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SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-K
  
 (Mark One)þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2004ORo
    
    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 1-31330 Cooper Industries, Ltd.  Bermuda
    
    98-0355628(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification Number)
 600 Travis, Suite 5800, Houston, Texas
    
    77002(Address of Principal Executive Offices)
    
    (Zip Code)
 713/209-8400
(Registrants Telephone Number, Including Area Code) Securities registered pursuant to Section 12(b) of the Act: Name of Each ExchangeTitle of Each Class
    
    on Which RegisteredClass A Common Shares, $0.01 par value
    
    The New York Stock ExchangeRights to Purchase Preferred Shares
    
    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. þ o
 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. þ Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange
Act Rule 12b-2). þ o
 The aggregate value of the registrants voting and non-voting common equity held by
non-affiliates of the registrant as of June 30, 2004 was $5,429,406,410. Number of registrants common shares outstanding as of January 31, 2005  92,659,625
publicly traded Class A common shares, 7,366,637 Class A common shares held by the issuers
subsidiaries, and 54,810,129 Class B common shares held by the issuers subsidiaries. DOCUMENTS INCORPORATED BY REFERENCE
Cooper Industries, Ltd. Proxy Statement to be filed for the Annual Meeting of Shareholders
to be held on April 26, 2005 (Part II  Item 5, Part III  Items 10, 11, 12 and 14)




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TABLE OF CONTENTS PagePart IItem 1:
    
    Business
    
    
    2Item 2:
    
    Properties
    
    
    2Item 3:
    
    Legal Proceedings
    
    
    9Item 4:
    
    Submission of Matters to a Vote of Security Holders
    
    
    10Part IIItem 5:
    
    Market for Registrants Common Equity, Related Stockholder Matters and  Issuer Purchases of Equity Securities
    
    
    10Item 6:
    
    Selected Financial Data
    
    
    12Item 7:
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 7A:
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    29Item 8:
    
    Financial Statements and Supplementary Data
    
    
    29Item 9:
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
    
    
    29Item 9A:
    
    Controls and Procedures
    
    
    30Item 9B:
    
    Other Information
    
    
    30Part IIIItem 10:
    
    Directors and Executive Officers of the Registrant
    
    
    30Item 11:
    
    Executive Compensation
    
    
    30Item 12:
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    30Item 13:
    
    Certain Relationships and Related Transactions
    
    
    30Item 14:
    
    Principal Accountant Fees and Services
    
    
    30Part IVItem 15:
    
    Exhibits and Financial Statement Schedules
    
    
    31Five-Year Credit AgreementComputation of Ratios of Earnings to Fixed ChargesList of SubsidiariesConsent of Ernst & Young LLPConsent of Bates White, LLCPowers of AttorneyCertification Pursuant to Section 302Certification Pursuant to Section 302Certification Pursuant to Section 906Certification Pursuant to Section 906




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PART I 
 
 ITEM 1. BUSINESS;    ITEM 2. PROPERTIES GENERAL The term Cooper refers to the registrant, Cooper Industries, Ltd., which was
incorporated under the laws of Bermuda on May 22, 2001, and became the successor-registrant to
Cooper Industries, Inc. on May 22, 2002. Cooper operates in two business segments: Electrical Products and Tools & Hardware. Cooper
manufactures, markets and sells its products and provides services throughout the world. Cooper
has manufacturing facilities in 21 countries and currently employs approximately 26,863 people. On
December 31, 2004, the plants and other facilities used by Cooper throughout the world contained an
aggregate of approximately 17,874,506 square feet of space, of which approximately 76 percent was
owned and 24 percent was leased. The charts on the next page show the number of employees, square
footage of facilities owned and leased and location of manufacturing facilities for each industry
segment. Certain equipment and production facilities have been financed by industrial revenue
bonds issued by local government authorities and are subject to security arrangements customary in
such financings. 2




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Square Footage ofNumber of
    
    
    Number and Nature of Facilities
    
    
    Plants and FacilitiesSegment
    
    Employees
    
    
    Manufacturing
    
    
    Warehouse
    
    
    Sales
    
    
    Other
    
    
    Owned
    
    
    LeasedElectrical Products
    
    
    21,119
    
    
    
    72
    
    
    
    47
    
    
    
    105
    
    
    
    16
    
    
    
    9,868,895
    
    
    
    3,625,779Tools & Hardware
    
    
    5,477
    
    
    
    23
    
    
    
    11
    
    
    
    20
    
    
    
    2
    
    
    
    3,788,060
    
    
    
    453,919Other
    
    
    267
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    1
    
    
    
    0
    
    
    
    137,853Total
    
    
    26,863
    
    
    
    95
    
    
    
    58
    
    
    
    125
    
    
    
    19
    
    
    
    13,656,955
    
    
    
    4,217,551
   *
    
    Multi-purpose facilities at a single location are listed in each applicable column. Manufacturing Plant Locations EuropeUnited
    
    
    (Other
    
    
    United
    
    
    
    
    
    
    South
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    RepublicSegment
    
    States
    
    
    Than UK)
    
    
    Kingdom
    
    
    Mexico
    
    
    America
    
    
    Australia
    
    
    Canada
    
    
    China
    
    
    of China
    
    
    India
    
    
    MalaysiaElectrical
Products
    
    
    35
    
    
    
    11
    
    
    
    9
    
    
    
    9
    
    
    
    2
    
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    1Tools &
Hardware
    
    
    11
    
    
    
    7
    
    
    
    0
    
    
    
    2
    
    
    
    2
    
    
    
    1
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Total
    
    
    46
    
    
    
    18
    
    
    
    9
    
    
    
    11
    
    
    
    4
    
    
    
    2
    
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    1
   *
    
    Does not include joint venture operations. 3




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Operations in the United States are conducted by wholly-owned subsidiaries of Cooper,
organized by the two business segments. Activities outside the United States contribute
significantly to the revenues and operating earnings of both segments of Cooper. These activities
are conducted in major commercial countries by wholly-owned subsidiaries and jointly-owned
companies, the management of which is structured through Coopers two business segments. As a
result of these international operations, sales and distribution networks are maintained throughout
most of the industrialized world. Cooper generally believes that there are no substantial
differences in the business risks associated with these international operations compared with
domestic activities, although Cooper is subject to certain political and economic uncertainties
encountered in activities outside the United States, including trade barriers, restrictions on
foreign exchange and currency fluctuations. The five countries in which Cooper generates the most
international revenues are Canada, Germany, France, Mexico and the United Kingdom. Cooper has
operations in India, Malaysia and China and has several joint ventures with operations in China.
Investments in India, Malaysia and China are subject to greater risks related to economic and
political uncertainties as compared to most countries where Cooper has operations. Exhibit 21.0
contains a list of Coopers subsidiaries. Financial information with respect to Coopers industry segments and geographic areas is
contained in Note 15 of the Notes to the Consolidated Financial Statements. A discussion of
acquisitions and divestitures is included in Notes 3, 7 and 16 of the Notes to the Consolidated
Financial Statements. With its two business segments, Cooper serves three major markets: industrial, construction
and electrical power distribution. Cooper also serves the electronics and telecommunications
markets. Markets for Coopers products and services are worldwide, though the United States is the
largest market. Within the United States, there is no material geographic concentration by state
or region. Cooper experiences substantial competition in both of its business segments. The number
and size of competitors vary considerably depending on the product line. Cooper cannot specify
with exactitude the number of competitors in each product category or their relative market
position. However, most operating units experience significant competition from both larger and
smaller companies with the key competitive factors being price, quality, brand name and
availability. Cooper considers its reputation as a manufacturer of a broad line of quality
products and premier brands to be an important factor in its businesses. Cooper believes that it
is among the leading manufacturers in the world of electrical distribution equipment, wiring
devices, support systems, hazardous duty electrical equipment, emergency lighting, lighting
fixtures, fuses, nonpower hand tools and industrial power tools. Coopers research and development activities are for purposes of improving existing products
and services and originating new products. During 2004, approximately $70.6 million was spent for
research and development activities as compared with approximately $63.4 million in 2003 and $54.0
million in 2002. Cooper obtains and holds patents on products and designs in the United States and
many foreign countries where operations are conducted or products are sold. Although in the
aggregate Coopers patents are important in the operation of its businesses, the loss by expiration
or otherwise of any one patent or license or group of patents or licenses 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 2005. Cooper has been a party to administrative and legal proceedings with
governmental agencies that have arisen under statutory provisions regulating the discharge or
potential discharge of material into the environment. Orders and decrees consented to by Cooper,
or currently under negotiation with state regulatory agencies, have contained agreed-upon
timetables for fulfilling reporting or remediation obligations or maintaining specified air and
water discharge levels in connection with permits for the operations of various plants. Cooper
believes it is in compliance with the orders and decrees, and such compliance is not material to
the business or financial condition of Cooper. For additional information concerning Coopers
accruals for environmental liabilities, see Note 7 of the Notes to the Consolidated Financial
Statements. 4




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Approximately 58 percent of the United States hourly production work force of Cooper is
employed in 41 manufacturing facilities, distribution centers and warehouses not covered by labor
agreements. Numerous agreements covering approximately 42 percent of all hourly production
employees exist with 17 bargaining units at 18 operations in the United States and with various
unions at 27 international operations. During 2004, new agreements were concluded covering hourly
production employees at 3 operations in the United States. Cooper considers its employee relations
to be excellent. Sales backlog at December 31, 2004 was approximately $403.3 million, all of which is for
delivery during 2005, compared with backlog of approximately $352.2 million at December 31, 2003. Coopers financial condition and performance are subject to various risks and uncertainties
including, but not limited to: (1) the condition of the domestic economy and European and Latin
American markets; (2) spending on commercial and residential construction and by utilities; (3)
worldwide energy-related project spending; (4) demand for products in the electronics and
telecommunications markets; (5) changes in raw material and energy costs; (6) changes in mix of
products sold; (7) realization of benefits of cost reduction programs (including implementation of
an Enterprise Business System); (8) industry competition; (9) the timing of facility consolidations
and the magnitude of any disruption from such consolidations; (10) the timing and amount of any
stock repurchases by Cooper; (11) changes in tax laws, regulations and treaties; (12) the
relationship of the U.S. dollar to the currencies of countries in which Cooper does business; (13)
mergers and acquisitions and their integration into Cooper; (14) the resolution of Federal-Moguls
bankruptcy proceedings; and (15) risks related to changing legal and regulatory requirements and
changing market, economic and political conditions in the countries in which we operate. Coopers annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 are available, free of charge, at the Investor Center tab on
Coopers website (www.cooperindustries.com) as soon as reasonably practicable after such material
is electronically filed with or furnished to the Securities Exchange Commission. The following describes the business conducted by each of Coopers business segments.
Additional information regarding the products, markets and distribution methods for each segment is
set forth on the table at the end of this Item. Information concerning market conditions, as well
as information concerning revenues and operating earnings for each segment, is included under Item
7. Managements Discussion and Analysis of Financial Condition and Results of Operations. Electrical Products The Electrical Products segment manufactures, markets and sells electrical and circuit
protection products, including fittings, support systems, enclosures, wiring devices, plugs,
receptacles, lighting fixtures, fuses, emergency lighting, fire detection systems and security
products for use in residential, commercial and industrial construction, maintenance and repair
applications. The segment also manufactures, markets and sells products for use by utilities and
in industry for electrical power transmission and distribution, including distribution switchgear,
transformers, transformer terminations and accessories, capacitors, voltage regulators, surge
arresters 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, electronic component
production and spending by utilities for replacements, expansions and efficiency improvements. The
segments product lines are marketed directly to original equipment manufacturers and utilities and
to a variety of end users through major distributor chains, retail home centers, hardware outlets
and thousands of independent distributors. 5




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Tools & Hardware The Tools & Hardware segment manufactures, markets and sells hand tools for industrial,
construction and consumer markets; automated assembly systems for industrial markets; and electric
and pneumatic industrial power tools for general industry, primarily automotive and aerospace
manufacturers. The principal raw material requirements include: flat and bar stock steel, brass, copper, tin
plate, fiberglass, aluminum, iron castings, wood, plastic pellets and plastic sheet. These
materials are available from and supplied by numerous sources located in the United States and
abroad. Demand for nonpowered hand tools, assembly systems and industrial power tools is driven by
employment levels and industrial activity in major industrial countries and by consumer spending.
In addition, demand for industrial power tools is influenced by automotive and aerospace
production. The segments products are sold by a company sales force, independent distributors and
retailers. 6




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COOPER INDUSTRIES, LTD.
PRODUCTS, MARKETS AND DISTRIBUTION METHODS BY SEGMENT Electrical Products
Major Products and Brands Access Cabinetsand E2 Cabinetselectrical enclosures.
    
    IRiSlighting systems.Arktiteplugs and receptacles.
    
    JSB, Luminoxand Menvieremergency lighting and fireArrow-Hartwiring devices.
    
    detection systems.AtLitecommercial, exit and emergency lighting.
    
    Karp, Edison, Mercuryand B&Selectrical fuses.B-Linesupport systems, enclosures, fasteners.
    
    Kearneyfuses, connectors, tools and switches.Blessing, CSA, Pretronicaand Univelemergency lighting and
    
    Kyledistribution switchgear.power systems.
    
    Limitronelectric fuses.Bussmannand Busselectrical and electronic fuses.
    
    Little Brotherelectrical control panels.Cam-Lokelectrical connectors.
    
    Low-Peakelectric fuses.Capri-Codeccable accessories and flexible conduits.
    
    Lumièrespecification grade landscape lighting.CEAGemergency lighting systems and explosion protected
    
    Magnumterminal strips and disconnect blocks.electrical materials.
    
    McGraw-Edisonand Lumarkindoor and outdoor lighting.Cent-R-Railand Redi-Railmetal rack units and cable trays.
    
    McGraw-Edisonand RTEtransformer components, cableChampand Hazard-GardHID and fluorescent lighting.
    
    accessories and fuses.Coiltronicsinductors and transformers.
    
