791 million were unrestricted as to the payment of dividends at December 31, 1993. Maturities of long-term debt (exclusive of commercial paper and bank loans) for the five years subsequent to December 31, 1993, are $161.9 million, $21.6 million, $153.3 million, $101.0 million and $78.4 million, respectively. The future net minimum lease payments under capital leases and obligations under operating leases are not significant. NOTE 11: 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 Savings Plan. Under the terms of the Plan, employee savings deferrals are partially matched with Company contributions of Common stock consisting of either an allocation of shares in the Company's employee stock ownership plan (ESOP) or new shares issued to the ESOP. At December 31, 1993, the ESOP had 2.9 million shares available for future matching contributions, including 460,000 shares sold to the ESOP in 1992 for $26.2 million in cash. The 1992 sales were funded by loans between the ESOP and Cooper, which for accounting purposes are treated as eliminated intercompany loans. At December 31, 1993, the Company had $90.7 million ($117.6 million at December 31, 1992) of ESOP third-party indebtedness and $36.2 million ($36.5 million at December 31, 1992) of ESOP intercompany indebtedness. An offsetting debit of $125.2 million ($149.7 million at December 31, 1992), considering a cumulative $1.7-million ($4.4-million at December 31, 1992) difference between the expense recognized and the cash contributed to the ESOP, is recorded in shareholders' equity under the caption "Unearned Employee Stock Ownership Plan Compensation." During 1993, expense under the Cooper Savings Plan amounted to $21.5 million ($22.0 million and $25.9 million in 1992 and 1991, respectively), which was funded through the ESOP. Expense with respect to the ESOP includes the recognition of interest expense based on the interest payable by the ESOP. Aggregate matching expense of the ESOP for 1993 amounted to $18.5 million ($18.4 million and $17.2 million in 1992 and 1991, respectively), interest expense amounted to $3.0 million ($3.6 million and $8.7 million in 1992 and 1991, respectively), and dividends paid and accrued with respect to the ESOP shares amounted to $9.4 million ($9.1 million and $8.3 million in 1992 and 1991, respectively). 53 45 NOTE 12: PENSION PLANS The Company and its subsidiaries have numerous pension plans covering substantially all domestic employees and pension and similar arrangements in accordance with local custom covering employees at foreign locations. Aggregate pension expense amounted to $58.8 million in 1993, $51.1 million in 1992 and $47.7 million in 1991. The amount of expense with respect to the Company's various defined benefit pension plans is set forth in the table below. For the three years ended December 31, 1993, expense with respect to domestic and foreign defined contribution plans (primarily related to various groups of hourly employees) amounted to $31.5 million, $27.0 million and $25.1 million, respectively. Also included in pension expense are gains and losses on curtailments and settlements and other matters. The year-to-year increases in pension expense result from incremental expense related to acquired companies, lower amounts of pension income with respect to overfunded plans and changes in plan assumptions.
Components of Defined Benefit Plan Pension Expense ----------------------------------------------------- Years Ended December 31, (millions) 1993 1992 1991 ------ ------ ------ Service cost-benefits earned during the year $ 35.9 $ 37.7 $ 38.9 Interest cost on projected benefit obligation 85.4 90.6 90.8 Actual return on assets (81.9) (71.5) (141.3) Net amortization and deferral (12.6) (35.2) 35.7 ------ ------ ------ Net pension cost $ 26.8 $ 21.6 $ 24.1 ====== ====== ======
Funded Status of Defined Benefit Plans ------------------------------------------------------------ Plans With Assets in Plans With Accumulated Excess of Benefits in Excess of Accumulated Benefits Assets ----------------------- ---------------------------- December 31, December 31, (millions) 1993 1992 1993 1992 ------- -------- --------- --------- Actuarial present value of: Vested benefit obligation $(677.3) $ (694.0) $ (415.9) $ (293.4) ======= ======== ========= ========= Accumulated benefit obligation $(705.4) $ (724.8) $ (451.8) $ (327.8) ======= ======== ========= ========= Projected benefit obligation $(738.2) $ (781.3) $ (464.1) $ (340.0) Plan assets at fair value 782.8 882.9 333.2 272.0 ------- -------- --------- --------- Projected benefit obligation (in excess of) less than plan assets 44.6 101.6 (130.9) (68.0) Unrecognized net (gain) loss 25.5 (11.1) 76.5 9.9 Unrecognized net (asset) obligation from adoption date (20.8) (20.5) 9.3 9.0 Unrecognized prior service cost .5 (7.8) 1.9 1.7 Adjustment required to recognize minimum liability - - (82.4) (14.6) ------- -------- --------- --------- Pension asset (liability) at end of year $ 49.8 $ 62.2 $ (125.6) $ (62.0) ======= ======== ========= =========
54 46
Computational Assumptions ---------------------------------------------------------- Projected Net Pension Cost Benefit Obligation ----------------------------- ------------------ 1993 1992 1991 1993 1992 ---- ---- ---- ---- ---- Discount rate: Domestic 8 1/2% 9% 9% 7% 8 1/2-9% International 7 1/2-9 7 1/2-9 8-10 3/5 6-7 3/4 7 1/2-9 Rate of increase in compensation levels: Domestic 5 1/2 6 6 5 5 1/2 International 4-6 4-6 4 1/2-7 4-5 1/2 4-6 Expected long-term rate of return on assets: Domestic 9 9 1/2 9 1/2 - - International 7 1/2-10 7 1/2-10 8-11 - - Benefit basis: Salaried plans-earnings during career. Hourly plans-dollar units, multiplied by years of service. Funding policy: 5 to 30 years.
