Jon Safran Director, Investor Relations 713-209-8610 jon.safran@cooperindustries.com
Cooper Industries Reports Third Quarter Revenues Up 14 Percent; Earnings of $.93 Per Share, Including Belden Income and Legal Matters of $.10 Per Share
Earnings Per Share Up 20 Percent to $.83 Excluding Belden Income and Legal Matters
HOUSTON, October 23, 2007– Cooper Industries, Ltd. (NYSE: CBE) today reported third quarter 2007 earnings per share (excluding Belden income and legal matters) of $.83 (diluted), an increase of 20 percent compared with $.69 earnings per share for the third quarter of 2006. Third quarter 2007 revenues increased 14 percent to $1.50 billion, compared with $1.31 billion for the same period last year. Net income (excluding Belden income and legal matters) rose 19 percent to $153.1 million, compared with the prior year amount of $128.2 million.
“Our global growth investments continued to gain momentum with developing markets revenues growing close to 40 percent in the quarter. Our Company-wide strategic initiatives and proven business model have now delivered seven quarters in a row of 20 percent plus earnings per share growth from continuing operations,” said Cooper Industries Chairman and Chief Executive Officer Kirk S. Hachigian. “Core growth was 9 percent, with acquisitions contributing 3 percent to revenue growth, and currency translation contributing 2 percent.”
“Cooper’s financial position continues to be strong. We ended the third quarter with a debt-to-total capitalization ratio, net of cash, of 20.9 percent, even after several acquisitions and the repurchase of over 5 million shares year-to-date,” said Hachigian.
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For the 2007 third quarter, Cooper recognized $23.5 million in income under an agreement with Belden. In 1993, Cooper completed an initial public offering of the stock of Belden, formerly a division of Cooper. Under the agreement, Belden and Cooper made an election that increased the tax basis of certain Belden assets. Belden is required to pay Cooper ninety percent of the amount by which Belden has actually reduced tax payments that would otherwise have been payable if the increase in the tax basis of assets had not occurred, as realized principally over fifteen years. In addition to the Belden income, Cooper recognized $6.4 million of expense related to certain legal matters.
Revenues for the first nine months of 2007 were $4.36 billion, a 13 percent increase from the $3.84 billion in revenues for the first nine months of 2006. Earnings per share from continuing operations for the first nine months of 2007 (excluding income tax accrual adjustments, Belden income and legal matters) were $2.31, compared with $1.89 for the same period in 2006, an increase of 22 percent. Income from continuing operations (excluding income tax accrual adjustments, Belden income and legal matters) for the first nine months of 2007 rose 21 percent to $430.1 million, compared with $355.7 million for the first nine months of 2006.
The 2007 year-to-date results include a $63.5 million or $.34 earnings per share reduction of income taxes expense. The Internal Revenue Service and Cooper finalized settlements totaling $55.7 million related to the 2000 through 2004 tax years in the second quarter. A change in rates for the Texas margin tax and other developments in the 2007 second quarter represented the remaining $7.8 million of income taxes expense reduction. The 2006 year-to-date results include an after-tax discontinued operations charge of $20.3 million, or $.11 per diluted share.
Segment Results Electrical Productssegment revenues for the third quarter of 2007 increased 15 percent to $1.30 billion, compared with $1.13 billion in the third quarter of 2006. Recent acquisitions and favorable currency translation increased revenues approximately 5 percent compared to prior year. Segment operating earnings were $224.2 million, an increase of 20 percent from $186.4 million in the prior year’s third quarter. Segment operating margin improved 70 basis points to 17.2 percent for the third quarter of 2007.
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The increase in revenues for the Electrical Products segment continued to reflect strength in the utility and industrial markets, strong international growth and solid growth in U.S. nonresidential construction markets. As anticipated, the U.S. residential markets continued to be soft.