    Metaluxfluorescent lighting.Combined Technologiescurrent-limiting fuses.
    
    Mini-Linemolded-to-cable miniature connectors.Conduletfittings and outlet bodies.
    
    MWSmodular wiring systems.Cooper Power Systemsdistribution transformers, power capacitors,
    
    Myerselectrical hubs.voltage regulators, surge arresters and SCADA master stations.
    
    Nortemelectrical construction materials.Cooper Wiring Devicescircuit protective devices.
    
    NOVAreclosers, sectionalizers and switches.Coreliteand Neo-Rayindirect lighting products.
    
    Optimafuseholders.Cromptonlighting fixtures and specialty lamps.
    
    Portfolioarchitectural recessed lighting.Crouse-Hindsand CEAGelectrical construction materials and
    
    Posi-Breakelectrical connectors.Crouse-Hindsaviation lighting products.
    
    Posi-Lokelectrical panel units.CUBEFusefuses, fuse holders and fuse boxes.
    
    Power-Lockwiring devices, receptacles, caps and covers.DLSelectrical wiring and control systems.
    
    PowerPluspanel boards.Domexelectrical construction materials.
    
    PowerStorcarbon aerogel supercapacitors.Dura-Copperand Dura-Greenepoxy coatings.
    
    Regalsafesignaling and life saving apparatus.Eaglewiring devices, sockets and switches.
    
    Regentsecurity lighting systems.Edisonand Edison Prorelays and fusegear.
    
    Royerwiring devices, sockets and switches.Edison Series Meteringresidential and commercial meter bases.
    
    Scantronicand Menviersecurity systems.EletromecDIN style fuses.
    
    Shaperspecification and commercial grade lighting fixtures.Emeraldconsumer recessed and track lighting.
    
    Shock Sentrysockets, connectors, and wall plates.EMSApower transformers.
    
    SpecOnecontrols, lighting, plugs and receptacles.EnKlosureselectrical enclosures.
    
    Streetworksoutdoor lighting.Envirotempdielectric fluids.
    
    Sure-Litesexit and emergency lighting.Fail-Safehigh abuse, clean room and vandal-resistant lighting
fixtures.
    
    SurgBlocelectrical voltage receptacles and surge
suppressors.Fulleon, Nugelecand Transmouldfire detection systems.
    
    Thepittelectrical outlet and switch boxes.Fusetronelectric fuses and protectors.
    
    TransXtransient voltage protection devices.Glocoilelectric heating elements.
    
    UltraSILsurge arresters.Halorecessed and track lighting fixtures.
    
    VariGapand VariStarsurge arresters.Hart-Lockelectrical receptacles, caps, connectors and accessories.
    
    Willsher & Quickelectrical enclosures.INVUEarchitectural lighting.
 Tools & Hardware
Major Products and Brands Airetool, Buckeye, Cleco, Cooper Automation, DGD, Doler, Dotco,
Gardner-Denver*, GardoTrans, Quackenbush, Rotor Tooland
    
    Lufkinmeasuring tapes.Master Powerindustrial air tools.Recoulesindustrial power tools and assembly equipment.
    
    Metronixservos and drive controls.Apexand Getascrewdriver bits, impact sockets and universal joints.
    
    Nicholsonfiles and saws.Campbellchain products.
    
    Plumbhammers.Crescentpliers and wrenches.
    
    Uticatorque measuring and controls.Diamondfarrier tools and horseshoes.
    
    Wellersoldering equipment.Eremprecision cutters and tweezers.
    
    Wire-Wrapsolderless connection equipment.Kahneticsdispensing systems.
    
    Wissand H.K. Portercutting products.Xcelitescrewdrivers and nutdrivers.
   *
    
    Gardner-Denver is a registered trademark of Gardner Denver, Inc. and is used by Cooper
Industries under license. 7




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COOPER INDUSTRIES, LTD.
PRODUCTS, MARKETS AND DISTRIBUTION METHODS BY SEGMENT  - (Continued) ELECTRICAL PRODUCTS Major Markets Fuses and circuit protection products are utilized in products for the construction,
industrial, automotive and consumer markets and to manufacturers in the electrical, electronic,
telecommunications and automotive industries. Lighting fixtures are utilized in residential
construction, industrial, institutional and commercial building complexes, shopping centers,
parking lots, roadways, and sports facilities. Electrical power products are used by utilities and
commercial and industrial power users. Electrical construction materials are used in commercial,
residential and industrial projects, by utilities, airports and wastewater treatment plants and in
the process and energy industries. Emergency lighting, fire detection and security systems are
installed in residential, commercial and industrial applications. Support systems and enclosures
are used in industrial, commercial and telecommunications complexes. Wiring devices are used in
the construction, renovation, maintenance and repair of residential, commercial, industrial and
institutional buildings. Principal Distribution Methods Products are sold through distributors for use in general construction, plant maintenance,
process and energy applications, shopping centers, parking lots, sports facilities, and data
processing and telecommunications systems; through distributors and direct to utilities and
manufacturers for use in electronic equipment for consumer, industrial, government and military
applications; through distributors and direct to retail home centers and hardware outlets; and
direct to original equipment manufacturers of appliances, tools, machinery and electronic
equipment. TOOLS AND HARDWARE Major Markets Power tools and assembly systems are used by general industrial manufacturers, particularly
durable goods producers and original equipment manufacturers, such as those in the aerospace and
automobile industries. Hand tools are used in a variety of industrial, electronics, agricultural,
construction and consumer applications. Principal Distribution Methods Products are sold through distributors and agents to general industry, particularly automotive
and aircraft; through distributors and wholesalers to hardware stores, lumberyards and department
stores; and direct to original equipment manufacturers, home centers, specialty stores, department
stores, mass merchandisers and hardware outlets. 8




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ITEM 3. LEGAL PROCEEDINGS Cooper is subject to various suits, legal proceedings and claims that arise in the normal
course of business. While it is not feasible to predict the outcome of these matters with
certainty, management is of the opinion that their ultimate disposition should not have a future
additional material adverse effect on Coopers financial statements. In October 1998, Cooper sold its Automotive Products business to Federal-Mogul Corporation
(Federal-Mogul). These discontinued businesses (including the Abex product line obtained from
Pneumo-Abex Corporation (Pneumo) in 1994) were operated through subsidiary companies, and the
stock of those subsidiaries was sold to Federal-Mogul pursuant to a Purchase and Sale Agreement
dated August 17, 1998 (1998 Agreement). In conjunction with the sale, Federal-Mogul indemnified
Cooper for certain liabilities of these subsidiary companies, including liabilities related to the
Abex product line and any potential liability that Cooper may have to Pneumo pursuant to a 1994
Mutual Guaranty Agreement between Cooper and Pneumo. On October 1, 2001, Federal-Mogul and several
of its affiliates filed a Chapter 11 bankruptcy petition and indicated that Federal-Mogul may not
honor the indemnification obligations to Cooper. As of the date of this filing, Federal-Mogul had
not rejected the 1998 Agreement, which includes the indemnification to Cooper. If Federal-Mogul
rejects the 1998 Agreement, Cooper will be relieved of its future obligations under the 1998
Agreement, including specific indemnities relating to payment of taxes and certain obligations
regarding insurance for its former Automotive Products businesses. To the extent Cooper is
obligated to Pneumo for any asbestos-related claims arising from the Abex product line (Abex
Claims), Cooper has rights, confirmed by Pneumo, to significant insurance for such claims. Based
on information provided by representatives of Federal-Mogul and recent claims experience, from
August 28, 1998 through December 31, 2004, a total of 133,161 Abex Claims were filed, of which
86,461 claims have been resolved leaving 46,700 Abex Claims pending at December 31, 2004, that are
the responsibility of Federal-Mogul. During the year ended December 31, 2004, 18,185 claims were
filed and 34,180 claims were resolved. Since August 28, 1998, the average indemnity payment for
resolved Abex Claims was $1,911 before insurance. A total of $66 million was spent on defense
costs for the period August 28, 1998 through December 31, 2004. Historically, existing insurance
coverage has provided 50% to 80% of the total defense and indemnity payments for Abex Claims. With the assistance of independent advisors, Bates White, LLC, in the fourth quarter of 2001
Cooper completed a thorough analysis of its potential exposure for asbestos liabilities in the
event Federal-Mogul rejects the 1998 Agreement. Based on Coopers analysis of its contingent
liability exposure resulting from Federal-Moguls bankruptcy, Cooper concluded that an additional
fourth-quarter 2001 discontinued operations provision of $30 million after-tax, or $.32 per share,
was appropriate to reflect the potential net impact of this issue. The analysis included a review
of the twenty-year history of Abex Claims; the average indemnity payments for resolved claims; the
jurisdictions in which claims had been filed; Bates White, LLC data on the incidence of asbestos
exposure and diseases in various industries; existing insurance coverage including the insurance
recovered by Pneumo and Federal-Mogul for pre-bankruptcy claims and the contractual indemnities.
Assumptions were made regarding future claim filings and indemnity payments, and, based on the
advisors data, the expected population of persons exposed to asbestos in particular industries.
All of this data was used to determine a reasonable expectation of future claims, indemnity
payments and insurance coverage. Cooper is preserving its rights as a creditor for breach of
Federal-Moguls indemnification to Cooper and its rights against all Federal-Mogul subsidiaries.
Cooper intends to take all actions to seek a resolution of the indemnification issues and future
handling of the Abex-related claims within the Federal-Mogul bankruptcy proceedings. Coopers fourth-quarter 2001 analysis of the contingent liability exposure assumed that the
liabilities would be settled within the Federal-Mogul bankruptcy proceedings. This analysis
assumed that representatives of Federal-Mogul, its bankruptcy committees and the future claimants
(the Representatives) would reach similar conclusions regarding the potential future liabilities
and insurance recoveries as Cooper did based on the Bates White, LLC analysis. Throughout 2003,
Cooper worked towards resolution of the indemnification issues and future handling of the
Abex-related claims within the 9




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Federal-Mogul bankruptcy proceedings. This included negotiations with the Representatives
regarding participation in Federal-Moguls proposed 524(g) asbestos trust. Based on the status of
the negotiations in 2004, Cooper concluded that it was probable that Federal-Mogul will reject the
1998 Agreement. Cooper also concluded that the Representatives would require any negotiated
settlement through the Federal-Mogul bankruptcy to be at the high end of the Bates White, LLC
liability analysis and with substantially lower insurance recovery assumptions and higher
administrative costs. While Cooper believes that the insurance has significant additional value, extensive
litigation with the insurance carriers may be required to receive recoveries and there is risk that
court decisions could reduce the value of the recoveries. Additionally, the assumptions on
liability payments could prove inaccurate over time. If Cooper is unable to reach a settlement
with the Representatives and the 1998 Agreement is rejected, Cooper would be required to reflect an
accrual for the total estimated liability and a receivable for the probable insurance recoveries.
Generally accepted accounting principles provide relatively conservative requirements for the
recording of insurance recoveries and a substantial portion of the potential insurance recoveries
would not be reflected as receivables until future events occur. During late February and early March 2004, Cooper reassessed the accrual required based on the
then current status of the negotiations with the Representatives and the liability and insurance
receivable that would be required to be recorded if this matter is not settled within the
Federal-Mogul bankruptcy. Cooper concluded that resolution within the Federal-Mogul proposed
524(g) asbestos trust would likely be within the range of the liabilities, net of insurance
recoveries, that Cooper would accrue if this matter were not settled within the Federal-Mogul
bankruptcy. Accordingly, Cooper recorded a $126.0 million after-tax discontinued operations charge,
net of a $70.9 income tax benefit, in the fourth quarter of 2003. Cooper has continued discussions with the Representatives, but to date has been unable to
reach a satisfactory conclusion. At this time, the exact manner in which this issue will be
resolved is not known. The accrual for potential liabilities related to the Automotive Products
sale and the Federal-Mogul bankruptcy was $225.1 million and $252.5 million at December 31, 2004
and 2003, respectively. 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of the fiscal year covered by this report, no matters were submitted
to a vote of the shareholders. 
 PART II 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
OF EQUITY SECURITIES Cooper Class A common shares (symbol  CBE) are listed on the New York Stock Exchange.
Options for Cooper Class A common shares are listed on the American Stock Exchange. Cooper Class B
common shares are not publicly traded. The Class B common shares were issued to Cooper Industries,
Inc. in connection with the reincorporation merger in May 2002 whereby Cooper Industries, Inc.,
formerly the publicly traded parent company, became a wholly-owned subsidiary of Cooper Industries,
Ltd. Effective January 1, 2005, the Class B common shares were transferred to Cooper US, Inc.,
which is a wholly-owned Cooper subsidiary. Cooper US, Inc. is the only holder of Class B common
shares. The holders of Class B common shares are not entitled to vote, except as to matters for
which the Bermuda Companies Act specifically requires voting rights for otherwise nonvoting shares.
Cooper Industries, Ltd. and Cooper subsidiaries holding Class A or Class B common shares have
entered into a voting agreement whereby any Class A or Class B common shares held by such Cooper
subsidiaries will be voted (or abstained from voting) in the same proportion as the other holders
of Class A common shares. Therefore, Class A and Class B common shares held by Cooper subsidiaries
do not dilute the voting power of the Class A common shares held by the public. 10




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##### Table of Contents



As of January 31, 2005 there were 24,526 record holders of Cooper Class A common shares and
one holder of Cooper Class B common shares. The high and low quarterly sales price for the past two years of Cooper Class A common shares
as reported by Dow Jones & Company, Inc., are as follows: Quarter1
    
    2
    
    3
    
    42004
    
    High
    
    $
    58.68
    
    
    $
    59.41
    
    
    $
    59.74
    
    
    $
    68.44Low
    
    
    51.34
    
    
    
    52.09
    
    
    
    53.90
    
    
    
    59.122003
    
    High
    
    $
    39.25
    
    
    $
    42.00
    
    
    $
    51.65
    
    
    $
    58.85Low
    
    
    33.86
    
    
    