The $82.4-million ($14.6-million for 1992) minimum liability for pension plans with accumulated benefits in excess of assets has been recorded in the Company's Consolidated Financial Position as a long-term liability with an $8.8-million offsetting intangible asset ($6.9-million in 1992) and a $73.6-million reduction in shareholders' equity ($7.7-million in 1992). The assets of the various domestic and foreign plans are maintained in various trusts and consist primarily of equity and fixed-income securities. The Company partially or completely settled or curtailed four defined benefit plans for hourly employees during 1993 (three during 1992 and eight during 1991). The settlements and curtailments resulted in a net loss of $.5 million (a net loss of $2.5 million in 1992 and a net gain of $.8 million in 1991) and reversion to the Company of surplus assets totaling $.9 million during 1992 and $1.4 million during 1991. In 1992, six Canadian defined benefit plans were converted to defined contribution plans and the surplus assets relating to the plans are being used to reduce required future Company contributions. 55 47 NOTE 13: POSTRETIREMENT BENEFITS OTHER THAN PENSIONS As described in Note 3, the Company adopted the provisions of SFAS No. 106 (Employers' Accounting for Postretirement Benefits Other Than Pensions) beginning in 1992. The benefits provided under the Company's various plans, all of which are unfunded, include retiree medical care, dental care, prescriptions and life insurance with medical care accounting for over 90% of the total. While the Company has numerous plans, primarily resulting from the Company's extensive acquisition activity, the vast majority of the annual expense is related to employees who are already retired. In fact, as a result of actions taken by the Company starting in 1989, virtually no active salaried employees continue to earn retiree medical benefits and the number of active hourly employees earning such benefits has been greatly diminished. Additionally, the Company continues to amend its various plans to provide for appropriate levels of cost sharing and other cost-control measures. The table below reflects expense determined in accordance with the new standard, as well as certain other required disclosure data.
Items Not Yet Recorded in Financial Statements Amounts Per Financial Statements --------------------------- -------------------------------- Accumulated Liability for Postretirement Postretirement Net Benefit Obligation Prior Service Actuarial Benefits Other Than Annual (millions except percentages) (APBO) Cost Net Gain Pensions Expense - --------------------------------------------------------------------------------------------------------------- BALANCE-DECEMBER 31, 1991 $ (141.7) $ - $ - $ (141.7) $ - Adoption of SFAS No. 106 (669.l) (669.1) Acquisition of Moog Automotive (44.7) (44.7) Plan activity: Service cost (4.4) 4.4 Interest cost (56.0) 56.0 Benefit payments 39.0 39.0 Plan amendments .6 (.6) Amortization of prior service cost .1 (.1) Curtailment gain (one plan) 1.5 (1.5) ------ Net annual expense (58.8) $58.8 ------- ------- ------- ------ ===== BALANCE-DECEMBER 31, 1992 (874.8) (.5) - (875.3) Plan activity: Service cost (2.2) $ 2.2 Interest cost (49.7) 49.7 Benefit payments 39.2 39.2 Plan amendments 39.7 (39.7) Actuarial net gain 46.3 (46.3) Amortization of prior service cost 4.0 (4.0) Curtailment gains (six plans) 16.7 (16.7) Business dispositions 32.1 8.1 (11.0) 29.2 Moog curtailments affecting goodwill 17.8 17.8 ------- Net annual expense (31.2) $ 31.2 ------- ------- ------- ----- ======= BALANCE-DECEMBER 31, 1993 (734.9) (28.1) (57.3) (820.3) Reclassifications to "Net assets of businesses held for disposition" 57.7 4.9 14.6 77.2 ------- ------ ------ ------- ADJUSTED BALANCES $(677.2) $(23.2) $(42.7) $(743.1) ======= ====== ====== =======
56 48
December 31, ------------------------------------------ 1993 1992 ------------------ ------------------ Amount of APBO related to: Retired employees $ (676.2) $ (711.2) Employees eligible to retire (27.2) (66.7) Other employees (31.5) (96.9) Actuarial assumptions: Discount rate 7.58% 7.64% Ensuing year to 2002--health-care cost trend rate 17% ratable to 5.5% 20% ratable to 5.5% Effect of 1% change in health-care cost trend rate: Increase year-end APBO 9% 9% Increase expense 10% 10% =================== ===================
NOTE 14: STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN
Common Stock --------------------------------------- Range of Shares Option Prices --------- -------------- Stock options outstanding at January 1, 1993 2,207,998 $ 13.625-56.50 Options granted to employees 1,624,200 50.13-52.81 Options granted to nonemployee directors in lieu of retainer 4,000 24.00 Options exercised (446,097) 26.815-46.31 Options cancelled (226,867) 26.815-56.50 --------- -------------- Stock options outstanding at December 31, 1993 3,163,234 $13.625-56.50 ========= ==============
