-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H/MdL5dmxJv9J99UEN1X4dT0TAdCaeO9Mq4VP2yqe+ecD5mNhHxqYxYDDiNbMiqY pR8Jqc520ldO5z/psMnmRQ== 0000950129-96-000529.txt : 19960402 0000950129-96-000529.hdr.sgml : 19960402 ACCESSION NUMBER: 0000950129-96-000529 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960401 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COOPER INDUSTRIES INC CENTRAL INDEX KEY: 0000024454 STANDARD INDUSTRIAL CLASSIFICATION: SWITCHGEAR & SWITCHBOARD APPARATUS [3613] IRS NUMBER: 314156620 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-01175 FILM NUMBER: 96542529 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 COOPER INDUSTRIES, INC. - 12/31/95 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, 1995 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 6.0% Exchangeable Notes due January 1, 1999 The New York Stock Exchange 7.05% Convertible Subordinated Debentures due 2015 The New York 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 ------ ------ 2 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate value of the registrant's voting stock held by non-affiliates of the registrant as of March 4, 1996 was $4,165,361,268. Number of shares outstanding of registrant's Common Stock as of March 4, 1996 - 107,929,157 DOCUMENTS INCORPORATED BY REFERENCE Cooper Industries, Inc. Proxy Statement for the Annual Meeting of Shareholders to be held on April 30, 1996 (Part I - Item 1, Part II - Items 6, 7 and 8, Part III - Items 10, 11 and 12 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's continuing businesses operate in three business segments: Electrical Products, Tools & Hardware and Automotive Products. On June 30, 1995, the Company divested its Petroleum & Industrial Equipment segment, which was being carried on the Company's books as a discontinued operation, through an exchange offer with the Company's shareholders. Pursuant to the exchange offer, the Company distributed 85.5 percent (21,375,000 shares) of the common stock of its wholly-owned subsidiary Cooper Cameron Corporation in exchange for 9,500,000 shares of Cooper Common Stock tendered by the Company's shareholders. On January 1, 1995, Cooper had transferred to Cooper Cameron the businesses that comprised the Company's former Petroleum & Industrial Equipment segment at September 30, 1994. The discussion of the Company's business under Items 1 and 2 hereof includes only the Company's continuing operations. Cooper manufactures, markets and sells its products and provides services throughout the world, operating facilities in 25 countries and currently employs approximately 40,400 people. On December 31, 1995, the plants and other facilities used by Cooper throughout the world contained an aggregate of approximately 30,876,000 square feet of space, of which approximately 80 percent was owned and 20 percent was leased. The charts on the next page show the number of employees, square footage of facilities owned and leased and location of manufacturing facilities for each industry segment. Cooper believes its facilities are adequate and suitable for its current and anticipated level of 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 15,300 45 8 75 2 9,272,000 1,343,000 Products Tools & 9,400 35 21 8 2 7,485,000 988,000 Hardware Automotive 15,400 48 14 15 7 7,973,000 3,616,000 Products Other 300 - - - 1 - 199,000 ------- ------ -------- -------- ----- --------- ---------- Total 40,400 128 43 98 12 24,730,000 6,146,000
Manufacturing Plant Locations Europe United South United (Other Segment States Canada Mexico America Kingdom Than UK) Australia Other ------- ------ ------ ------ ------- ------- -------- --------- ----- Electrical 29 2 5 1 3 3 1 1 Products Tools & 22 1 0 2 1 7 2 0 Hardware Automotive 32 2 3 1 1 6 1 2 Products ---- ----- ------ ------- ------- ------- ------ ----- Total 83 5 8 4 5 16 4 3
-4- 5 Operations in the United States are conducted by unincorporated divisions and subsidiaries of the Company, organized by the three 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 three business segments. As a result of these international operations, sales and distribution networks are maintained throughout most of the industrialized world. Except as noted below, Cooper believes that there are generally no substantial differences in the business risks associated with these international operations compared with domestic activities, although Cooper is subject to certain political and economic uncertainties encountered in activities outside the United States, including trade barriers, restrictions on foreign exchange and currency fluctuations. Specifically, during 1995, Cooper's operations in Mexico were affected by the economic situation which followed the December 1994 devaluation of the Mexican currency. In addition, the Company has been negotiating and finalizing several joint ventures with operations in China. Investments in China are subject to greater risks related to economic and political uncertainties as compared to most countries where the Company has operations. 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 are contained in Note 15 of the Notes to Consolidated Financial Statements, incorporated herein by reference to pages A-29 through A-31 of Appendix A to the Cooper Proxy Statement for the 1996 Annual Meeting of Shareholders. A discussion of acquisitions and divestitures is included in Notes 2, 3, 17 and 18 of the Notes to Consolidated Financial Statements, incorporated herein by reference to pages A-16 through A-17 and A-32 through A-34 of Appendix A to the Cooper Proxy Statement for the 1996 Annual Meeting of Shareholders. With its three business segments, Cooper serves four major markets: industrial, construction, electrical power and automotive. 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 primary electrical power equipment; hazardous duty electrical equipment; lighting fixtures and fuses; nonpower hand tools; industrial power tools; chain products; drapery hardware and window coverings; automotive and heavy-duty brake products; automotive lamps, wire sets, spark plugs, wiper blades, steering, suspension, driveline and temperature control products; and aviation ignition components. Cooper's research and development activities are for purposes of improving existing products and services and originating new products. During 1995, approximately $32.1 million was spent for research and development activities as compared with approximately $26.3 million in 1994 and $29.8 million in 1993. 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 1996. Cooper has been a party to -5- 6 administrative and legal proceedings with governmental agencies that have arisen under statutory provisions regulating the discharge or potential discharge of material into the environment. Orders and decrees consented to by Cooper have contained agreed-upon timetables for fulfilling reporting or remediation obligations or maintaining specified air and water discharge levels in connection with permits for the operations of various plants. Cooper believes it is in compliance with the orders and decrees and such compliance is not material to the business or financial condition of Cooper. For additional information concerning accruals for environmental liabilities of the Company, see Notes 1 and 7 of the Notes to Consolidated Financial Statements, incorporated herein by reference to pages A-15 through A-16 and A-19 through A-21 of Appendix A to the Cooper Proxy Statement for the 1996 Annual Meeting of Shareholders. Approximately 58 percent of the United States hourly production work force of Cooper is employed in 70 manufacturing facilities, distribution centers and warehouses not covered by labor agreements. Numerous agreements covering approximately 42 percent of the hourly production employees exist with 33 bargaining units at 34 operations in the United States and with various unions at 42 international operations. During 1995, new agreements were concluded covering hourly production employees at five operations in the United States. Cooper believes its current relations with employees are excellent. Sales backlog at December 31, 1995 was approximately $442 million (all of which is for delivery during 1996) compared with backlog of approximately $350 million at December 31, 1994. The following describes the business conducted by each of the Company's business segments. Additional information regarding the products, markets and distribution methods for each segment is set forth on the table at the end of this Item. Information concerning market conditions, as well as information concerning revenues, earnings and results of operations for each segment is incorporated herein by reference to pages A-1 through A-9 of Appendix A to the Cooper Proxy Statement for the 1996 Annual Meeting of Shareholders. Electrical Products The Electrical Products segment manufactures, markets and sells electrical and circuit protection products, including fittings, enclosures, plugs, receptacles, lighting fixtures and fuses, for use in residential, commercial and industrial construction, maintenance and repair applications. The segment also manufactures, markets and sells products for use by utilities and industries for primary electrical power transmission and distribution, including distribution switchgear, 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 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 market, industrial production levels and spending by utilities for replacements, expansions and efficiency improvements. The segment's product lines are marketed directly to original -6- 7 equipment manufacturers and utilities and through major distributor chains and thousands of independent distributors to a variety of 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, primarily automotive and aerospace manufacturers; 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, chain and clamp products and industrial power tools has been relatively stable and is driven by employment levels and industrial activity in major industrial countries. 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 and heavy-duty brakes, automotive lights, wire and cable, spark plugs, windshield wipers, steering, suspension, driveline and temperature control products and other products for the automotive aftermarket; brake products, lights, spark plugs, ignition coils and windshield wipers for original equipment manufacturers; and aviation ignition components. The principal raw material requirements include steel, iron, nickel, glass, steel wool, fiberglass, carbon, 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 age and number of vehicles on the road and the number of vehicle miles driven. Weather conditions may affect consumer demand on a year- to-year basis for certain replacement parts such as wiper blades. 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. -7- 8 Products, Markets and Distribution Methods by Segment
ELECTRICAL PRODUCTS TOOLS & HARDWARE MAJOR PRODUCTS AND BRANDS MAJOR PRODUCTS AND BRANDS ARROW HART wiring devices. APEX screwdriver bits, impact sockets and universal joints. BUSS and EDISON fuses and fuse accessories. BUCKEYE, DGD, DOTCO and GARDNER-DENVER power tools and assembly systems. CROUSE-HINDS and CEAG explosion-proof and CAMPBELL chain and fittings. nonexplosion-proof fittings, enclosures, industrial lighting, and plugs and receptacles. CROUSE-HINDS, CEAG, LUMARK, MCGRAW-EDISON and CRESCENT, DIAMOND and UTICA pliers and EDISON indoor and outdoor lighting fixtures. wrenches. FAIL-SAFE vandal-resistant lighting fixtures. DIAMOND farrier tools and horseshoes. HALO recessed and track lighting fixtures. EREM precision cutters and tweezers. KYLE distribution switchgear. KIRSCH drapery hardware and custom window coverings. MCGRAW-EDISON distribution transformers, LUFKIN measuring tapes. capacitors, voltage regulators, surge arresters, pole-line hardware and related products. METALUX fluorescent lighting fixtures. NICHOLSON files and saws. RTE power and distribution transformers, PLUMB hammers. transformer terminations and accessories. UNGAR and WELLER soldering equipment. WELLER torches. WISS and H.K. PORTER cutting products. XCELITE screwdrivers and nutdrivers. AUTOMOTIVE PRODUCTS MAJOR PRODUCTS AND BRANDS ABEX, LEE, GIBSON and WAGNER brake components, including friction material, hydraulics, drums, rotors and hardware. ACI electric motors. ANCO and CHAMPION windshield wiper products. CHAMPION spark plugs and igniters. EVERCO and MURRAY heating and air conditioning products. GENERAL DRIVESHAFT driveline products. MOOG steering and suspension components. POWERPATH and BELDEN automotive wire and cable. PRECISION universal joints. WAGNER and ZANXX lighting products.
-8- 9
ELECTRICAL PRODUCTS TOOLS AND HARDWARE MAJOR MARKETS MAJOR MARKETS Primary and secondary electrical power Industrial production and plant maintenance; transmission and distribution; and residential, industrial, commercial and residential construction; commercial and industrial construction. professional trades; and home improvement. PRINCIPAL DISTRIBUTION METHODS PRINCIPAL DISTRIBUTION METHODS Through distributors for use in general Through distributors to general industry, pariticularly construction, plant maintenance, utilities, automotive, appliance and aircraft maintenance; through process and energy applications, shopping distributors and wholesalers to hardware stores, home centers, parking lots, sports facilities, and centers, lumber yards, department stores and mass data processing and telecommunications systems; merchandisers; and direct to original equipment manufacturers, through distributors and direct to manufacturers home centers, specialty stores, department stores, mass for use in electronic equipment for consumer, merchandisers and hardware outlets. industrial, government and military applications; and direct to original equipment manufacturers of appliances, tools, machinery and electronic equipment. AUTOMOTIVE PRODUCTS MAJOR MARKETS Automotive and heavy-duty vehicle replacement parts distribution; automotive and heavy-duty vehicle original equipment; industrial; and aviation. PRINCIPAL DISTRIBUTION METHODS Replacement parts -- to professional service technicians and repair garages through warehouse distributors and jobbers; to do-it-yourself customers through warehouse distributors and jobbers, retailers and mass merchandisers; and to national repair shop networks. Original equipment parts -- to original equipment manufacturers and their respective service networks.
Brand names that appear in bold type are registered trademarks of Cooper Industries, Inc., except DGD, Erem, Fail-Safe, General Driveshaft, Lee and McGraw-Edison, which are unregistered trademarks. 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 under license. -9- 10 ITEM 3. LEGAL PROCEEDINGS The Company, and certain of its current and former officers and directors, are named in a consolidated class action lawsuit, brought in the United States District Court for the Southern District of Texas, Houston Division, on behalf of all persons who purchased Cooper stock during the period from February 1, 1993 through January 25, 1994. The case is docketed in the court as Civil Action No. H-94-0280, is entitled PHILLIP FRANK AND PATRICIA RANKIN, ET AL V. COOPER INDUSTRIES, INC., ET AL, and was filed on January 26, 1994. The consolidated complaint alleges 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. For example, the consolidated complaint alleges that the Company stated publicly that the diversity of its product mix was a means of avoiding the ups and downs of any single market, that adjustments being made by the Company would offset the effect of depressed markets for certain products and that modest growth could be expected in the Company's earnings. The key allegation in the consolidated complaint appears to center around the Company's public announcement in early 1994 that the deterioration in oil, gas and other energy related markets could cause the Company's share earnings to decrease by as much as 25 percent in 1994. The consolidated complaint requests recovery of an unspecified amount of damages. The case is proceeding through the class notification and discovery process, and trial is currently scheduled for October 1996. While the ultimate liability, if any, that may result from this litigation cannot be determined with certainty at this time, the Company believes that its investigation of the facts to date has not revealed anything to support the plaintiffs' claims. 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 April 1994, the Company and the State of Wisconsin entered into a settlement agreement under which the Company agreed to test changes in processes and coating materials to lower the amount of emissions and to cause the facility to be in compliance no later than April 1996. The Company agreed to pay a civil penalty of $128,712 and $127 per day during the implementation of the compliance schedule. The settlement was approved by the Circuit Court for Waukesha County in April 1994. From April 1994 through completion of the compliance schedule at the end of October 1995, the Company paid an aggregate of $202,808 in civil penalties, including the per diem penalty of $127. 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. -10- 11 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock (symbol - CBE) is listed on the New York Stock Exchange and the Pacific Stock Exchange. Options for the Company's Common Stock are listed on the American Stock Exchange. As of March 4, 1996 there were 34,122 record holders of the Company's Common Stock. The high and low quarterly sales price for the past two years of the Company's Common Stock, as reported by Dow Jones & Company, Inc., are as follows:
Quarter --------- --------- --------- ---------- 1 2 3 4 --------- --------- --------- ---------- 1995 High $39.875 $40.375 $40.50 $37.625 Low 34.00 36.25 33.875 32.875 1994 High 52.25 38.75 42.125 40.375 Low 35.875 34.875 35.50 31.625
Annual cash dividends declared on the Company's Common Stock during 1995 and 1994 were $1.32 a share ($.33 a quarter). On February 13, 1996, the Board of Directors declared a quarterly dividend of $.33 a share, which will be paid April 1, 1996 to shareholders of record on March 4, 1996. -11- 12 ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected historical financial data for Cooper for each of the five years in the period ended December 31, 1995. The selected historical financial information shown below has been derived from Cooper's audited consolidated financial statements. This information should be read in conjunction with Cooper's consolidated financial statements and notes thereto incorporated herein by reference to pages A-10 through A-36 of Appendix A to the Cooper Proxy Statement for the 1996 Annual Meeting of Shareholders.
Years Ended December 31, ------------------------------------------------------------ 1995(1)(2) 1994(1) 1993(1) 1992(1) 1991 --------- --------- -------- ------- -------- (in millions, except per share data) INCOME STATEMENT DATA: Revenues $4,885.9 $4,588.0 $4,776.4 $4,468.4 $4,307.6 -------- -------- -------- -------- -------- Income from continuing operations before cumulative effect of changes in accounting principles 280.6 292.8 299.0 239.6 231.2 Income from discontinued operations, net of taxes - .3 68.1 121.7 162.0 Charge for discontinued operations (186.6) (313.0) - - - Cumulative effect on prior years of changes in accounting principles - - - (590.0) - -------- -------- -------- --------- -------- Net income (loss) $ 94.0 $ (19.9) $ 367.1 $ (228.7) $ 393.2 ======== ======== ======== ======== ======== PER COMMON SHARE DATA: Primary - Income from continuing operations before cumulative effect of changes in accounting principles $ 2.51 $ 2.10 $ 2.15 $ 1.64 $ 1.60 Income (loss) from discontinued operations (1.67) (2.74) .60 1.07 1.44 Cumulative effect on prior years of changes in accounting principles - - - (5.19) - -------- -------- -------- --------- -------- Net income (loss) $ .84 $ (.64) $ 2.75 $ (2.48) $ 3.04 ======== ======== ======== ======== ======== Fully Diluted - Income from continuing operations before cumulative effect of changes in accounting principles $ 2.41 $ 2.10 $ 2.15 $ 1.64 $ 1.60 ======== ======== ======== ======== ======== Net income (loss) $ .84 $ (.64) $ 2.75 $ (2.48) $ 3.01 ======== ======== ======== ======== ======== BALANCE SHEET DATA (at the end of period): Total assets $6,063.9 $6,400.7 $6,361.7 $6,551.4 $5,951.1 Long-term debt 1,865.3 1,361.9 883.4 1,369.8 1,033.3 Shareholders' equity 1,716.4 2,741.1 3,009.6 2,862.6 3,319.0 CASH DIVIDENDS PER COMMON SHARE: $ 1.32 $ 1.32 $ 1.32 $ 1.24 $ 1.16
___________________ (1) Includes the results of Moog Automotive Group, Inc., which was acquired effective October 1, 1992 from IFINT S.A. This transaction was accounted for as a purchase. (2) Includes the results of Abex Friction Products, which was acquired effective December 30, 1994 from Abex, Inc. This transaction was accounted for as a purchase. -12- 13 In the first quarter of 1992, Cooper adopted the following 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). For additional information concerning the year-to-year comparability of the financial information set forth in the preceding table, see (i) Notes 2, 3, 8, 9 and 18 of the Notes to Consolidated Financial Statements and (ii) Management's Discussion and Analysis of Financial Condition and Results of Operations, incorporated herein by reference to pages A-16 through A-17, A-21 through A-23, A-33 through A-34 and A-1 through A-9 of Appendix A to the Cooper Proxy Statement for the 1996 Annual Meeting of Shareholders. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Incorporated by reference to pages A-1 through A-9 of Appendix A to the Cooper Proxy Statement for the 1996 Annual Meeting of Shareholders. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Incorporated by reference to pages A-10 through A-36 of Appendix A to the Cooper Proxy Statement for the 1996 Annual Meeting of 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 1996 Annual Meeting of Shareholders. ITEM 11. EXECUTIVE COMPENSATION Incorporated by reference to pages 11 through 27 of the Cooper Proxy Statement for the 1996 Annual Meeting of Shareholders. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated by reference to pages 2 and 9 of the Cooper Proxy Statement for the 1996 Annual Meeting of Shareholders. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Not applicable. -13- 14 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. Financial Statements and Other Financial Data (incorporated by reference to the pages shown below in Appendix A to the Cooper Proxy Statement for the 1996 Annual Meeting of Shareholders).
Page No. -------- Report of Independent Auditors ........................ A-10 Cooper Industries, Inc. and Subsidiaries: Consolidated Statements of Operations for Each of the Three Years in the Period Ended December 31, 1995......................... A-11 Consolidated Balance Sheets as of December 31, 1995 and December 31, 1994 ........ A-12 Consolidated Statements of Cash Flows for Each of the Three Years in the Period Ended December 31, 1995 .............................. A-13 Consolidated Statements of Shareholders' Equity for Each of the Three Years in the Period Ended December 31, 1995 .............................. A-14 Notes to Consolidated Financial Statements ..... A-15 through A-36 Management's Discussion and Analysis of Financial Condition and Results of Operations.............. A-1 through A-9
Financial information with respect to subsidiaries not consolidated and 50 percent 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 Financial statement schedules are not included in this Form 10-K Annual Report because they are not applicable or the required information is shown in the financial statements or notes thereto. -14- 15 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). 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 Form of Indenture between Cooper Industries, Inc. and The First National Bank of Chicago, as Trustee, relating to the 7.05% Convertible Subordinated Debentures due 2015 (incorporated herein by reference to Exhibit 4.2 to Registration Statement No. 33-31941). 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).