    35.65
    
    
    
    40.34
    
    
    
    48.03
 Annual cash dividends declared on Coopers Class A and Class B common shares during 2004 and
2003 were $1.40 a share ($.35 a quarter). On February 9, 2005, the Board of Directors declared a
quarterly dividend of $.37 a share (or $1.48 on an annualized basis), which will be paid on April
1, 2005 to shareholders of record on March 1, 2005. This represents a 5.7 percent increase over
the prior dividend rate. For dividends payable in 2005, Cooper currently anticipates that based on
its capital structure all or a substantial portion of its dividend distributions will be treated as
a return of capital to its shareholders. Coopers subsidiaries waived the right to receive all
dividends on Class A and Class B common shares that were payable in 2003 and 2004. For the
dividends payable in 2005, Cooper anticipates that its subsidiaries that hold Class A and Class B
shares will be receiving dividends on such shares. The following table reflects activity related to equity securities purchased by Coopers
wholly-owned subsidiaries during the three months ended December 31, 2004: Purchases of Equity Securities Total Number of Shares
    
    
    Maximum Number ofTotal Number of
    
    
    Average Price
    
    
    Purchased as Part of
    
    
    Shares that May Yet BeShares
    
    
    Paid per
    
    
    Publicly Announced Plans
    
    
    Purchased Under thePeriod
    
    Purchased
    
    
    Share
    
    
    or Programs
    
    
    Plans or Programs(1)As of 9/30/04
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    161,05010/01/04  10/31/04
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    161,05011/01/04  11/30/04
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,161,05012/01/04  12/31/04
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5, 161,050Total
    
    
    
    
    
    $
    
    
    
    
    
   (1)
    
    On February 9, 2000, Cooper publicly announced that its Board of Directors
authorized the repurchase of up to 5 million shares of Cooper common stock. Cooper
has also announced that the Board authorized the repurchase of shares issued from time
to time under its equity compensation plans and Dividend Reinvestment and Stock
Purchase Plan in order to offset the dilution that results from issuing shares under
these plans. On November 2, 2004, Coopers Board of Directors authorized the
repurchase of up to five million additional shares of the Coopers Class A common
stock. Further information required by this Item is set forth under the caption Equity
Compensation Plan Information in Coopers Proxy Statement to be filed pursuant to Regulation 14A
under the Securities Exchange Act of 1934 in connection with Coopers 2005 Annual Meeting of
Shareholders (the Proxy Statement) and is incorporated herein by reference. 11




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##### Table of Contents



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, 2004. 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. Years Ending December 31,2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000(in millions, except per share data)INCOME STATEMENT DATA:Revenues
    
    $
    4,462.9
    
    
    $
    4,061.4
    
    
    $
    3,960.5
    
    
    $
    4,209.5
    
    
    $
    4,459.9Income from continuing operations
    
    $
    339.8
    
    
    $
    274.3
    
    
    $
    213.7
    
    
    $
    261.3
    
    
    $
    357.4Charge from discontinued operations, net
of taxes
    
    
    
    
    
    
    126.0
    
    
    
    
    
    
    
    30.0
    
    
    
    Net Income
    
    $
    339.8
    
    
    $
    148.3
    
    
    $
    213.7
    
    
    $
    231.3
    
    
    $
    357.4INCOME PER COMMON SHARE DATA:Basic -Income from continuing operations
    
    $
    3.67
    
    
    $
    2.96
    
    
    $
    2.29
    
    
    $
    2.78
    
    
    $
    3.82Charge from discontinued operations
    
    
    
    
    
    
    1.36
    
    
    
    
    
    
    
    .32
    
    
    
    Net Income
    
    $
    3.67
    
    
    $
    1.60
    
    
    $
    2.29
    
    
    $
    2.46
    
    
    $
    3.82Diluted -Income from continuing operations
    
    $
    3.58
    
    
    $
    2.92
    
    
    $
    2.28
    
    
    $
    2.75
    
    
    $
    3.80Charge from discontinued operations
    
    
    
    
    
    
    1.34
    
    
    
    
    
    
    
    .31
    
    
    
    Net Income
    
    $
    3.58
    
    
    $
    1.58
    
    
    $
    2.28
    
    
    $
    2.44
    
    
    $
    3.80BALANCE SHEET DATA (at December 31):Total assets
    
    $
    5,340.8
    
    
    $
    4,965.3
    
    
    $
    4,687.9
    
    
    $
    4,611.4
    
    
    $
    4,789.3Long-term debt, excluding current maturities
    
    
    698.6
    
    
    
    1,336.7
    
    
    
    1,280.7
    
    
    
    1,107.0
    
    
    
    1,300.8Shareholders equity
    
    
    2,286.5
    
    
    
    2,118.2
    
    
    
    2,002.4
    
    
    
    2,023.2
    
    
    
    1,904.2CASH DIVIDENDS PER COMMON
SHARE
    
    $
    1.40
    
    
    $
    1.40
    
    
    $
    1.40
    
    
    $
    1.40
    
    
    $
    1.40
 In October 1998, Cooper sold its Automotive Products segment for $1.9 billion in
proceeds. Discontinued operations charges of $126.0 million, net of a $70.9 million income tax
benefit in 2003 and $30 million, net of a $20 million income tax benefit in 2001 were recorded for
potential liabilities related to the Automotive Products segment sale and the Federal-Mogul
bankruptcy. See Note 16 of the Notes to the Consolidated Financial Statements. 12




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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Annual Report on Form 10-K, including Managements Discussion and Analysis of Financial
Condition and Results of Operations, includes certain forward-looking statements. The
forward-looking statements reflect Coopers expectations, objectives and goals with respect to
future events and financial performance, and are based on assumptions and estimates which Cooper
believes are reasonable. Forward-looking statements include, but are not limited to, statements
regarding facilities closures and production rationalization plans and cost-reduction programs
(including implementation of an Enterprise Business System), resolution of income tax matters,
potential liability exposure resulting from Federal-Mogul Corporations (Federal-Mogul)
bankruptcy filing and any statements regarding future revenues, costs and expenses, earnings,
earnings per share, margins, cash flows, dividends and capital expenditures. Cooper wishes to
caution readers not to put undue reliance on these statements and that actual results could differ
materially from anticipated results. Important factors which may affect the actual results
include, but are not limited to, the resolution of Federal-Moguls bankruptcy proceedings,
political developments, market and economic conditions, changes in raw material and energy costs,
industry competition, the net effects of Coopers cost-reduction programs, the timing and net
effects of facility closures and the magnitude of any disruptions from such closures, changes in
mix of products sold, mergers and acquisitions and their integration into Cooper, the timing and
amount of any stock repurchases by Cooper, changes in financial markets including foreign currency
exchange rate fluctuations and changing legislation and regulations including changes in tax law,
tax treaties or tax regulations. The forward-looking statements contained in this report are
intended to qualify for the safe harbor provisions of Section 21E of the Securities Exchange Act of
1934, as amended. Critical Accounting Policies The Consolidated Financial Statements and Notes to the Consolidated Financial Statements
contain information that is pertinent to managements discussion and analysis. 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. Cooper believes the following
critical accounting policies involve additional management judgment due to the sensitivity of the
methods, assumptions and estimates necessary in determining the related asset and liability
amounts. Cooper recognizes revenues when products are shipped and accruals for sales returns and other
allowances are provided at the time of shipment based upon past experience. If actual future
returns and allowances differ from past experience, additional allowances may be required. The
accrual for sales returns and other allowances was $45.6 million and $33.8 million at December 31,
2004 and 2003, respectively. Allowances for excess and obsolete inventory are provided based on current assessments about
future demands, market conditions and related management initiatives. If market conditions are
less favorable than those projected by management, additional inventory allowances may be required.
The allowance for excess and obsolete inventory was $58.9 million at December 31, 2004 and $47.6
million at December 31, 2003. Pension assets and liabilities are determined on an actuarial basis and are affected by the
market value of plan assets, estimates of the expected return on plan assets, discount rates and
estimated future employee earnings and demographics. Actual changes in the fair market value of
plan assets and differences between the actual return on plan assets and the expected return on
plan assets will affect the amount of pension expense ultimately recognized. Differences between
actuarial assumptions and estimates and actual experience are deferred as unrecognized gains and
losses. Unrecognized gains and losses in excess of a calculated minimum annual amount are
amortized and recognized in net periodic pension cost over the average remaining service period of
active employees. 13




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##### Table of Contents



Declining interest rates resulted in a decrease in the assumed discount rate used to measure
plan obligations from 7.25% in 2001 to 5.75% in 2004. The decrease in the discount rate caused an
increase in the accumulated benefit obligation amount. During 2001 and 2002, the fair market value
of the equity investments included in pension plan assets decreased significantly, primarily as a
result of the overall downturn in the U.S. stock market. The accumulated benefit obligation of
certain plans exceeded the fair market value of plan assets at December 31, 2004, 2003 and 2002.
This unfunded accumulated benefit obligation, plus the existing prepaid asset resulted in a $8.0
million, $22.9 million and $33.4 million net-of-tax minimum pension liability charge included in
accumulated other nonowner changes in equity at December 31, 2004, 2003 and 2002, respectively.
Total net periodic pension benefits cost was $18.9 million in 2004, $28.7 million in 2003 and $16.7
million in 2002. The decrease in net periodic pension cost in 2004 is a result of an increase in
the return on plan assets due to the recovery of the U.S. stock market. The increase in net
periodic pension cost in 2003 was primarily due to a decrease in the return on plan assets and an
increase in recognized actuarial losses. Total net periodic pension benefits cost is currently
expected to approximate $19.0 million in 2005. The net periodic pension benefit cost for 2005 has
been estimated assuming a discount rate of 5.75% and an expected return on plan assets of 8.25%.

See Note 13 of the Notes to the Consolidated Financial Statements. The postretirement benefits other than pensions liability is also determined on an actuarial
basis and is affected by assumptions including the discount rate and expected trends in health care
costs. Changes in the discount rate and differences between actual and expected health care costs
will affect the recorded amount of postretirement benefits expense. Differences between assumptions
and actual experience are deferred as unrecognized gains and losses. Unrecognized gains and losses
in excess of a minimum annual amount are amortized and recognized in net periodic postretirement
benefit cost over the average remaining life expectancy of the participants. The decline in
interest rates over the past three years resulted in a decrease in the assumed discount rate used
to measure postretirement benefit obligations from 7.25% in 2001 to 5.75% in 2004. Net periodic
postretirement benefit cost is expected to decrease slightly to $4.1 million in 2005, primarily as
a result of the Medicare Prescription Drug, Improvement and Modernization Act of 2003, compared to
$5.5 million in 2004, $5.8 million in 2003 and $5.2 million in 2002. See Notes 1 and 13 of the
Notes to the Consolidated Financial Statements. Environmental liabilities are accrued based on estimates of known environmental remediation
exposures. The liabilities include accruals for sites owned by Cooper and third-party sites where
Cooper was determined to be a potentially responsible party. Third party sites frequently involve
multiple potentially responsible parties and Coopers potential liability is determined based on
estimates of Coopers proportionate responsibility for the total cleanup. The amounts accrued for
such sites are based on these estimates as well as an assessment of the financial capacity of the
other potentially responsible parties. Environmental liability estimates may be affected by
changing determinations of what constitutes an environmental liability or an acceptable level of
cleanup. To the extent that remediation procedures change or the financial condition of other
potentially responsible parties is adversely affected, Coopers estimate of its environmental
liabilities may change. The liability for environmental remediation was $36.5 million at December
31, 2004 and $38.9 million at December 31, 2003. See Note 7 of the Notes to the Consolidated
Financial Statements. During the fourth quarter of 2003, Cooper revised the accrual that represents its best
estimate of liabilities related to the sale of the Automotive Products business to Federal-Mogul in
1998. During the three year period ending December 31, 2004, Cooper accounted for payments made to
settle asbestos-related cases by reducing the accrual and insurance recoveries collected during the
periods as increases to the accrual. Subsequent proceeds from insurance claims for settlements
would increase the accrual. The liabilities include potential liabilities in the event
Federal-Mogul rejects the 1998 Purchase and Sale Agreement for the sale of the Automotive Products
business and certain indemnification obligations to Cooper. The analysis of Coopers contingent
liability exposure for asbestos-related claims involving Abex products was conducted in the fourth
quarter of 2001 with assistance from independent advisors, Bates White, LLC, and assumed future
resolution of the Abex-related asbestos claims within the Federal-Mogul bankruptcy proceeding. The
analysis included a review of the twenty-year history of Abex claims; the average indemnity
payments for resolved claims; the jurisdictions in which claims had been filed; Bates White, LLC
data on the incidence of 14