Options to purchase Common stock are granted to employees under the Cooper stock option plans at not less than 100% of the market value of the Company's stock at the date of grant. The options expire five years from the date of grant and generally become exercisable ratably over a three-year period commencing one year from the date of grant. At December 31, 1993, options under the various plans for 1,020,994 Common shares were exercisable at $13.625 to $56.50 and 1,103,855 (2,506,889 at December 31, 1992) Common shares were reserved for future grants. Options for 583,807 Common shares at $13.625 to $46.31 per share and 891,768 Common shares at $23.72 to $37.75 per share were exercised during the years ended December 31, 1992 and 1991, respectively. Under a director stock option plan, each year a nonemployee director may elect to receive, in lieu of the annual retainer fee, a nonqualified stock option covering 2,000 shares of Common stock. The exercise price is determined by a formula based on the fair market value of the stock and the director's annual retainer. All relevant share amounts with respect to this plan are included in the table and other information set forth above. EMPLOYEE STOCK PURCHASE PLAN Participants in the Employee Stock Purchase Plan receive an option to purchase Common stock at a price that is the lesser of 90% of the market value on the offering date or 100% of the market value on the purchase date. On September 9, 1991, 1,232,317 shares were sold to 13,190 employees at $28.24 per share. On September 9, 1993, 475,256 shares were sold to 8,028 employees at $49.56 per share. At December 31, 1993, subscriptions for 1,030,830 shares of Common stock were outstanding at $45.56 per share or, if lower, the average market price on September 9, 1995, which is the purchase date. At December 31, 1993, an aggregate of 2,841,209 shares of Common stock were reserved for future offerings. 57 49 NOTE 15: INDUSTRY SEGMENTS, DOMESTIC AND INTERNATIONAL OPERATIONS
Revenues Operating Earnings Identifiable Assets Year Ended December 31, Year Ended December 31, December 31, ------------------------------ ------------------------------ ------------------------------- (millions) 1993 1992 (1) 1991 1993 1992(1) 1991 1993 1992 1991 -------- -------- -------- -------- -------- -------- -------- -------- --------- Electrical Products $1,565.9 $1,572.1 $1,526.2 $ 316.0 $ 295.0 $ 273.4 $1,178.9 $1,267.0 $ 1,265.8 Electrical Power Equipment 611.6 618.2 598.7 43.0 58.2 57.0 560.4 653.0 661.5 Tools & Hardware 807.9 812.0 842.6 91.6 83.4 98.2 757.4 708.8 683.7 Automotive Products 1,670.0 1,285.4 1,148.3 188.9 139.0 145.2 2,208.8 2,245.5 1,648.9 Petroleum & Industrial Equipment 1,597.2 1,831.0 2,039.5 130.4 208.8 310.6 1,687.5 2,167.8 2,423.5 -------- -------- -------- -------- -------- -------- -------- -------- --------- 6,252.6 6,118.7 6,155.3 769.9 784.4 884.4 6,393.0 7,042.1 6,683.4 Businesses held for divestiture 256.0 102.6 117.1 Other 21.2 15.2 7.3 21.2 15.2 7.3 -------- -------- -------- Consolidated revenues $6,273.8 $6,133.9 $6,162.6 ======== ======== ======== Nonrecurring income(2) 273.8 24.6 _ Nonrecurring expense(2) (273.8) (57.0) _ Interest expense (99.1) (115.6) (161.2) General corporate (66.6) (71.5) (61.9) 468.9 416.9 336.9 -------- -------- -------- Consolidated income before income taxes(3) $ 625.4 $ 580.1 $ 668.6 ======== ======== ======== Investment in unconsolidated subsidiaries 29.9 14.0 11.2 -------- -------- --------- Consolidated assets $7,147.8 $7,575.6 $ 7,148.6 ======== ======== =========
(1) Certain amounts have been reclassified to provide a consistent presentation of nonrecurring items. (2) See the separate table for segment detail of nonrecurring items. (3) Before the cumulative effect of changes in accounting principles in 1992. INDUSTRY SEGMENTS The Company's operations are organized into five segments. The Electrical Products segment manufactures and markets electrical and electronic distribution and circuit protection products for use in residential, commercial and industrial construction, maintenance and repair. This segment also manufactured and marketed wire and cable for electronic signal transmission through September 30, 1993. The Electrical Power Equipment segment produces and markets products for use by utilities and industries for primary power distribution and control. The Tools & Hardware segment produces and markets tools and hardware items for use in residential, commercial and industrial construction, maintenance and repair, and for general industrial and consumer use. The Automotive Products segment primarily manufactures and distributes spark plugs, wiper blades, lamps and other products for use by the automotive aftermarket and in automobile assemblies. In addition, this segment manufactures and distributes suspension, steering, temperature control, driveline and brake system components for the automotive aftermarket. The Petroleum & Industrial Equipment segment primarily manufactures, markets and services machinery and equipment used in oil and natural gas exploration, drilling, production, transmission, storage and 58 50