-15- 16 10.9 Cooper Industries, Inc. Stock Incentive Plan (incorporated by reference to Exhibit I to the Cooper Industries, Inc. Proxy Statement for the Annual Meeting of Shareholders to be held April 30, 1996.) 10.10 Form of Cooper Industries, Inc. Incentive Stock Option Agreement. 10.11 Form of Cooper Industries, Inc. Nonqualified Stock Option Agreement. 10.12 Form of Cooper Industries, Inc. Executive Stock Incentive Agreement. 10.13 Cooper Industries, Inc. Management Annual Incentive Plan (incorporated by reference to Exhibit II to the Cooper Industries, Inc. Proxy Statement for the Annual Meeting of Shareholders to be held April 30, 1996.) 10.14 Cooper Industries, Inc. Directors' Stock Plan (incorporated by reference to Exhibit III to the Cooper Industries, Inc. Proxy Statement for the Annual Meeting of Shareholders to be held April 30, 1996.) 10.15 Amended and Restated Asset Transfer Agreement, dated as of January 1, 1995, by and between Cooper Industries, Inc. and Cooper Cameron Corporation (incorporated herein by reference to Exhibit 2.1 to Cooper Cameron Corporation Registration Statement No. 33-90288). 10.16 Canadian Asset Transfer Agreement, dated as of January 1, 1995, by and between Cooper Industries (Canada) Inc. and Cooper Cameron Limited (incorporated herein by reference to Exhibit 2.2 to Cooper Cameron Corporation Registration Statement No. 33-90288). 10.17 German Asset Transfer Agreement, dated as of January 1, 1995, by and between Champion Spark Plug GmbH and Cooper Oil Tool GmbH (incorporated herein by reference to Exhibit 2.3 to Cooper Cameron Corporation Registration Statement No. 33-90288). 10.18 Norway Asset Transfer Agreement, dated as of January 1, 1995, by and between Cooper Oil Tool Norway A/S and Cooper Cameron Norge A/S (incorporated herein by reference to Exhibit 2.4 to Cooper Cameron Corporation Registration Statement No. 33-90288). 10.19 Amended and Restated United Kingdom Asset Transfer Agreement, dated as of January 1, 1995, by and among CoopCam (U.K.) Limited, Cooper Cameron (U.K.) Limited and Cooper (Great Britain) Ltd. (incorporated herein by reference to Exhibit 2.5 to Cooper Cameron Corporation Registration Statement No. 33-90288). 12.0 Computation of Ratios of Earnings to Fixed Charges for the Calendar years 1991 through 1995. 13.0 Text of Appendix A to Cooper Industries, Inc. Proxy Statement for the Annual Meeting of Shareholders to be held April 30, 1996. 21.0 List of Cooper Industries, Inc. Subsidiaries. 23.0 Consent of Ernst & Young LLP.
-16- 17 24.0 Powers of Attorney from members of the Board of Directors of Cooper Industries, Inc. 27.0 Financial Data Schedule.
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 quarter for which this report is filed. -17- 18 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 29, 1996 By /s/ H. JOHN RILEY, JR. ------------------------------ (H. John Riley, Jr., President 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/ H. JOHN RILEY, JR. President and Chief Executive March 29, 1996 - -------------------------- Officer (Principal Executive (H. John Riley, Jr.) Officer) and Director /s/ D. BRADLEY MCWILLIAMS Senior Vice President, Finance March 29, 1996 - -------------------------- (Principal Financial Officer) (D. Bradley McWilliams) /s/ TERRY A. KLEBE Vice President and Controller March 29, 1996 - -------------------------- (Principal Accounting Officer) (Terry A. Klebe) /s/ ROBERT CIZIK Chairman and Director March 29, 1996 - -------------------------- (Robert Cizik) *HAROLD S. HOOK Director March 29, 1996 - -------------------------- (Harold S. Hook) *LINDA A. HILL Director March 29, 1996 - -------------------------- (Linda A. Hill) *CONSTANTINE S. NICANDROS Director March 29, 1996 - -------------------------- (Constantine S. Nicandros) *SIR RALPH H. ROBINS Director March 29, 1996 - -------------------------- (Sir Ralph H. Robins) *A. THOMAS YOUNG Director March 29, 1996 - -------------------------- (A. Thomas Young) * By /s/ DIANE K. SCHUMACHER ------------------------ (Diane K. Schumacher, as Attorney-In-Fact for each of the persons indicated)
-18- 19 Cooper Industries, Inc. 1995 Annual Report on Form 10-K Cross Reference Sheet
Page Reference Page Reference in Incorporated Item No. in Form 10-K in 10-K Proxy Statement --------------------- -------------- --------------- Item 1. Business 3 through 9 A-1 through A-9 A-15 through A-17 A-19 through A-21 A-29 through A-31 A-32 through A-34 Item 2. Properties 3 through 9 - Item 3. Legal Proceedings 10 - Item 4. Submission of Matters to a Vote of 10 - Security Holders Item 5. Market for Registrant's Common Equity and 11 - Related Stockholder Matters Item 6. Selected Financial Data 12 through 13 A-1 through A-36 Item 7. Management's Discussion and Analysis of 13 A-1 through A-9 Financial Condition and Results of Operations Item 8. Financial Statements and Supplementary 13 A-10 through A-36 Data Item 9. Changes in and Disagreements with 13 - Accountants on Accounting and Financial Disclosure Item 10. Directors and Executive Officers of the 13 3 through 8,9 Registrant Item 11. Executive Compensation 13 11 through 27 Item 12. Security Ownership of Certain Beneficial 13 2,9 Owners and Management Item 13. Certain Relationships and Related 13 - Transactions Item 14. Exhibits, Financial Statement Schedules, 14 through 17 A-1 through A-36 and Reports on Form 8-K
20 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------- ----------- 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). 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 Form of Indenture between Cooper Industries, Inc. and The First National Bank of Chicago, as Trustee, relating to the 7.05% Convertible Subordinated Debentures due 2015 (incorporated herein by reference to Exhibit 4.2 to Registration Statement No. 33-31941). 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).
21 10.9 Cooper Industries, Inc. Stock Incentive Plan (incorporated by reference to Exhibit I to the Cooper Industries, Inc. Proxy Statement for the Annual Meeting of Shareholders to be held April 30, 1996.) 10.10 Form of Cooper Industries, Inc. Incentive Stock Option Agreement. 10.11 Form of Cooper Industries, Inc. Nonqualified Stock Option Agreement. 10.12 Form of Cooper Industries, Inc. Executive Stock Incentive Agreement. 10.13 Cooper Industries, Inc. Management Annual Incentive Plan (incorporated by reference to Exhibit II to the Cooper Industries, Inc. Proxy Statement for the Annual Meeting of Shareholders to be held April 30, 1996.) 10.14 Cooper Industries, Inc. Directors' Stock Plan (incorporated by reference to Exhibit III to the Cooper Industries, Inc. Proxy Statement for the Annual Meeting of Shareholders to be held April 30, 1996.) 10.15 Amended and Restated Asset Transfer Agreement, dated as of January 1, 1995, by and between Cooper Industries, Inc. and Cooper Cameron Corporation (incorporated herein by reference to Exhibit 2.1 to Cooper Cameron Corporation Registration Statement No. 33-90288). 10.16 Canadian Asset Transfer Agreement, dated as of January 1, 1995, by and between Cooper Industries (Canada) Inc. and Cooper Cameron Limited (incorporated herein by reference to Exhibit 2.2 to Cooper Cameron Corporation Registration Statement No. 33-90288). 10.17 German Asset Transfer Agreement, dated as of January 1, 1995, by and between Champion Spark Plug GmbH and Cooper Oil Tool GmbH (incorporated herein by reference to Exhibit 2.3 to Cooper Cameron Corporation Registration Statement No. 33-90288). 10.18 Norway Asset Transfer Agreement, dated as of January 1, 1995, by and between Cooper Oil Tool Norway A/S and Cooper Cameron Norge A/S (incorporated herein by reference to Exhibit 2.4 to Cooper Cameron Corporation Registration Statement No. 33-90288). 10.19 Amended and Restated United Kingdom Asset Transfer Agreement, dated as of January 1, 1995, by and among CoopCam (U.K.) Limited, Cooper Cameron (U.K.) Limited and Cooper (Great Britain) Ltd. (incorporated herein by reference to Exhibit 2.5 to Cooper Cameron Corporation Registration Statement No. 33-90288). 12.0 Computation of Ratios of Earnings to Fixed Charges for the Calendar years 1991 through 1995. 13.0 Text of Appendix A to Cooper Industries, Inc. Proxy Statement for the Annual Meeting of Shareholders to be held April 30, 1996. 21.0 List of Cooper Industries, Inc. Subsidiaries. 23.0 Consent of Ernst & Young LLP.
22 24.0 Powers of Attorney from members of the Board of Directors of Cooper Industries, Inc. 27.0 Financial Data Schedule.
EX-10.10 2 FORM OF COOPER IND. INCENTIVE STOCK OPTION AGMT. 1 EXHIBIT 10.10 [LOGO] COOPER INDUSTRIES, INC. INCENTIVE STOCK OPTION AGREEMENT Granted to: --------------------------------------------- Grant Date -------------- Number of Shares of Cooper Industries Common Stock ------------- Option Price Per Share -------------- Employee Number --------------------- Expiration Date --------------------- Division ----------------------------------------------- This Agreement is made between Cooper Industries, Inc., an Ohio corporation, having its principal office in Houston, Texas (the "Company"), and the undersigned, an employee of the Company or a subsidiary of the Company (the "Employee"). The parties hereto have agreed as follows: 1. Pursuant to the Cooper Industries, Inc. Stock Incentive Plan (the "Plan"), the Company grants to the Employee an Incentive Stock Option ("Option") to purchase the above stated number of shares of the Company's Common Stock, par value $5 per share (the "Shares"), at the price stated above, subject to the following conditions: (a) The Option rights are exercisable only if and after the Employee shall have remained in the employ of the Company for one year from the date of grant of this Option (the "Grant Date"). The Option shall become exercisable to the extent of only 33 1/3% of the aggregate number of Shares above specified, after one year, 66 2/3% after two years, and 100% after three years from the Grant Date. (b) During the lifetime of the Employee, the Option rights are exercisable only by the Employee, and, except as otherwise provided in Sections 2, 3 and 4 below, only if the Employee has remained continuously in the employ of the Company from the Grant Date. (c) The Option rights shall expire at the end of the period of 10 years commencing with the Grant Date, or upon such earlier expiration or termination date as may be provided by Sections 2, 3, 4 or 9 hereof and such Option rights shall not be exercisable thereafter. 2. If, after the expiration of one year from the Grant Date, the Employee shall cease to be employed by the Company for any reason other than death, disability or retirement, the Option rights shall terminate immediately. If cessation of employment is occasioned by retirement in accordance with any retirement plan of the Company then in effect, then the Employee may exercise the Option rights following such retirement for a period of five years after retirement or until the Expiration Date, whichever is lesser. 3. If, after the expiration of one year from the Grant Date, the Employee shall cease employment as the direct result of disability (as defined in the Company's qualified Salaried Pension Plan), all outstanding options granted to the Employee become exercisable immediately and the Employee may exercise such outstanding options for a period of one year after the cessation of employment resulting from disability or until the Expiration Date, whichever is lesser, irrespective of any restrictions to the contrary contained in Section 1(a) above. 4. If, after the expiration of one year from the Grant Date, the Employee shall die while in the employ of the Company, or while retired with exercisable Options under Section 2, all outstanding options granted to the Employee become exercisable immediately and the person entitled by will or the applicable laws of descent and distribution may exercise such outstanding Options for a period of one year after the date of death or until the Expiration Date, whichever is lesser, irrespective of any restrictions to the contrary contained in Section 1(a) above. 5. The Option may be exercised by delivering to the Company at its principal executive office (directed to the attention of the Secretary or Assistant Secretary) a written notice, signed by the Employee or a person entitled by will or the laws of descent and distribution to exercise the Option, as the case may be, of the election to exercise the Option and stating the number of Shares in respect of which it is then being exercised. The Option shall be deemed exercised as of the date the Company receives such notice. Such notice shall, and as an essential part thereof, be accompanied by the payment of the full purchase price of the Shares then to be purchased. In the event the Option shall be exercised, as provided herein, by any person other than the Employee, such notice shall be accompanied by appropriate evidence of the right of such person to exercise the Option. Payment of the full purchase price may be made in (a) cash, (b) shares of the Company's Common Stock ("Stock"), or (c) any combination of cash and Stock, provided that any Stock used by the Employee in payment of the purchase price must have been acquired (whether by purchase, exchange or otherwise) by the Employee and held for a period of more than six months, and provided further that the Company reserves the right to prohibit the use of Stock as payment of the purchase price. Stock used in payment of the purchase price shall be valued at the average of the high and low trading prices of such Stock on the New York Stock Exchange or as reported in the consolidated transaction reporting system for the date of exercise. Upon the proper exercise of the Option, the Company shall issue in the name of the person exercising the Option, and deliver to such person, a 2 certificate for the Shares purchased. The Employee agrees that as holder of the Option he or she shall have no rights as shareholder in respect of any of the Shares as to which the Option shall not have been effectively exercised as herein provided and that no rights as a shareholder shall arise in respect of any Shares as to which the Option shall have been duly exercised until and unless a certificate for such Shares shall have been issued. 6. This Option shall not be exercisable if such exercise would violate: (a) Any applicable state securities law; (b) Any applicable registration or other requirements under the Securities Act of 1933, as amended (the "Act"), the Securities Exchange Act of 1934, as amended, or the listing requirements of any stock exchange; or (c) Any applicable legal requirement of any other governmental authority. Furthermore, if a registration statement with respect to the Shares to be issued upon the exercise of this Option is not in effect or if counsel for the Company deems it necessary or desirable in order to avoid possible violation of the Act, the Company may require, as a condition to its issuance and delivery of certificates for the Shares, the delivery to the Company of a written statement that the Employee is acquiring such Shares for investment only and not with a view to, or for resale in connection with, the distribution thereof; that such person understands that the Shares may be "restricted securities" as defined in Rule 144 issued under the Act; and that any resale, transfer or other disposition of said Shares will be accomplished only in compliance with Rule 144, the Act, or other or subsequent applicable rules and regulations thereunder. The Company may place on the certificates evidencing such Shares an appropriate legend reflecting the aforesaid statement and the Company may refuse to permit transfer of such certificates until it has been furnished evidence satisfactory to it that no violation of the Act or the rules and regulations thereunder would be involved in such transfer. 7. In consideration of the granting of this Option by the Company, the Employee agrees that he or she will remain in the employ of the Company for a period of not less than one year from the Grant Date unless during said period his or her employment shall be terminated on account of incapacity or with the consent of the Company. Nothing herein contained shall limit or restrict any right which the Company would otherwise have to terminate the employment of the Employee. 8. This Option and the Option rights granted hereunder are not assignable or transferable or subject to any disposition by the Employee otherwise than by will or by the laws of descent and distribution. 9. In the event of a reorganization, recapitalization or other change in the capital stock, corporate structure or business of the Company, the Board of Directors shall make appropriate adjustments to the number of Shares subject to the Option and the exercise price so as to maintain the proportionate interest of the Employee and preserve the value of the Option. In the event of a Change in Control of the Company, outstanding Options shall be settled by a cash payment in accordance with Section 18.2 of the Plan. 10. For purposes of this Agreement, employment by a parent or subsidiary of or a successor to the Company shall be considered employment by the Company. 11. The Committee shall have authority, subject to the express provisions of the Plan, to construe this Agreement and the Plan, to establish, amend and rescind rules and regulations relating to the Plan, and to make all other determinations in the judgment of said Committee necessary or desirable for the administration of the Plan. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in this Agreement in the manner and to the extent it shall deem expedient to carry the Plan into effect. All action by the Committee under the provisions of this paragraph shall be conclusive for all purposes. 12. The Employee hereby agrees to notify the Company promptly of the disposition, whether by sale, exchange or otherwise, of any Shares acquired pursuant to this Option within a period of one year from their acquisition. Such notice shall state the date and manner of disposition and the proceeds, if any, received by the Employee as a result thereof. 13. Notwithstanding any provisions hereof, this Agreement and the Option granted hereunder shall be subject to all of the provisions of the Plan as are in effect from time to time, which provisions are incorporated herein by reference. IN WITNESS WHEREOF, the parties hereto have executed this Agreement in duplicate as of the Grant Date first above written. COOPER INDUSTRIES, INC. By ---------------------------------------------- EMPLOYEE SIGNATURE ------------------------------ SOCIAL SECURITY NO. ----------------------------- HOME ADDRESS ------------------------------------- EX-10.11 3 FORM OF COOPER IND. NONQUALIFIED STOCK OPTION AGMT 1 EXHIBIT 10.11 [LOGO] COOPER INDUSTRIES, INC. NONQUALIFIED STOCK OPTION AGREEMENT Granted to: ---------------------------- Grant Date ---------------------------- Number of Shares of Cooper Industries Common Stock ------------------ Option Price Per Share ---------------------------- Employee Number ----------------------------------- Expiration Date ----------------------------------- Division ------------------------------------------ This Agreement is made between Cooper Industries, Inc., an Ohio corporation, having its principal office in Houston, Texas (the "Company"), and the undersigned, an employee of the Company or a subsidiary of the Company (the "Employee"). The parties hereto have agreed as follows: 1. Pursuant to the Cooper Industries, Inc. Stock Incentive Plan (the "Plan"), the Company grants to the Employee an Incentive Stock Option ("Option") to purchase the above stated number of shares of the Company's Common Stock, par value $5 per share (the "Shares"), at the price stated above, subject to the following conditions: (a) The Option rights are exercisable only if and after the Employee shall have remained in the employ of the Company for one year from the date of grant of this Option (the "Grant Date"). The Option shall become exercisable to the extent of only 33 1/3% of the aggregate number of Shares above specified, after one year, 66 2/3% after two years, and 100% after three years from the Grant Date. (b) During the lifetime of the Employee, the Option rights are exercisable only by the Employee, and, except as otherwise provided in Sections 2, 3 and 4 below, only if the Employee has remained continuously in the employ of the Company from the Grant Date. (c) The Option rights shall expire at the end of the period of 10 years commencing with the Grant Date, or upon such earlier expiration or termination date as may be provided by Sections 2, 3, 4 or 9 hereof and such Option rights shall not be exercisable thereafter. 2. If, after the expiration of one year from the Grant Date, the Employee shall cease to be employed by the Company for any reason other than death, disability or retirement, the Option rights shall terminate immediately. If cessation of employment is occasioned by retirement in accordance with any retirement plan of the Company then in effect, then the Employee may exercise the Option rights following such retirement for a period of five years after retirement or until the Expiration Date, whichever is lesser. 3. If, after the expiration of one year from the Grant Date, the Employee shall cease employment as the direct result of disability (as defined in the Company's qualified Salaried Pension Plan), all outstanding options granted to the Employee become exercisable immediately and the Employee may exercise such outstanding options for a period of one year after the cessation of employment resulting from disability or until the Expiration Date, whichever is lesser, irrespective of any restrictions to the contrary contained in Section 1(a) above. 4. If, after the expiration of one year from the Grant Date, the Employee shall die while in the employ of the Company, or while retired with exercisable Options under Section 2, all outstanding options granted to the Employee become exercisable immediately and the person entitled by will or the applicable laws of descent and distribution may exercise such outstanding Options for a period of one year after the date of death or until the Expiration Date, whichever is lesser, irrespective of any restrictions to the contrary contained in Section 1(a) above. 5. The Option may be exercised by delivering to the Company at its principal executive office (directed to the attention of the Secretary or Assistant Secretary) a written notice, signed by the Employee or a person entitled by will or the laws of descent and distribution to exercise the Option, as the case may be, of the election to exercise the Option and stating the number of Shares in respect of which it is then being exercised. The Option shall be deemed exercised as of the date the Company receives such notice. Such notice shall, and as an essential part thereof, be accompanied by the payment of the full purchase price of the Shares then to be purchased. In the event the Option shall be exercised, as provided herein, by any person other than the Employee, such notice shall be accompanied by appropriate evidence of the right of such person to exercise the Option. Payment of the full purchase price may be made in (a) cash, (b) shares of the Company's Common Stock ("Stock"), or (c) any combination of cash and Stock, provided that any Stock used by the Employee in payment of the purchase price must have been acquired (whether by purchase, exchange or otherwise) by the Employee and held for a period of more than six months, and provided further that the Company reserves the right to prohibit the use of Stock as payment of the purchase price. Stock used in payment of the purchase price shall be valued at the average of the high and low trading prices of such Stock on the New York Stock Exchange or as reported in the consolidated transaction reporting system for the date of exercise. Upon the proper exercise of the Option, the Company shall issue in the name of the person exercising the Option, and deliver to such person, a certificate for the Shares purchased. The Employee agrees that as holder of the Option he or she shall have no rights as shareholder in respect of 2 any of the Shares as to which the Option shall not have been effectively exercised as herein provided and that no rights as a shareholder shall arise in respect of any Shares as to which the Option shall have been duly exercised until and unless a certificate for such Shares shall have been issued. 6. This Option shall not be exercisable if such exercise would violate: (a) Any applicable state securities law; (b) Any applicable registration or other requirements under the Securities Act of 1933, as amended (the "Act"), the Securities Exchange Act of 1934, as amended, or the listing requirements of any stock exchange; or (c) Any applicable legal requirement of any other governmental authority. Furthermore, if a registration statement with respect to the Shares to be issued upon the exercise of this Option is not in effect or if counsel for the Company deems it necessary or desirable in order to avoid possible violation of the Act, the Company may require, as a condition to its issuance and delivery of certificates for the Shares, the delivery to the Company of a written statement that the Employee is acquiring such Shares for investment only and not with a view to, or for resale in connection with, the distribution thereof; that such person understands that the Shares may be "restricted securities" as defined in Rule 144 issued under the Act; and that any resale, transfer or other disposition of said Shares will be accomplished only in compliance with Rule 144, the Act, or other or subsequent applicable rules and regulations thereunder. The Company may place on the certificates evidencing such Shares an appropriate legend reflecting the aforesaid statement and the Company may refuse to permit transfer of such certificates until it has been furnished evidence satisfactory to it that no violation of the Act or the rules and regulations thereunder would be involved in such transfer. 7. In consideration of the granting of this Option by the Company, the Employee agrees that he or she will remain in the employ of the Company for a period of not less than one year from the Grant Date unless during said period his or her employment shall be terminated on account of incapacity or with the consent of the Company. Nothing herein contained shall limit or restrict any right which the Company would otherwise have to terminate the employment of the Employee. 8. This Option and the Option rights granted hereunder are not assignable or transferable or subject to any disposition by the Employee otherwise than by will or by the laws of descent and distribution. 9. In the event of a reorganization, recapitalization or other change in the capital stock, corporate structure or business of the Company, the Board of Directors shall make appropriate adjustments to the number of Shares subject to the Option and the exercise price so as to maintain the proportionate interest of the Employee and preserve the value of the Option. In the event of a Change in Control of the Company, outstanding Options shall be settled by a cash payment in accordance with Section 18.2 of the Plan. 10. For purposes of this Agreement, employment by a parent or subsidiary of or a successor to the Company shall be considered employment by the Company. 11. The Committee shall have authority, subject to the express provisions of the Plan, to construe this Agreement and the Plan, to establish, amend and rescind rules and regulations relating to the Plan, and to make all other determinations in the judgment of said Committee necessary or desirable for the administration of the Plan. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in this Agreement in the manner and to the extent it shall deem expedient to carry the Plan into effect. All action by the Committee under the provisions of this paragraph shall be conclusive for all purposes. 12. Notwithstanding any provisions hereof, this Agreement and the Option granted hereunder shall be subject to all of the provisions of the Plan as are in effect from time to time, which provisions are incorporated herein by reference. IN WITNESS WHEREOF, the parties hereto have executed this Agreement in duplicate as of the Grant Date first above written. COOPER INDUSTRIES, INC. By ---------------------------------------- Employee Signature ----------------------- Social Securitiy No. --------------------- Home Address ----------------------------- - ------------------------------------------ EX-10.12 4 FORM OF COOPER IND. EXECUTIVE STOCK INCENTIVE AGMT 1 Exhibit 10.12 COOPER INDUSTRIES, INC. EXECUTIVE STOCK INCENTIVE AGREEMENT This Agreement is made as of the ______ day of ________, 1996, between Cooper Industries, Inc., an Ohio Corporation, having its principal offices in Houston, Texas (the "Company") and ____________, an Executive of the Company (the "Executive"). All capitalized terms used in this Agreement are as defined in the Cooper Industries, Inc. Stock Incentive Plan dated November 7, 1995 (the "Plan"), unless otherwise defined in this Agreement. 1. Performance Period. For purposes of this Agreement, the "Performance Period" shall be January 1, ____ to December 31, ____. 2. Performance Shares Grant. Pursuant to the Plan, the Company hereby grants to the Executive an Award of Performance Shares that may be earned based on the financial performance of the Company during the Performance Period. The Committee has established Performance Goals such that if the Company achieves a cumulative annual growth rate of earnings per share ("EPS") for the Performance Period of ___ percent or greater, then the Executive will be issued Performance Shares in accordance with the following chart:
Fully Diluted EPS Cumulative Total Performance Over Shares Performance Annual EPS Performance That May Be Target Growth Rate Period Earned - ----------- ----------- ----------------- ----------- Threshold ___% $________ ______ Good ___% $________ ______ Commendable ___% $________ ______ Outstanding ___% $________ ______
The number of shares appearing under the heading "Performance Shares That May Be Earned" shall constitute the Executive's Total performance Shares Award under this Paragraph 2. Performance Shares are dominated in shares of the Company's Common Stock. At the end of the Performance Cycle, the Committee shall determine the level of achievement of the Performance Goals and the Performance Shares, if any, earned by the Executive shall be issued to the Executive, or if deferred, credited to the Executive's Account. 3. Dividends. Upon issuance of Performance Shares earned pursuant to Paragraph 2 above, the Company shall pay to the Executive in cash an amount equal to the aggregate amount of cash dividends that the Executive would have received had the Executive been the owner of record of such earned Performance Shares during the Performance Period. -1- 2 4. Election to Receive Cash for Shares. Subject to the conditions set forth in this Paragraph 4, the Executive may request that a portion of the Award granted under this Agreement, if earned, be paid in cash in an amount equal to the fair market value of such portion of the earned Performance Shares. Such request shall be made by delivering to the Company at the office of its Secretary a notice setting forth that portion (expressed as a percentage) of Performance Shares for which the Executive desires to receive cash. In no event may the Executive receive under this Paragraph cash for Performance Shares in an amount greater than 50 percent of the fair market value of the Performance Shares to be received by the Executive pursuant to Paragraph 2. For the purposes of this Paragraph 4, the fair market value of the Performance Shares shall be the average of the high and low trading prices of the Company's Stock on the New York Stock Exchange on the date on which the Committee determines that the Performance Goals have been met. The Committee shall consider the Executive's request and have absolute discretion to determine if and to what extent the request shall be approved. To the extent the Executive's request is not approved, the Executive shall receive payment of the Award in Shares. 5. Tax. The Company is authorized to withhold from any cash payment relating to the Award or from any other cash compensation then or thereafter payable to the Executive any tax required to be withheld by reason of the receipt of compensation resulting from the Award or issuance of Performance Shares hereunder. Pursuant to Article XVI of the Plan, the Executive may request that the Company satisfy any withholding obligations by having the Company retain the number of Shares from the Award whose Fair Market Value equals the amount required to be withheld. The Committee, in its sole discretion, may permit such withholding of Shares. 6. Forfeiture. In the event of termination of the Executive's employment with the Company prior to the expiration of the Performance Period for any reason other than death, disability or retirement at or after age 65, the Executive shall forfeit all Performance Shares granted pursuant to the Plan, for no consideration. In the event of the Executive's death, disability or retirement at or after age 65, the Committee may, in its sole discretion, terminate the forfeiture restrictions and award Performance Shares based upon the Company's performance from the commencement of the Performance Period through the calendar quarter immediately preceding the date of the Executive's retirement. 7. Election to Defer Shares. The Executive shall have the right to elect to defer the issuance and receipt of all or a part of any Shares to which such Executive may become entitled pursuant to Paragraph 2 until either the Executive's termination of employment with the Company or a calendar year specified by the Executive. The dividend equivalent cash payments pursuant to Paragraph 3 with respect to Performance Shares shall not be paid on or after the expiration of the Performance Period, as provided, but instead shall be credited to a deferral account established by the Company for the Executive ("Executive Account"). The Executive Account shall be increased from time to time by the amount of cash dividends which the Executive would have received had he or she been the owner of record of such deferred shares during the deferral period with respect to such shares. The balance from time to time of the Executive's Account shall bear interest in an amount equal to the average quarterly prime rate of interest charged by The Chase Manhattan Bank, N.A. -2- 3 The deferred shares shall be issued in three annual installments unless (i) the Committee, in its discretion, determines to issue all of such deferred shares on the first installment date or (ii) the Executive dies prior to issuance of all of the deferred shares. Upon issuance of any or all of such shares, the Company also shall pay to the Executive in cash the portion of the Executive's Account theretofore credited with respect to such issued shares together with accrued interest thereon as provided above. If the Executive elects deferral until termination of employment, the first installment shall be made in January of the year following such termination. If the Executive elects deferral until a specified calendar year, the first installment shall be made in January of such year. In the event the Executive dies prior to issuance of all of the deferred shares or the payment of cash with respect thereto, all deferred shares shall be issued and all cash payments shall be made in January of the year following the Executive's death to the Executive's beneficiary or beneficiaries as such Executive may designate in writing to the Company. A deferral election by an Executive hereunder must be made in writing to the Company on or before December 31 of the year next preceding the expiration of the Performance Period of the grant. The election to receive cash provided for in Paragraph 4 shall not be available with respect to shares the receipt of which is deferred under this Paragraph 7. 8. Change in Control. In the event of a Change in Control, all outstanding Awards shall vest automatically, all forfeiture restrictions shall lapse, and all Performance Share Awards shall be deemed earned at the maximum Performance Goal level. It is recognized that under certain circumstances: (a) Payments or benefits provided to the Executive might give rise to an "excess parachute payment" within the meaning of Section 280G of the Internal Revenue Code of 1986, or any successor provision thereof; and (b) It might be beneficial to the Executive to disclaim some portion of the payment or benefit in order to avoid such "excess parachute payment" and thereby avoid the imposition of an excise tax resulting therefrom; and (c) Under such circumstances it would not be to the disadvantage of the Company to permit the Executive to disclaim any such payment or benefit in order to avoid the "excess parachute payment" and the excise tax resulting therefrom. Accordingly, the Executive may, at the Executive's option, exercisable at any time or from time to time, disclaim any entitlement to any portion of the payment or benefits arising under this Agreement that would constitute "excess parachute payments," and it shall be the Executive's choice as to which payments or benefits shall be so surrendered, if and to the extent that the Executive exercises such option, so as to avoid "excess parachute payments." 9. Securities Laws. (a) The issuance of all Shares provided for herein is subject to registration under the Securities Act of 1933. The Company will use its best efforts to make effective and to maintain such registration. No Shares will be issued pursuant to the Plan in the absence of an effective registration, unless the Company has received evidence of exemption therefrom which is satisfactory to counsel for the Company. The Executive agrees to be bound by such provisions as the Company may require to the end that the issuance by the Company and the sale by the Executive of any Shares which are the subject of this Agreement, shall be in compliance with the applicable securities laws. -3- 4 (b)The Executive acknowledges that the Award of Performance Shares pursuant to the Plan and this Agreement is reportable to the Securities and Exchange Commission on a Form 4 report. The Executive agrees to file a Form 4 report no later than ______________. 10. Amendments. The Committee shall have the authority, subject to the express provisions of the Plan, to construe this Agreement, to establish, amend and rescind rules and regulations relating to the Plan and to make all other determinations, which in the judgment of the Committee are necessary and desirable for the administration of the Plan. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in this Agreement in the manner and to the extent it shall deem expedient to carry the Plan into effect. All action by the Committee under the provisions of this Paragraph shall be conclusive for all purposes, provided however, that no significant diminution in the economic value of this Agreement to the Executive shall result from any amendment to the Plan subsequent to the effective date of this Agreement. 11. Consideration. The parties agree that the consideration for any issuance of Shares hereunder shall be past services by the Executive having a value not less than the par value of such Shares. 12. Plan Incorporated. The Executive acknowledges receipt of a copy of the Plan, and agrees that this grant of Performance Shares shall be subject to all of the terms and provisions of the Plan, including future amendments and shareholder approval, if any, pursuant to Paragraphs XIX and XXVI, respectively, of Plan or Paragraph 10 of this Agreement. 13. Binding Effect. This Agreement shall be binding upon and inure to the benefit of any successors to the Company and all persons lawfully claiming under the Executive. IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed by an officer thereunto duly authorized, and the Executive has executed this Agreement, all as of the date first above written. COOPER INDUSTRIES, INC. By ________________________________ EXECUTIVE By _________________________________ Name: Title: -4- EX-12 5 COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES 1 Exhibit 12.0 COOPER INDUSTRIES, INC. COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES (Dollar Amounts in Thousands) (Unaudited)
Year Ended December 31, ------------------------------------------------------------ 1995 1994 1993 1992 1991 -------- ------- -------- -------- -------- Interest Expense $151,000 $73,300 $80,900 $92,500 $125,400 Estimated Interest Portion of Rent Expense 16,865 19,289 20,701 16,178 18,130 -------- ------- -------- -------- -------- Fixed Charges $167,865 $92,589 $101,601 $108,678 $143,530 ======== ======== ========= ========= ======== Income From Continuing Operations Before Income Taxes $478,000 $504,700 $506,000 $392,100 $406,700 Add: Fixed Charges 167,865 92,589 101,601 108,678 143,530 Dividends From Less Than 50% Owned Companies 968 835 2,395 2,278 1,711 Less: Equity in Net Income of Less Than 50% Owned Companies (1,000) (1,900) (1,200) (1,900) (900) -------- ------- -------- -------- -------- Earnings Before Fixed Charges $645,833 $596,224 $608,796 $501,156 $551,041 ======== ======== ========= ========= ======== Ratio of Earnings to Fixed Charges 3.8x 6.4x 6.0x 4.6x 3.8x
EX-13 6 TEXT OF APP. A TO COOPER IND. PROXY STMT 1 EXHIBIT 13 APPENDIX A COOPER INDUSTRIES, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations....................................................................... A-1 Consolidated Financial Statements................................................. A-10
2 [THIS PAGE INTENTIONALLY LEFT BLANK] 3 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW During the last three years, Cooper's continuing operations have completed 14 acquisitions and five divestitures, including the initial public offering of 90.4% of the common stock of Belden Inc. and the sale of its forging business, Cameron Forged Products, through an exchange for Wyman-Gordon Company common stock. Cooper also exited the large power transformer business in 1994. In addition, in 1994, Cooper completed the prorata distribution to shareholders of the common stock of Gardner-Denver Machinery Inc., and in 1995, divested the remaining businesses comprising the former Petroleum & Industrial Equipment segment through an exchange offer with shareholders. The acquisitions have been in complementary product lines that enhance areas of strength, while the dispositions have been of noncore or poor-performing businesses. Cooper has invested $586 million in capital assets related to modernization and expansion of facilities plus significant amounts related to the integration of newly acquired businesses and the revitalization of existing ones during the last three years. The combined result of these efforts is a 30% improvement in the Company's operating earnings in 1995 as compared to 1992. More important, the Cooper of 1995 is a much different company than it was in 1992, and one that the Company believes is well prepared for the increasingly competitive global marketplace. On January 1, 1995, Cooper exchanged all of its outstanding $1.60 Convertible Exchangeable Preferred Stock for $691.2 million of 7.05% Convertible Subordinated Debentures due 2015 and $3.8 million in cash related to fractional shares. While the exchange boosted the debt-to-total capitalization ratio above Coopers preferred target, it generated in excess of $20 million per year of additional net cash flows. In December 1995, Cooper issued $222.8 million in Exchangeable Notes due January 1, 1999. The notes are mandatorily exchangeable into shares of Wyman-Gordon common stock owned by Cooper or, at Cooper's option, into cash in lieu of shares. The notes are in effect a monetization of Cooper's investment in Wyman-Gordon common stock and will result in Cooper realizing a minimum after-tax gain of $100.6 million at maturity of the notes. In addition, Cooper retained the first 16% of appreciation in the fair market value of the Wyman-Gordon common stock between the date of issuance of the notes and their maturity, plus 13.8% of any additional appreciation beyond the first 16%. The financial information and discussions that follow, along with the consolidated financial statements and related footnotes, will aid in understanding Cooper's results of operations as well as its financial position, cash flows and indebtedness. REVENUES
YEAR ENDED DECEMBER 31, ------------------------------- 1995 1994 1993 --------- --------- --------- (IN MILLIONS) Electrical Products................................ $ 2,089.7 $ 2,034.8 $ 2,177.5 Tools & Hardware................................... 962.4 897.9 807.9 Automotive Products................................ 1,796.6 1,622.1 1,670.0 --------- --------- --------- Operating Revenues............................... 4,848.7 4,554.8 4,655.4 Cameron Forged Products............................ -- -- 109.7 Other.............................................. 37.2 33.2 11.3 --------- --------- --------- Consolidated Revenues............................ $ 4,885.9 $ 4,588.0 $ 4,776.4 ========= ========= =========
1995 VS. 1994 REVENUES Cooper's 1995 revenues increased 6% over 1994. Excluding the impact of two 1995 acquisitions (the acquisition of CEAG on December 31, 1995 had no effect on revenues in 1995), six 1994 acquisitions, one 1994 divestiture and the closure of the large power transformer business, revenues for 1995 were up 3%. The Electrical Products segment comprised approximately 43% of Cooper's total revenues in 1995, with revenues increasing 3% over 1994. Excluding the effects of four small acquisitions and the closure of the large power transformer business in 1994, revenues would have increased 5% (the acquisition of CEAG on December 31, 1995 had no effect on revenues in 1995). Steady demand from maintenance, repair and renovation activity continued to benefit the Electrical Products segment. Electrical circuit protection products, lighting fixtures and power distribution products all benefited from the continued strength of industrial production and nonresidential construction. Product-line additions and new A-1 4 product introductions also added to revenues in 1995. Offsetting a portion of these increases is a significant decline in revenues in Mexico as a result of the economic downturn in that country that followed the December 1994 devaluation of the Mexican currency. The Tools & Hardware segment, which was not affected by acquisitions or divestitures, comprised approximately 20% of Cooper's total revenues in 1995, with revenues increasing 7% over 1994. Continued strength in domestic commercial construction and industrial production and the impact of new product introductions have benefited demand for domestic hand tools, power tools and drapery hardware. However, the slowdown in home construction activity and sales of existing homes have tempered the gains made in hand tool and window treatment sales. European demand held up well throughout the year. The Automotive Products segment comprised approximately 37% of Cooper's total revenues in 1995, with revenues increasing 11% over 1994. Excluding the effects of one 1995 acquisition, three 1994 acquisitions, and one 1994 divestiture, revenues for the segment would have decreased about 2%. Weakness in the domestic aftermarket as a result of reduced vehicle maintenance activity, consolidations within the distribution channel and competitive market conditions affected demand for many products. In addition, demand from Mexico and Latin America slowed significantly during the year due to the economic downturn in Mexico following the devaluation of Mexico's currency in December 1994. Domestic original equipment demand held up relatively well throughout the year, while European product demand for both original equipment and aftermarket products continued its modest growth. Other revenues increased $4 million in 1995, primarily from a gain of $11.7 million on the sale of Belden Inc. common shares offset by a decrease in the amount received from Belden Inc. under a tax sharing agreement. 1994 VS. 1993 REVENUES Cooper's 1994 revenues decreased 4% as compared to 1993. Excluding the effect of the divestitures of two small Automotive Products businesses, Belden Inc. and Cameron Forged Products during 1993, the divestiture of a small Automotive Products business during 1994 and the closure of the large power transformer business, revenues, including revenues generated by acquisitions, were up 8% in 1994 (excluding acquisitions, revenues were up 5%). The Electrical Products segment contributed approximately 45% of Cooper's total revenues during 1994, with revenues decreasing 7% from 1993. Excluding the effect of acquisitions, divestitures and the closure of the large power transformer business, revenues would have increased 6%. The Electrical Products segment continued to benefit from relatively steady demand for maintenance, repair and renovation needs. The continued strength of industrial production and commercial and residential construction promoted sales growth for electrical circuit protection products, lighting products, fixtures and power distribution products. The combination of several successful product introductions and product-line acquisitions also added to revenue growth during the year. The Tools & Hardware segment comprised approximately 20% of Cooper's total revenues in 1994, with revenues increasing 11% over 1993. Excluding acquisitions, revenues improved 3%. Sales of hand and power tools in the United States continued to benefit from the strength of residential construction and industrial production augmented by some improvement in international markets. Product line acquisitions also added to the year-to-year improvement. Weak demand and competitive conditions in window coverings markets partially offset this improvement. The Automotive Products segment contributed approximately 35% of Cooper's total revenues during 1994, with revenues decreasing 3% from 1993. Excluding the effect of acquisitions and divestitures, revenues would have increased 2%. Aftermarket sales were essentially unchanged, while sales of wipers, spark plugs and lighting improved during the latter part of the year as a result of the continued rise in domestic original equipment activity and recovering original equipment sales in certain European markets. In addition, the Magneti Marelli acquisition in Italy and the acquisition of Zanxx in the United States contributed to revenues, while the year-end acquisition of Abex Friction Products had no effect on revenues in 1994. The 1993 revenues of Cameron Forged Products reflect the results for the nine months ended September 30, 1993. This business, which was previously included in the Petroleum & Industrial Equipment segment, was not treated as part of discontinued operations in order to reflect that Cooper's investment in the business continued in a new form (see Note 2 of Notes to Consolidated Financial Statements). Other revenues increased $21.9 million in 1994 over 1993 primarily due to a full-year impact of the Belden Inc. tax sharing agreement, increases in earnings from equity investments and small gains from sales of corporate assets. A-2 5 OPERATING EARNINGS
YEAR ENDED DECEMBER 31, ---------------------------------- 1995 1994 1993 --------- --------- ------------ (IN MILLIONS) Electrical Products.............................. $ 355.5 $ 326.3 $ 359.0(1) Tools & Hardware................................. 111.2 102.4 91.6(1) Automotive Products.............................. 180.7 190.1 188.9(1) --------- --------- ------ Segment Operating Earnings..................... 647.4 618.8 639.5 Other............................................ 37.2 33.2 13.0(1) General Corporate................................ (55.6) (74.0) (65.6) --------- --------- ------ Operating Earnings............................. $ 629.0 $ 578.0 $ 586.9 ========= ========= ======
- ------------ (1) The 1993 operating earnings amounts exclude nonrecurring expenses of $155.3 million for Electrical Products, $16.5 million for Tools & Hardware and $26.5 million for Automotive Products and nonrecurring income of $198.3 million for Other. 1995 VS. 1994 SEGMENT OPERATING EARNINGS Segment operating earnings in 1995 increased 5% over the $619 million reported in 1994. Divestitures had an insignificant impact on total company year-to-year comparisons, while acquisitions made during the two years improved segment operating earnings by approximately $45 million in 1995 when compared to 1994. The Electrical Products segment operating earnings improved 9%, with the segment contributing 55% of total segment operating earnings. The 1994 closure of the large power transformer business and four small acquisitions during the two-year period had an insignificant impact on the year-to-year earnings comparison. The benefits of revenue growth and ongoing cost-improvement programs led to an improvement in return on revenues from 16.0% in 1994 to 17.0% in 1995. Moreover, these benefits offset the business decline in Mexico resulting from the December 1994 devaluation of the Mexican currency and costs associated with the transitional effects of relocation activities in one of the businesses comprising this segment. The Tools & Hardware segment operating earnings, which were not affected by either divestitures or acquisitions in the year-to-year comparisons, increased 9% with the segment contributing 17% of total segment operating earnings. Return on revenues increased slightly over 1994 from 11.4% to 11.6%. Operating earnings for this segment benefitted from the improvement in sales of hand and power tools and drapery hardware and leveraging of fixed costs. These benefits more than offset expenses related to disruptions from recent plant consolidation programs and several new product introductions. The Automotive Products segment operating earnings decreased 5%, with the segment contributing 28% of total segment operating earnings. A 1994 divestiture had an insignificant impact on the year-to-year operating earnings comparison, however four acquisitions added approximately $45 million to the segment's operating earnings. The return on revenues declined from 11.7% in 1994 to 10.1% in 1995. Gains from product additions and business consolidations were more than offset by weak domestic aftermarket demand, continued severe price competition, and initial costs incurred in obtaining several new distribution accounts. Additionally, the decline in Mexican demand from the December 1994 devaluation of the Mexican currency negatively impacted operating earnings during 1995. 1995 VS. 1994 OTHER INCOME Other income increased $4 million in 1995, primarily from a gain of $11.7 million on the sale of Belden Inc. common shares offset by a decrease in the amount received from Belden Inc. under a tax sharing agreement. 1995 VS. 1994 GENERAL CORPORATE General corporate expenses decreased $18.4 million in 1995 after an increase of $8.4 million in 1994. The 1995 decrease was primarily a result of the downsizing of the corporate office in 1995, a reduction in postemployment benefit costs retained in the divestiture of businesses, and reductions from the 1994 level of corporate charitable contributions. 1995 VS. 1994 OPERATING EARNINGS Operating earnings increased 9% in 1995 compared to 1994 due to the factors discussed above. As a percentage of revenues, cost of sales increased to 66.2% from 66.0%, depreciation and amortization increased to 4.5% from 4.3% and selling and administrative expenses decreased to 16.5% from 17.1%. The A-3 6 .2 percentage point increase in the cost of sales percentage is primarily attributable to the weakness and competitive conditions in the Automotive Products aftermarket and operating inefficiencies related to facility consolidations. The depreciation and amortization increase was a result of capital improvement projects completed in recent years. The decline in selling and administrative expenses, as a percentage of revenues, was primarily a result of management's efforts to increase productivity and reduce inefficiencies in all segments and the corporate office. 