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##### Table of Contents



asbestos exposure and diseases in various industries; existing insurance coverage including the
insurance recovered by Pneumo-Abex Corporation and Federal-Mogul for pre-bankruptcy claims and the
contractual indemnities. Assumptions were made regarding future claim filings and indemnity
payments, and, based on advisors data, the expected population of persons exposed to asbestos in
particular industries. All of this data was used to determine a reasonable expectation of future
claims, indemnity payments and insurance coverage. As discussed in Note 16 of the Notes to the
Consolidated Financial Statements, throughout 2003, Cooper worked towards resolution of the
indemnification issues and future handling of the Abex-related claims within the Federal-Mogul
bankruptcy proceedings. This included negotiations with representatives of Federal-Mogul, its
bankruptcy committees and the future claimants (Representatives) regarding participation in
Federal-Moguls proposed 524(g) asbestos trust. Coopers fourth-quarter 2001 analysis of the contingent liability exposure assumed that the
liabilities would be settled within the Federal-Mogul bankruptcy proceedings. This analysis
assumed that the Representatives would reach similar conclusions regarding the potential future
liabilities and insurance recoveries as Cooper did based on the Bates White, LLC analysis. Based
on the status of the negotiations in 2004, Cooper concluded that it was probable that Federal-Mogul
will reject the 1998 Agreement. Cooper also concluded that the Representatives would require any
negotiated settlement through the Federal-Mogul bankruptcy to be at the high end of the Bates
White, LLC liability analysis and with substantially lower insurance recovery assumptions and
higher administrative costs. While Cooper believes that the insurance has significant additional value, extensive
litigation with the insurance carriers may be required to receive recoveries and there is risk that
court decisions could reduce the value of the recoveries. Additionally, the assumptions on
liability payments could prove inaccurate over time. If Cooper is unable to reach a settlement with
the Representatives and the 1998 Agreement is rejected, Cooper would be required to reflect an
accrual for the total estimated liability and a receivable for the probable insurance recoveries.
Generally accepted accounting principles provide relatively conservative requirements for the
recording of insurance recoveries and a substantial portion of the potential insurance recoveries
would not be reflected as receivables until future events occur. During late February and early March 2004, Cooper reassessed the accrual required based on the
then current status of the negotiations with the Representatives and the liability and insurance
receivable that would be required to be recorded if this matter is not settled within the
Federal-Mogul bankruptcy. Cooper concluded that resolution within the Federal-Mogul proposed
524(g) asbestos trust would likely be within the range of the liabilities, net of insurance
recoveries, that Cooper would accrue if this matter were not settled within the Federal-Mogul
bankruptcy. Accordingly, Cooper recorded a $126.0 million after-tax discontinued operations charge
in the fourth quarter of 2003. Cooper has continued discussions with the Representatives. At this time, the exact manner in
which this issue will be resolved is not known. The accrual for potential liabilities related to
the Automotive Products sale and the Federal-Mogul bankruptcy was $225.1 million at December 31,
2004 and $252.5 million at December 31, 2003. Results of Operations Revenues Year Ended December 31,2004
    
    
    2003
    
    
    2002(in millions)Electrical Products
    
    $
    3,722.2
    
    
    $
    3,358.4
    
    
    $
    3,324.9Tools & Hardware
    
    
    740.7
    
    
    
    703.0
    
    
    
    635.6Total Revenues
    
    $
    4,462.9
    
    
    $
    4,061.4
    
    
    $
    3,960.5
 15




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##### Table of Contents



See the geographic information included in Note 15 of the Notes to the Consolidated Financial
Statements for a summary of revenues by country. 2004 vs. 2003 Revenues  Revenues for 2004 increased 10% compared to 2003. The impact
of foreign currency translation increased revenues approximately 2%. Electrical Products segment revenues for 2004, which represented 83% of total revenues,
increased 11% compared to the prior year. Foreign currency translation increased Electrical
Products revenue by approximately 2%. Growth resulted from strong demand from utility, industrial
and commercial customers as well as new product introductions and strategic market penetration
programs. Realization of price increases aimed to offset higher material costs also contributed to
growth. Growth was strongest in the power transmission and distribution, lighting and circuit
protection businesses, but was present in each of the business units. Tools & Hardware segment revenues, which contributed 17% to total 2004 revenues, increased 5%
from 2003. Foreign currency translation increased Tools & Hardware revenues by approximately 3%.
Increased hand tools and power tools sales were partially offset by declines in shipments of large
assembly equipment systems. Demand for hand tools and power tools was largely driven by new
product demand to the retail and industrial distribution markets and strong demand from industrial
and retail customers. Lower assembly equipment systems revenues resulted from decreased automotive
market demand for assembly line equipment systems following a strong shipment year in 2003. 2003 vs. 2002 Revenues  Revenues increased 3% in 2003 compared to 2002. Foreign currency
translation increased total 2003 revenues by approximately 2%. Electrical Products revenues for 2003, which represented 83% of total revenues, increased 1%
over 2002. Foreign currency translation increased Electrical Products revenues by approximately 2%.
Modest sequential improvement in industrial and electronic markets, plus the benefits of Coopers
new product development and market penetration programs resulted in revenue gains in the hazardous
duty, circuit protection and wiring devices businesses. Coopers lighting fixtures business was up
slightly, as an improvement in commercial and industrial markets was offset by the impact of
inventory management initiatives within the retail channel. Coopers support systems business
continued to be pressured by weak non-residential and telecommunications markets. Controls over
discretionary spending by utilities negatively impacted the power transmission and distribution
equipment market. Coopers European lighting and security business, absent favorable currency
translation, experienced slightly reduced sales compared to the prior year. Tools & Hardware segment revenues, which contributed 17% to total 2003 revenues, were 11%
higher than 2002. Power tools experienced growth in European-based industrial power tools and
assembly equipment markets. Hand tools sales improved over the prior year primarily as a result of
increased demand from the retail channel, driven by new product offerings. A weak U.S. Dollar
increased total Tools & Hardware revenues during 2003 by approximately 5%. 16




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##### Table of Contents



Operating Results Year Ended December 31,2004
    
    
    2003
    
    
    2002(in millions, except per share data)Electrical Products
    
    $
    511.2
    
    
    $
    418.7
    
    
    $
    376.6Tools & Hardware
    
    
    62.7
    
    
    
    39.4
    
    
    
    14.6Total Segment Operating Earnings
    
    
    573.9
    
    
    
    458.1
    
    
    
    391.2General Corporate Expense
    
    
    77.3
    
    
    
    66.1
    
    
    
    36.5Operating Earnings
    
    
    496.6
    
    
    
    392.0
    
    
    
    354.7Interest Expense, net
    
    
    68.1
    
    
    
    74.1
    
    
    
    74.5Interest Income on Tax Refund
    
    
    
    
    
    
    (28.6
    )
    
    
    Income from Continuing Operations Before Income Taxes
    
    
    428.5
    
    
    
    346.5
    
    
    
    280.2Income Tax Expense
    
    
    88.7
    
    
    
    72.2
    
    
    
    66.5Income from Continuing Operations
    
    
    339.8
    
    
    
    274.3
    
    
    
    213.7Charge Related to Discontinued Operations
    
    
    
    
    
    
    126.0
    
    
    
    Net Income
    
    $
    339.8
    
    
    $
    148.3
    
    
    $
    213.7Diluted Earnings Per ShareIncome from Continuing Operations
    
    $
    3.58
    
    
    $
    2.92
    
    
    $
    2.28Charge from Discontinued Operations
    
    
    
    
    
    
    1.34
    
    
    
    Net Income
    
    $
    3.58
    
    
    $
    1.58
    
    
    $
    2.28
 Cooper measures the performance of its businesses exclusive of financing expenses. All
costs directly attributable to operating businesses are included in segment operating earnings.
Corporate overhead costs, including costs of traditional headquarters activities, such as treasury,
are not allocated to the businesses. See Note 15 of the Notes to the Consolidated Financial
Statements. 2004 vs. 2003 Segment Operating Earnings  Segment operating earnings were $573.9 million
in 2004 compared to $458.1 million in 2003. Electrical Products segment 2004 operating earnings were $511.2 million compared to $418.7
million for 2003. Return on revenues was 13.7% in 2004, compared to 12.5% in 2003. Electrical
Products segment earnings for 2003 included restructuring charges of $16.4 million. Excluding
these restructuring charges in 2003, the increase in Electrical Products segment earnings was due
primarily to higher revenues and a lower cost structure as a result of restructuring and
productivity improvement actions. Increases were partially offset by the impact of inflation on
materials, energy and components. Tools & Hardware segment 2004 operating earnings were $62.7 million compared to $39.4 million
for 2003. Return on revenues was 8.5% in 2004 and 5.6% in 2003. The increase primarily reflects
benefits of restructuring actions, productivity improvement efforts and the impact of favorable
product mix from reduced shipments of lower margin assembly equipment systems, partially offset by
higher material costs. 2003 vs. 2002 Segment Operating Earnings  Segment operating earnings were $458.1 million in
2003 compared to $391.2 million in 2002. Electrical Products segment 2003 operating earnings were $418.7 million compared to $376.6
million for 2002. Return on revenues was 12.5% in 2003, compared to 11.3% in 2002. Included in the
Electrical Products segment earnings were restructuring charges in 2003 and 2002 totaling $16.4
million and 17




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##### Table of Contents



$24.0 million, respectively. Excluding the restructuring charges in both years, the increase in
Electrical Products segment earnings was primarily due to the improvement in margins as a result of
cost reduction and productivity actions targeting manufacturing costs. The favorable impact of
these actions was partially offset by increased insurance, pension and employee benefit expenses
and investments in sales and marketing initiatives. Tools & Hardware segment operating earnings were $39.4 million for 2003, compared to $14.6
million for 2002. Return on revenues was 5.6% in 2003, compared to 2.3% in 2002. Included in Tools
& Hardware segment earnings for 2003 was a net $0.4 million favorable adjustment reflecting the
reversal of excess 2002 restructuring charges partially offset by 2003 restructuring charges.
Tools & Hardware segment earnings for 2002 included restructuring charges of $12.7 million. Absent
the impact of restructuring charges in both years, the increase in Tools & Hardware segment
earnings largely reflects the increase in revenues and the impact of Coopers cost control and
manufacturing rationalization efforts, partially offset by unfavorable product mix and higher
insurance, pension and employee benefit expenses. Restructuring During the fourth quarter of 2003, Cooper recorded net restructuring charges of $16.9 million,
or $13.6 million after taxes ($.14 per diluted common share). This represented costs associated
with restructuring projects undertaken in 2003 of $18.4 million, partially offset by a $1.5 million
adjustment of estimates for restructuring projects initiated in 2002. The most significant action included in the charges was an announcement of the closing of
Cooper Wiring Devices manufacturing operations in New York City. This action will include the
withdrawal from a multiple-employer pension plan. Cooper recorded a $12.5 million obligation as an
estimate of Coopers portion of unfunded benefit obligations of the plan. The remaining $5.9
million charge primarily represents severance for announced employment reductions at several
locations. The 2003 net impact of the charges was $16.4 million on the Electrical Products
segment, $(0.4) million on the Tools & Hardware segment and $0.9 million related to General
Corporate. As of December 31, 2004 and 2003, Cooper had paid $4.9 million and $2.7 million,
respectively, for these actions, all of which was for severance costs. A total of 114 salaried and 150 hourly personnel were eliminated as a result of these actions.
A total of 106 personnel were terminated as of December 31, 2003 and the remainder terminated in
2004. The majority of the remaining severance obligation was paid in the first half of 2004. The
multiple-employer pension obligation is expected to be paid over 15 years, beginning in 2005.
Cooper estimates the annual savings from the personnel reductions was approximately $6 million,
(net of the anticipated additional employees added in lower-cost regions) with most of the savings
beginning in the first quarter of 2004. The savings from the withdrawal from the multiple-employer
pension plan are approximately $1 million per year and are expected to begin in 2006. The majority
of the eliminated costs previously were reflected as cost of sales. In 2001, Cooper accrued $35 million reflecting the contractual amount due to financial
advisors associated with Coopers strategic alternatives review. Cooper paid $5 million to the
advisors in the 2001 fourth quarter and $15.7 million during 2002, leaving a balance of $14.3
million payable upon the occurrence of certain events. During the second quarter of 2003, the
terms of the agreements with the financial advisors expired with the contingent events that
required payment not occurring. Accordingly, the accrual was reversed and reflected as a $14.3
million negative restructuring charge ($8.6 million, net of taxes) on the consolidated income
statement. Restructuring activity for 2003 totaled $2.6 million consisting of the fourth quarter net
restructuring charge of $16.9 million, less the $14.3 million negative restructuring charge. During the fourth quarter of 2002, Cooper committed to (1) the closure of ten manufacturing
facilities, (2) further employment reductions to appropriately size Coopers workforce to market
conditions, and (3) the write-off of assets related to production rationalization activities.
These actions were taken as a 18




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part of Cooper managements ongoing assessment of required production capacity in consideration of
the current demand levels. In connection with these commitments, certain production capacity and
related assets were sold, outsourced, discontinued or moved to a lower cost environment. Cooper
recorded a provision for these announced actions of $39.1 million ($15.0 million of which was
non-cash), or $29.8 million after taxes ($.32 per diluted common share). Of this amount, $24.0
million ($11.0 million of which was non-cash) was associated with the Electrical Products segment,
$12.7 million ($3.4 million of which was non-cash) was associated with the Tools & Hardware segment
and the remainder was related to General Corporate. During the fourth quarter of 2003, Cooper
reduced estimates of the cost related to those actions by $1.5 million. The following table reflects activity related to the fourth quarter 2002 restructuring charge. Number of
    
    
    Accrued
    
    
    Facilities ClosureEmployees
    
    
    Severance
    
    
    and Rationalization($ in millions)2002 Restructuring Charge
    
    
    1,206
    
    
    $
    18.3
    
    
    $
    20.8Asset write-offs
    
    
    
    
    
    
    
    
    
    
    (15.0
    )Employees terminated
    
    
    (184
    )
    
    
    
    
    
    
    Cash expenditures
    
    
    
    
    
    
    (2.1
    )
    
    
    Balance at December 31, 2002
    
    
    1,022
    
    
    
    16.2
    
    
    
    5.8Employees terminated
    
    
    (982
    )
    
    
    
    
    
    
    Cash expenditures
    
    
    
    
    
    
    (14.9
    )
    
    
    (2.9
    )Reversal of excess accruals
    
    
    (9
    )
    
    
    (0.9
    )
    
    
    (0.6
    )Balance at December 31, 2003
    
    
    31
    
    
    
    0.4
    
    
    
    2.3Employees terminated
    
    
    (31
    )
    
    
    
    
    
    
    Cash expenditures
    
    
    
    
    
    
    (0.4
    )
    
    
    (1.7
    )Balance at December 31, 2004
    
    
    
    
    
    $
    
    
    