Revenues Operating Earnings Identifiable Assets ------------------------------------ ----------------------------- ------------------------------ Year Ended December 31, Year Ended December 31, December 31, ------------------------------------ ----------------------------- ------------------------------ (millions) 1993 1992(1) 1991 1993 1992(1) 1991 1993 1992 1991 -------- -------- -------- ------- ------- ------- -------- -------- -------- Domestic $5,121.4 $4,831.1 $4,840.5 $ 667.9 $ 591.8 $ 690.4 $ 4,758.5 $5,334.1 $4,757.0 -------- -------- -------- ------- ------- ------- -------- -------- -------- International: Europe 829.5 960.7 960.6 55.2 118.5 129.9 1,250.2 1,308.8 1,524.5 Canada 330.1 374.2 355.4 (2.2) 12.8 20.5 160.4 187.3 240.0 Other 327.0 312.2 306.0 53.6 63.0 55.4 457.9 421.9 413.7 -------- -------- -------- ------- ------- ------- -------- -------- -------- Sub-total International 1,486.6 1,647.1 1,622.0 106.6 194.3 205.8 1,868.5 1,918.0 2,178.2 -------- -------- -------- ------- ------- ------- -------- -------- -------- Eliminations: Transfers to International (293.3) (264.3) (255.7) (77.2) (94.6) (106.2) Transfers to Domestic (62.1) (95.2) (51.5) (138.5) (96.8) (121.3) Other (4.6) (1.7) (11.8) (18.3) (18.6) (24.3) -------- -------- -------- ------- ------- ------- -------- -------- -------- 6,252.6 6,118.7 6,155.3 769.9 784.4 884.4 6,393.0 7,042.1 6,683.4 Businesses held for divestiture 256.0 102.6 117.1 Other 21.2 15.2 7.3 21.2 15.2 7.3 -------- -------- -------- Consolidated revenues $6,273.8 $6,133.9 $6,162.6 ======== ======== ======== Nonrecurring income 273.8 24.6 - Nonrecurring expense (273.8) (57.0) - Interest expense (99.1) (115.6) (161.2) General corporate (66.6) (71.5) (61.9) 468.9 416.9 336.9 ------- ------- ------- Consolidated income before income taxes(2) $ 625.4 $ 580.1 $ 668.6 ======= ======= ======= Investment in unconsolidated subsidiaries 29.9 14.0 11.2 -------- -------- -------- Consolidated assets $7,147.8 $7,575.6 $7,148.6 ======== ======== ========
(1) Certain amounts have been reclassified to provide for a consistent presentation of nonrecurring items. (2) Before the cumulative effect of changes in accounting principles in 1992. processing, as well as equipment and repair parts used in compression markets. In addition, operations in this segment produced forgings for a variety of specialized applications through September 30, 1993. Intersegment sales and related receivables for each of the years shown were immaterial. DOMESTIC AND INTERNATIONAL OPERATIONS Transfers between domestic and international operations, principally inventory transfers, are charged to the receiving organization at prices sufficient to recover manufacturing costs and provide a reasonable return. Export sales to unaffiliated customers included in domestic sales were $604.4 million in 1993, $540.7 million in 1992 and $579.1 million in 1991. Of total export sales, approximately 56% (43% in 1992 and 48% in 1991) were to Asia, Africa, Australia and the Middle East, 18% (25% in 1992 and 20% in 1991) were to Canada and Europe, and 26% (32% in 1992 and 1991) were to Latin America. Translation losses related to Brazil were $4.3 million in 1993 ($.04 per fully diluted share) and $5.5 million in 1992 ($.05 per fully diluted share), while losses related to Mexico and Brazil were $4.8 million in 1991 ($.04 per fully diluted share). Other translation and transaction gains and losses included in each year's Consolidated Results of Operations were not significant. 59 51 NOTE 15: INDUSTRY SEGMENTS, DOMESTIC AND INTERNATIONAL OPERATIONS (CONTINUED)
Percentage of Segment Percentage of Total Inventory Valued at LIFO LIFO Liquidation Income ------------------------ ----------------------- December 31, Year Ended December 31, ------------ ----------------------- 1993 1992 1991 1993 1992 1991 ---- ---- ---- ---- ---- ---- Electrical Products 83% 83% 81% 24% 18% 53% Electrical Power Equipment 92 91 91 5 3 5 Tools & Hardware 62 69 67 6 17 32 Automotive Products 74 66 57 (3) (4) (6) Petroleum & Industrial Equipment 66 69 72 68 66 16