1994 VS. 1993 SEGMENT OPERATING EARNINGS Segment operating earnings decreased 3% in 1994 from the $639.5 million reported in 1993, exclusive of the 1993 nonrecurring expenses of $198.3 million. After excluding the effects of divestitures, segment operating earnings increased 5%. As discussed in greater detail below, all three of Cooper's segments contributed to the year-to-year improvement after excluding divestitures. Acquisitions accounted for an increase in operating earnings in 1994 of approximately $19 million. The following comparative analysis excludes the 1993 nonrecurring expenses. The Electrical Products segment operating earnings declined 9% in 1994 with the segment contributing 53% of total segment operating earnings. Excluding the effects of divestitures and the closure of the large power transformer business, 1994's segment operating earnings would have increased approximately 3%. Acquisitions accounted for an increase in operating earnings of approximately $5 million. While earnings benefited from the improved sales discussed previously, return on revenues declined from 16.5% in 1993 to 16.0% in 1994, reflecting short-term start-up costs related to several facility relocations and continued competitive market conditions. Additionally, return on sales was adversely affected by the closure of the large power transformer operation discussed above. On the positive side, acquisitions and new product introductions added to profits, but were not yet at return-on-sales levels achievable when fully integrated from both a manufacturing and marketing perspective. The Tools & Hardware segment operating earnings increased 12% in 1994 with the segment contributing 16% of total segment operating earnings. Acquisitions accounted for an increase in operating earnings of approximately $10 million. Return on revenues was essentially unchanged from year-to-year. While the majority of the earnings improvement for this segment was attributable to the previously described sales increases, consolidation projects completed over the last several years, as well as the benefits from several product-line acquisitions, contributed to profitability, offsetting the weak demand and competitive conditions in window coverings. The Automotive Products segment operating earnings increased 1% in 1994 with the segment contributing 31% of total segment operating earnings. Excluding the effects of divestitures, 1994's segment operating earnings would have increased approximately 7%. Acquisitions accounted for an increase in operating earnings of approximately $4 million. Comparative return on revenues improved year-to-year for this segment from 11.3% in 1993 to 11.7% in 1994. Industry conditions in the aftermarket improved somewhat after being depressed for nearly a year and a half. Additionally, the growth in worldwide original equipment demand was more than sufficient to offset short-term disruptions experienced in connection with various business consolidation actions taken by Cooper. 1994 VS. 1993 OTHER INCOME Other income increased $20.2 million in 1994 over 1993 primarily due to a full-year's impact of the Belden Inc. tax sharing agreement, increases in earnings from equity investments and small gains from sales of corporate assets. 1994 VS. 1993 GENERAL CORPORATE General corporate expenses increased $8.4 million in 1994. The 1994 increase was primarily a result of gains reflected in 1993 from benefit plan curtailments and a lower level of expenses in 1993 related to performance-based compensation programs. 1994 VS. 1993 OPERATING EARNINGS Operating earnings decreased 2% in 1994 compared to 1993 results due to the factors discussed above. As a percentage of revenues, cost of sales decreased to 66.0% from 66.2%, depreciation and amortization decreased to 4.3% from 4.5% and selling and administrative expenses increased to 17.1% from 17.0%. The change in the cost of sales percentage was primarily driven by acquisitions and divestitures, offset by the impact of exiting the large power transformer business. The decline in depreciation and amortization as a percentage of sales reflects the impact of the divestitures as well as the change in lives from 10 to 12 years for machinery and equipment in mid-year 1993. Selling and administrative expenses, as a percentage of revenues, increased primarily as a result of the increase in corporate expenses, as discussed above. 1993 NONRECURRING INCOME AND EXPENSE At the end of the third quarter of 1993, Cooper commenced the final phase of a multi-year program designed to revitalize ongoing operations and eliminate noncore businesses. The A-4 7 completion of the Belden Inc. public offering provided a $273.8 million pretax gain. That gain was entirely offset by a charge for a number of management actions including the write-down of the Cameron Forged Products Division to reflect the final purchase price paid by Wyman-Gordon Company; a write-down of internally developed capitalized software; a reduction in the carrying value of machinery and equipment and certain other property, plant and equipment associated with Cooper's large power transformer product line included in the Electrical Products segment; and accruals of $126 million for a number of facility consolidations, shutdowns and rationalizations. Additional information regarding 1993 nonrecurring income and expense items is set forth in Note 2 of the Notes to Consolidated Financial Statements. The facility projects were planned for all of Cooper's segments and involved operations in the United States, Canada and Europe. Among the projects completed in 1994 was the shutdown of the large power transformer business that operated from a single manufacturing location in Canonsburg, Pennsylvania. The accrual for this shutdown accounted for nearly 30% of the amounts accrued in 1993. While a majority of the spending for these projects was completed by the end of 1995, some projects will not be completed until 1997. See "Liquidity and Capital Resources" below. INTEREST EXPENSE
YEAR ENDED DECEMBER 31, ------------------------------- 1995 1994 1993 --------- --------- --------- (IN MILLIONS) Interest expense................................. $ 151.0 $ 73.3 $ 80.9 ========= ========= =========
1995 VS. 1994 INTEREST EXPENSE Interest expense increased $77.7 million in 1995. Approximately $48.7 million of the increase was the result of Cooper exchanging, on January 1, 1995, all of the outstanding $1.60 Convertible Exchangeable Preferred Stock for $691.2 million of 7.05% Convertible Subordinated Debentures due 2015 and $3.8 million in cash related to fractional shares. While the exchange increased interest expense, it eliminated preferred dividends of $53.3 million, which were not tax deductible, generating in excess of $20 million per year of additional net cash flows. The remainder of the increase in interest expense is approximately equally attributable to the higher average debt outstanding in 1995 following the fourth quarter 1994 acquisitions of Abex Friction Products and Zanxx and an increase in the average interest rate on outstanding debt. 1994 VS. 1993 INTEREST EXPENSE Interest expense decreased $7.6 million in 1994 primarily due to the lower average debt outstanding offset by a slight increase in the average interest rate on outstanding debt. INCOME FROM CONTINUING OPERATIONS
YEAR ENDED DECEMBER 31, ------------------------------- 1995 1994 1993 --------- --------- --------- (IN MILLIONS, EXCEPT PER SHARE DATA) Income from continuing operations before income taxes........... $ 478.0 $ 504.7 $ 506.0 Income taxes.................................................... 197.4 211.9 207.0 --------- --------- --------- Income from continuing operations............................... $ 280.6 $ 292.8 $ 299.0 ========= ========= ========= Fully diluted earnings per share from continuing operations..... $ 2.41 $ 2.10 $ 2.15 ========= ========= =========
1995 VS. 1994 INCOME FROM CONTINUING OPERATIONS Income from continuing operations before income taxes for 1995 decreased 5%. This decrease reflects the increase in operating earnings, discussed above, offset by the 106% increase in interest expense. The effective tax rate decreased slightly from 42.0% in 1994 to 41.3% in 1995. Income from continuing operations decreased 4% due to the combination of the above factors, while fully diluted earnings per share from continuing operations increased by 15%. The reduction in average shares outstanding resulting from the Cooper Cameron Exchange Offer in mid-year 1995, the Preferred Stock being antidulitive in 1994 and the increased income available to Common shareholders resulting from the Preferred Stock conversion each contributed to the earnings per share increase. 1994 VS. 1993 INCOME FROM CONTINUING OPERATIONS Income from continuing operations before income taxes for 1994 decreased less than 1%. This result reflects effects of divestitures, discussed above, partially offset by the benefit of A-5 8 lower interest expense. Cooper's effective income tax rate increased by 1.1 percentage point in 1994. This increase principally resulted from the 1% increase in the U.S. Federal tax rate that occurred in 1993. In 1993, the rate increase was almost entirely offset by the adjustment of the net deferred tax asset on the balance sheet at the date of enactment of the rate increase as required by the income tax accounting rules. Income from continuing operations and earnings per share from continuing operations for 1994 decreased 2% as a result. DISCONTINUED OPERATIONS In September 1994, Cooper announced its decision to discontinue its Petroleum & Industrial Equipment segment through an exchange offer with holders of Cooper Common Stock. On June 30, 1995, Cooper's Common shareholders exchanged 9.5 million shares of their Cooper Common Stock for common stock of Cooper Cameron, a newly formed company that included all of the assets and liabilities of the four divisions that comprised Cooper's Petroleum & Industrial Equipment segment, as well as $375 million of allocated indebtedness. Operating results of the Petroleum & Industrial Equipment segment are reported as discontinued operations in the consolidated statements of operations. See Note 18 of the Notes to Consolidated Financial Statements for additional information. Cooper's consolidated results for 1994 and 1993 included income from the operations of the discontinued Petroleum & Industrial Equipment segment of $.3 million and $68.1 million, respectively. The 1994 results include the operations through September 30, 1994, the date the segment was reflected as a discontinued operation. The $313 million charge for discontinued operations, net of $7.9 million in taxes ($2.74 per share) recorded by Cooper in the third quarter of 1994, consisted of the estimated difference between the historical cost of Cooper's investment in Cooper Cameron and the estimated market value of Cooper Cameron equity ($288 million), Cooper Cameron's estimated operating losses during the period October 1, 1994 through the projected date Cooper Cameron would become a public company ($9.8 million) and transaction costs ($15.2 million). The estimated market value of Cooper Cameron equity, which was determined by the Company with the advice of its financial advisors, was based on Cooper Cameron's historical and projected results of operations and cash flows and market comparables for a selected group of peer companies. In the second quarter of 1995, Cooper recorded an additional charge of $186.6 million ($1.67 per share) to reflect the actual loss on the split-off of Cooper Cameron. The charge was composed of the difference between the historical cost of Cooper's investment in Cooper Cameron remaining after the September 1994 estimated charge and the market value of Cooper Cameron common stock during the first few days the common stock traded on a national exchange ($162.8 million), additional Cooper Cameron operating losses during the period October 1, 1994 through June 30, 1995 ($20.3 million) and additional transaction costs ($3.5 million). The additional operating losses and transaction costs resulted primarily from the delay in completing the exchange transaction and the recording by Cooper Cameron of a $17 million pretax charge in the second quarter of 1995 for the write-down of receivables due from customers in Iran. Under the provisions of the Asset Transfer Agreement between Cooper and Cooper Cameron, Cooper Cameron was responsible, other than for certain agreed amounts of estimated operating losses, for its cash requirements between October 1, 1994 and the expiration date of the Exchange Offer. Other than for income tax liabilities for periods prior to the completion of the Exchange Offer, Cooper did not retain any liabilities, contingent or otherwise, with respect to the discontinued operations. The Petroleum & Industrial Equipment segment revenues were $523.1 million for the six-month period ended on the exchange date of June 30, 1995 and $1.11 billion and $1.50 billion during the years ended December 31, 1994 and 1993, respectively. Excluding the effects of the spin-off of Gardner Denver Machinery Inc. during 1994, the decline in revenues was 22% in 1994. This decline resulted primarily from the drop in oil prices in late 1993 that caused many of the customers for products produced by the discontinued operations to delay or cancel anticipated orders. The magnitude and suddenness of the downturn exceeded the ability of the operations to reduce costs, resulting in a significant decline in margins. In addition, competitive pricing caused margins to decline even further. FULLY DILUTED NET INCOME (LOSS) PER SHARE Net income (loss) per fully diluted share increased from a loss in 1994 of $.64 to income of $.84 in 1995. Both years reflect a charge for discontinued operations. A-6 9 Net income (loss) per fully diluted share declined to a loss of $.64 in 1994 from income of $2.75 in 1993. Excluding the charge for discontinued operations of $313 million or $2.74 per share recognized in the third quarter of 1994, income from discontinued operations declined to less than $.01 per share in 1994 from income of $.60 per share in 1993. The same factors discussed above under "Discontinued Operations" and "Income from Continuing Operations" led to the changes in share earnings. EARNINGS OUTLOOK Assuming modest growth in the economy, Cooper currently expects each of its segment's revenues and earnings to grow during 1996. The performance of the Electrical Products and Tools & Hardware segments should reflect the expected improvement in domestic and international markets and gains from new product introductions and other revenue-growth and cost-improvement programs. The Automotive Products segment should continue to benefit from actions taken to make its operations more efficient and from a return to more normal levels of domestic aftermarket demand. PRICING AND VOLUME In each of Cooper's segments, the nature of many of the products sold is such that an accurate determination of the changes in unit volume of sales is neither practical nor, in some cases, meaningful. Each segment produces a family of products, within which there exist considerable variations in size, configuration and other characteristics. It is Cooper's best judgment that, excluding the year-to-year effects of acquisitions and divestitures, during 1995 unit volume increased in the Electrical Products and Tools & Hardware segments and decreased in the Automotive Products segment due to the weak domestic aftermarket. During 1994, unit volume increased in all three business segments, and during 1993, unit volume increased in the Electrical Products segment, was relatively unchanged in the Automotive Products segment and decreased in the Tools & Hardware segment. During the three-year period ending in 1995, Cooper was unable to increase prices to offset cost increases in selected product offerings in all segments. Cooper has been able to control costs through manufacturing improvements and other actions during this period so that the inability to increase prices has not significantly affected profitability in the segments, except for power equipment products within the Electrical Products segment during 1993 and 1994. EFFECT OF INFLATION During each year, inflation has had a relatively minor effect on Cooper's results of operations. This is true primarily for three reasons. First, in recent years, the rate of inflation in Cooper's primary markets has been fairly low. Second, Cooper makes extensive use of the LIFO method of accounting for inventories. The LIFO method results in current inventory costs being matched against current sales dollars, such that inflation affects earnings on a current basis. Finally, many of the assets and liabilities included in Cooper's Consolidated Balance Sheets are recorded in connection with business combinations that are accounted for as purchases. At the time of such acquisitions, the assets and liabilities are adjusted to fair market value and, therefore, the cumulative long-term effect of inflation is reduced. LIQUIDITY AND CAPITAL RESOURCES WORKING CAPITAL FOR PURPOSES OF THIS DISCUSSION, OPERATING WORKING CAPITAL IS 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 AND NONRECURRING INCOME AND EXPENSE ITEMS AND AFTER THE RESTATEMENT TO REFLECT DISCONTINUED OPERATIONS. In 1995, operating working capital decreased $73 million primarily driven by a reduction of inventories during the year. All three segments contributed to the reduction of inventory. Management attention was focused in 1995 on reducing the build up of inventories that occurred in 1994. Attention will continue to be focused on operating working capital reductions in 1996. During 1994, operating working capital increased by $106 million, reflecting increases in receivables and inventories, partially offset by higher accounts payable and accrued liabilities. The increase in receivables resulted from the A-7 10 revenue growth discussed previously, and an industry-wide trend to an increased use of extended terms for receivables as a basis for competition. The increase in inventory occurred in all three segments and resulted from revenue growth in addition to initially higher inventory levels related to various warehouse and other consolidation projects. During 1993, operating working capital decreased by $23 million. Higher receivables at year-end 1993 were more than offset by reductions in inventories and increases in accounts payable and accrued liabilities compared with the previous year-end. The decrease in inventories was primarily due to effective working capital management. The increase in receivables and accounts payable and accrued liabilities was due to normal operating activities. CASH FLOWS Net cash flows provided by operating activities in 1995 totaled $550 million. This cash, in addition to $40 million generated by sales of fixed assets and marketable equity securities, was used to fund capital spending of $188 million, dividends of $164 million, debt reduction of $186 million and discontinued operations of $48 million. During 1994, net cash flows provided by operating activities totaled $321 million. These cash flows as well as the $40 million of net cash flows generated by discontinued operations and other miscellaneous cash flows totaling a net of $27 million, provided all but $27 million of the $415 million used for dividends and capital expenditures. This $27 million, combined with the $281 million utilized for acquisitions and the $107 million of taxes paid with respect to the 1993 gain on the sale of Belden, accounts for the debt increase of $415 million. During 1993, net cash flows provided by operating activities were $478 million. These cash flows were augmented by proceeds from the disposition of businesses of $396 million (including approximately $390 million from the sale of Belden), proceeds from sales of fixed assets of $17 million, proceeds from stock option and other plans of $12 million and $36 million of cash flow provided by discontinued operations. These cash flows allowed Cooper to fund capital expenditures of $188 million, dividends of $203 million and acquisitions of $101 million and to reduce indebtedness by $453 million. In connection with the 1993 management actions discussed under "1993 Nonrecurring Income and Expense," Cooper expended cash that was reflected as a decrease in cash flows from operations in 1994 and 1995. During 1995 management continuously reviewed levels and timing of expenditures on these projects. Since the level of spending and timing of the various projects is within management's control and discretion and the amounts remaining to be expended are insignificant, the Company does not believe that the resources required for the completion of these projects will in any way strain Cooper's overall liquidity or capital resources. In connection with accounting for purchase business combinations, Cooper records, to the extent appropriate, accruals for the costs of closing duplicate facilities, severing redundant personnel and integrating the acquired business into existing Cooper operations. Cash flow from operating activities for each of the three years in the period ended December 31, 1995, is reduced by the amounts expended on the various accruals established in connection with each acquisition. At December 31, 1995, Cooper had accruals totaling $65.6 million related to these activities. Cooper spent $47 million, $61.3 million and $46.7 million in 1995, 1994 and 1993, respectively. A total of $93 million during the three years ended December 31, 1995 related to the revitalization and integration of Champion Spark Plug. The majority of the remaining accruals are anticipated to be spent in 1996 and 1997. Spending in 1996 and future years is not expected to be at these historical levels, as most of the major projects related to earlier acquisitions have been completed and recent acquisitions do not involve significant restructuring activities. Cooper does not believe that future spending will impair Cooper's overall financial flexibility. See Note 7 of the Notes to Consolidated Financial Statements for further information. DEBT The ratio of debt to total capitalization was 54.5%, 36.3% and 27.5% at year end 1995, 1994 and 1993, respectively. The increase in the 1995 ratio reflects the exchange, on January 1, 1995, of the $1.60 Convertible Exchangeable Preferred Stock for 7.05% Convertible Subordinated Debentures and the $614.1 million reduction in shareholders' equity from the June 30, 1995 exchange of Cooper Common shares for Cooper Cameron common shares. See Notes 8 and 18 of the Notes to the Consolidated Financial Statements for further information on the terms of the debentures and the exchange offer. The increase in the debt ratio in 1994 reflects not only a higher debt level from the year-end acquisitions of Abex Friction Products and Zanxx, but also reflects a reduction in shareholders' equity from the A-8 11 September 1994 charge of $313 million for discontinued operations and the $153 million special dividend related to the spin-off of Gardner Denver Machinery Inc. See Note 18 of the Notes to Consolidated Financial Statements for additional information. As a result of the higher-than-normal debt ratio discussed above, Cooper has and will be placing increased emphasis on maximizing the cash flows from its operations and reducing its investment in working capital. In addition, Cooper continues to explore other actions to reduce the debt ratio and return it to Cooper's target range of 35 to 45%. CAPITAL EXPENDITURES AND COMMITMENTS Spending on capital projects to reduce product costs, improve product quality, increase manufacturing efficiency and operating flexibility, or expand product capacity was $188 million in 1995, below the $209 million in 1994 and equal to the $188 million in 1993. Projected commitments for capital expenditures for 1996 amount to $206 million. The commitments for 1996 include approximately $109 million for various cost-reduction and capacity-maintenance projects, including machinery and equipment modernization and enhancement and computer hardware and software projects, $53 million for capacity expansion, $14 million related to environmental matters and $30 million for other items. RECENTLY ISSUED ACCOUNTING STANDARDS Statements of Financial Accounting Standards No. 121 ("SFAS No. 121"), ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF and No. 123 ("SFAS No. 123"), ACCOUNTING FOR STOCK-BASED COMPENSATION, were issued during 1995. Cooper will adopt SFAS No. 121 in the first quarter of 1996 and, based on current circumstances, does not believe that such adoption will have a material effect on its financial position or results of operations. Cooper will continue to account for employee stock options in accordance with APB Opinion No. 25, as permitted by SFAS No. 123. See Note 1 of the Notes to Consolidated Financial Statements for further discussion of the requirements of these Statements. A-9 12 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Shareholders Cooper Industries, Inc. We have audited the accompanying consolidated balance sheets of Cooper Industries, Inc. as of December 31, 1995 and 1994, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1995. 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, 1995 and 1994, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. Houston, Texas /s/ Ernst & Young LLP January 23, 1996 A-10 13 COOPER INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, ------------------------------- 1995 1994 1993 --------- --------- --------- (IN MILLIONS, EXCEPT PER SHARE DATA) Revenues.......................................................... $ 4,885.9 $ 4,588.0 $ 4,776.4 Costs and expenses Cost of sales................................................... 3,232.9 3,026.4 3,163.0 Depreciation and amortization................................... 218.8 199.0 215.9 Selling and administrative expenses............................. 805.2 784.6 810.6 Nonrecurring gain on 1993 IPO of Belden Inc..................... -- -- (273.8) Nonrecurring expenses........................................... -- -- 273.8 --------- --------- --------- 4,256.9 4,010.0 4,189.5 --------- --------- --------- Operating earnings............................................ 629.0 578.0 586.9 Interest expense.................................................. 151.0 73.3 80.9 --------- --------- --------- Income from continuing operations before income taxes......... 478.0 504.7 506.0 Income taxes...................................................... 197.4 211.9 207.0 --------- --------- --------- Income from continuing operations............................. 280.6 292.8 299.0 Income from discontinued operations, net of taxes................. -- .3 68.1 Charge for discontinued operations................................ (186.6) (313.0) -- --------- --------- --------- Net income (loss)........................................... $ 94.0 $ (19.9) $ 367.1 ========= ========= ========= Income (loss) per Common share Primary: Income from continuing operations............................. $ 2.51 $ 2.10 $ 2.15 Income (loss) from discontinued operations.................... (1.67) (2.74) 0.60 --------- --------- --------- Net income (loss)........................................... $ 0.84 $ (0.64) $ 2.75 ========= ========= ========= Fully diluted: Income from continuing operations............................. $ 2.41 $ 2.10 $ 2.15 ========= ========= ========= Net income (loss)........................................... $ 0.84 $ (0.64) $ 2.75 ========= ========= ========= Cash dividends per Common share................................... $ 1.32 $ 1.32 $ 1.32 ========= ========= =========
The Notes to Consolidated Financial Statements are an integral part of these statements. A-11 14 COOPER INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS
DECEMBER 31, -------------------- 1995 1994 --------- --------- (IN MILLIONS) ASSETS Cash and cash equivalents............................................. $ 17.7 $ 25.3 Receivables........................................................... 992.7 904.4 Inventories........................................................... 963.5 988.5 Other................................................................. 153.4 182.0 --------- --------- Total current assets.......................................... 2,127.3 2,100.2 --------- --------- Net assets of discontinued operations................................. -- 646.4 Property, plant and equipment, less accumulated depreciation.......... 1,232.1 1,187.5 Intangibles, less accumulated amortization............................ 2,226.0 2,153.9 Investments in marketable equity securities........................... 406.2 158.4 Deferred income taxes and other assets................................ 72.3 154.3 --------- --------- Total assets.................................................. $ 6,063.9 $ 6,400.7 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Short-term debt....................................................... $ 34.3 $ 179.2 Accounts payable and accrued liabilities.............................. 1,180.5 1,133.1 Accrued income taxes.................................................. 10.4 1.7 Current maturities of long-term debt.................................. 157.2 19.1 --------- --------- Total current liabilities..................................... 1,382.4 1,333.1 --------- --------- Long-term debt........................................................ 1,865.3 1,361.9 Postretirement benefits other than pensions........................... 620.0 638.0 Other long-term liabilities........................................... 479.8 326.6 --------- --------- Total liabilities............................................. 4,347.5 3,659.6 --------- --------- $1.60 Convertible Exchangeable Preferred stock, $1.00 par value....... -- 30.6 Common stock, $5.00 par value......................................... 539.4 584.6 Capital in excess of par value........................................ 141.6 1,176.5 Retained earnings..................................................... 1,100.3 1,153.4 Unearned employee stock ownership plan compensation................... (121.6) (147.4) Other................................................................. 56.7 (56.6) --------- --------- Total shareholders' equity.................................... 1,716.4 2,741.1 --------- --------- Total liabilities and shareholders' equity.................... $ 6,063.9 $ 6,400.7 ========= =========
The Notes to Consolidated Financial Statements are an integral part of these statements. A-12 15 COOPER INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, ------------------------------- 1995 1994 1993 --------- --------- --------- (IN MILLIONS) Cash flows from operating activities: Net income (loss)........................................................................... $ 94.0 $ (19.9) $ 367.1 Less: (income) loss from discontinued operations............................................ 186.6 312.7 (68.1) --------- --------- --------- Income from continuing operations........................................................... 280.6 292.8 299.0 Adjustments to reconcile to net cash provided by operating activities: Depreciation.............................................................................. 141.7 128.2 145.2 Amortization.............................................................................. 77.1 70.8 70.7 Deferred income taxes..................................................................... 65.4 81.4 (15.5) Nonrecurring gain on 1993 IPO of Belden Inc., net of tax.................................. -- -- (164.3) Nonrecurring expense, net of tax.......................................................... -- -- 164.3 Gain on sales of marketable equity securities............................................. (11.7) -- -- Changes in assets and liabilities: (1).................................................... Receivables............................................................................. (12.1) (71.3) (47.4) Inventories............................................................................. 68.2 (60.4) 31.1 Accounts payable and accrued liabilities................................................ 16.6 25.6 39.7 Accrued income taxes.................................................................... (33.2) (8.0) (46.8) Other assets and liabilities, net....................................................... (42.3) (138.4) 2.3 --------- --------- --------- Net cash provided by operating activities............................................. 550.3 320.7 478.3 --------- --------- --------- Cash flows from investing activities: Cash paid for acquired businesses........................................................... (11.9) (280.6) (100.9) Capital expenditures........................................................................ (188.4) (208.7) (188.4) Proceeds from sales of property, plant and equipment........................................ 25.8 15.4 16.9 Proceeds from disposition of businesses..................................................... -- 27.7 396.1 Taxes paid in 1994 with respect to the 1993 gain on the sale of Belden Inc.................. -- (107.0) -- Proceeds from sales of marketable equity securities......................................... 14.4 -- -- Other....................................................................................... (.4) (2.9) (1.1) --------- --------- --------- Net cash provided by (used in) investing activities................................... (160.5) (556.1) 122.6 --------- --------- --------- Cash flows from financing activities: Proceeds from issuances of debt............................................................. 704.7 722.0 257.7 Repayments of debt.......................................................................... (890.3) (307.1) (710.7) Dividends................................................................................... (164.0) (205.9) (203.4) Debt issue costs............................................................................ (6.9) -- -- Purchase of treasury shares................................................................. -- (19.9) (4.5) Activity under employee stock plans and other............................................... 1.1 21.7 16.8 --------- --------- --------- Net cash provided by (used in) financing activities................................... (355.4) 210.8 (644.1) --------- --------- --------- Cash flows provided (used) by discontinued operations......................................... (47.7) 40.4 35.5 Effect of exchange rate changes on cash and cash equivalents.................................. 5.7 (3.5) 2.9 --------- --------- --------- Increase (decrease) in cash and cash equivalents.............................................. (7.6) 12.3 (4.8) Cash and cash equivalents, beginning of year.................................................. 25.3 13.0 17.8 --------- --------- --------- Cash and cash equivalents, end of year........................................................ $ 17.7 $ 25.3 $ 13.0 ========= ========= =========
- ------------ (1) Net of the effects of acquisitions, divestitures, translation and nonrecurring items. The Notes to Consolidated Financial Statements are an integral part of these statements. See Note 17 for information on noncash investing and financing activities. A-13 16 COOPER INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
$1.60 CONVERTIBLE CAPITAL UNEARNED EXCHANGEABLE IN EXCESS EMPLOYEE STOCK PREFERRED COMMON OF PAR RETAINED OWNERSHIP PLAN STOCK STOCK VALUE EARNINGS COMPENSATION OTHER ------------- ----------- --------- --------- --------------- --------- (IN MILLIONS) BALANCE DECEMBER 31, 1992.......................... $ 33.1 $ 567.0 $ 1,086.2 $ 1,359.1 $ (149.7) $ (33.1) Net income....................................... 367.1 Common stock dividends........................... (150.3) Preferred stock dividends........................ (53.1) Acquisition of treasury stock, at cost........... (4.5) Conversion of debentures......................... .1 2.8 Stock issued under employee stock plans.......... 4.0 28.3 .6 Principal payments by ESOP....................... 27.2 Translation loss................................. (21.5) Adjustment for minimum pension liability......... (59.8) Other activity................................... .3 4.8 3.7 (2.7) ------ ----------- --------- --------- ------- --------- BALANCE DECEMBER 31, 1993.......................... 33.2 571.3 1,122.1 1,526.5 (125.2) (118.3) Net loss......................................... (19.9) Common stock dividends........................... (152.6) Preferred stock dividends........................ (53.3) Dividend -- stock of Gardner Denver Machinery Inc............................................. (152.9) Acquisition of treasury stock, at cost........... (19.9) Conversion of $1.60 Preferred to Common.......... (2.7) 5.0 (20.1) 17.8 Conversion of debentures......................... .1 3.4 Stock issued under employee stock plans.......... .3 .4 3.5 Sale of additional shares to ESOP................ 8.0 74.3 (82.3) Principal payments by ESOP....................... 53.4 Adjustment for minimum pension liability......... 12.3 Translation loss................................. (2.3) Unrealized gain on investments in marketable equity securities............................... 47.8 Other activity................................... (3.6) 5.6 6.7 2.5 ------ ----------- --------- --------- ------- --------- BALANCE DECEMBER 31, 1994.......................... 30.6 584.6 1,176.5 1,153.4 (147.4) (56.6) Net income....................................... 94.0 Common stock dividends........................... (148.4) Exchange of common stock for Cooper Cameron common stock.................................... (47.5) (382.6) 2.6 Redemption of $1.60 Preferred for 7.05% Convertible subordinated debentures............. (30.6) (664.4) Stock issued under employee stock plans.......... 1.8 12.0 Principal payments by ESOP....................... 25.4 Adjustment for minimum pension liability......... 8.7 Translation loss................................. (15.0) Unrealized gain on investments in marketable equity securities............................... 119.6 Other activity................................... .5 .1 1.3 (2.2) ------ ----------- --------- --------- ------- --------- BALANCE DECEMBER 31, 1995.......................... $ -- $ 539.4 $ 141.6 $ 1,100.3 $ (121.6) $ 56.7(1) ====== =========== ========= ========= ======= =========
- --------------- (1) At December 31, 1995, "Other" included the minimum pension liability of $(46.3) million, net of tax, cumulative translation adjustments of $(64.4) million and the unrealized gain on Cooper's investments in marketable equity securities of $167.4 million, net of tax. The Notes to Consolidated Financial Statements are an integral part of these statements. A-14 17 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Cooper Industries, Inc. ("Cooper") and its majority-owned subsidiaries. Affiliated companies are accounted for on the equity method where Cooper owns more than 20% but less than 50% of the affiliate unless significant economic, political or contractual considerations indicate that the cost method is appropriate. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH EQUIVALENTS For purposes of the consolidated statements of cash flows, Cooper considers all investments purchased with original maturities of three months or less to be cash equivalents. INVENTORIES Inventories are carried at cost or, if lower, net realizable value. On the basis of current costs, 70% and 75% of inventories at December 31, 1995 and 1994, respectively, were carried on the last-in, first-out (LIFO) method. The remaining inventories, which are primarily located outside the United States, are carried on the first-in, first-out (FIFO) method. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost. Depreciation is provided over the estimated useful lives of the related assets using primarily the straight-line method. This method is applied to group asset accounts, which in general have the following lives: buildings -- 10 to 40 years; machinery and equipment -- 3 to 18 years; and tooling, dies and patterns -- 5 to 10 years. The depreciable life for the majority of Cooper'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. With minor exceptions, the goodwill is being amortized over 40 years from the respective acquisition dates. The carrying value of Cooper's goodwill is reviewed by division or, if feasible, by acquisition at least annually or whenever there are indications that the goodwill may be impaired. If this review indicates that goodwill will not be recoverable, as determined based on undiscounted cash flows over the remaining amortization periods, the carrying value of the goodwill will be reduced by the estimated shortfall in cash flows. INVESTMENTS IN MARKETABLE EQUITY SECURITIES Marketable equity securities received or retained in connection with the divestiture of businesses are reflected as available-for-sale securities and are stated at fair market value at each balance sheet date, with unrealized gains and losses, net of tax, reported as a component of shareholders' equity. The cost of securities sold is determined based on the specific identification method for purposes of recording realized gains and losses. INTEREST RATE SWAP AGREEMENTS Cooper 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. A-15 18 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ENVIRONMENTAL REMEDIATION Environmental remediation costs are accrued, except to the extent costs can be capitalized, based on estimates of known environmental remediation exposures. Capitalized environmental costs are depreciated generally utilizing a 15-year life. RECENTLY ISSUED ACCOUNTING STANDARDS Statement of Financial Accounting Standards No. 121 ("SFAS No. 121"), ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, was issued in March 1995. SFAS No. 121 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Cooper will adopt SFAS No. 121 in the first quarter of 1996 and, based on current circumstances, does not believe that such adoption will have a material effect on its financial position or results of operations. Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"), ACCOUNTING FOR STOCK-BASED COMPENSATION, was issued in October 1995. SFAS No. 123 defines a fair value based method of accounting for employee stock options. Under this fair value method, compensation cost is measured at the grant date based on the fair value of the award and is recognized over the service period. However, SFAS No. 123 allows an entity to continue to measure compensation cost in accordance with APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. Cooper will continue to account for stock option grants in accordance with APB Opinion No. 25, and, accordingly, recognizes no compensation expense for stock options granted as the exercise price is equal to fair value at the date of grant. NOTE 2: NONRECURRING CONTINUING OPERATIONS ITEMS In 1994 Cooper completed the sale of its aerospace business, Cameron Forged Products, to Wyman-Gordon Company ("Wyman-Gordon") in exchange for 16.5 million newly issued shares of Wyman-Gordon common stock (48% of Wyman-Gordon's issued common stock) and $5 million in cash and notes. In connection with Cooper's intention not to maintain this investment for a long period, in December 1995, Cooper issued three-year mandatorily exchangeable notes, due January 1, 1999, exchangeable into the 16.5 million shares (See Notes 6 and 8). Cooper has limited representation on Wyman-Gordon's Board of Directors and is required, except in certain circumstances, to vote its shares in accordance with the position recommended by Wyman-Gordon's Board of Directors or proportionately with the vote of the other shareholders. As a result, the Wyman-Gordon stock has been accounted for as a marketable equity security. During the fourth quarter of 1993, Cooper charged pretax earnings approximately $65 million for a write-down of the carrying value of the sold assets. For the nine months ended September 30, 1993, the Cameron Forged Products Division had revenues of $114 million and a small pretax loss. The results subsequent to September 30, 1993 were not included in Cooper's consolidated results. The historical revenues and earnings of Cameron Forged Products, which were included in the Petroleum & Industrial Equipment segment, have not been treated as part of discontinued operations in order to reflect that Cooper's investment in this business continued in a new form (See Notes 15 and 18). On October 6, 1993, Cooper closed an initial public offering of 90.4% of the common stock of Belden Inc. ("Belden"), formerly Cooper's Belden Division. This sale generated net-of-tax cash proceeds of approximately $267 million and a $273.8 million pretax gain ($164.3 million net of tax) or, $1.44 per fully diluted share. In addition, depending upon the future profitability of Belden and other factors, Cooper receives additional benefits over a 15-year period from a tax sharing agreement between Cooper and Belden. The proceeds from the tax sharing agreement are recorded in income when they are earned. Belden common stock retained by Cooper is reflected as a marketable equity security. Belden, which was included in the Electrical Products segment, had revenues of $281 million and pretax profits of approximately $41 million through the date of the sale in 1993. The gain from the Belden sale was fully offset by the loss recorded with respect to the sale of the Cameron Forged Products Division and by the effects of a series of management actions designed to enhance Cooper's future profitability. These actions included $126 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 A-16 19 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) and equipment related to the production of transformers, a large product line within Cooper's Electrical Products segment; and an $18 million reduction in the carrying value of the continuing operations' internally developed capitalized software. NOTE 3: ACQUISITIONS AND DIVESTITURES In 1995, Cooper completed one large acquisition, two small product-line acquisitions, and the divestiture, through an exchange offer with shareholders, of the remaining businesses comprising its former Petroleum & Industrial Equipment segment (See Note 18). Effective December 31, 1995, Cooper acquired CEAG Sicherheitstechnik GmbH ("CEAG") from Asea Brown Boveri AG, Mannheim. The total cost of the acquisition, which was paid on January 5, 1996, was approximately $164 million. CEAG manufactures and markets explosion proof electrical products and business security and emergency lighting products. The two small product-line acquisitions had an aggregate cost of $13.5 million. A total of $139.8 million of goodwill was recorded, on a preliminary basis, with respect to the three acquisitions. One small acquisition was in the Automotive Products segment and the two other acquisitions were in the Electrical Products segment. Cooper completed one large acquisition, five small product-line acquisitions and one divestiture in 1994, in addition to the divestitures discussed in Notes 2 and 18. Effective December 30, 1994, Cooper acquired the Abex Friction Products Division of Abex, Inc. The total cost of the acquisition, including $.6 million of indebtedness assumed, was $207.4 million. Abex Friction Products manufactures and markets asbestos-free brake friction materials for passenger cars, light and heavy-duty trucks and off-road vehicles. The five smaller acquisitions had an aggregate cost of $73.2 million. A total of $252.1 million of goodwill was recorded, including 1995 revisions of $9.8 million, with respect to the six acquisitions. Of the five small acquisitions, two were in the Automotive Products segment and three were in the Electrical Products segment. During 1994, Cooper also completed the sale, for cash proceeds of $27.3 million, of a small operation in the Automotive Products segment that was initially acquired as part of the Moog acquisition in 1992 and distributed the common stock of Gardner Denver Machinery Inc. to Cooper's shareholders (See Note 18). Cooper completed five small product-line acquisitions and two divestitures in 1993, in addition to the Belden transaction described in Note 2 . The acquisitions had an aggregate cost of $110.2 million including $6.7 million of assumed indebtedness. A total of $67.2 million of goodwill, including 1994 revisions of $13.6 million, was recorded 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, Cooper sold two businesses that were being carried as businesses held for sale. Proceeds from the divestitures of these two businesses totaled $26 million, including $19 million of notes and other amounts receivable in the future, and resulted in the recognition of a $5.5 million after-tax gain. The acquisitions have been accounted for as purchases and the results of the acquisitions are included in Cooper's Consolidated Results of Operations since the respective acquisition dates. NOTE 4: INVENTORIES
DECEMBER 31, -------------------- 1995 1994 --------- --------- (IN MILLIONS) Raw materials.................................................. $ 281.1 $ 265.1 Work-in-process................................................ 227.5 203.5 Finished goods................................................. 500.9 563.7 Perishable tooling and supplies................................ 55.0 55.4 --------- --------- 1,064.5 1,087.7 Excess of current standard costs over LIFO costs............... (95.2) (87.3) Allowance for obsolete and slow-moving inventory............... (5.8) (11.9) --------- --------- Net inventories................................................ $ 963.5 $ 988.5 ========= =========
A-17 20 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 5: PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLES
DECEMBER 31, --------------------- 1995 1994 ---------- --------- (IN MILLIONS) Property, plant and equipment: Land and land improvements........................ $ 83.3 $ 83.7 Buildings......................................... 561.8 539.5 Machinery and equipment........................... 1,173.6 1,078.5 Tooling, dies, patterns, etc...................... 145.3 120.7 All other......................................... 204.9 190.5 Construction in progress.......................... 99.4 113.4 ---------- --------- 2,268.3 2,126.3 Accumulated depreciation............................ (1,036.2) (938.8) ---------- --------- $ 1,232.1 $ 1,187.5 ========== ========= Intangibles: Goodwill.......................................... $ 2,596.0 $ 2,459.3 Assets related to pension plans................... 5.5 4.5 Other............................................. 103.8 102.4 ---------- --------- 2,705.3 2,566.2 Accumulated amortization.......................... (479.3) (412.3) ---------- --------- $ 2,226.0 $ 2,153.9 ========== =========
NOTE 6: INVESTMENTS IN MARKETABLE EQUITY SECURITIES At December 31, 1994, Cooper's investment in marketable equity securities consisted of its investments in Belden and Wyman-Gordon and, at December 31, 1995, also includes its investment in Cooper Cameron Corporation ("Cooper Cameron"). In December 1995, Cooper issued DECS-SM- (Debt Exchangeable for Common Stock) which, at maturity, are mandatorily exchangeable into shares of Wyman-Gordon common stock or, at Cooper's option, into cash in lieu of shares. The number of shares or the amount of cash will be based on the average market value of Wyman-Gordon common stock on the 20 trading days prior to maturity on January 1, 1999 (the "WGC Maturity Price"). If the WGC Maturity Price is greater than or equal to $15.66 per share, the DECS will be exchangeable at maturity into 14.2 million shares of Wyman-Gordon common stock. If the WGC Maturity Price is less than or equal to $13.50 per share, the DECS will be exchangeable at maturity into 16.5 million shares of Wyman-Gordon common stock. If the WGC Maturity Price is between $13.50 and $15.66 per share, the DECS will be exchangeable into a number of shares of Wyman-Gordon common stock between 14.2 million and 16.5 million, based on an exchange ratio. If the DECS are redeemed for cash, the amount of cash will be equal to the number of Wyman-Gordon shares exchangeable under the terms of the DECS times the WGC Maturity Price. The DECS are a hedge of Cooper's investment in Wyman-Gordon common stock and will result in Cooper realizing a minimum after tax gain of $100.6 million at maturity of the DECS. The unrealized gain is included in shareholders' equity as an unrealized gain on investments in marketable equity securities, net of tax, at December 31, 1995. The aggregate fair value of the marketable equity securities was $406.2 million and $158.4 million at December 31, 1995 and 1994, respectively. Gross unrealized gains on investments in marketable equity securities were $257.6 million and $79.7 million at December 31, 1995 and 1994, respectively. During 1995, marketable equity securities were sold for proceeds of $14.4 million, resulting in realized gains of $11.7 million. A-18 21 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 7: ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
DECEMBER 31, -------------------- 1995 1994 --------- --------- (IN MILLIONS) Trade accounts payable and accruals.......................................................... $ 638.9 $ 655.6 Salaries, wages and related fringe benefits.................................................. 101.5 85.8 Product and environmental liability accruals................................................. 106.4 114.4 Contributions payable under employee benefit plans........................................... 72.4 49.9 Estimated costs of integration, plant shut-downs, facility relocations, realignments and severance related to acquired businesses.................................................... 65.6 90.5 Other (individual items less than 5% of total current liabilities)........................... 195.7 136.9 --------- --------- $ 1,180.5 $ 1,133.1 ========= =========
At December 31, 1995, Cooper had accruals of $39.7 million with respect to potential product liability claims and $127.5 million with respect to potential environmental liabilities, including $60.8 million classified as a long-term liability, based on Cooper's current estimate of the most likely amount of losses that it believes will be incurred. The product liability accrual consists of $20.5 million of known claims with respect to ongoing operations, $14.4 million of known claims for previously divested operations that are no longer a part of Cooper and $4.8 million which represents 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, Cooper had insurance coverage for individual 1995 claims beyond $3.0 million. Insurance levels have varied from year to year. The environmental liability accruals include $62.5 million related to sites owned by Cooper and $65.0 million for retained environmental liabilities related to sites previously owned by Cooper and 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 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. In addition, Cooper has capitalized a total of $16.3 million of environmental costs with a net book value of $12.7 million at December 31, 1995. It has been Cooper's consistent practice to include the entire product liability accrual and a majority of the environmental liability accrual as current liabilities, although only approximately 10-20% of the balance classified as current 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 Cooper's environmental liability has been recorded in connection with acquired companies. The change in the accrual balances from year to year reflects the effect of acquisitions and divestitures as well as normal expensing and funding. Cooper has not utilized any form of discounting in establishing its product or environmental liability accruals. While both product liability and environmental liability accruals involve estimates that can have wide ranges of potential liability, Cooper has taken a proactive approach and has managed the costs in both of these areas over the years. Cooper does not believe that the nature of its products, its production processes, or the materials or other factors involved in the manufacturing process subject Cooper to unusual risks or exposures for product or environmental liability. Cooper's greatest exposure to inaccuracy in its estimates is with respect to the constantly changing definitions of what constitutes an environmental liability or an acceptable level of cleanup. In connection with acquisitions accounted for using the purchase method of accounting, Cooper records, to the extent appropriate, accruals for the costs of closing duplicate facilities, severing redundant personnel and integrating the A-19 22 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) acquired business into existing Cooper operations. Significant accruals include systems integration costs, plant shut-down and realignment costs, and facility relocations. The following table summarizes the accrual balances and activity during each of the last three years.