    $
    0.6
 A total of 435 salaried and 771 hourly positions were eliminated as a result of the
closure and rationalization actions. Of those planned position eliminations, approximately 600
positions were replaced ultimately as a result of Coopers ongoing efforts to relocate production
capacity to lower cost locations. The expenditures related to the 2002 restructuring charge were
funded from cash provided by operating activities. Cooper estimates that the earnings impact in 2003 from these actions was approximately $10
million in pretax savings, the majority of which benefited the second half of the year. These
initial savings were realized from personnel reductions that principally impacted selling and
administrative expenses and lower cost of sales. Cooper estimates that incremental savings of $25.0
to $30.0 million were realized in 2004, largely reflected as lower cost of sales. During the fourth quarter of 2001, Cooper committed to the consolidation or closure of certain
Electrical Products segment facilities and recorded a provision for severance and other related
costs of these announced actions of $7.1 million ($1.7 million of which was non-cash). Plans to
consolidate or close facilities arose as a result of Cooper management continuing to review and
modify their assessment of required production and distribution facilities and capacity, in
consideration of depressed demand levels. On August 1, 2001, Danaher Corporation (Danaher) announced it had made an unsolicited
proposal to Cooper for a merger through a stock and cash transaction subject to conducting due
diligence procedures. On August 8, 2001, Coopers Board of Directors unanimously rejected
Danahers proposal and authorized management to explore all strategic alternatives that would
maximize shareholder value including mergers, sales, strategic alliances, acquisitions or other
similar strategic alternatives. During the 2001 fourth quarter, Cooper recorded a General
Corporate restructuring charge of $35.0 million for the fees and expenses of financial advisors and
$1.0 million for legal and other external costs associated with performing the strategic
alternatives review. On February 13, 2002, Cooper announced that it completed its strategic
alternatives review process. After careful review of all the available alternatives with management
and its financial advisors, Coopers Board of Directors concluded that it was in the best interests
of Coopers shareholders to move forward with its plan to reincorporate in Bermuda. 19




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The following table reflects activity related to the fourth quarter 2001 severance,
facility consolidation and closure and financial advisors and other cost accruals. A total of 77
salaried and 196 hourly positions were eliminated as a result of these consolidation activities. Facilities
    
    
    FinancialNumber of
    
    
    Accrued
    
    
    Consolidation
    
    
    Advisors andEmployees
    
    
    Severance
    
    
    and Closure
    
    
    Other($ in millions)Balance at December 31, 2001
    
    
    273
    
    
    $
    3.0
    
    
    $
    2.1
    
    
    $
    30.0Employees terminated
    
    
    (273
    )
    
    
    
    
    
    
    
    
    
    
    Cash expenditures
    
    
    
    
    
    
    (3.0
    )
    
    
    (2.1
    )
    
    
    (15.7
    )Balance at December 31, 2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14.3Reversal of accrual
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14.3
    )Balance at December 31, 2003
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 Cash provided by operating activities was the source for funding the expenditures.
During the second quarter of 2003, the terms of the agreements with the financial advisors expired
with the contingent events that required payment not occurring. Accordingly, the accrual was
reversed and reflected as a $14.3 million negative restructuring charge ($8.6 million, net of
taxes) on the consolidated income statement. See Note 2 of the Notes to the Consolidated Financial
Statements for additional information on restructuring charges. General Corporate Expense  General Corporate expense was $77.3 million in 2004, compared to
$66.1 million in 2003. Included in General Corporate expense in 2003 was a $0.9 million
restructuring charge offset by a $14.3 million reversal of a previously accrued restructuring
charge. Also included in 2003 General Corporate expense was a $12.0 million discretionary
contribution to the Cooper Industries Foundation. Excluding the net restructuring amount and the
contribution from 2003, General Corporate expense increased $9.8 million over 2003. The increase
in General Corporate expense was primarily due to higher incentive and stock-based compensation
expenses and the audit and other costs associated with compliance with the regulations enacted in
the Sarbanes-Oxley Act of 2002. General Corporate expense was $66.1 million in 2003, compared to $36.5 million in 2002.
Included in General Corporate expense in 2003 was a $0.9 million restructuring charge and a $14.3
million reversal of a previously accrued restructuring charge. General Corporate expense in 2002
included a $2.4 million restructuring charge. Excluding these charges in both years, General
Corporate expense increased $45.4 million in 2003 compared to 2002. During 2002, General Corporate
expense was reduced by income of $12.0 million under an agreement with Belden, Inc. (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 on a quarterly basis over substantially
fifteen years. If Belden does not have sufficient future taxable income, it is possible that Belden
will not be able to utilize the tax deductions arising from the increases in the tax basis of the
assets resulting in a tax loss carryforward. Belden can carry any loss forward twenty years to
offset future taxable income. Cooper concluded that, for 2003 and 2004, no income should be
recognized under the agreement. Also, in 2003 Cooper made a discretionary $12.0 million
contribution to the Cooper Industries Foundation, which will be used to fulfill commitments to
match future employee contributions to non-profit organizations and corporate contributions. No
such discretionary contribution was made in 2002. The remaining General Corporate expense increase
resulted primarily from increased employee benefit-related expenses, pension expense and
stock-based compensation expense. Interest Expense, Net  Interest expense, net decreased $6.0 million in 2004 compared to
2003. Slightly lower average interest rates on debt and an increase in interest income earned on
higher cash and cash equivalent balances resulted in the decrease from prior year. Average debt
balances in each year were 20




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$1.34 billion and average interest rates were 5.63% and 5.82% for 2004 and 2003, respectively. The
decrease in average interest rates primarily resulted from the benefit of interest rate swaps
entered into during August 2003 that effectively converted $300 million of 5.25% fixed-rate debt to
variable-rate debt at the six month LIBOR rate plus 1.91%. Interest expense, net decreased $0.4 million in 2003 compared to 2002. Higher average interest
rates on lower average debt balances resulted in an increase in interest expense that was offset by
an increase in interest income earned on higher cash and cash equivalent balances. Average debt
balances were $1.34 billion and $1.40 billion and average interest rates were 5.82% and 5.37% for
2003 and 2002, respectively. The increase in average interest rates primarily resulted from
Coopers replacement in 2002 of substantially all variable rate commercial paper borrowings with
long-term fixed-rate debt. During August 2003, Cooper entered into interest-rate swaps to effectively convert $300
million of 5.25% long-term fixed-rate debt to variable-rate debt at the six-month LIBOR rate plus
1.91% (with semi-annual reset). The notional principal amount and maturity dates of the
interest-rate swaps match the underlying long-term debt. During the years ended December 31, 2004
and 2003, Cooper recognized $5.1 million and $2.4 million, respectively, reductions of interest
expense, net related to the interest-rate swaps. Interest Income on Tax Refund  During October 2003, Cooper received a refund of $75.9 million
for certain claims relating to tax years prior to 1994. The refund included interest of $28.6
million. See Note 12 of the Notes to the Consolidated Financial Statements. Income Tax Expense  The effective tax rate attributable to continuing operations for 2004
was 20.7% compared to 20.8% for 2003. The effective tax rate attributable to continuing operations for 2003 was 20.8% compared to
23.7% for 2002. The effective tax rate attributable to continuing operations decreased in 2003 when
compared to 2002, primarily as a result of full year effect of the reorganization as discussed in
Note 1 of the Notes to the Consolidated Financial Statements. See Note 12 of the Notes to the
Consolidated Financial Statements. Charge Related to Discontinued Operations  In the fourth quarter of 2003, Cooper
concluded that an additional $126.0 million charge, net of a $70.9 million income tax benefit,
related to potential asbestos obligations regarding the Automotive Products segment which was sold
in 1998 was required in order to adjust the existing accrual to an amount that will be within the
likely range of outcomes. See Note 16 of the Notes to the Consolidated Financial Statements. Diluted Earnings Per Share  Diluted earnings per share from continuing operations was $3.58
in 2004, $2.92 in 2003 and $2.28 in 2002. Percentage of Revenues Year Ended December 31,2004
    
    
    2003
    
    
    2002Cost of Sales:Electrical Products
    
    
    69.3
    %
    
    
    69.9
    %
    
    
    71.2
    %Tools & Hardware
    
    
    72.6
    %
    
    
    74.9
    %
    
    
    75.0
    %Selling and Administrative:Electrical Products
    
    
    17.0
    %
    
    
    17.2
    %
    
    
    16.7
    %Tools & Hardware
    
    
    18.9
    %
    
    
    19.5
    %
    
    
    20.7
    %
 2004
vs. 2003 Percentage of RevenuesElectrical Products segment cost of sales, as a
percentage of revenues, decreased 0.6 points compared to 2003. The decrease in cost of sale
percentage was primarily a 21




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result of reductions in the cost structure stemming from restructuring and productivity improvement
actions and increased leverage of fixed costs on higher volumes partially offset by higher
material, energy and component costs not fully realized in product price increases. Tools &
Hardware segment cost of sales, as a percentage of revenues, decreased 2.3 points compared to 2003.
This decrease in cost of sales percentage reflects improved mix of product sales as a result of
lower assembly equipment systems shipments, and cost reduction actions. Electrical Products segment selling and administrative expenses, as a percentage of revenues,
were 17.0% for 2004 compared to 17.2% for 2003. This decrease in selling and administrative
expenses percentage is attributable to increased leverage from higher volumes, partially offset by
higher incentive compensation costs related to improved earnings. Tools & Hardware segment selling
and administrative expenses, as a percentage of revenues, were 18.9% in 2004 compared to 19.5% in
2003. This decrease in selling and administrative expenses percentage resulted from higher
revenues, partially offset by increased incentive compensation expenses. 2003 vs. 2002 Percentage of Revenue  Electrical Products segment cost of sales, as a
percentage of revenues, for 2003 decreased 1.3 points compared to 2002. The decrease in the cost of
sales percentage was primarily a result of the continued focus on adjusting Coopers cost structure
and productivity improvements. Tools & Hardware segment cost of sales, as a percentage of
revenues, decreased 0.1 points in 2003 compared to 2002. The decrease in the cost of sales
percentage reflects the benefits of cost reduction programs, partially offset by an unfavorable mix
of lower margin assembly equipment shipments and costs incurred as the cost reduction programs were
implemented. Electrical Products segment selling and administrative expenses, as a percentage of revenues,
for 2003 were 17.2% compared to 16.7% for 2002. The increase in the selling and administrative
expenses percentage is attributable to higher employee benefits-related costs, higher insurance
costs and increased sales and marketing costs resulting from initiatives to expand market share,
partially offset by benefits from the 2002 cost reduction programs. Tools & Hardware segment
selling and administrative expenses, as a percentage of revenues, were 19.5% compared to 20.7% for
2002. The decrease in the selling and administrative expenses percentage reflects increased
leveraging of costs partially offset by a modest increase in expenses, particularly related to
employee benefits. Cooper realizes certain costs and proceeds that are not directly attributable to the operating
segments. These items are reflected as General Corporate expenses. See the General Corporate
Expense section above. Earnings Outlook The following sets forth Coopers general business outlook for 2005 based on current
expectations. Cooper expects mid single digit growth in revenues for Electrical Products in 2005 from
improving industrial and nonresidential construction markets, market penetration and price
increases in response to commodity cost inflation partially offset by slower residential
construction markets. In the Tools & Hardware segment, Cooper also expects mid single digit
revenue growth through expansion of industrial markets, market penetration and price increases as a
result of raw material cost increases. Operating earnings are expected to grow more rapidly than
revenues as a result of cost reduction programs, productivity improvements and leveraging of fixed
costs. Diluted continuing earnings per share is expected to increase 10% to 15% compared to 2004. The above statements are forward looking, and actual results may differ materially. The above
statements are based on a number of assumptions, risks and uncertainties. The primary economic
assumptions include, without limitation: (1) continued growth in the domestic and international
economies; (2) no significant change in raw material or energy costs that are not realized through
price increases; (3) realization of benefits of cost-reduction programs (including implementing an
Enterprise Business System) with no major disruptions from those programs currently underway; and
(4) no significant adverse changes in 22




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the relationship of the U.S. dollar to the currencies of countries in which Cooper does business.
The estimates also assume, without limitation, no significant change in competitive conditions and
such other risk factors as are discussed from time to time in Coopers periodic filings with the
Securities and Exchange Commission. Pricing and Volume In each of Coopers segments, the nature of many of the products sold is such that an accurate
determination of the changes in unit volume of sales is neither practical nor, in some cases,
meaningful. Each segment produces a family of products, within which there exist considerable
variations in size, configuration and other characteristics. It is Coopers judgment that unit volume in the Electrical Products segment increased in 2004.
Unit volume also increased in the Tools & Hardware segment in 2004, but was largely offset
monetarily by the decline in shipments of large assembly systems. During the three-year period ending December 31, 2004, Cooper has experienced an overall
decline in customer pricing. However, price realization was achieved in 2004, primarily in
response to increased material, energy and components costs. Cooper has aggressively acted to
control and reduce costs during the three-year period through strategic sourcing, manufacturing
improvement and rationalization efforts in order to improve profitability in the segments. Effect of Inflation Over the three-year period, inflation has had a relatively minor impact on Coopers results of
operations. However, during 2004, there were significant increases in certain key commodities and
components, which were not fully offset through price increases in businesses with a high material
content. Coopers on-going initiatives to improve productivity and rationalize its operational base
has mitigated increases in employee compensation and benefits, as well as general inflation on
operating costs. Liquidity and Capital Resources Operating Working Capital For purposes of this discussion, operating working capital is defined as receivables and
inventories less accounts payable. Coopers operating working capital increased $31 million to $993 million in 2004 compared to
$962 million in 2003. The increase in operating working capital for 2004 was due to a $82 million
increase in accounts receivable partially offset by a $29 million decrease in inventories and a $22
million increase in accounts payable. Excluding acquisitions and currency translation, operating
working capital was essentially flat on a 10% revenue increase. Operating working capital turnover
(defined as annual revenues divided by average operating working capital) for 2004 was 4.6 turns,
increasing from 4.2 turns in 2003, due to continued focus on improving the use of working capital,
particularly lowering inventory levels, while increasing sales. A portion of the reduction in
inventories was due to a $11 million increase in the allowance for excess and obsolete inventories. Coopers operating working capital decreased $13 million to $962 million in 2003 compared to
$975 million in 2002. The decrease in operating working capital for 2003 was due to a $29 million
reduction in inventories and a $17 million increase in accounts payable, partially offset by a $32
million increase in accounts receivable. Operating working capital turnover for 2003 was 4.2
turns, increasing from 3.9 turns in 2002, due to continued focus on improving the efficient use of
working capital, particularly lowering inventory levels. A portion of the reduction in inventories
was due to a $7 million increase in the allowance for excess and obsolete inventories. 23