In August, the Company acquired Illinois-based io Lighting, a dedicated light-emitting diode lighting fixture company, and Vermont-based Powerline Communications, Inc., a manufacturer of digital lighting control panels. Expected sales for the two companies in 2007 are approximately $17 million and the combined purchase price was $22 million.
In October, the Company announced a joint venture with the Nature Science and Technology Company, a privately-held medium voltage indoor switchgear manufacturer based in Zhejiang province, China. The joint venture, 60 percent controlled by Cooper, will allow Cooper access to indoor switchgear products that meet International Electrotechnical Commission standards, expanding upon its current offerings that meet American National Standards Institute electrical standards.
Electrical Products segment revenues for the first nine months of 2007 grew 15 percent to $3.78 billion, compared with $3.29 billion in 2006. Segment operating earnings for the first nine months increased 21 percent to $631.6 million compared with $524.0 million for the same period last year.
Toolssegment revenues for the third quarter of 2007 increased 7 percent to $199.4 million, compared with 2006 third quarter revenues of $187.2 million. Currency translation increased revenues over 3 percent in the quarter. Segment operating earnings for the period were $22.0 million, compared with $24.3 million for the third quarter of 2006. Segment operating margin for the third quarter of 2007 was 11.0 percent, compared with 13.0 percent for the same period last year. The assembly systems business is transitioning from complete assembly systems to fastening stations and smaller installations. The 2007 third quarter earnings and return on revenues were impacted by shipments of low-margin assembly systems. The increase in revenues in the Tools segment reflects solid aerospace demand, increased penetration in retail channels and the shipment of assembly systems, offset by weakness in the motor vehicle markets.
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Revenues for the first nine months of 2007 increased 4 percent to $574.2 million, compared with $551.8 million for the same period last year. Segment operating earnings for the first nine months of 2007 grew 7 percent to $65.4 million, compared with $61.2 million in the prior-year period.
Outlook “The performance of our businesses in the quarter, continued strength in the majority of our end-markets, and global economic conditions cause us to remain optimistic about our full-year 2007 performance,” said Hachigian. “Our initiatives focused on customer loyalty, innovation, globalization, talent development and operational excellence will continue to contribute to our efforts to deliver a balance of growth, margin expansion and cash generation. We expect our Electrical Products and Tools segments to continue to perform strongly in the fourth quarter. We expect fourth quarter revenues to increase in the range of 12 to 14 percent, with earnings per share from continuing operations between $.79 and $.83.
For the year, we expect 2007 revenues to increase in the range of 12 to 14 percent, with earnings per share from continuing operations between $3.11 and $3.15 (excluding income tax accrual adjustments, Belden income and legal matters). This represents a 21 to 22 percent increase, compared with full-year results for 2006.
About Cooper Industries Cooper Industries, Ltd. is a global manufacturer, with 2006 revenues of $5.2 billion, approximately 85 percent of which are from electrical products. Incorporated in Bermuda with administrative headquarters in Houston, Cooper employs approximately 31,000 people and operates eight divisions: Cooper B-Line, Cooper Bussmann, Cooper Crouse-Hinds, Cooper Lighting, Cooper Menvier, Cooper Power Systems, Cooper Wiring Devices and Cooper Tools Group. Cooper Connection provides a common marketing and selling platform for Cooper’s sales to electrical distributors. For more information, visit the website atwww.cooperindustries.com.
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Comparisons of 2007 and 2006 third quarter and year-to-date results appear on the following pages.
Statements in this news release are forward looking under the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to, statements regarding the Company’s earnings outlook. These statements are subject to various risks and uncertainties, many of which are outside the control of the Company, and actual results may differ materially from anticipated results. Important factors which may affect the actual results include, but are not limited to: 1) competitive pressures and future global economic conditions, including the level of market demand for the Company’s products; 2) changes in raw material, transportation and energy costs; 3) the ability to execute and realize the expected benefits from strategic initiatives including revenue growth plans, and cost-control and productivity improvement programs; 4) any disruptions from manufacturing rationalizations and the implementation of the Enterprise Business System; 5) mergers and acquisitions, and their integration; 6) political developments; 7) changes in financial markets including currency exchange fluctuations; 8) changes in legislation and regulations including changes in the tax laws, tax treaties or tax regulations; 9) the timing and amount of share repurchases by the Company; and 10) the resolution of potential liability exposure resulting from Federal-Mogul Corporation’s bankruptcy filing.