1995 1994 1993 --------- --------- --------- (IN MILLIONS) Activity during each year: Balance beginning of year......................... $ 122.3 $ 169.7 $ 170.5 Spending.......................................... (47.0) (61.3) (46.7) Reclassifications................................. (27.8) (4.4) 15.5 Acquisitions -- initial allocation................ .1 11.8 19.8 Acquisitions -- final allocation adjustment....... 13.8 -- 17.6 Translation....................................... 4.2 6.5 (7.0) --------- --------- --------- Balance end of year............................... $ 65.6 $ 122.3 $ 169.7 ========= ========= ========= Balances by category of accrual: Systems integration............................... $ 11.5 $ 16.8 $ 30.0 Plant shut-down and realignment................... 43.2 94.6 113.6 Other facility relocations and severance.......... 8.5 6.9 18.9 Other realignment and integration................. 2.4 4.0 7.2 --------- --------- --------- $ 65.6 $ 122.3 $ 169.7 ========= ========= ========= Balances by acquisition: Champion.......................................... $ 21.4 $ 79.4 $ 104.6 Moog Automotive................................... 13.3 18.3 33.3 Triangle.......................................... 1.4 3.6 11.8 Abex Friction Products............................ 13.3 1.9 -- Zanxx............................................. 2.0 2.4 -- Magneti Marelli................................... 6.6 7.2 -- Other............................................. 7.6 9.5 20.0 --------- --------- --------- $ 65.6 $ 122.3 $ 169.7 ========= ========= =========
Systems integration accruals represent the costs to terminate existing contracts and integrate manufacturing, sales and marketing, financial and payroll systems into existing Cooper systems. Integration costs include software documentation, contract programming, consulting and training costs. Hardware and new system development costs are capitalized. Plant shut-down and realignment includes the costs to terminate personnel, shut down the facilities, terminate leases and similar costs. The shutdown of the Champion Toledo and Detroit manufacturing facilities resulted in spending of $.6 million, $7.1 million and $7.6 million in 1995, 1994 and 1993, respectively. The remainder of the Champion spending related primarily to downsizing and consolidating international facilities in Mexico, Venezuela, Belgium and the United Kingdom totaling $26.3 million, $12.7 million and $5.7 million in 1995, 1994 and 1993, respectively. The majority of the Moog Automotive spending was related to the shutdown of the St. Louis manufacturing facility which totaled $.3 million, $9.5 million and $1.2 million in 1995, 1994 and 1993, respectively. The shutdown of the Triangle Duluth and Orangeburg manufacturing facilities resulted in spending of $2.0 million, $10.7 million and $.2 million in 1995, 1994 and 1993, respectively. Other facility relocations and severance include costs to consolidate sales and marketing operations of the acquired company into Cooper operations, termination costs of redundant personnel and shut-down costs of redundant warehouses and the acquired companies' headquarters. Other realignment and integration costs include costs to liquidate joint ventures, exit product lines and miscellaneous costs. During the three years ended December 31, 1995, no accruals were reversed to income. Reclassifications represent revisions to the initial accruals based on updated estimates of the actual costs to be incurred in each project. The reclassifications include excess amounts of $15.5 million in 1993 and a deficit amount of $4.4 million in 1994, in each A-20 23 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) case reclassified from or to other accrued liability accounts. The 1995 reclassifications were substantially all related to termination and other benefit payments due former employees reclassified to trade accounts payable and accruals. Acquisitions-final allocation adjustment represent adjustments to goodwill for finalization of the purchase price allocations recorded in the previous year. Substantially all spending related to these accruals represented cash outlays by Cooper. The amounts related to the acquisitions of Abex on the last business day of December 1994 and Zanxx in November 1994 were preliminary estimates that were finalized in 1995. The acquisition of CEAG occurred December 31, 1995 and no plans have been finalized to exit activities or involuntarily terminate employees. It is unlikely that any significant accruals will be recorded related to CEAG's German operations. The transfer of international operations held and managed by CEAG's parent company will not occur until 1996, therefore, it is not possible to estimate the extent, if any, of exit activities or involuntary terminations related to these operations. The Abex and Zanxx acquisitions had insignificant accruals for terminations and no significant individual exit plan costs were accrued. In 1995, the accounting principles related to purchase business combinations were revised by the accounting profession. For acquisitions occurring after May 1995, accruals will not be established for certain systems integration costs and for termination or relocation arrangements that are not communicated to employees within one year from the acquisition date. Expensing versus accruing systems integration costs at the acquisition date would have an immaterial impact on Cooper's results of operations for the three years in the period ended December 31, 1995. The impact of the new rules on accruing for termination costs related to plant shutdowns, facility relocations and other realignments and integration is not quantifiable. The impact from acquisitions consummated during the last three years is probably insignificant as Cooper could have taken the actions necessary to meet the requirements of the new rules. However, it would have been impossible to meet the requirements for accrual of termination and certain other costs related to the Champion acquisition due to the extensive overcapacity and complexity of its operations. The new rules would have had and will have a significant impact on the evaluation of the dilutive impact of complex target acquisitions that require an extended period of time to implement the consolidation and integration plans. NOTE 8: LONG-TERM DEBT AND OTHER BORROWING ARRANGEMENTS
DECEMBER 31, -------------------- 1995 1994 --------- --------- (IN MILLIONS) 6.18%* commercial paper and bank loans maturing at various dates through January 31, 1996.............. $ 355.5 $ 1,275.0 6.91% Pound Sterling bank loans maturing at various dates through January 29, 1996..................... 76.1 68.8 7.05% convertible subordinated debentures, due 2015.................................................... 690.0 -- 6.41%-7.99% second series medium-term notes, due through 2010.......................................... 500.0 197.9 6.0% exchangeable notes, due 1999...................................................................... 222.8 -- 5.95% floating-rate loan, due 1996..................................................................... 50.0 50.0 5.46%* floating-rate ESOP notes, due through 1999...................................................... 69.0 80.4 Capital lease obligations.............................................................................. 15.7 14.8 10.7% notes payable, due through 1998.................................................................. 9.2 13.1 Other.................................................................................................. 34.2 56.0 --------- --------- 2,022.5 1,756.0 Amounts allocated to discontinued operations........................................................... -- (375.0) Current maturities..................................................................................... (157.2) (19.1) --------- --------- Long-term portion...................................................................................... $ 1,865.3 $ 1,361.9 ========= =========
- ------------ * Weighted average interest rates at December 31, 1995. The commercial paper and bank loans weighted average interest rate was 6.29% and the ESOP notes rate was 5.61% at December 31, 1994. A-21 24 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Cooper has U.S. committed credit facilities of $925 million that expire in 2000, $30 million that expire in 1997 and $365 million that expire in 1996 and 30 million Pound Sterling credit facilities that expire in 1996. In January 1996, Cooper filed a "shelf" registration statement, which may be used to issue up to $300 million of indebtedness from time to time. At December 31, 1995, Cooper had $943.5 million of its $1.32 billion U.S. committed credit facilities available, after considering commercial paper backup, and 6 million of its 30 million Pound Sterling credit facilities available. At December 31, 1994, $511.8 million of the total $1.86 billion U.S. committed credit facilities was available after considering commercial paper backup, and 11 million of the 55 million Pound 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. Retained earnings are unrestricted as to the payment of dividends, except to the extent that payment would cause a violation of the prescribed limit on the debt to total capitalization ratio. Interest rates on Cooper's commercial paper and bank loans were generally 2.7% below the U.S. prime rate during both 1995 and 1994. Total interest paid during 1995, 1994 and 1993 was $134 million, $85 million and $104 million, respectively. Commercial paper and bank loans of $431.6 million and $1.34 billion were reclassified to long-term debt at December 31, 1995 and 1994, respectively, reflecting Cooper's intention to refinance these amounts during the 12 month period following the balance sheet date through either continued short-term borrowing or utilization of available credit facilities. Effective January 1, 1995, Cooper exchanged all of the outstanding $1.60 Convertible Exchangeable Preferred Stock for $691.2 million of 7.05% Convertible Subordinated Debentures due 2015 and $3.8 million in cash related to fractional shares. Each $1,000 of debentures is convertible into 24.229 shares of Common stock and, at Cooper's option, is redeemable for cash at prices (expressed as percentages of the principal amount) declining from 102.82% in 1996 to 100.00% in 2000. The debentures require sinking fund payments of 5% of the aggregate principal amount commencing in the year 2000. In December 1995, Cooper issued $222.75 million in Exchangeable Notes due January 1, 1999. At maturity, the notes are mandatorily exchangeable into shares of Wyman-Gordon common stock owned by Cooper or, at Cooper's option, into cash in lieu of shares (See Note 6). The floating-rate ESOP notes are indebtedness of Cooper's ESOP. Cooper has guaranteed the payment of the ESOP notes; accordingly, the notes are reported as Cooper's debt (See Note 14 for further information regarding the ESOP). Maturities of long-term debt for the five years subsequent to December 31, 1995 are $157.2 million, $93.5 million, $74.4 million, $237.3 million and $35.5 million, respectively. The future net minimum lease payments under capital leases and obligations under operating leases are not significant. NOTE 9: COMMON AND PREFERRED STOCK COMMON STOCK At December 31, 1995, 250,000,000 shares of Common stock were authorized of which 107,876,821 and 116,923,095 shares were issued and outstanding at December 31, 1995 and 1994, respectively. A total of 114,254,133 shares were issued and 114,179,700 shares were outstanding at December 31, 1993. During the years ended December 31, 1994 and 1993, 539,000 and 86,500 shares were purchased as treasury stock at an average price of $36.92 and $52.02 per share, respectively. In addition 32,216,423 and 32,702,613 shares were reserved at December 31, 1995 and 1994, respectively for the Dividend Reinvestment Plan, conversions of 7.05% Convertible Subordinated Debentures, 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. A-22 25 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Under the terms of the Dividend Reinvestment Plan, any holder of Common stock may elect to have cash dividends and up to $24,000 per year in cash payments invested in Common stock without incurring any brokerage commissions or service charges. Under a Shareholder Rights Plan adopted by the Board of Directors in 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 Cooper's option, may be redeemed prior to expiration for $.005 per Right. PREFERRED STOCK At December 31, 1995, Cooper 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 2,821,079 shares of $1.00 par value Preferred stock. At December 31, 1995 and 1994, no shares of the No Par Preferred or $2.00 par value Preferred stock were issued or outstanding. At December 31, 1994 and 1993, 33,376,420 shares of $1.00 par value Preferred stock were designated as Convertible Exchangeable Preferred having a $1.60 dividend rate ("$1.60 Preferred Stock") and 30,629,808 and 33,182,654 of such shares were outstanding at December 31, 1994 and 1993, respectively. Effective January 1, 1995, the $1.60 Preferred Stock was exchanged for Cooper's 7.05% Convertible Subordinated Debentures due 2015 ("Debentures") at the rate of $22.70 principal amount of debentures for each share of $1.60 Preferred Stock. NOTE 10: STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN Options to purchase Common stock are granted to employees under Cooper stock option plans at not less than 100% of the market value of Cooper'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. Option activity is summarized as follows:
1995 1994 1993 ----------------- ----------------- ----------------- Shares under option at beginning of year............................. 2,951,660 3,131,234 2,179,998 Options granted to employees......................................... 903,700 250,000 1,624,200 Options exercised.................................................... (125,500) (106,348) (446,097) Options canceled..................................................... (981,641) (323,226) (226,867) ----------------- ----------------- ----------------- Shares under option at end of year................................... 2,748,219 2,951,660 3,131,234 ================= ================= ================= Price range of outstanding options................................... $39.06 - $56.50 $37.75 - $56.50 $28.28 - $56.50 Price range of options exercised..................................... $37.75 $28.28 - $46.31 $26.82 - $46.31 Shares exercisable at end of year.................................... 1,416,896 1,621,075 992,994 Options available for grant at end of year........................... 1,676,054 1,623,224 951,855
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. During 1995, options for 4,000 shares were granted at $17.31 per share and options for 6,000 shares were exercised at $25.438 per share. During 1994, options for 4,000 shares were granted at $14.69 per share and options for 8,000 shares were exercised at $13.625 to $25.438 per share. During 1993, options for 4,000 shares were granted at $24.00 per share and no options were exercised. At December 31, 1995, options under the director plan for 22,000 Common shares were exercisable at $14.69 to $27.125 per share, and 144,000 shares were reserved for future grants (148,000 at December 31, 1994). A-23 26 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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, 1995, 253,931 shares were sold to 4,012 employees at $37.94 per share. On September 9, 1993, 475,256 shares were sold to 8,028 employees at $49.56 per share. At December 31, 1995, subscriptions for 861,046 shares of Common stock were outstanding at $35.33 per share or, if lower, the average market price on September 8, 1997, which is the purchase date. At December 31, 1995, an aggregate of 2,757,062 shares of Common stock were reserved for future offerings. NOTE 11: INCOME TAXES
YEAR ENDED DECEMBER 31, ------------------------------------- 1995 1994 1993 ----------- ----------- ----------- (IN MILLIONS, EXCEPT FOR PERCENTAGES) U.S. and foreign components of income before income taxes: U.S. operations......................................................................... $ 384.9 $ 405.7 $ 457.8 Foreign operations...................................................................... 93.1 99.0 48.2 ----------- ----------- ----------- Income from continuing operations before income taxes................................. $ 478.0 $ 504.7 $ 506.0 =========== =========== =========== Components of income tax expense: Current: U.S. Federal.......................................................................... $ 82.1 $ 85.3 $ 163.7 U.S. state and local.................................................................. 23.3 18.9 37.3 Foreign............................................................................... 26.6 26.3 21.5 ----------- ----------- ----------- 132.0 130.5 222.5 ----------- ----------- ----------- Deferred: U.S. Federal.......................................................................... 51.0 58.0 (6.4) U.S. state and local.................................................................. 5.8 12.6 (5.5) Foreign............................................................................... 8.6 10.8 (3.6) ----------- ----------- ----------- 65.4 81.4 (15.5) =========== =========== =========== Income tax expense.................................................................... $ 197.4 $ 211.9 $ 207.0 =========== =========== =========== Total income taxes paid................................................................... $ 158.2 $ 252.7 $ 157.3 =========== =========== =========== Differences between the effective tax rate and the U.S. Federal statutory rate: U.S. Federal statutory rate........................................................... 35.0% 35.0% 35.0% State and local income taxes.......................................................... 3.4 3.6 3.6 Foreign statutory rate differential................................................... (.5) (.6) (.6) Nondeductible goodwill................................................................ 4.7 4.4 4.3 Effect of change in U.S. tax rate on recorded deferred tax balances................... -- -- (.8) Other................................................................................. (1.3) (.4) (.6) ----------- ----------- ----------- Effective tax rate attributable to continuing operations............................ 41.3% 42.0% 40.9% =========== =========== ===========
A-24 27 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, -------------------- 1995 1994 --------- --------- (IN MILLIONS) Components of deferred tax liabilities and assets: Deferred tax liabilities: Property, plant and equipment and intangibles.......................... $ (175.0) $ (163.1) Unrealized gains on investments in marketable equity securities........ (90.2) (31.9) Inventories............................................................ (63.2) (53.9) Employee medical program funding....................................... (14.1) (19.9) Employee stock ownership plan.......................................... (16.6) (22.2) Other.................................................................. (85.7) (81.6) --------- --------- Total deferred tax liabilities....................................... (444.8) (372.6) --------- --------- Deferred tax assets: Postretirement benefits other than pensions............................ 248.0 255.2 Reserves and accruals.................................................. 206.4 183.2 Net operating loss carryforwards....................................... 12.8 12.8 Other.................................................................. 60.6 85.3 --------- --------- Total deferred tax assets............................................ 527.8 536.5 --------- --------- Valuation allowances................................................... (16.3) (16.3) --------- --------- Net deferred tax assets.............................................. $ 66.7 $ 147.6 ========= =========
The U.S. Federal portion of the above provision includes U.S. tax expected to be payable on the foreign portion of Cooper's income before income taxes when such earnings are remitted. Cooper's liabilities for continuing operations at December 31, 1995 and 1994 include the additional U.S. tax estimated to be payable on substantially all unremitted earnings of foreign subsidiaries. NOTE 12: PENSION PLANS Cooper and its subsidiaries have numerous pension plans covering substantially all domestic employees and pension and similar arrangements in accordance with local customs covering employees at foreign locations. Aggregate pension expense for continuing operations amounted to $40.7 million in 1995, $46.1 million in 1994 and $44.3 million in 1993. The amount of expense with respect to Cooper's various defined benefit pension plans is set forth in the table below. For the years ended December 31, 1995, 1994 and 1993, expense with respect to domestic and foreign defined contribution plans (primarily related to various groups of hourly employees) amounted to $16.2 million, $22.8 million and $23.2 million, respectively. Also included in pension expense are gains and losses on curtailments and settlements and other matters.