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##### Table of Contents



Coopers operating working capital decreased $72 million to $975 million in 2002 from $1,047
million in 2001. This decrease was primarily related to a $90 million reduction in inventories and
a $70 million reduction in accounts receivable, partially offset by lower accounts payable.
Contributing to the reduction in inventories was a $6 million increase in the allowance for excess
and obsolete inventories reflecting Coopers assessment of ultimate disposition in consideration of
market conditions. Operating working capital turnover decreased to 3.9 turns in 2002 from 4.0
turns in 2001. The decrease from 2001 reflects the impact of lower shipments. Cash Flows Net cash provided by operating activities in 2004 totaled $474 million. These funds, along
with $78 million of cash received from employee stock plan activity and a $90 million net increase
in debt, were used to fund capital expenditures of $103 million, dividends of $131 million, share
repurchases of $203 million and acquisitions of $49 million, resulting in an increase in cash and
cash equivalents of $189 million. Net cash provided by operating activities in 2003 totaled $445 million. These funds, along
with $63 million of cash received from employee stock plan activity, were used to fund capital
expenditures of $80 million, dividends of $130 million and net debt repayments of $170 million,
resulting in an increase in cash and cash equivalents of $162 million. Net cash provided by operating activities in 2002 totaled $480 million. These funds, along
with a net $95 million of additional debt, partially offset by capital expenditures of $74 million,
dividends of $130 million and share purchases of $94 million, resulted in an increase in cash and
cash equivalents of $291 million. In connection with accounting for acquisitions, Cooper records, to the extent appropriate,
accruals for the costs of closing duplicate facilities, severing redundant personnel and
integrating the acquired businesses into existing Cooper operations. At December 31, 2004, Cooper
had accruals totaling $11.0 million related to these activities. Cash flows from operating
activities for each of the three years in the period ended December 31, 2004, is reduced by the
amounts expended on the various accruals established in connection with each acquisition. Cooper
spent $7.1 million, $11.0 million and $7.2 million on these integration activities in 2004, 2003
and 2002, respectively. See Note 7 of the Notes to the Consolidated Financial Statements for
further information. Cooper currently anticipates a continuance of its long-term ability to annually generate in
excess of $200 million in cash flow available for acquisitions, debt repayment and common stock
repurchases. As discussed in Note 16 of Notes to the Consolidated Financial Statements, Cooper is
continuing discussions with the representatives of Federal-Mogul, its bankruptcy committees and the
future claimants regarding settlement of Coopers contingent liabilities related to the Automotive
Products sale to Federal-Mogul. It is likely that if a settlement is reached, the settlement would
involve a cash contribution. Cooper anticipates that any settlement cash contribution amounts would
be funded from operating cash flows. Debt At December 31, 2004 and 2003, Cooper had short-term debt of $97.6 million and $6.2 million,
respectively. None of this short-term debt consisted of commercial paper. Coopers practice is to back up its short-term debt with a combination of cash and committed credit
facilities. At December 31, 2004 and 2003, Cooper had cash and cash equivalents of $652.8 million
and $463.7 million, respectively. At December 31, 2004, Cooper had a $500 million committed credit
facility which matures in November 2009. Short-term debt, to the extent not backed up by cash,
reduces the amount of additional liquidity provided by the committed credit facility. 24




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##### Table of Contents



The credit facility agreement is not subject to termination based on a decrease in Coopers
debt ratings or a material adverse change clause. The principal financial covenants in the
agreement limit Coopers debt-to-total capitalization ratio to 60% and require Cooper to maintain a
minimum earnings before interest expense, income taxes, depreciation and amortization to interest
ratio of 3 to 1. Cooper is in compliance with all covenants set forth in the credit facility
agreement. Coopers access to the commercial paper market could be adversely affected by a change in the
credit ratings assigned to its commercial paper. Should Coopers access to the commercial paper
market be adversely affected due to a change in its credit ratings, Cooper would rely on a
combination of available cash and its committed credit facility to provide short-term funding. The
committed credit facility does not contain any provision which makes their availability to Cooper
dependent on Coopers credit ratings. During June 2002, Coopers subsidiary, Cooper Industries, Inc. (Cooper Ohio), issued $300
million senior unsecured notes due July 1, 2007 with a 5.25% interest rate. Proceeds from the
notes were used to reduce outstanding commercial paper balances. During September 2002, Cooper
Ohio filed a Form S-4 Registration Statement to exchange the original notes for notes with
substantially identical terms, except that the exchange notes are registered under the Securities
Act of 1933, as amended, and the transfer restrictions and registration rights applicable to the
original notes do not apply to the exchange notes. The original and exchange notes are fully and
unconditionally guaranteed by Cooper. The exchange offer was completed on November 4, 2002 with
all holders exchanging their notes. Cooper Ohio did not receive any proceeds from the exchange
offer. During August 2003, Cooper entered into interest-rate swaps to effectively convert $300
million of 5.25% long-term fixed-rate debt to variable-rate debt at the six month LIBOR rate plus
1.91% (with semi-annual reset). The swaps mature concurrent with the long-term debt and have been
designated as fair-value hedges. During 1999, Cooper Ohio completed a shelf registration to issue up to $500 million of debt
securities. On October 28, 2002, Cooper Ohio issued $275 million senior unsecured notes due
November 1, 2009, with a 5.5% interest rate. Proceeds from the notes were used to repay short-term
debt and other maturing indebtedness in 2002 and current maturities of long-term debt in 2003. The
notes are fully and unconditionally guaranteed by Cooper. Cooper terminated the shelf registration
effective August 6, 2004. Off-Balance Sheet Arrangements and Aggregate Contractual Obligations Cooper executes stand-by letters of credit, performance bonds and other guarantees in the
normal course of business that ensure Coopers performance or payments to third parties. The
aggregate notional value of these instruments was $106.6 million at December 31, 2004.
Eighty-three percent of these instruments have an expiration date within one year. In the past, no
significant claims have been made against these financial instruments. Management believes the
likelihood of demand for payment under these instruments is minimal and expects no material cash
outlays to occur in connection with these instruments. The following table summarizes Coopers contractual obligations at December 31, 2004 and the
effect such obligations are expected to have on its liquidity and cash flows in future periods. 25




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##### Table of Contents



Payments DueLess than
    
    
    One to
    
    
    Four to
    
    
    AfterContractual Obligations:
    
    Total
    
    
    One Year
    
    
    Three Years
    
    
    Five Years
    
    
    Five Years(in millions)Long-Term Debt
    
    $
    1,364.0
    
    
    $
    665.4
    
    
    $
    313.0
    
    
    $
    375.4
    
    
    $
    10.2Short-Term Debt
    
    
    97.6
    
    
    
    97.6
    
    
    
    
    
    
    
    
    
    
    
    Noncancellable Operating Leases
    
    
    89.5
    
    
    
    21.0
    
    
    
    35.8
    
    
    
    18.8
    
    
    
    13.9Purchase Obligations
    
    
    262.2
    
    
    
    261.5
    
    
    
    0.7
    
    
    
    
    
    
    
    Other Long-Term Liabilities(1)
    
    
    273.9
    
    
    
    18.8
    
    
    
    35.7
    
    
    
    34.2
    
    
    
    185.2$
    2,087.2
    
    
    $
    1,064.3
    
    
    $
    385.2
    
    
    $
    428.4
    
    
    $
    209.3
   (1) Includes unfunded other postretirement benefit obligations, unfunded foreign
defined benefit pension plan liabilities, other postemployment benefit liabilities and
environmental liabilities. Capitalization During the first quarter of 2000, Coopers Board of Directors authorized the repurchase of up
to five million shares of common stock. As of December 31, 2004, there were approximately 0.2
million shares available for repurchase under this authorization. On November 2, 2004, Coopers
Board of Directors authorized the purchase of up to five million additional shares of common stock. Cooper has targeted a 35% to 45% debt-to-total capitalization ratio and intends to utilize
cash flows to maintain a debt-to-capitalization ratio within this range. Excess cash flows are
utilized to purchase shares of Coopers Common stock or fund acquisitions. At December 31, 2004,
2003 and 2002, Coopers debt-to-total capitalization ratio was 39.0%, 38.8% and 41.8%,
respectively. On February 9, 2005, Coopers Board of Directors announced an increase in the annual dividend
rate of Coopers common stock by eight cents per share to $1.48, or 37 cents per quarter. Capital Expenditures and Commitments Capital expenditures on projects to reduce product costs, improve product quality, increase
manufacturing efficiency and operating flexibility, or expand production capacity were $103 million
in 2004, $80 million in 2003 and $74 million in 2002. The 2004 increase in capital expenditures
was driven primarily by the purchase of a previously leased manufacturing facility in Mexico,
relocation of Cooper Wiring Devices operations headquarters from New York City to permanent
facilities in Peachtree City, Georgia, and continued implementation of new business systems.
Capital expenditures decreased during 2002 compared to the prior year, as Cooper completed several
significant projects and focused on maximizing cash generation from its operations. Capital
expenditures are projected to be approximately $100 to $130 million in 2005. Projected expenditures
for 2005 will focus on development of new products, the implementation of new business systems and
cost reduction programs. Interest Rate and Foreign Currency Risk Changes in interest rates and foreign currency exchange rates affect Coopers earnings and
cash flows. As a result of having sales, purchases and certain intercompany transactions
denominated in currencies other than the functional currencies used by Coopers businesses, Cooper
is exposed to the effect of foreign exchange rate changes on its cash flows and earnings. Cooper
enters into foreign currency forward exchange contracts to hedge significant foreign currency
denominated transactions for periods consistent with the terms of the underlying transactions.
Contracts generally have maturities that do not exceed one year. 26




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##### Table of Contents



The table below provides information about Coopers derivative financial instruments and other
financial instruments at December 31, 2004 that are sensitive to changes in interest rates.
Additionally, information on foreign denominated debt obligations that are sensitive to foreign
currency exchange rates is presented. For debt obligations the table presents principal cash flows
by expected maturity dates and weighted average interest rates. The information is presented in
U.S. Dollar equivalents. The actual cash flows are denominated in U.S. Dollars, Euros and British
Pound Sterling as indicated in parentheses. For interest-rate swaps, the table presents notional
amounts and weighted average interest rates by contractual maturity dates. Notional amounts are
used to calculate the contractual payments to be exchanged under the contract. The average
pay-rate on interest-rate swaps is based on implied forward-rates in the yield curve as of December
31, 2004. 2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    Thereafter
    
    
    Total($ in millions)Long-term debt:Fixed-rate (U.S. Dollar)
    
    $
    229.4
    
    
    $
    12.2
    
    
    $
    300.8
    
    
    $
    100.4
    
    
    $
    275.0
    
    
    $
    2.2
    
    
    $
    920.0Average interest-rate
    
    
    5.8
    %
    
    
    5.5
    %
    
    
    5.6
    %
    
    
    5.6
    %
    
    
    5.5
    %
    
    
    6.8
    %
    
    
    5.8
    %Fixed-rate (Euro)
    
    $
    409.1
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    409.1Average interest-rate
    
    
    6.3
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.3
    %Variable-rate (GBP)
    
    $
    26.9
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    26.9Average interest-rate
    
    
    4.5
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.5
    %Variable-rate (U.S. Dollar)
    
    $

    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    8.0
    
    
    $
    8.0Average interest-rate
    
    
    2.4
    %
    
    
    2.4
    %
    
    
    2.4
    %
    
    
    2.4
    %
    
    
    2.4
    %
    
    
    2.4
    %
    
    
    2.4
    %Interest-rate swaps:Fixed to variable:Notional amount(1)
    
    $
    300.0
    
    
    $
    300.0
    
    
    $
    300.0
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    300.0Average pay-rate
    
    
    5.06
    %
    
    
    5.71
    %
    
    
    5.95
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.49
    %Average receive-rate
    
    
    5.25
    %
    
    
    5.25
    %
    
    
    5.25
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.25
    %
   (1) Cooper entered into interest-rate swaps to effectively convert its fixed-rate $300
million senior unsecured debt due in July 2007 to variable-rate debt. The table below provides information about Coopers foreign currency forward exchange
contracts to purchase currencies in excess of $5 million at December 31, 2004. The contracts
mature during 2005. The notional amount is used to calculate the contractual payments exchanged
under the contracts. The notional amount represents the U.S. dollar equivalent. 2005(in millions, whereapplicable)U.S. Dollar Functional CurrencyBuy Canadian Dollars / Sell U.S. DollarsNotional amount
    
    $
    89.7Average contract rate
    
    
    0.8083Canadian Functional CurrencyBuy U.S. Dollars / Sell Canadian DollarsNotional amount
    
    $
    14.8Average contract rate
    
    
    0.7610U.S. Dollar Functional CurrencyBuy Euro / Sell U.S. DollarsNotional amount
    
    $
    14.6Average contract rate
    
    

    1.338
 27




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##### Table of Contents



The table below provides information about Coopers derivative financial instruments and
other financial instruments at December 31, 2003 that are sensitive to changes in interest rates.
Additionally, information on foreign denominated debt obligations that are sensitive to foreign
currency exchange rates is presented. For debt obligations the table presents principal cash flows
by expected maturity dates and weighted average interest rates. The information is presented in
U.S. Dollar equivalents. The actual cash flows are denominated in U.S. Dollars, Euros and British
Pound Sterling as indicated in parentheses. For interest-rate swaps, the table presents notional
amounts and weighted average interest rates by contractual maturity dates. Notional amounts are
used to calculate the contractual payments to be exchanged under the contract. The average
pay-rate on interest-rate swaps is based on implied forward-rates in the yield curve as of December
31, 2003. 2004
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    Thereafter
    