Depreciation Amortization Ended December 31, Year Ended December 31, ------------------ ----------------------- (millions) 1993 1992 1991 1993 1992 1991 ---- ---- ---- ---- ---- ---- Electrical Products $ 38.6 $ 41.4 $ 39.7 $ 20.4 $ 19.6 $ 18.5 Electrical Power Equipment 19.9 26.3 21.1 9.1 9.4 8.0 Tools & Hardware 29.4 30.5 28.6 6.7 6.0 4.7 Automotive Products 50.4 42.0 33.3 32.3 24.9 21.0 Petroleum & Industrial Equipment 60.3 52.9 49.5 29.7 30.4 28.2 Corporate 3.4 3.1 3.0 2.6 2.6 2.4 ------ -------- -------- -------- -------- ------ $202.0 $ 196.2 $ 175.2 $ 100.8 $ 92.9 $ 82.8 ====== ======== ======== ======== ======== ======
Capital Translation Component Nonrecurring Expenditures Increase (Decrease) (Income)/Expense ------------ ------------------ ---------------- Year Ended December 31, Year Ended December 31, Year Ended December 31, ----------------------- ----------------------- ----------------------- (millions) 1993 1992 1991 1993 1992 1991 1993 1992 1991 ---- ---- ---- ---- ---- ---- ---- ---- ---- Electrical Products $ 60.1 $ 44.2 $ 42.4 $ (1.4) $ (6.3) $ 1.6 $ 34.1 $ 9.8 $ - Electrical Power Equipment 17.9 19.5 31.2 (.9) (1.0) 1.1 76.2 - - Tools & Hardware 29.4 34.5 37.7 (9.2) (15.3) (.7) 16.5 20.9 - Automotive Products 72.3 63.7 67.0 (12.3) (41.7) (2.7) 26.5 7.4 - Petroleum & Industrial Equipment 92.0 104.9 81.5 (20.9) (94.4) (2.9) 119.5 6.9 - Corporate 3.4 6.7 6.5 - - - (272.8) (12.6) - ------ ------- ------- -------- ------- ----- ------- ------ ---- $275.1 $ 273.5 $ 266.3 $ (44.7) $(158.7) $(3.6) $ - $ 32.4 (1) $ - ====== ======= ======= ======== ======= ===== ======= ====== ====
(1) Offset by nonrecurring income of $32.4 million, which is reflected as a reduction of 1992 income tax expense. NOTE 16: OFF-BALANCE-SHEET RISK, CONCENTRATIONS OF CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS OFF-BALANCE-SHEET RISK The Company enters into forward exchange contracts to hedge certain foreign currency transactions for periods consistent with the terms of the underlying transactions. The Company does not engage in speculation, nor does the Company typically hedge nontransaction-related balance sheet exposure. While the forward contracts affect the Company's results of operations, they do so only in connection with the underlying transactions. As a result, they do not subject the Company to risk from exchange rate movements, because gains and losses on these contracts offset losses and gains on the transactions being hedged. At December 31, 1993, the Company had $137 million of foreign exchange contracts outstanding, 99% of which were in European, Canadian and Japanese currencies. At December 31, 1992, comparable amounts were $84 million and 97%. The forward exchange contracts generally have maturities that do not exceed six months. The Company'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 markets into which the Company's products are sold, as well as their dispersion across many different geographic areas. As a result, at December 31, 1993, the Company does not consider itself to have any significant concentrations of credit risk. 60 52 FAIR VALUE OF FINANCIAL INSTRUMENTS The Company'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. The Company had approximately $1.5 billion of debt instruments at December 31, 1993, for which the fair value (based primarily on discounted cash flows) exceeded the book value by approximately 1%. Based on year-end exchange rates and the various maturity dates of the foreign currency forward contracts, the Company estimates the aggregate contract value to be representative of the fair value of these items at December 31, 1993. NOTE 17: SUMMARY OF NONCASH INVESTING AND FINANCING ACTIVITIES
Year Ended December 31, ----------------------- (millions) 1993 1992 1991 ------ ------ ------- Increase (decrease) in net assets: Employee stock ownership plan (ESOP): Principal payments and difference between Company expense and cash contributions $ 24.5 $ 25.7 $ 27.5 Unearned ESOP compensation - (26.2) (26.8) Common stock issued for: Employee stock ownership plan - 26.2 26.8 Executive restricted stock incentive plan - 7.1 - Acquired companies .3 2.4 - Employee stock purchase plan 23.6 - 34.8 $1.60 Preferred stock issued for conversions of debentures 2.9 3.9 34.6
The above information supplements the disclosures required by SFAS No. 95 (Statement of Cash Flows). NOTE 18: NET INCOME (LOSS) PER COMMON SHARE