COMPONENTS OF DEFINED BENEFIT PLAN PENSION EXPENSE ------------------------------- YEAR ENDED DECEMBER 31, ------------------------------- 1995 1994 1993 --------- --------- --------- (IN MILLIONS) Service cost -- benefits earned during the year.......... $ 21.6 $ 26.4 $ 26.2 Interest cost on projected benefit obligation............ 67.6 63.0 66.0 Actual return on assets.................................. (65.9) (14.3) (54.4) Net amortization and deferral............................ 1.2 (51.8) (17.2) --------- --------- --------- Net pension cost......................................... $ 24.5 $ 23.3 $ 20.6 ========= ========= =========
A-25 28 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FUNDED STATUS OF DEFINED BENEFIT PLANS ------------------------------------------ PLANS WITH ASSETS PLANS WITH IN EXCESS OF ACCUMULATED BENEFITS ACCUMULATED BENEFITS IN EXCESS OF ASSETS -------------------- -------------------- DECEMBER 31, DECEMBER 31, -------------------- -------------------- 1995 1994 1995 1994 --------- --------- --------- --------- (IN MILLIONS) Actuarial present value of: Vested benefit obligation........................................................ $ (484.8) $ (467.0) $ (366.7) $ (335.6) ========= ========= ========= ========= Accumulated benefit obligation................................................... $ (517.9) $ (491.1) $ (390.9) $ (360.5) ========= ========= ========= ========= Projected benefit obligation..................................................... $ (537.6) $ (508.6) $ (395.6) $ (365.0) Plan assets at fair value.......................................................... 588.1 529.0 274.3 264.6 --------- --------- --------- --------- Projected benefit obligation (in excess of) less than plan assets.................. 50.5 20.4 (121.3) (100.4) Unrecognized net (gain) loss....................................................... (7.3) 34.1 72.2 47.5 Unrecognized net (asset) obligation from adoption date............................. (10.3) (13.3) 5.6 6.6 Unrecognized prior service cost.................................................... (4.8) (5.2) 2.8 1.7 Adjustment required to recognize minimum liability................................. -- -- (82.8) (59.5) --------- --------- --------- --------- Pension asset (liability) at end of year........................................... $ 28.1 $ 36.0 $ (123.5) $ (104.1) ========= ========= ========= =========
COMPUTATIONAL ASSUMPTIONS ------------------------------------------------------ PROJECTED BENEFIT NET PENSION COST OBLIGATION --------------------------------- ------------------ 1995 1994 1993 1995 1994 --------- --------- --------- ------ --------- Discount rate: Domestic............................................................ 8 % 7 % 8 1/2 % 7 1/2 % 8 % International....................................................... 7 1/2-9 6-7 3/4 7 1/2-9 6 1/2-8 1/4 7 1/2-9 Rate of increase in compensation levels: Domestic............................................................ 5 5 5 1/2 5 5 International....................................................... 4-6 4-5 1/2 4-6 4-6 4-6 Expected long-term rate of return on assets: Domestic............................................................ 8 1/2 8 1/2 9 -- -- International....................................................... 7 1/2-10 6-9 1/2 7 1/2-10 -- -- Benefit basis: Salaried plans-earnings during career Hourly plans-dollar unit, multiplied by years of service Funding policy: 5 to 30 years
Cooper's minimum liability for pension plans with accumulated benefits in excess of assets of $82.8 million at December 31, 1995, and $59.5 million at December 31, 1994, has been recorded in Cooper's consolidated balance sheet as a long-term liability with a $5.5 million offsetting intangible asset at December 31, 1995, and $4.5 million at December 31, 1994. In addition, Cooper has recorded a $46.3 million and $55.0 million reduction in shareholders' equity at December 31, 1995 and 1994, respectively. The assets of the various domestic and foreign plans are maintained in various trusts and consist primarily of equity and fixed-income securities. Cooper partially or completely settled or curtailed four defined benefit plans for hourly employees during 1995, six during 1994 and four during 1993. The settlements and curtailments resulted in a reversion to Cooper of surplus assets totaling $1.0 million during 1995 and a net loss of $.5 million in 1993. A-26 29 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 13: POSTRETIREMENT BENEFITS OTHER THAN PENSIONS The benefits provided under Cooper's various postretirement plans other than pensions, 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 Cooper has numerous plans, primarily resulting from Cooper'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 Cooper 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, Cooper continues to amend its various plans to provide for appropriate levels of cost sharing and other cost-control measures.
AMOUNTS PER FINANCIAL STATEMENTS -------------------------- ACCUMULATED ITEMS NOT YET RECORDED LIABILITY FOR POSTRETIREMENT IN FINANCIAL STATEMENTS POSTRETIREMENT BENEFIT -------------------------- BENEFITS OBLIGATION PRIOR SERVICE ACTUARIAL OTHER THAN NET ANNUAL (APBO) COST NET GAIN PENSIONS EXPENSE ------------- ------------- ----------- ------------- ----------- (IN MILLIONS) BALANCE DECEMBER 31, 1992.................................. $ (699.0) $ (.5) $ -- $ (699.5) $ -- Benefit payments........................................... 33.3 33.3 Plan amendments............................................ 31.8 (31.8) Actuarial net gain......................................... 15.6 (15.6) Business dispositions...................................... 32.1 8.1 (11.0) 29.2 Moog curtailments affecting goodwill....................... 17.8 17.8 Plan expense: Service cost............................................. (1.9) 1.9 Interest cost............................................ (40.1) 40.1 Amortization of prior service cost....................... 3.2 (3.2) Curtailment gains (four plans)........................... 11.3 (11.3) ----------- Net annual expense......................................... (27.5) $ 27.5 =========== Reclassification of amounts pertaining to Cameron Forged Products.................................................. 9.1 (1.3) 4.4 12.2 ------------- ------ ----------- ------------- BALANCE DECEMBER 31, 1993.................................. (590.0) (22.3) (22.2) (634.5) Benefit payments........................................... 35.7 35.7 Plan amendments............................................ 11.4 (11.4) Actuarial net gain......................................... 124.3 (124.3) Business acquisition....................................... (5.2) (5.2) Business dispositions...................................... (.3) .1 (.2) (.4) Plan expense: Service cost............................................. (.8) $ .8 Interest cost............................................ (35.4) 35.4 Amortization of prior service cost....................... 2.6 (2.6) ----------- Net annual expense......................................... (33.6) $ 33.6 ------------- ------ ----------- ------------- =========== BALANCE DECEMBER 31, 1994.................................. (460.3) (31.0) (146.7) (638.0) Benefit payments........................................... 32.8 32.8 Actuarial net loss......................................... (40.3) 40.3 Abex curtailments affecting goodwill....................... 3.3 3.3 Plan expense: Service cost............................................. (.6) $ .6 Interest cost............................................ (36.5) 36.5 Amortization of actuarial net gain....................... 14.5 (14.5) Amortization of prior service cost....................... 4.5 (4.5) ----------- Net annual expense......................................... (18.1) $ 18.1 ------------- ------ ----------- ------------- =========== BALANCE DECEMBER 31, 1995.................................. $ (501.6) $ (26.5) $ (91.9) $ (620.0) ============= ====== =========== =============
A-27 30 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, --------------------------------- 1995 1994 ---------- ---------- (IN MILLIONS, EXCEPT PERCENTAGES) Amount of APBO related to: Retired employees........................................ $ (482.5) $ (436.2) Employees eligible to retire............................. (7.1) (8.7) Other employees.......................................... (12.0) (15.4) Actuarial assumptions: Discount rate............................................ 6.65% 8.52% Ensuing year to 2002 health care cost trend rate ......... 12% ratable to 5.5% 15% ratable to 5.5% Effect of 1% change in health care cost trend rate: Increase in APBO......................................... $ 43.4 $ 34.8 Increase in expense...................................... 2.9 3.4
NOTE 14: 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 ("CO-SAV"). Under the terms of the Plan, employee savings deferrals are partially matched with contributions by Cooper of Common stock consisting of either an allocation of shares in Cooper's Employee Stock Ownership Plan ("ESOP") or new shares issued to the ESOP. Cooper makes annual contributions to the ESOP to fund the payment of principal and interest on ESOP debt (See Note 8). All dividends received by the ESOP are used to pay debt service. As the debt is repaid, shares are allocated to participants to satisfy Cooper's matching obligation or to replace dividends on allocated shares with Cooper Common shares. For shares purchased by the ESOP prior to 1994, compensation expense is equal to Cooper's matching obligation, adjusted for the difference between the fair market value and cost of the shares released. Compensation expense is reduced by the amount of dividends paid on unallocated ESOP shares available for future matching. In addition, all shares issued to the ESOP are considered outstanding for the purposes of computing earnings per share. For shares purchased by the ESOP in 1994, compensation expense is recorded equal to the amount of Cooper's matching obligation, with the difference between the fair market value and cost of shares released recorded as an adjustment to capital in excess of par value. Dividends paid on unallocated shares are recorded as a reduction of ESOP debt and accrued interest. Unallocated shares are not treated as outstanding for the purpose of computing earnings per share. Dividends paid on unallocated shares purchased prior to 1994 of $3.1 million and $3.6 million during 1995 and 1994, respectively, were used to reduce the amount of cash required to fund principal and interest payments on ESOP debt. Dividends paid on allocated ESOP shares purchased prior to 1994 of $4.4 million and $5.0 million during 1995 and 1994, respectively, were used to pay additional principal and interest payments in order to release shares equivalent to the dividend amount to participants in the savings plan. Cooper contributed an additional $10.1 million and $19.3 million in cash to the ESOP during 1995 and 1994, respectively, to fund principal and interest payments on debt associated with shares purchased prior to 1994. During 1994, Cooper sold 1.6 million shares to the ESOP for $82.3 million in cash. The 1994 sales were funded by loans between the ESOP and Cooper, which for financial statement purposes are treated as eliminated intercompany loans. The fair value of the remaining unallocated ESOP shares purchased during 1994 was $27.0 million at December 31, 1995. The number of allocated, committed to be released, and unallocated ESOP shares at December 31, is summarized below.
SHARES PURCHASED ------------------------------------------ IN 1994 PRIOR TO 1994 -------------------- -------------------- 1995 1994 1995 1994 --------- --------- --------- --------- Allocated............................... 670,673 372,519 3,111,732 3,821,500 Committed to be released................ 14,961 129,618 131,245 51,527 Unallocated............................. 733,946 1,073,578 1,882,940 2,365,058
Compensation expense with respect to the CO-SAV plan and the ESOP was $21.7 million, $22.6 million and $14.0 million and interest expense on ESOP debt was $4.2 million, $3.4 million and $3.0 million in 1995, 1994 and 1993, respectively. A-28 31 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 15: INDUSTRY SEGMENTS, DOMESTIC AND INTERNATIONAL OPERATIONS INDUSTRY SEGMENTS Cooper's operations consist of three segments: Electrical Products, Tools & Hardware and Automotive Products. Markets for Cooper's products and services are worldwide, though the United States is the largest market. The Electrical Products segment manufactures and markets electrical and electronic distribution and circuit protection products and lighting fixtures for use in residential, commercial and industrial construction, maintenance and repair and products for use by utilities and industries for primary power distribution and control. This segment also manufactured and marketed wire and cable for electronic signal transmission through September 30, 1993. 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, asbestos-free brake friction materials 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 and material for the automotive aftermarket. Intersegment sales and related receivables for each of the years presented were immaterial. Financial information by industry segment was as follows:
REVENUES OPERATING EARNINGS IDENTIFIABLE ASSETS ------------------------------- ------------------------------- -------------------- YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, DECEMBER 31, ------------------------------- ------------------------------- -------------------- 1995 1994 1993 1995 1994 1993 1995 1994 --------- --------- --------- --------- --------- --------- --------- --------- (IN MILLIONS) Electrical Products (1)................. $ 2,089.7 $ 2,034.8 $ 2,177.5 $ 355.5 $ 326.3 $ 203.7 $ 2,000.4 $ 1,788.6 Tools & Hardware (1).................... 962.4 897.9 807.9 111.2 102.4 75.1 759.7 797.4 Automotive Products (1)................. 1,796.6 1,622.1 1,670.0 180.7 190.1 162.4 2,635.3 2,654.2 --------- --------- --------- --------- --------- --------- --------- --------- 4,848.7 4,554.8 4,655.4 647.4 618.8 441.2 5,395.4 5,240.2 Cameron Forged Products (2)............. -- -- 109.7 -- -- 1.7 -- -- Other (1)............................... 37.2 33.2 11.3 37.2 33.2 209.6 --------- --------- --------- Consolidated revenues................... $ 4,885.9 $ 4,588.0 $ 4,776.4 ========= ========= ========= General corporate....................... (55.6) (74.0) (65.6) 646.0 472.8 --------- --------- --------- Operating earnings...................... 629.0 578.0 586.9 Interest expense........................ (151.0) (73.3) (80.9) --------- --------- --------- Consolidated income from continuing operations before income taxes......... $ 478.0 $ 504.7 $ 506.0 ========= ========= ========= Business held for divestiture........... -- 19.5 Discontinued operations................. -- 646.4 Investments in unconsolidated affiliates............................. 22.5 21.8 --------- --------- Consolidated assets..................... $ 6,063.9 $ 6,400.7 ========= ========= 1993 --------- Electrical Products (1)................. $ 1,739.3 Tools & Hardware (1).................... 757.4 Automotive Products (1)................. 2,208.8 --------- 4,705.5 Cameron Forged Products (2)............. 74.9 Other (1)............................... Consolidated revenues................... General corporate....................... 474.9 Operating earnings...................... Interest expense........................ Consolidated income from continuing operations before income taxes......... Business held for divestiture........... 17.6 Discontinued operations................. 1,068.1 Investments in unconsolidated affiliates............................. 20.7 --------- Consolidated assets..................... $ 6,361.7 =========
- ------------ (1) The 1993 operating earnings amount includes nonrecurring expenses of $155.3 million for Electrical Products, $16.5 million for Tools & Hardware and $26.5 million for Automotive Products and nonrecurring income of $198.3 million for other operating earnings. (2) The 1993 amounts reflect Cooper's investment in the Cameron Forged Products business (See Note 2). A-29 32 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DEPRECIATION AMORTIZATION CAPITAL EXPENDITURES ---------------------- ------------------- ---------------------- YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, ---------------------- ------------------- ---------------------- 1995 1994 1993 1995 1994 1993 1995 1994 1993 ------ ------ ------ ----- ----- ----- ------ ------ ------ (IN MILLIONS) Electrical Products........... $ 45.5 $ 43.1 $ 58.5 $30.2 $29.3 $29.5 $ 62.4 $ 74.6 $ 78.0 Tools & Hardware.............. 32.4 30.8 29.4 8.5 7.4 6.7 31.6 38.5 29.4 Automotive Products........... 61.4 51.3 50.4 37.7 32.1 32.3 85.7 94.4 72.3 Corporate..................... 2.4 3.0 6.9 .7 2.0 2.2 8.7 1.2 8.7 ------ ------ ------ ----- ----- ----- ------ ------ ------ $141.7 $128.2 $145.2 $77.1 $70.8 $70.7 $188.4 $208.7 $188.4 ====== ====== ====== ===== ===== ===== ====== ====== ======
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 $268.5 million in 1995, $267.2 million in 1994 and $273.8 million in 1993. Of total export sales of continuing operations, approximately 39% in 1995, 36% in 1994 and 41% in 1993 were to Asia, Africa, Australia and the Middle East; 27% in 1995, 26% in 1994 and 24% in 1993 were to Canada and Europe; and 34% in 1995, 38% in 1994 and 35% in 1993 were to Latin America. Domestic and international financial information was as follows:
REVENUES OPERATING EARNINGS IDENTIFIABLE ASSETS ---------------------------- ------------------------- ---------------------------- YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, DECEMBER 31, ---------------------------- ------------------------- ---------------------------- 1995 1994 1993 1995 1994 1993 1995 1994 1993 -------- -------- -------- ------- ------- ------- -------- -------- -------- (IN MILLIONS) Domestic (1)............................ $4,068.0 $3,800.7 $4,028.9 $ 540.8 $ 511.0 $ 374.2 $4,171.2 $4,232.9 $3,845.2 -------- -------- -------- ------- ------- ------- -------- -------- -------- International Europe................................ 537.5 495.4 385.3 56.1 62.8 26.9 959.2 676.6 562.0 Canada................................ 250.8 212.4 254.7 10.7 3.2 .1 131.9 139.5 115.2 Other................................. 225.7 219.6 207.1 39.9 45.1 44.6 280.5 295.6 349.9 -------- -------- -------- ------- ------- ------- -------- -------- -------- Sub-total International............. 1,014.0 927.4 847.1 106.7 111.1 71.6 1,371.6 1,111.7 1,027.1 Eliminations: Transfers to International............ (165.4) (138.6) (174.5) (62.1) (45.1) (53.7) Transfers to Domestic................. (67.9) (34.7) (46.1) (75.4) (49.2) (103.2) Other................................. (.1) (3.3) (4.6) (9.9) (10.1) (9.9) -------- -------- -------- ------- ------- ------- -------- -------- -------- 4,848.7 4,554.8 4,655.4 647.4 618.8 441.2 5,395.4 5,240.2 4,705.5 Cameron Forged Products(2).............. -- -- 109.7 -- -- 1.7 -- -- 74.9 Other (1)............................... 37.2 33.2 11.3 37.2 33.2 209.6 -------- -------- -------- Consolidated revenues................... $4,885.9 $4,588.0 $4,776.4 ======== ======== ======== General corporate....................... (55.6) (74.0) (65.6) 646.0 472.8 474.9 ------- ------- ------- Operating earnings...................... 629.0 578.0 586.9 Interest expense........................ (151.0) (73.3) (80.9) ------- ------- ------- Consolidated income from continuing operations before income taxes......... $ 478.0 $ 504.7 $ 506.0 ======= ======= ======= Businesses held for divestiture......... -- 19.5 17.6 Discontinued operations................. -- 646.4 1,068.1 Investments in unconsolidated affiliates............................. 22.5 21.8 20.7 -------- -------- -------- Consolidated assets..................... $6,063.9 $6,400.7 $6,361.7 ======== ======== ========
- --------------- (1) The 1993 domestic operating earnings amount includes nonrecurring expenses of $198.3 million and other operating earnings includes nonrecurring income of $198.3 million. (2) The 1993 amounts reflect Cooper's investment in the Cameron Forged Products business (See Note 2). A-30 33 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Revenues by destination represent revenues by the location products were delivered by Cooper. International revenues by destination and international assets by segment were as follows:
1995 1994 1993 -------------------------- -------------------------- -------------------------- INTERNATIONAL INTERNATIONAL INTERNATIONAL INTERNATIONAL INTERNATIONAL INTERNATIONAL REVENUES ASSETS REVENUES ASSETS REVENUES ASSETS ------------ ------------ ------------ ------------ ------------ ------------ (IN MILLIONS) Electrical Products.................... $ 355.2 $ 401.3 $ 319.2 $ 158.2 $ 367.3 $ 151.8 Tools & Hardware....................... 354.8 226.3 288.9 244.9 247.0 213.1 Automotive Products.................... 506.6 661.0 454.2 670.0 468.6 584.8 ------------ ------------ ------------ ------------ ------------ ------------ $ 1,216.6 $ 1,288.6 $ 1,062.3 $ 1,073.1 $ 1,082.9 $ 949.7 ============ ============ ============ ============ ============ ============
NOTE 16: OFF-BALANCE-SHEET RISK, CONCENTRATIONS OF CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS, INCLUDING DERIVATIVES As a result of having sales and purchases denominated in currencies other than the functional currencies used by Cooper's divisions and foreign subsidiaries, Cooper is exposed to the effect of foreign exchange rate fluctuations on the U.S. dollar value of its cash flows. To the extent possible, Cooper utilizes natural hedges to minimize the effect on cash flows of fluctuating foreign currencies. When natural hedges are not sufficient, it is Cooper's policy to enter into forward foreign exchange contracts to hedge all significant transactions for periods consistent with the terms of the underlying transactions. Cooper does not engage in speculative transactions. While forward contracts affect Cooper's results of operations, they do so only in connection with the underlying transactions. As a result, they do not subject Cooper to uncertainty from exchange rate movements, because gains and losses on these contracts offset losses and gains on the transactions being hedged. The volume of forward activity engaged in by Cooper from year to year fluctuates in proportion to the level of worldwide cross-border transactions, and contracts generally have maturities that do not exceed one year. The table below summarizes, by currency, the contractual amounts of Cooper's forward exchange contracts at December 31, 1995 and 1994.