    
    Total($ in millions)Long-term debt:Fixed-rate (U.S. Dollar)
    
    $
    0.4
    
    
    $
    229.9
    
    
    $
    11.4
    
    
    $
    300.4
    
    
    $
    100.3
    
    
    $
    277.0
    
    
    $
    919.4Average interest-rate
    
    
    5.8
    %
    
    
    5.8
    %
    
    
    5.5
    %
    
    
    5.6
    %
    
    
    5.6
    %
    
    
    5.5
    %
    
    
    5.8
    %Fixed-rate (Euro)
    
    $
    
    
    
    $
    374.6
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    374.6Average interest-rate
    
    
    6.3
    %
    
    
    6.3
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.3
    %Variable-rate (GBP)
    
    $
    
    
    
    $
    29.9
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    29.9Average interest-rate
    
    
    3.6
    %
    
    
    3.6
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.6
    %Variable-rate (U.S. Dollar)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    8.0
    
    
    $
    8.0Average interest-rate
    
    
    1.2
    %
    
    
    1.2
    %
    
    
    1.2
    %
    
    
    1.2
    %
    
    
    1.2
    %
    
    
    1.2
    %
    
    
    1.2
    %Interest-rate swaps:Fixed to variable:Notional amount(1)
    
    $
    300.0
    
    
    $
    300.0
    
    
    $
    300.0
    
    
    $
    300.0
    
    
    $
    
    
    
    $
    
    
    
    $
    300.0Average pay-rate
    
    
    3.34
    %
    
    
    4.81
    %
    
    
    5.95
    %
    
    
    6.46
    %
    
    
    
    
    
    
    
    
    
    
    4.95
    %Average receive-rate
    
    
    5.25
    %
    
    
    5.25
    %
    
    
    5.25
    %
    
    
    5.25
    %
    
    
    
    
    
    
    
    
    
    
    5.25
    %
   (1)
    
    Cooper entered into interest-rate swaps to effectively convert its fixed-rate $300
million senior unsecured debt due in July 2007 to variable-rate debt. The table below provides information about Coopers foreign currency forward exchange
contracts to purchase currencies in excess of $5 million at December 31, 2003. The contracts
mature during 2004. The notional amount is used to calculate the contractual payments exchanged
under the contracts. The notional amount represents the U.S. dollar equivalent. 2004(in millions, where applicable)Canadian Dollar Functional CurrencyBuy U.S. Dollars / Sell Canadian DollarsNotional amount
    
    $
    27.1Average contract rate
    
    
    0.7147Euro Functional CurrencyBuy U.S. Dollars / Sell EuroNotional amount
    
    $
    7.5Average contract rate
    
    
    1.129
 28




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##### Table of Contents



2004(in millions, where applicable)U.S. Dollar Functional CurrencyBuy Mexican Pesos / Sell U.S. DollarsNotional amount
    
    $
    9.2Average contract rate
    
    
    .0855
 The following transactions were implemented to partially align Coopers interest rate
exposure profile with its short term interest rate expectations in an economically efficient manner
that is consistent with its tax position. During 2002, Cooper sold at a premium U.S. Treasury securities due August 15, 2003 with a face
amount of $750 million. Cooper obtained these securities pursuant to a repurchase agreement
containing provisions that limited Coopers interest rate exposure under this agreement to a
maximum amount of $7.2 million. During the fourth quarter of 2002, Cooper settled the interest
rate exposure with a cash payment of $7.0 million which was funded with cash provided by operating
activities. During 2001, Cooper sold at a premium U.S. Treasury securities due November 2002 with a
face amount of $1.0 billion. Cooper obtained these securities pursuant to a repurchase agreement
containing provisions that limited Coopers interest rate exposure under this agreement to a
maximum amount of $7.0 million. During the second quarter of 2002, Cooper settled the interest rate
exposure with a cash payment of $6.0 million, which was funded with cash provided by operating
activities. The repurchase agreements were settled immediately prior to the maturity of the
securities. Settlement of these transactions did not require any financing by Cooper and the
transactions did not create an asset or liability, other than as described above. Also during 2001, Cooper purchased at a discount Federal Home Loan Mortgage Corporation Notes
due February 2003 and immediately transferred these notes pursuant to a securities loan agreement.
Subsequently, Cooper eliminated any interest rate exposure under the securities loan agreement and
received a cash payment of approximately $1.9 million upon maturity of the notes. The securities
loan agreement was settled immediately prior to the maturity of the notes. Settlement of this
transaction will not require any financing by Cooper and this transaction did not create a
liability. The face amount of the notes was $480 million. See Note 17 of the Notes to the Consolidated Financial Statements for additional information
regarding the fair value of Coopers financial instruments. Recently Issued Accounting Standards See Note 1 of the Notes to the Consolidated Financial Statements. 
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information required by this Item is included under Item 7. Managements Discussion and
Analysis of Financial Condition and Results of Operations. 
 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Coopers consolidated financial statements, together with the report thereon of Ernst & Young
LLP and the supplementary financial data are set forth on pages F-1 through F-40 hereof. (See Item
15 for Index.) 
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE Not applicable. 29




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##### Table of Contents



ITEM 9A. CONTROLS AND PROCEDURES As of the end of the period covered by this report, Coopers management, under the supervision
and with the participation of the Chief Executive Officer and Chief Financial Officer, performed an
evaluation of the effectiveness of the design and operation of Coopers disclosure controls and
procedures. Based on that evaluation, Coopers management, including the Chief Executive Officer
and Chief Financial Officer, concluded that the disclosure controls and procedures are effective.
There have been no significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of this evaluation. See Report of
Management on Internal Control Over Financial Reporting on page F-1. Cooper is executing a multi-year process of implementing an Enterprise Business System (EBS)
globally. Implementing an EBS system on a global basis involves significant changes in business
processes. The implementation is phased, which reduces the risks associated with making these
changes. In addition, Cooper is taking the necessary steps to monitor and maintain appropriate
internal controls during the implementations. 
 ITEM 9B. OTHER INFORMATION Not applicable. 
 PART III 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this Item is set forth under the captions Election of Directors,
Executive Officers, Meetings of the Cooper Board and its Committees, and Code of Ethics and
Business Conduct in Coopers Proxy Statement to be filed pursuant to Regulation 14A under the
Securities Exchange Act of 1934 in connection with Coopers 2005 Annual Meeting of Shareholders
(the Proxy Statement) and is incorporated herein by reference. 
 ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is set forth under the caption Executive Management
Compensation in the Proxy Statement and is incorporated herein by reference. 
  ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS The information required by this Item is set forth under the captions Cooper Stock
Ownership, Security Ownership of Management and Equity Compensation Plan Information in the
Proxy Statement and is incorporated herein by reference. 
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Not applicable. 
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required by this Item is set forth under the caption Relationship with
Independent Auditors in the Proxy Statement and is incorporated herein by reference. 30




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##### Table of Contents



PART IV 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES  (a)
    1. Financial Statements and Other Financial Data. PageReport of Management on Internal Control Over Financial Reporting
    
    F-1Report of Independent Registered Public Accounting Firm on Internal Control
Over Financial Reporting
    
    F-2Report of Independent Registered Public Accounting Firm
    
    F-3Consolidated Income Statements for each of the three years in the period ended
December 31, 2004
    
    F-4Consolidated Balance Sheets as of December 31, 2004 and 2003
    
    F-5Consolidated Statements of Cash Flows for each of the three years in the period
ended December 31, 2004
    
    F-6Consolidated Statements of Shareholders Equity for each of the three years in
the period ended December 31, 2004
    
    F-7Notes to Consolidated Financial Statements
    
    F-8
 Financial information with respect to subsidiaries not consolidated and 50 percent
or less owned entities accounted for by the equity method has not been included because
in the aggregate such subsidiaries and investments do not constitute a significant
subsidiary.  2. Financial Statement Schedules Financial statement schedules are not included in this Form 10-K Annual Report
because they are not applicable or the required information is shown in the financial
statements or notes thereto.  3. Exhibits  2.0
    Agreement and Plan of Merger among Cooper Industries, Inc., Cooper
Mergerco, Inc. and Cooper Industries, Ltd. (incorporated herein by reference to
Annex I to Coopers Registration Statement on Form S-4, Registration No. 333-62740).3.1
    Memorandum of Association of Cooper Industries, Ltd. (incorporated herein
by reference to Annex II to Coopers Registration Statement on Form S-4,
Registration No. 333-62740).3.2
    Amended and Restated Bye-Laws of Cooper Industries, Ltd. (incorporated
herein by reference to Annex III to Coopers Registration Statement on Form S-4,
Registration No. 333-62740).4.1
    Rights Agreement dated as of May 16, 2002 between Cooper Industries, Ltd.
and EquiServe Trust Company, N.A., as Rights Agent (incorporated herein by reference
to Exhibit 4.4 to Coopers Registration Statement on Form 8-A, Registration No.
001-31330).4.2
    Amended and Restated Voting Agreement between Cooper Industries, Ltd.,
Cooper Industries, Inc. and Cooper Bermuda Investments Ltd. (incorporated herein by
reference to Exhibit 4 to Coopers Form 10-Q for the quarter ended March 31, 2004). 31




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##### Table of Contents



4.3
    Form of Indenture dated as of January 15, 1990, between Cooper and The
Chase Manhattan Bank (National Association), as Trustee (incorporated herein by
reference to Exhibit 4(a) to Coopers Registration Statement on Form S-3,
Registration No. 33-33011).4.4
    First Supplemental Indenture dated as of May 15, 2002 between Cooper
Industries, Inc. and JP Morgan Chase Bank, as successor Trustee to The Chase
Manhattan Bank (National Association) (incorporated herein by reference to Exhibit
4.3 to Coopers Form 10-Q for the quarter ended June 30, 2002).4.5
    Second Supplemental Indenture dated as of June 21, 2002 among Cooper
Industries, Inc., Cooper Industries, Ltd. and JP Morgan Chase Bank, as Trustee
(incorporated herein by reference to Exhibit 4.4 to Coopers Form 10-Q for the
quarter ended June 30, 2002).4.6
    Third Supplemental Indenture dated as of October 28, 2002 among Cooper
Industries, Inc., Cooper Industries, Ltd. and JP Morgan Chase Bank, as Trustee
(incorporated herein by reference to Exhibit 4.1 to Coopers Form 10-Q for the
quarter ended September 30, 2002).10.1
    Cooper Industries, Inc. Directors Deferred Compensation Plan (incorporated
by reference to Exhibit 10.2 to Coopers Form 10-K for the year ended December 31,
1997).10.2
    Cooper Industries, Inc. Directors Retirement Plan (incorporated by
reference to Exhibit 10.3 to Coopers Form 10-K for the year ended December 31,
1997).10.3
    Cooper Industries, Inc. Executive Restricted Stock Incentive Plan
(incorporated by reference to Exhibit 10.4 to Coopers Form 10-K for the year ended
December 31, 1997).10.4
    First Amendment to Cooper Industries, Inc. Executive Restricted Stock
Incentive Plan (incorporated by reference to Exhibit 10.4 to Coopers Form 10-K for
the year ended December 31, 2003).10.5
    Cooper Industries, Inc. Supplemental Excess Defined Benefit Plan (August 1,
1998 Restatement) (incorporated by reference to Exhibit 10(iii) to Coopers Form 10-Q
for the quarter ended September 30, 1998).10.6
    First Amendment to Cooper Industries, Inc. Supplemental Excess Defined
Benefit Plan (August 1, 1998 Restatement) (incorporated by reference to Exhibit 10.6
to Coopers Form 10-K for the year ended December 31, 2003).10.7
    Cooper Industries, Inc. Supplemental Excess Defined Contribution Plan
(August 1, 1998 Restatement) (incorporated by reference to Exhibit 10(iv) to Coopers
Form 10-Q for the quarter ended September 30, 1998).10.8
    First, Second and Third Amendments to Cooper Industries, Inc. Supplemental
Excess Defined Contribution Plan (August 1, 1998 Restatement) (incorporated by
reference to Exhibit 10.8 to Coopers Form 10-K for the year ended December 31,
2003).10.9
    Management Incentive Compensation Deferral Plan (incorporated by reference
to Exhibit 10.7 to Coopers Form 10-K for the year ended December 31, 1997).10.10
    Third and Fourth Amendments to Management Incentive Compensation Deferral
Plan (incorporated by reference to Exhibit 10.10 to Coopers Form 10-K for the year
ended December 31, 2003). 32