Primary Fully Diluted ----------------------------- ------------------------------ Year Ended December 31, Year Ended December 31, ----------------------------- ------------------------------ ($ in millions, shares in thousands) 1993 1992 1991 1993 1992 1991(1) -------- -------- -------- -------- -------- -------- Income before cumulative effect of changes in accounting principles $ 367.1 $ 361.3 $ 393.2 $ 367.1 $ 361.3 $ 393.2 Dividends applicable to $1.60 Convertible Exchangeable Preferred stock (53.1) (52.8) (50.9) (53.1) (52.8) - Interest applicable to 7% debentures, net of tax - - - - - 1.6 -------- -------- -------- -------- -------- -------- Income applicable to Common stock before cumulative effect of changes in accounting principles 314.0 308.5 342.3 314.0 308.5 394.8 Cumulative effect on prior years of changes in accounting principles - (590.0) - - (590.0) - -------- -------- -------- -------- -------- -------- Net income (loss) $ 314.0 $ (281.5) $ 342.3 $ 314.0 $ (281.5) $ 394.8 ======== ======== ======== ======== ======== ======== Average Common shares and Common share equivalents 114,201 113,830 112,499 114,201 113,830 112,700 Shares issuable on conversion of Convertible Exchangeable Preferred stock - - - - - 17,263 Shares issuable on conversion of 7% debentures - - - - - 1,089 -------- -------- -------- -------- -------- -------- 114,201 113,830 112,499 114,201 113,830 131,052 ======== ======== ======== ======== ======== ========
(1) Since the assumed conversion of the Convertible Exchangeable Preferred stock and the 7% debentures to Common was dilutive, the applicable interest expense on the debentures, net of tax, was added back to net income and the Preferred dividends were not deducted, in the computation of fully diluted earnings per share for 1991. 61 53 NOTE 19: UNAUDITED QUARTERLY OPERATING RESULTS
(millions except per-share data) 1993 (by quarter) 1 2 3(1) 4(2) --------- --------- ---------- --------- Revenues $ 1,471.2 $ 1,611.7 $ 1,592.4 $ 1,598.5 Gross margin 466.3 533.5 506.6 533.8 Net income 63.1 102.9 98.9 102.2 Net income applicable to Common stock 49.8 89.7 85.6 88.9 Net income per Common share: Primary $ .44 $ .79 $ .75 $ .78 Fully diluted .44 .78 (3) .75 (3) .77 (3) ========= ========= ========== =========
1992 (by quarter) 1 2 3(1) 4(2) --------- --------- ---------- --------- Revenues $ 1,507.9 $ 1,529.6 $ 1,460.3 $ 1,636.1 Gross margin 462.2 508.9 483.4 539.8 Income before cumulative effect of changes in accounting principles 66.0 109.1 89.9 96.3 Cumulative effect on prior years of changes in accounting principles (590.0) - - - Net income (loss) (524.0) 109.1 89.9 96.3 Net income (loss) applicable to Common stock (537.2) 95.9 76.7 83.1 Income (Loss) per Common share: Primary Net income before cumulative effect of changes in accounting principles $ .46 $ .84 $ .67 $ .73 Cumulative effect on prior years of changes in accounting principles (5.19) - - - --------- --------- ---------- --------- Net income (loss) $ (4.73) $ .84 $ .67 $ .73 ========= ========= ========== ========= Fully diluted Net income before cumulative effect of changes in accounting principles $ .46 $ .82 (3) $ .67 $ .73 (3) Cumulative effect on prior years of changes in accounting principles (5.19) - - - --------- --------- ---------- --------- Net income (loss) $ (4.73) $ .82 (3) $ .67 $ .73 (3) ========= ========= ========== =========
(1) Includes nonrecurring income and expense items as further described in Management's Discussion and Financial Review. (2) Includes $8.1 million ($.06 per fully diluted share) in 1993 and $8.3 million ($.06 per fully diluted share) in 1992 related to LIFO inventory liquidations. (3) The computation of fully diluted earnings per share for the quarter assumes the conversion of the 7% debentures and the $1.60 Preferred stock to Common stock. As a result, interest on the debentures, net of tax, is added back to net income and Preferred dividends are not deducted in the computation. 62 EX-21 3 LIST OF SUBSIDIARIES 1 Exhibit 21.0 12-31-93 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 CI Leasing Company Delaware, U.S. Cooper (Great Britain) Ltd. United Kingdom Cooper (U.K.) Limited Delaware, U.S. Cooper CPS Corporation Delaware, U.S. Cooper Industries (Canada) Inc. Ontario, Canada Cooper Industries Australia Pensions Pty Ltd Australia Cooper Industries Australia Pty Limited Australia Cooper Industries Foreign Sales Company, Ltd. Barbados Cooper Industries Foundation Ohio, U.S. Cooper Industries GmbH Beteiligungen Germany Cooper Industries Italia S.p.A. Italy Cooper Industries, Inc. Delaware, U.S. Cooper Industries International Holding B.V. Netherlands Cooper Industries Sweden AB (556391-9728) Sweden Cooper PAC Corporation Delaware, U.S. Cooper Pensions Limited United Kingdom Cooper Securities, Inc. Texas, U.S. Gardner-Denver Company Delaware, U.S. Kirsch Company Michigan, U.S. P B Marketing, Inc. Delaware, U.S. Sani Kirsch, Inc. Delaware, U.S. 2 Place of Name Incorporation ---- ------------- B. ELECTRICAL PRODUCTS Arrow-Hart, S.A. de C.V. Mexico Bussmann International, Inc. Delaware, U.S. Componentes