DECEMBER 31, -------------------- 1995 1994 --------- --------- (IN MILLIONS) Deutschemark.................................. $ 1.8 $ 14.0 Pound Sterling................................ 6.6 28.2 Guilder....................................... 4.7 10.7 Canadian Dollar............................... 19.4 .4 Belgian Franc................................. 5.1 5.0 Other......................................... 12.0 15.0 --------- --------- $ 49.6 $ 73.3 ========= =========
Deferred gains and losses on forward foreign exchange contracts based upon anticipated transactions were not material at December 31, 1995 and 1994. In an effort to reduce interest expense on Cooper's fixed-rate borrowings, Cooper entered into an interest rate swap in 1991, which matured in February 1996, that converted a $50 million fixed rate borrowing into a floating-rate borrowing resulting in an effective interest rate of 6.2% during 1995. In the normal course of business, Cooper has letters of credit, performance bonds and other guarantees which are not reflected in the consolidated balance sheets. In the past, no significant claims have been made against these financial instruments. Management believes the likelihood of performance under these instruments is minimal and expects no material losses to occur in connection with these instruments. Cooper's other off-balance-sheet risks are not material. A-31 34 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 Cooper's products are sold, as well as their dispersion across many different geographic areas. As a result, at December 31, 1995 and 1994, Cooper does not consider itself to have any significant concentrations of credit risk. FAIR VALUE OF FINANCIAL INSTRUMENTS Cooper's financial instruments consist primarily of cash and cash equivalents, trade receivables, trade payables, debt instruments and foreign currency forward contracts. The book values of cash and cash equivalents, trade receivables and trade payables are considered to be representative of their respective fair values. Cooper had approximately $2.1 billion and $1.6 billion of debt instruments at December 31, 1995 and 1994, respectively. The book value of these instruments was approximately equal to fair value at December 31, 1995 and 1994. Based on year-end exchange rates and the various maturity dates of the foreign currency forward contracts, Cooper estimates that the contract value is representative of the fair value of these items at December 31, 1995 and 1994. NOTE 17: SUMMARY OF NONCASH INVESTING AND FINANCING ACTIVITIES The following noncash transactions have been excluded from the consolidated statements of cash flows:
YEAR ENDED DECEMBER 31, ---------------------------------- 1995 1994 1993 ------------ --------- --------- (IN MILLIONS) Assets acquired and liabilities assumed or incurred from the acquisition of businesses: Fair value of assets acquired............................................................... $ 249.9 $ 325.7 $ 166.4 Cash used to acquire businesses............................................................. (11.9) (280.6) (100.9) ------ --------- --------- Liabilities assumed or incurred............................................................... $ 238.0(1) $ 45.1 $ 65.5 ====== ========= ========= Noncash increase (decrease) in net assets from: Retirement of Cooper Common shares exchanged for Cooper Cameron Common shares.............................................................................. $ 427.5 $ -- $ -- Exchange of $1.60 Convertible Exchangeable Preferred Stock into 7.05% convertible subordinated debentures.................................................................... 691.2 -- -- Employee stock ownership plan: Principal payments and difference between Cooper expense and cash contributions........... 25.4 60.1 24.5 Unearned ESOP compensation................................................................ -- (82.3) -- Common stock issued for: Employee stock ownership plan............................................................. -- 82.3 -- Executive restricted stock incentive plan................................................. -- 2.5 -- Acquired companies........................................................................ -- -- .3 Employee stock purchase plan.............................................................. 9.7 -- 23.6 Unrealized gain on investments, net of tax: Adoption of SFAS No. 115.................................................................. -- 20.5 -- Change in unrealized value of investments in marketable equity securities................. 119.6 27.3 -- Distribution of Gardner Denver Machinery Inc. stock......................................... -- (152.9) -- Issuance of $1.60 Preferred Stock for conversion of debentures.............................. -- 3.5 2.9
- --------------- (1) Includes approximately $164 million at December 31, 1995 for the acquisition of CEAG (See Note 3). A-32 35 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 18: DISCONTINUED OPERATIONS In September 1994, Cooper announced its decision to establish its Petroleum & Industrial Equipment segment as an independent publicly traded company, Cooper Cameron, through an exchange offer with Cooper's common shareholders. The exchange offer was completed on June 30, 1995, at which time 9.5 million shares of Cooper Common stock were exchanged for 85.5% of Cooper Cameron common stock. The Petroleum & Industrial Equipment segment split-off has been accounted for as a discontinued operation and, accordingly, its operating results are reported as discontinued operations in the consolidated statements of operations. Since the transaction was structured as an exchange of shares, Cooper charged its 1994 earnings for the difference between the estimated fair market value of Cooper Cameron's net assets and the historical cost of the net assets of Cooper Cameron as reflected on Cooper's consolidated financial statements. During the third quarter of 1994, Cooper recorded a charge of $313 million, net of $7.9 million of taxes ($2.74 per share) for the estimated loss on the split-off of Cooper Cameron. The charge was computed as of the September 30, 1994 "measurement date" and included the estimated loss (including $14.5 million of allocated interest expense) from the operations of the discontinued segment during the period from the measurement date until the anticipated completion date during the middle of the second quarter of 1995, as well as the estimated costs associated with separating Cooper Cameron from Cooper. During the second quarter of 1995, Cooper recorded an additional charge of $186.6 million, with no tax benefit, to reflect the actual loss on the split-off of Cooper Cameron. This additional charge was composed of the difference between the historical cost of Cooper's investment in Cooper Cameron remaining after the September 1994 estimated charge and the market value of Cooper Cameron common stock during the first few days the common stock traded on a national exchange ($162.8 million), additional Cooper Cameron operating losses during the period October 1, 1994 through June 30, 1995 ($20.3 million) and additional transaction costs ($3.5 million). The additional operating losses and transaction costs resulted primarily from the delay in completing the exchange transaction and the recording by Cooper Cameron of a $17 million pretax charge in the second quarter of 1995 for the write-down of receivables due from customers in Iran. In October 1993, Cooper announced its decision to spin off its Gardner-Denver Industrial Machinery Division to Cooper's Common shareholders. Cooper formed a new corporation called Gardner Denver Machinery Inc. ("GDMI") and then transferred the assets and liabilities of the division into this entity. During the second quarter of 1994, the GDMI stock was distributed on the basis of one share of common stock, par value $.01 per share, for every 25 shares of Cooper Common stock owned as of the determined record date. Pursuant to the income tax and accounting rules pertaining to this transaction, Cooper recognized no gain or loss with respect to the transaction, and the GDMI stock received by Cooper's shareholders is not taxable until sold. The Gardner-Denver Industrial Machinery Division was historically a part of the Petroleum & Industrial Equipment segment. Accordingly, its results for 1994 and 1993 have been reflected as part of discontinued operations. 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. Income from discontinued operations reflects interest expense of $11.9 million on debt of $375 million during the six months ended June 30, 1995 and $20.0 million and $18.2 million on debt of $445 million during the years ended December 31, 1994 and 1993, respectively. The interest rates utilized were the actual rates for borrowings specifically identifiable with the respective businesses, with Cooper's average cost of commercial paper borrowing applied to the residual. Debt allocated to discontinued operations ($70 million allocated to GDMI and $375 million allocated to Cooper Cameron) was considered to be fixed and related historically to the discontinued operations. Actual cash provided by or utilized in the discontinued operations, including the payment by Cooper of all U.S. Federal, foreign and state and local income taxes related to the discontinued operations, was provided by or used in Cooper's continuing operations such that the indebtedness of the discontinued operations remains constant from year to year. Cooper retained a 14.5% interest in Cooper Cameron which has been accounted for as a marketable equity security. Cooper has committed that it will vote the Cooper Cameron common stock retained in proportion to the votes cast by other shareholders and dispose of the shares no later than five years subsequent to June 30, 1995. Revenues from A-33 36 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) discontinued operations were $523.1 million for the six-month period ended on the exchange date of June 30, 1995 and $1.11 billion and $1.50 billion during the years ended December 31, 1994 and 1993, respectively. Income from discontinued operations was $.3 million, net of $3.0 million of income taxes during 1994 and $68.1 million, net of $51.3 million of income taxes during 1993. NOTE 19: NET INCOME (LOSS) PER COMMON SHARE
PRIMARY FULLY DILUTED ------------------------------- ------------------------------- YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, ------------------------------- ------------------------------- 1995 1994 1993 1995(1) 1994 1993 --------- --------- --------- --------- --------- --------- ($ IN MILLIONS, SHARES IN THOUSANDS) Income from continuing operations........................... $ 280.6 $ 292.8 $ 299.0 $ 280.6 $ 292.8 $ 299.0 Income from discontinued operations......................... -- .3 68.1 -- .3 68.1 Charge for discontinued operations.......................... (186.6) (313.0) -- (186.6) (313.0) -- Dividends applicable to $1.60 Preferred Stock............... -- (53.3) (53.1) -- (53.3) (53.1) Interest expense on 7.05% Convertible Subordinated Debentures................................................. -- -- -- 29.2 -- -- --------- --------- --------- --------- --------- --------- Net income (loss) applicable to Common stock................ $ 94.0 $ (73.2) $ 314.0 $ 123.2 $ (73.2) $ 314.0 ========= ========= ========= ========= ========= ========= Average Common shares and Common share equivalents.......... 111,952 114,218 114,201 111,952 114,218 114,201 ========= ========= ========= Additional shares assuming conversion of the 7.05% Convertible Subordinated Debentures........................ 16,731 -- -- --------- --------- --------- Average Common shares and Common share equivalents.......... 128,683 114,218 114,201 ========= ========= =========
- --------------- (1) The 1995 fully diluted net income per Common share calculation is antidilutive, therefore primary net income per Common share is reflected as the fully diluted net income per share amount in the Consolidated Statements of Operations. A-34 37 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 20: UNAUDITED QUARTERLY OPERATING RESULTS
1995 (BY QUARTER) ------------------------------------------ 1 2 3 4 --------- --------- --------- --------- (IN MILLIONS, EXCEPT PER SHARE DATA) Revenues....................................................... $ 1,123.2 $ 1,268.1 $ 1,206.4 $ 1,288.2 Costs and expenses: Cost of sales................................................ 748.3 834.7 800.5 849.4 Depreciation and amortization................................ 51.5 54.6 55.1 57.6 Selling and administrative expenses.......................... 190.9 198.9 196.8 218.6 --------- --------- --------- --------- 990.7 1,088.2 1,052.4 1,125.6 --------- --------- --------- --------- Operating earnings........................................... 132.5 179.9 154.0 162.6 Interest expense............................................... 38.3 39.5 37.0 36.2 --------- --------- --------- --------- Income from continuing operations before income taxes.......... 94.2 140.4 117.0 126.4 Income taxes................................................... 38.9 57.6 47.7 53.2 --------- --------- --------- --------- Income from continuing operations.............................. 55.3 82.8 69.3 73.2 Charge for discontinued operations............................. -- (186.6) -- -- --------- --------- --------- --------- Net income (loss).............................................. $ 55.3 $ (103.8) $ 69.3 $ 73.2 ========= ========= ========= ========= Income (loss) per Common Share: Primary: Continuing operations...................................... $ 0.48 $ 0.71 $ 0.65 $ 0.68 Discontinued operations.................................... -- (1.60) -- -- --------- --------- --------- --------- Net income (loss).......................................... $ 0.48 $ (0.89) $ 0.65 $ 0.68 ========= ========= ========= ========= Fully diluted: Continuing operations...................................... $ 0.47 $ 0.68 $ 0.62 $ 0.65 ========= ========= ========= ========= Net income (loss).......................................... $ 0.47 $ (0.89) $ 0.62 $ 0.65 ========= ========= ========= =========
A-35 38 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1994 (BY QUARTER) ------------------------------------------ 1 2 3 4 --------- --------- --------- --------- (IN MILLIONS, EXCEPT PER SHARE DATA) Revenues...................................................... $ 1,037.8 $ 1,173.9 $ 1,136.4 $ 1,239.9 Costs and expenses: Cost of sales............................................... 692.3 769.6 749.7 814.8 Depreciation and amortization............................... 48.0 48.5 50.2 52.3 Selling and administrative expenses......................... 189.7 201.7 190.0 203.2 --------- --------- --------- --------- 930.0 1,019.8 989.9 1,070.3 --------- --------- --------- --------- Operating earnings.......................................... 107.8 154.1 146.5 169.6 Interest expense.............................................. 16.2 16.9 18.8 21.4 --------- --------- --------- --------- Income from continuing operations before income taxes......... 91.6 137.2 127.7 148.2 Income taxes.................................................. 39.4 57.9 51.9 62.7 --------- --------- --------- --------- Income from continuing operations............................. 52.2 79.3 75.8 85.5 Income (loss) from discontinued operations.................... (3.8) 4.3 (0.2) -- Charge for discontinued operations............................ -- -- (313.0) -- --------- --------- --------- --------- Net income (loss)............................................. 48.4 83.6 (237.4) 85.5 Preferred dividends........................................... 13.3 13.3 13.3 13.4 --------- --------- --------- --------- Net income (loss) applicable to Common stock.................. $ 35.1 $ 70.3 $ (250.7) $ 72.1 ========= ========= ========= ========= Income (loss) per Common Share: Primary: Continuing operations..................................... $ 0.34 $ 0.58 $ 0.55 $ 0.63 Discontinued operations................................... (0.03) 0.04 (2.75) -- --------- --------- --------- --------- Net income (loss)......................................... $ 0.31 $ 0.62 $ (2.20) $ 0.63 ========= ========= ========= ========= Fully diluted: Continuing operations..................................... $ 0.34 $ 0.58 $ 0.55 $ 0.63 ========= ========= ========= ========= Net income (loss)......................................... $ 0.31 $ 0.62 $ (2.20) $ 0.63 ========= ========= ========= =========
A-36 EX-21 7 LIST OF COOPER INDUSTRIES, INC. SUBSIDIARIES 1 12-31-95 EXHIBIT 21.0 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 ------------------------------------ Champion Spark Plug GmbH Germany 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 Norge AS Norway Cooper Industries Sweden AB (556391-9728) Sweden Cooper International Company Delaware, U.S. Cooper PAC Corporation Delaware, U.S. Cooper Pensions Limited United Kingdom Cooper Securities, Inc. Texas, U.S. Cooper Trading, Inc. Delaware, U.S. Cooper Western Hemisphere Company Delaware, U.S. Coopind Inc. Delaware, U.S. CS Holdings International Inc. Cayman Islands Industrias Cooper de Venezuela, S.A. Venezuela Kirsch Company Michigan, U.S. Moog Redevelopment Corporation Missouri, U.S. P B Marketing, Inc. Delaware, U.S. Sani Kirsch, Inc. Delaware, U.S.
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Place of NAME Incorporation - ---------------------------------------- ------------- B. ELECTRICAL PRODUCTS ----------------------- Arrow-Hart, S.A. de C.V. Mexico Bussmann International, Inc. Delaware, U.S. Bussmann de Mexico S.A. de C.V. Mexico Bussmann, S.A. de C.V. Mexico CEAG Digi Table Sicherheitstechnik GmbH Germany CEAG Grundstucksverwaltungsgesellschaft mbH Germany CEAG Grundstucks GmbH & Co. OHG Germany CEAG Sicherheitstechnik GmbH Germany Combined Technologies, Inc. Wisconsin, U.S. Componentes de Iluminacion, S.A. de C.V. Mexico Connectron, Inc. New Jersey, U.S. Cooper Elektrische Ausrustungen GmbH Germany Cooper Elektrische Ausrustungen GmbH & Co. OHG Germany Cooper Power Systems do Brasil Ltda. Brazil Cooper Power Systems Pty. Ltd. Australia Cooper Power Systems, Inc. Delaware, U.S. Cooper Power Systems Transportation Company Wisconsin, U.S. Crouse-Hinds (Australia) Pty. Ltd. Australia Crouse-Hinds Domex, S.A. de C.V. Mexico Crouse-Hinds GmbH Germany Edison Fusegear, Inc. Delaware, U.S. Iluminacion Cooper de las Californias S.A. de C.V. Mexico McGraw-Edison Company Delaware, U.S. McGraw-Edison Development Corporation Delaware, U.S. McGraw-Edison Power Systems Overseas, Inc. Delaware, U.S. Ping Ding Shan Edison Power Systems Company Limited (60% owned) China RTE Far East Corporation Taiwan
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Place of NAME Incorporation - ---------------------------------------- ------------- C. TOOLS & HARDWARE ------------------- AB Sani-Maskiner (556179-9643) Sweden Acrimo AB (public) (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 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, Inc. Delaware, U.S.
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Place of NAME Incorporation - -------------------------------------------- ------------- D. AUTOMOTIVE PRODUCTS ---------------------- A.F.P. Ltd. Canada Anco de Mexico, S.A. de C.V. Mexico 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 S.A. Belgium Champion Spark Plug Taiwan, Inc. Taiwan Cooper Automotive K.K. Japan Cooper Automotive, Inc. Delaware, U.S. Cooper Automotive of South Africa (Proprietary) Limited South Africa 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 Guangzhou Champion Spark Plug Co., Ltd.(50% owned) China Moog Automotive, Inc. Missouri, U.S. 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.
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Place of NAME Incorporation - ---------------------------------------- ------------- E. INACTIVE SUBSIDIARIES ------------------------- B & S Fuses Limited United Kingdom Bussmann (U.K.) Limited United Kingdom 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 Coopauto Corporation Delaware, U.S. Cooper Hand Tools of California, Inc. Delaware, U.S. Crouse-Hinds de Venezuela, C.A. Venezuela Crouse-Hinds of Europe, S.r.l. Italy DFL Fusegear Limited United Kingdom Duotech Pty Limited Australia Gardner-Denver (Aust.) Pty. Limited Australia Gardner-Denver International, C.A. Venezuela Inmobiliaria Cisco, S.A. (49% owned) Mexico McGraw-Edison Export Corporation Delaware, U.S. Moog World Trade Corporation Virgin Islands The Cooper Group, B.V. Netherlands Veda Manufacturing Pty. Ltd. Australia Velas Champion do Brasil, Ltda. Brazil WAWD Autoteile GmbH Germany WPC Corporation, Inc. Delaware, U.S. ZV Zundkerzenvertriebs GmbH Germany
-5- EX-23 8 CONSENT OF ERNST & YOUNG LLP 1 Exhibit 23.0 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of Cooper Industries, Inc. of our report dated January 23, 1996, included in Appendix A to the Cooper Industries, Inc. Proxy Statement for the 1996 Annual Meeting of Shareholders. 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 23, 1996, with respect to the consolidated financial statements incorporated herein by reference.
Registration Statement No. Purpose - ------------- ------- No. 2-71732 Form S-8 Registration Statement for Shares issuable pursuant to Substitute Deferred Compensation Agreements in connection with the acquisition of Crouse-Hinds Company No. 2-33-14542 Form S-8 Registration Statement for Cooper Industries, Inc. 1985 and 1989 Employee Stock Purchase Plans No. 2-33-19574 Form S-8 Registration Statement for Cooper Industries, Inc. 1986 Stock Option Plan No. 2-33-29302 Form S-8 Registration Statement for 1989 Director Stock Option Plan No. 33-13695 Form S-3 Registration Statement for Cameron Iron Works, Inc. 7% Convertible Subordinated Debentures due 2012. No. 33-29301 Form S-4 Registration Statement for 3,000,000 Shares of Cooper Common Stock (Equity Shelf) No. 33-37875 Form S-3 Registration Statement for Cooper Industries, Inc. Dividend Reinvestment and Stock Purchase Plan No. 33-57829 Form S-8 Registration Statement for Cooper Industries, Inc. 1986 Stock Option Plan. No. 333-00117 Form S-3 Registration Statement for Cooper Industries, Inc. Debt Securities (Debt Shelf.)
/s/ Ernst & Young LLP Houston, Texas March 27, 1996 EX-24 9 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, 1995 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 26th day of March, 1996. /s/ HAROLD S. HOOK ------------------------------ Harold S. Hook 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, 1995 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 12th day of February, 1996. /s/ LINDA A. HILL ------------------------ Linda A. Hill 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, 1995 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 26th day of March, 1996. /s/ CONSTANTINE S. NICANDROS ---------------------------------- Constantine S. Nicandros 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, 1995 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 12th day of February, 1996. /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, 1995 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 12th day of February, 1996. /s/ A. THOMAS YOUNG ------------------------------ A. Thomas Young EX-27 10 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S FINANCIAL STATEMENTS FOR THE YEARS AND QUARTERS INDICATED INCLUDED IN THE COMPANY'S FORM 10-K'S AND 10-Q'S FOR SUCH PERIODS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR 9-MOS 6-MOS 3-MOS YEAR DEC-31-1995 DEC-31-1995 DEC-31-1995 DEC-31-1995 DEC-31-1994 JAN-01-1995 JAN-01-1995 JAN-01-1995 JAN-01-1995 JAN-01-1994 DEC-31-1995 SEP-30-1995 JUN-30-1995 MAR-31-1995 DEC-31-1994 17,700 8,400 13,100 15,600 25,300 0 0 0 0 0 992,700 931,300 918,200 895,600 904,400 0 0 0 0 0 963,500 959,000 1,002,400 1,023,700 988,500 2,127,300 2,038,000 2,091,100 2,109,600 2,100,200 2,268,300 2,199,300 2,203,500 2,153,100 2,126,300 1,036,200 1,019,500 1,004,100 965,300 938,800 6,063,900 5,776,100 5,811,600 6,351,600 6,400,700 1,382,400 1,279,700 1,384,400 1,241,300 1,333,100 1,865,300 1,882,000 1,886,200 2,072,100 1,361,900 539,400 539,000 537,800 585,200 584,600 0 0 0 0 0 0 0 0 0 30,600 1,177,000 1,121,400 1,041,400 1,496,300 2,125,900 6,063,900 5,776,100 5,811,600 6,351,600 6,400,700 4,885,900 3,597,700 2,391,300 1,123,200 4,588,000 4,885,900 3,597,700 2,391,300 1,123,200 4,588,000 3,232,900 2,383,500 1,583,000 748,300 3,026,400 3,232,900 2,383,500 1,583,000 748,300 3,026,400 141,700 103,500 68,100 33,400 128,200 0 0 0 0 0 151,000 114,800 77,800 38,300 73,300 478,000 351,600 234,600 94,200 504,700 197,400 144,200 96,500 38,900 211,900 280,600 207,400 138,100 55,300 292,800 (186,600) (186,600) (186,600) 0 (312,700) 0 0 0 0 0 0 0 0 0 0 94,000 20,800 (48,500) 55,300 (19,900) .84 .18 (.42) .48 (.64) .84 .18 (.42) .47 (.64) Financial Data Schedule for period amended to correct line items "Other Expenses" and "Bonds". Financial Data Schedule for period amended to correct line item "Other Expenses".
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