Conference Call
Cooper will hold a conference call today at 12:00 noon EDT to provide shareholders and other interested parties an overview of the Company’s third quarter 2007 performance. Those interested in hearing the conference call may listen via telephone by dialing (800) 561-2601 using pass code 99142423, or over the Internet through the Investor Center section of the Company’s website, using the “Management Presentations” link. International callers should dial (617) 614-3518 and use pass code 99142423.
The conference call may include non-GAAP financial measures. Cooper will post a reconciliation of those measures to the most directly comparable GAAP measures in the Investor Center section of the Company’s website under the heading “Management Presentations.”
Informational exhibits concerning the Company’s third quarter performance that may be referred to during the conference call will be available in the Investor Center section of the Company’s website under the heading “Management Presentations” prior to the beginning of the call.
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CONSOLIDATED RESULTS OF OPERATIONS
Quarter Ended September 30,
2007
2006
(in millions where applicable)
Revenues
$
1,501.3
$
1,314.6
Cost of sales
1,008.1
887.2
Selling and administrative expenses
276.7
240.8
Operating earnings
216.5
186.6
Income from Belden agreement
23.5
—
Interest expense, net
12.3
14.0
Income before income taxes
227.7
172.6
Income taxes
55.8
44.4
Net income
$
171.9
$
128.2
Net Income Per Common share:
Basic
$
.94
$
.70
Diluted
$
.93
$
.69
Shares Utilized in Computation of Income Per Common Share:
Basic
182.4 million
182.8 million
Diluted
185.5 million
186.6 million
PERCENTAGE OF REVENUES
Quarter Ended September 30,
2007
2006
Revenues
100.0
%
100.0
%
Cost of sales
67.1
%
67.5
%
Selling and administrative expenses
18.4
%
18.3
%
Operating earnings
14.4
%
14.2
%
Income before income taxes
15.2
%
13.1
%
Net income
11.5
%
9.8
%
• See additional information regarding Belden income and legal matters on page 7.
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CONSOLIDATED RESULTS OF OPERATIONS (Continued) Additional Information for the Quarter Ended September 30 Segment Information
Quarter Ended September 30,
2007
2006
(in millions)
Revenues:
Electrical Products
$
1,301.9
$
1,127.4
Tools
199.4
187.2
Total
$
1,501.3
$
1,314.6
Segment Operating Earnings:
Electrical Products
$
224.2
$
186.4
Tools
22.0
24.3
Total Segment Operating Earnings
246.2
210.7
General Corporate Expense
29.7
24.1
Income from Belden agreement
23.5
—
Interest expense, net
12.3
14.0
Income before income taxes
$
227.7
$
172.6
Quarter Ended September 30,
2007
2006
Return on Sales:
Electrical Products
17.2
%
16.5
%
Tools
11.0
%
13.0
%
Total Segments
16.4
%
16.0
%
Impact of Belden Income and Legal Matters
Income
Before
Income
Net
Net Income Per
Income Taxes
Taxes
Income
Common Share
Basic
Diluted
Reported three months ended September 30, 2007
$
227.7
$
55.8
$
171.9
$
.94
$
.93
Income from Belden agreement and legal matters
(17.1
)
1.7
(18.8
)
(.10
)
(.10
)
Excluding adjustments
$
210.6
$
57.5
$
153.1
$
.84
$
.83
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CONSOLIDATED RESULTS OF OPERATIONS
Nine Months Ended Sept. 30,
2007
2006
(in millions where applicable)