de Iluminacion, S.A. de C.V. Mexico Componentes e Interruptores, S.A. de C.V. Mexico Connectron, Inc. New Jersey, U.S. Crouse-Hinds (Australia) Pty. Ltd. Australia Crouse-Hinds Domex, S.A. de C.V. Mexico Edison Fusegear, Inc. Delaware, U.S. Bussmann (U.K.) Limited United Kingdom Bussmann (Aust.) Pty Limited Australia Iluminacion Cooper de las Californias S.A. de C.V. Mexico McGraw-Edison Company Delaware, U.S. Pluz, S.A. (40.6% owned) Mexico C. ELECTRICAL POWER EQUIPMENT Cooper Power Systems, Inc. Delaware, U.S. McGraw-Edison Development Corporation Delaware, U.S. McGraw-Edison Power Systems Overseas, Inc. Delaware, U.S. RTE Far East Corporation Taiwan RTE Transportation Co., Inc. Wisconsin, U.S. - 2 - 3 Place of Name Incorporation ---- ------------- D. TOOLS & HARDWARE AB Sani-Maskiner (556179-9643) Sweden Acrimo AB (28.9% owned) Sweden Aryho, S.A. Spain Comercial Decorativa, S.A. Spain Cooper Industries Sweden Realty AB (556403-8684) Sweden Cooper Tools GmbH Germany Cooper Tools Industrial Ltda. Brazil Cooper Tools Pty. Limited Australia Cooper Tools S.A. France Decoracion, S.A. Spain Deutsche Gardner-Denver Beteiligungs-GmbH Germany Deutsche Gardner-Denver GmbH & Co. Germany Empresa Andina de Herramientas, S.A. (49% owned) Colombia Erem S.A. Switzerland Ferramentas Belzer do Brasil Ltda. Brazil Hofesa France, S.A. France Hofesa Home Fittings de Portugal Decoracao, Limitada Portugal Hofesa Italia S.r.l. Italy Hofesa UK PLC United Kingdom Home Fittings Espana, S.A. Spain Innovaciones Decorativas, S.A. Spain Lufkin Europa B.V. Netherlands Nicholson Mexicana, S.A. de C.V. (49% owned) Mexico SANI-Kirsch Inc. & Co. KG Germany The Cooper Group, B.V. Netherlands The Cooper Group, Inc. Delaware, U.S. - 3 - 4 Place of Name Incorporation ---- ------------- E. AUTOMOTIVE PRODUCTS Anco de Mexico, S.A. de C.V. Mexico Baron Drawn Steel Corporation Ohio, U.S. Baron Drawn Steel Corporation of Michigan Michigan, U.S. Bougie Champion, S.A. France Bujias Champion de Mexico, S.A. de C.V. Mexico Bujias Champion de Venezuela, C.A. Venezuela Champion Filtration S.p.A. Italy Champion Iberica S.A. Spain Champion Interamericana, Ltd. Delaware, U.S. Champion Spark Plug Company (Aust.) Pty. Limited Australia Champion Spark Plug Company Delaware, U.S. Champion Spark Plug Belgium S.A. Belgium Champion Spark Plug New Zealand New Zealand Champion Spark Plug Taiwan, Inc. Taiwan Cooper Automotive, Inc. Delaware, U.S. Crucetas Mexicanas, S.A. de C.V. (40% owned) Mexico CSP Industries B.V. Netherlands Farloc Argentina S.A.I.C. y. F. (23.9% owned) Argentina Frenos Hidraulicos Automotrices S.A. (49% owned) Mexico General Driveshaft Co. Michigan, U.S. Import Parts America Inc. Delaware, U.S. Moog Automotive, Inc. Missouri, U.S. Nippon Champion Spark Plug Kabushiki Kaisha Japan Productos de Frenos Automotrices de Calidad, S.A. de C.V. Mexico Sistemas de Energia de Matamoros, S.A. de C.V. Mexico Wagner Electric Corporation Delaware, U.S. WAWD Autoteile GmbH Germany - 4 - 5 Place of Name Incorporation ---- ------------- F. PETROLEUM & INDUSTRIAL EQUIPMENT Cameron Forged Products Company Delaware, U.S. Cameron Iron Works Pensions Ltd. United Kingdom Cameron Pipeline, Inc. Texas, U.S. Cameron Venezolana S.A. (49% owned) Venezuela Cameronvolgomash (50% owned) Russia Compression Services Company Ohio, U.S. Cooper Energy Services B.V. Netherlands Cooper Energy Services de Venezuela, S.A. Venezuela Cooper Energy Services International, Inc. Ohio, U.S. Cooper Flow Control Australia Pty. Ltd. Australia Cooper Industries Holding B.V. Netherlands Cooper Oil Tool (Singapore) Pte. Ltd. Singapore Cooper Oil Tool Argentina S.A.I.C. Argentina Cooper Oil Tool Australia Pty. Ltd. Australia Cooper Oil Tool de Mexico, S.A. Mexico Cooper Oil Tool S.A. de C.V. Mexico Cooper Oil Tool France, S.A. France Cooper Oil Tool GmbH Germany Cooper Oil Tool Gabon, S.A. Gabon Cooper Oil Tool Ireland Limited Ireland Cooper Oil Tool Nigeria Limited (60% owned) Nigeria Cooper Oil Tool Norway A/S Norway Cooper Petroleum Equipment Group, Inc. Delaware, U.S. Cooper Rolls Incorporated (50% owned) Ohio, U.S. Cooper Rolls Limited (50% owned) United Kingdom Cooper Turbocompressor (Deutschland) GmbH Germany Cooper Turbocompressor Inc. Delaware, U.S. Cooper, Rolls Corporation (50% owned) Canada Gardner Denver International, Inc. Delaware, U.S. Gardner Denver Machinery Inc. Delaware, U.S. Gardner-Denver Western Hemisphere Delaware, U.S. Industrias Cooper de Venezuela, S.A. Venezuela Sri Timor Oilfield Supplies & Equipment Sdn Bhd (49% owned) Malaysia Syarikat Rajah Sdn Bhd Brunei Wheeling Machine Products Company Delaware, U.S. - 5 - 6 Place of Name Incorporation ---- ------------- G. INACTIVE SUBSIDIARIES Arman Motor Products, Ltd. United Kingdom