Revenues
$
4,359.0
$
3,843.3
Cost of sales
2,937.6
2,604.3
Selling and administrative expenses
801.2
722.6
Operating earnings
620.2
516.4
Income from Belden agreement
26.8
—
Interest expense, net
38.1
38.5
Income from continuing operations before income taxes
608.9
477.9
Income taxes
95.9
122.2
Income from continuing operations
513.0
355.7
Charge related to discontinued operations
—
20.3
Net Income
$
513.0
$
335.4
Net Income Per Common share:
Basic:
Continuing operations
$
2.80
$
1.93
Discontinued operations charge
—
.11
Net income
$
2.80
$
1.82
Diluted:
Continuing operations
$
2.75
$
1.89
Discontinued operations charge
—
.11
Net income
$
2.75
$
1.78
Shares Utilized in Computation of Income Per Common Share:
Basic
183.0 million
184.0 million
Diluted
186.3 million
188.0 million
PERCENTAGE OF REVENUES
Nine Months Ended Sept. 30,
2007
2006
Revenues
100.0
%
100.0
%
Cost of sales
67.4
%
67.8
%
Selling and administrative expenses
18.4
%
18.8
%
Operating earnings
14.2
%
13.4
%
Income from continuing operations before income taxes
14.0
%
12.4
%
Income from continuing operations
11.8
%
9.3
%
• See additional information regarding income taxes, Belden income and legal matters on page 9.
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CONSOLIDATED RESULTS OF OPERATIONS (Continued) Additional Information for the Nine Months Ended September 30 Segment Information
Nine Months Ended Sept. 30,
2007
2006
(in millions)
Revenues:
Electrical Products
$
3,784.8
$
3,291.5
Tools
574.2
551.8
Total
$
4,359.0
$
3,843.3
Segment Operating Earnings:
Electrical Products
$
631.6
$
524.0
Tools
65.4
61.2
Total Segment Operating Earnings
697.0
585.2
General Corporate Expense
76.8
68.8
Income from Belden agreement
26.8
—
Interest expense, net
38.1
38.5
Income from continuing operations before income taxes
$
608.9
$
477.9
Nine Months Ended Sept. 30,
2007
2006
Return on Sales:
Electrical Products
16.7
%
15.9
%
Tools
11.4
%
11.1
%
Total Segments
16.0
%
15.2
%
Impact of Income Tax, Belden Income and Legal Matters
Income from
Continuing
Operations
Income from
Before
Income
Continuing
Net
Net Income Per
Income Taxes
Taxes
Operations
Income
Common Share
Basic
Diluted
Reported nine months ended September 30, 2007
$
608.9
$
95.9
$
513.0
$
513.0
$
2.80
$
2.75
Income from Belden agreement and legal matters
(18.0
)
$
1.4
(19.4
)
(19.4
)
(.10
)
(.10
)
Tax benefits – settlements and enacted rate changes
—
63.5
(63.5
)
(63.5
)
(.35
)
(.34
)
Excluding adjustments
$
590.9
$
160.8
$
430.1
$
430.1
$
2.35
$
2.31
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CONSOLIDATED BALANCE SHEETS (PRELIMINARY)
Sept. 30,
Dec. 31,
2007
��
2006
(in millions)
ASSETS
Cash and cash equivalents
$
307.4
$
423.5
Receivables
1,117.3
896.0
Inventories
665.9
607.6
Deferred income taxes and other assets
262.3
266.6
Total current assets
2,352.9
2,193.7
Property, plant and equipment, less accumulated depreciation
701.8
665.4
Goodwill
2,463.4
2,336.9
Deferred income taxes and other noncurrent assets
250.1
178.8
Total assets
$
5,768.2
$
5,374.8
LIABILITIES AND SHAREHOLDERS’ EQUITY
Short-term debt
$
15.3
$
5.0
Accounts payable
544.8
471.7
Accrued liabilities
545.7
522.3
Current discontinued operations liability
191.0
199.6
Current maturities of long-term debt
100.0
300.7
Total current liabilities
1,396.8