Battery Products, Inc. Illinois, U.S. Cameron do Brasil Industrias Mecanicas Ltda. Brazil Cameron Iron Works de Venezuela C.A. Venezuela Cameron Iron Works Limited United Kingdom Cameron Offshore Engineering Limited United Kingdom CAM L, Inc. Delaware, U.S. Carlton Santee Corporation California, U.S. Champion Service & Trading Pte. Ltd. Singapore Champion Spark Plug (Far East) Pte. Limited Singapore Champion Sparking Plug Company (Ireland) Limited Ireland Champion Sparking Plug Company Limited United Kingdom Comtra Internacional S.A. de C.V. Mexico Coninco Corporation Puerto Rico Cooper-Bessemer, S.A. Switzerland Cooper Hand Tools of California, Inc. Delaware, U.S. Cooper-Vulkan Kompressoren, GmbH (70% owned) Germany Crouse-Hinds de Venezuela, C.A. Venezuela Crouse-Hinds of Europe, S.r.l. Italy DFL Fusegear Limited United Kingdom Duotech Pty Limited Australia Everco Industries of Canada Ltd. Ontario, Canada Gardner-Denver (Aust.) Pty. Limited Australia Gardner-Denver International, C.A. Venezuela Gardner-Denver Pensions Limited United Kingdom Inmobiliaria Cisco, S.A. (49% owned) Mexico Manufacturas Cameron, C.A. (85% owned) Venezuela McGraw-Edison Export Corporation Delaware, U.S. Moog World Trade Corporation Virgin Islands SK (UK) Limited United Kingdom Veda Manufacturing Pty. Ltd. Australia Velas Champion do Brasil, Ltda. Brazil WPC Corporation, Inc. Delaware, U.S. ZV Zundkerzenvertriebs GmbH Germany - 6 - EX-23 4 CONSENT OF ERNST & YOUNG 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 24, 1994, included in the 1993 Annual Report to Shareholders of Cooper Industries, Inc. Our audits also included the financial statement schedules of Cooper Industries, Inc. listed in Item 14(a). These schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in the following Registration Statements on Form S-8, Form S-3 or Form S-4 of Cooper Industries, Inc. and in each related Prospectus of our report dated January 24, 1994, with respect to the consolidated financial statements incorporated herein by reference, and our report included in the preceding paragraph with respect to the financial statement schedules included in this Annual Report (Form 10-K) of Cooper Industries, Inc. Registration Statement No. Purpose - ------------- ------- No. 2-81114 Form S-8 Registration Statement for Cooper Industries, Inc. 1981 Incentive Stock Option Plan 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. 2-33-19574 Form S-8 Registration Statement for Cooper Industries, Inc. 1981 Incentive Stock Option Plan and 1986 Stock Option Plan No. 2-33-29302 Form S-8 Registration Statement for 1989 Director Stock Option Plan No. 33-2243 Form S-3 Registration Statement for Cooper Industries, Inc. Debt Securities No. 33-4097 Form S-3 Registration Statement for Cooper Industries, Inc. Debt Securities No. 33-13695 Form S-3 Registration Statement for Cameron Iron Works, Inc. 7% Convertible Subordinated Debentures due 2012 No. 33-33011 Form S-3 Registration Statement for Cooper Industries, Inc. Debt Securities No. 33-29301 Form S-4 Registration Statement for 3,000,000 Shares of Cooper Common Stock (Equity Shelf) 2 No. 33-34734 Form S-8 Registration Statement for Cameron Iron Works USA, Inc. Savings Investment Plan for Hourly Employees No. 33-37875 Form S-3 Registration Statement for Cooper Industries, Inc. Dividend Reinvestment and Stock Purchase Plan /s/ ERNST & YOUNG Houston, Texas March 30, 1994 - 2 - EX-24 5 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 Karen E. Herbert, 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, 1993 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 15th day of February, 1994. /s/ WARREN L. BATTS WARREN L. BATTS 2 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 Karen E. Herbert, 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, 1993 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 15th day of February, 1994. /s/ CONSTANTINE S. NICANDROS CONSTANTINE S. NICANDROS 3 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 Karen E. Herbert, 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, 1993 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 15th day of February, 1994. /s/ CLIFFORD J. GRUM CLIFFORD J. GRUM 4 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 Karen E. Herbert, 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, 1993 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 15th day of February, 1994. /s/ SIR RALPH H. ROBINS SIR RALPH H. ROBINS 5 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 Karen E. Herbert, 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, 1993 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 15th day of February, 1994. /s/ A. THOMAS YOUNG A. THOMAS YOUNG -----END PRIVACY-ENHANCED MESSAGE-----