1,499.3
Long-term debt
910.0
702.8
Postretirement benefits other than pensions
80.8
83.2
Long-term discontinued operations liability
330.0
330.0
Other long-term liabilities
336.1
284.2
Total liabilities
3,053.7
2,899.5
Common stock
1.8
0.9
Capital in excess of par value
119.1
278.4
Retained earnings
2,694.0
2,324.4
Accumulated other nonowner changes in equity
(100.4
)
(128.4
)
Total shareholders’ equity
2,714.5
2,475.3
Total liabilities and shareholders’ equity
$
5,768.2
$
5,374.8
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RATIOS OF DEBT-TO-TOTAL CAPITALIZATION AND NET DEBT-TO-TOTAL CAPITALIZATION (PRELIMINARY)
Sept. 30,
Dec. 31,
2007
2006
(in millions where applicable)
Short-term debt
$
15.3
$
5.0
Current maturities of long-term debt
100.0
300.7
Long-term debt
910.0
702.8
Total debt
1,025.3
1,008.5
Total shareholders’ equity
2,714.5
2,475.3
Total capitalization
$
3,739.8
$
3,483.8
Total debt-to-total-capitalization ratio
27.4
%
28.9
%
Total debt
$
1,025.3
$
1,008.5
Less cash and cash equivalents
307.4
423.5
Net debt
717.9
585.0
Total capitalization
3,739.8
3,483.8
Less cash and cash equivalents
307.4
423.5
Total capitalization net of cash
$
3,432.4
$
3,060.3
Net debt-to-total-capitalization ratio
20.9
%
19.1
%
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CONSOLIDATED STATEMENTS OF CASH FLOWS (PRELIMINARY)
Nine Months Ended Sept. 30,
2007
2006
(in millions)
Cash flows from operating activities:
Net income
$
513.0
$
335.4
Plus: charge for discontinued operations
—
20.3
Income from continuing operations
513.0
355.7
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization
87.7
85.0
Deferred income taxes
5.5
12.6
Excess tax benefits from stock options and awards
(19.6
)
(21.4
)
Changes in assets and liabilities(1)
Receivables
(161.9
)
(87.8
)
Inventories
(11.2
)
(81.5
)
Accounts payable and accrued liabilities
36.5
(0.9
)
Other assets and liabilities, net
13.3
113.0
Net cash provided by operating activities
463.3
374.7
Cash flows from investing activities:
Capital expenditures
(91.0
)
(58.1
)
Cash paid for acquired businesses
(194.5
)
(279.4
)
Proceeds from sales of property, plant and equipment and other
0.8
18.4
Net cash used in investing activities
(284.7
)
(319.1
)
Cash flows from financing activities:
Proceeds from issuances of debt
306.7
—
Debt issuance costs
(2.7
)
—
Proceeds from debt derivatives
10.0
—
Repayments of debt
(303.0
)
(13.3
)
Dividends
(116.2
)
(103.0
)
Purchase of common shares
(274.8
)
(261.7
)
Excess tax benefits from stock options and awards
19.6
21.4
Activity under employee stock plans and other
54.7
81.1
Net cash used in financing activities
(305.7
)
(275.5
)
Effect of exchange rate changes on cash and cash equivalents
11.0
11.0
Decrease in cash and cash equivalents
(116.1
)
(208.9
)
Cash and cash equivalents, beginning of period
423.5
452.8
Cash and cash equivalents, end of period
$
307.4
$
243.9
(1) Net of the effects of translation and acquisitions
Free Cash Flow Reconciliation
Nine Months Ended Sept. 30,
2007
2006
(in millions)
Net cash provided by operating activities
$
463.3
$
374.7
Less capital expenditures
(91.0
)
(58.1
)
Add proceeds from sales of property, plant and equipment and other
0.8
18.4
Free cash flow
$
373.1
$
335.0
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