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##### Table of Contents



10.11
    Crouse-Hinds Company Officers Disability and Supplemental Pension Plan
(September 10, 1999 Restatement, as amended) (incorporated by reference to Exhibit
10.11 to Coopers Form 10-K for the year ended December 31, 2003).10.12
    Cooper Industries, Inc. Amended and Restated Stock Incentive Plan
(February 11, 2004 Restatement) (incorporated herein by reference to Appendix B to
Coopers proxy statement for the Annual Meeting of Shareholders held on April 27,
2004).10.13
    Form of Incentive Stock Option Agreement for Cooper Industries, Inc. Stock
Incentive Plan (incorporated by reference to Exhibit 10.14 to Coopers Form 10-K for
the year ended December 31, 2003).10.14
    Form of Nonqualified Stock Option Agreement for Cooper Industries, Inc.
Stock Incentive Plan (incorporated by reference to Exhibit 10.15 to Coopers Form
10-K for the year ended December 31, 2003).10.15
    Form of Cooper Industries, Inc. Executive Stock Incentive Agreement
(incorporated by reference to Exhibit 10.16 to Coopers Form 10-K for the year ended
December 31, 2003).10.16
    Cooper Industries, Inc. Amended and Restated Management Annual Incentive
Plan (February 14, 2001 Restatement) (incorporated herein by reference to Appendix C
to Coopers proxy statement for the Annual Meeting of Shareholders held on April 24,
2001).10.17
    First Amendment to Cooper Industries, Inc. Amended and Restated Management
Annual Incentive Plan (February 14, 2001 Restatement) (incorporated by reference to
Exhibit 10.18 to Coopers Form 10-K for the year ended December 31, 2003).10.18
    Amended and Restated Cooper Industries, Ltd. Directors Stock Plan (April
29, 2003 Restatement) (incorporated herein by reference to Exhibit 10.2 to Coopers
Form 10-Q for the quarter ended June 30, 2003).10.19
    Form of Directors Nonqualified Stock Option Agreement for Directors
Stock Plan (incorporated herein by reference to Exhibit 10.18 to Coopers Form 10-K
for the year ended December 31, 1997).10.20
    Cooper Industries, Ltd. Amended and Restated Directors Retainer Fee Stock
Plan (April 1, 2003 Restatement) (incorporated by reference to Exhibit 10.21 to
Coopers Form 10-K for the year ended December 31, 2003).10.21
    Form of Management Continuity Agreement between Cooper Industries, Ltd.
and key management personnel which applies if there is a Change of Control of Cooper
(incorporated herein by reference to Exhibit 10.1 to Coopers Form 10-Q for the
quarter ended September 30, 2002).10.22
    Form of Indemnification Agreement between Cooper Industries, Ltd. and key
management personnel (incorporated by reference to Exhibit 10.23 to Coopers Form
10-K for the year ended December 31, 2003).10.23
    Purchase and Sale Agreement between Cooper Industries, Inc. and
Federal-Mogul Corporation dated August 17, 1998 (incorporated herein by reference to
Exhibit 10(i) of Coopers Form 10-Q for the quarter ended September 30, 1998). 33




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##### Table of Contents



10.24
    Cooper (UK 2002) Employee Share Purchase Plan (incorporated by reference
to Exhibit 10.25 to Coopers Form 10-K for the year ended December 31, 2003).10.25
    Five-Year Credit Agreement dated November 3, 2004 among Cooper Industries,
Ltd., Cooper US, Inc. and the banks named therein.12.0
    Computation of Ratios of Earnings to Fixed Charges for the Calendar years
2000 through 2004.21.0
    List of Cooper Industries, Ltd. Subsidiaries.23.1
    Consent of Ernst & Young LLP.23.2
    Consent of Bates White, LLC.24.0
    Powers of Attorney from members of the Board of Directors of Cooper Industries, Ltd.31.1
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Cooper will furnish to the Commission supplementally upon request a copy of any instrument
with respect to long-term debt of Cooper. Copies of the above Exhibits are available to shareholders of record at a charge of $.25 per
page, minimum order of $10.00. Direct requests to: Cooper Industries, Ltd.
                         Attn: Corporate Secretary
                         P.O. Box 4446
                         Houston, Texas 77210 34




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##### Table of Contents



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, LTD.Date: February 18, 2005
    By:
    /s/ H. John Riley, Jr.(H. John Riley, Jr., Chairman andChief 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.
    
    Chairman and
Chief Executive Officer
    
    February 18, 2005(H. John Riley, Jr.)/s/ Terry A. Klebe
    
    Senior Vice President and
Chief Financial Officer
    
    February 18, 2005(Terry A. Klebe)/s/ Jeffrey B. Levos
    
    Vice President and Controller and Chief Accounting Officer
    
    February 18, 2005(Jeffrey B. Levos)*STEPHEN G. BUTLER
    
    Director
    
    February 18, 2005(Stephen G. Butler)*LINDA A. HILL
    
    Director
    
    February 18, 2005(Linda A. Hill)*JAMES J. POSTL
    
    Director
    
    February 18, 2005(James J. Postl)*DAN F. SMITH
    
    Director
    
    February 18, 2005(Dan F. Smith)*GERALD B. SMITH
    
    Director
    
    February 18, 2005(Gerald B. Smith)*JAMES R. WILSON
    
    Director
    
    February 18, 2005(James R. Wilson)
 * By:
    
    /s/ Diane K. Schumacher(Diane K. Schumacher, as
Attorney-In-Fact
for each of the persons indicated)
 35




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##### Table of Contents



REPORT OF MANAGEMENT ON
INTERNAL CONTROL OVER FINANCIAL REPORTING The management of Cooper Industries, Ltd. (Cooper) is responsible for establishing and
maintaining adequate internal control over financial reporting. Coopers internal control system
was designed to provide reasonable assurance to Coopers management and Board of Directors
regarding the preparation and fair presentation of published financial statements. Cooper management assessed the effectiveness of Coopers internal control over financial
reporting as of December 31, 2004. In making this assessment, it used the criteria set forth by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control -
Integrated Framework. Based on our assessment we believe that, as of December 31, 2004, Coopers
internal control over financial reporting is effective based on those criteria. Coopers independent registered public accounting firm has issued an audit report on our
assessment of Coopers internal control over financial reporting. This report appears on Page F-2. H. John Riley, Jr.
    
    Terry A. Klebe
    
    Jeffrey B. LevosChairman and
    
    Senior Vice President and
    
    Vice President and ControllerChief Executive Officer
    
    Chief Financial Officer
    
    and Chief Accounting Officer
 F-1




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL
CONTROL OVER FINANCIAL REPORTING The Board of Directors and Shareholders
Cooper Industries, Ltd. We have audited managements assessment, included in the accompanying Report of Management on
Internal Control over Financial Reporting, that Cooper Industries, Ltd. (the Company) maintained
effective internal control over financial reporting as of December 31, 2004, based on criteria
established in Internal Control  Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). The Companys management is
responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting. Our responsibility
is to express an opinion on managements assessment and an opinion on the effectiveness of the
Companys internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating managements assessment, testing and evaluating the
design and operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion. A companys internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting
principles. A companys internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the companys assets that could have
a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate. In our opinion, managements assessment that the Company maintained effective internal control
over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based
on the COSO criteria. Also, in our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2004, based on the COSO
criteria. We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Cooper as of December 31, 2004
and 2003, and the related consolidated statements of income, shareholders equity, and cash flows
for each of the three years in the period ended December 31, 2004 and our report dated February 18,
2005 expressed an unqualified opinion thereon. ERNST & YOUNG LLP Houston, Texas
February 18, 2005 F-2




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and
Shareholders
Cooper Industries, Ltd. We have audited the accompanying consolidated balance sheets of Cooper Industries, Ltd. (the
Company), the successor company to Cooper Industries, Inc., as of December 31, 2004 and 2003, and
the related consolidated statements of income, shareholders equity, and cash flows for each of the
three years in the period ended December 31, 2004. 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 standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion. In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of the Company at December 31, 2004 and 2003, and the
consolidated results of its operations and its cash flows for each of the three years in the period
ended December 31, 2004, in conformity with accounting principles generally accepted in the United
States. As discussed in Note 1 to the consolidated financial statements, the Company adopted Statement
of Financial Accounting Standards No. 123 in 2003. We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of the Companys internal control over financial
reporting as of December 31, 2004, based on criteria established
in Internal Control  Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated February 18, 2005 expressed an unqualified opinion thereon. ERNST & YOUNG LLP Houston, Texas
February 18, 2005 F-3




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COOPER INDUSTRIES,
LTD. 
 CONSOLIDATED INCOME
STATEMENTS
 Year Ended December 31,2004
    
    
    2003
    
    
    2002(in millions, except per share data)Revenues
    
    $
    4,462.9
    
    
    $
    4,061.4
    

    
    $
    3,960.5Cost of sales
    
    
    3,119.7
    
    
    
    2,871.9
    
    
    
    2,830.9Selling and administrative expenses
    
    
    846.6
    
    
    
    794.9
    
    
    
    735.8Restructuring
    
    
    
    
    
    
    2.6
    
    
    
    39.1Operating earnings
    
    
    496.6
    
    
    
    392.0
    
    
    
    354.7Interest expense, net
    
    
    68.1
    
    
    
    74.1
    
    
    
    74.5Interest income on tax refund
    
    
    
    
    
    
    (28.6
    )
    
    
    Income from continuing operations before income taxes
    
    
    428.5
    
    
    
    346.5
    
    
    
    280.2Income taxes
    
    
    88.7
    
    
    
    72.2
    
    
    
    66.5Income from continuing operations
    
    
    339.8
    
    
    
    274.3
    
    
    
    213.7Charge related to discontinued operations, net of income taxes
    
    
    
    
    
    
    126.0
    
    
    
    Net income
    
    $
    339.8
    
    
    $
    148.3
    
    
    $
    213.7Income per Common shareBasic:Income from continuing operations
    
    $
    3.67
    
    
    $
    2.96
    
    
    $
    2.29Charge from discontinued operations
    
    
    
    
    
    
    1.36
    
    
    
    Net income
    
    $
    3.67
    
    
    $
    1.60
    
    
    $
    2.29Diluted:Income from continuing operations
    
    $
    3.58
    
    
    $
    2.92
    
    
    $
    2.28Charge from discontinued operations
    
    
    
    
    
    
    1.34
    
    
    
    Net income
    
    $
    3.58
    
    
    $
    1.58
    
    
    $
    2.28Cash dividends per Common share
    
    $
    1.40
    
    
    $
    1.40
    
    
    $
    1.40
 The Notes to Consolidated Financial Statements are an integral part of these statements. F-4




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COOPER INDUSTRIES, LTD. 
 CONSOLIDATED BALANCE
SHEETS
 December 31,2004
    
    
    2003(in millions)ASSETSCash and cash equivalents
    
    $
    652.8
    
    
    $
    463.7Receivables
    
    
    820.9
    
    
    
    738.6Inventories
    
    
    523.0
    
    
    
    552.0Deferred income taxes and other current assets
    
    
    221.9
    
    
    
    206.5Total current assets
    
    
    2,218.6
    
    
    
    1,960.8Property, plant and equipment, less accumulated depreciation
    
    
    696.4
    
    
    
    711.4Goodwill
    
    
    2,142.3
    
    
    
    2,056.6Deferred income taxes and other noncurrent assets
    
    
    283.5
    
    
    
    236.5Total assets
    
    $
    5,340.8
    
    
    $
    4,965.3LIABILITIES AND SHAREHOLDERS EQUITYShort-term debt
    
    $
    97.6
    
    
    $
    6.2Accounts payable
    
    
    350.7
    
    
    
    329.1Accrued liabilities
    
    
    488.8
    
    
    
    433.7Accrual for discontinued operations
    
    
    225.1
    
    
    
    252.5Current maturities of long-term debt
    
    
    665.4
    
    
    
    0.4Total current liabilities
    
    
    1,827.6
    
    
    
    1,021.9Long-term debt
    
    
    698.6
    
    
    
    1,336.7Postretirement benefits other than pensions
    
    
    173.3
    
    
    
    181.1Other long-term liabilities
    
    
    354.8
    
    
    
    307.4Total liabilities
    
    
    3,054.3
    
    
    
    2,847.1Common stock, $.01 par value
    
    
    0.9
    
    
    
    0.9Capital in excess of par value
    
    
    446.2
    
    
    
    518.0Retained earnings
    
    
    1,971.6
    
    
    
    1,762.8Accumulated other nonowner changes in equity
    
    
    (132.2
    )
    
    
    (163.5
    )Total shareholders equity
    
    
    2,286.5
    
    
    
    2,118.2Total liabilities and shareholders equity
    
    $
    5,340.8
    
    
    $
    4,965.3
 The Notes to Consolidated Financial Statements are an integral part of these statements. F-5




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COOPER INDUSTRIES, LTD. 
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 Year Ended December 31,2004
    
    
    2003
    
    
    2002(in millions)Cash flows from operating activities:Net income
    
    $
    339.8
    
    
    $
    148.3
    
    
    $
    213.7Plus: charge related to discontinued operations
    
    
    
    
    
    
    126.0
    
    
    
    Income from continuing operations
    
    
    339.8
    
    
    
    274.3
    
    
    
    213.7Adjustments to reconcile to net cash provided by
operating activities:Depreciation and amortization
    
    
    117.6
    
    
    
    121.4
    
    
    
    121.7Deferred income taxes
    
    
    27.7
    
    
    
    99.3
    
    
    
    3.7Restructuring payments
    
    
    (4.3
    )
    
    
    (17.8
    )
    
    
    (22.9
    )Changes in assets and liabilities: (1)Receivables

    
    
    (56.7
    )
    
    
    (3.2
    )
    
    
    81.8Inventories
    
    
    47.6
    
    
    
    45.9
    
    
    
    89.4Accounts payable and accrued liabilities
    
    
    17.8
    
    
    
    (22.4
    )
    
    
    (76.2
    )Other assets and liabilities, net
    
    
    (15.9
    )
    
    
    (52.2
    )
    
    
    68.6Net cash provided by operating activities
    
    
    473.6
    
    
    
    445.3
    
    
    
    479.8Cash flows from investing activities:Capital expenditures
    
    
    (102.8
    )
    
    
    (79.9
    )
    
    
    (73.8
    )Cash paid for acquired businesses
    
    
    (48.6
    )
    
    
    
    
    
    
    (1.1
    )Proceeds from sales of property, plant and equipment and other
    
    
    11.8
    
    
    
    18.1
    
    
    
    22.0Net cash used in investing activities
    
    
    (139.6
    )
    
    
    (61.8
    )
    
    
    (52.9
    )Cash flows from financing activities:Proceeds from issuances of debt
    
    
    94.3
    
    
    
    4.3
    
    
    
    608.3Repayments of debt
    
    
    (4.7
    )
    
    
    (174.4
    )
    
    
    (513.5
    )Debt issuance costs
    
    
    
    
    
    
    
    
    
    
    (6.5
    )Dividends
    
    
    (131.0
    )
    
    
    (129.7
    )
    
    
    (129.7
    )Acquisition of treasury shares
    
    
    
    
    
    
    
    
    
    
    (37.9
    )Subsidiary purchase of parent shares
    
    
    (202.9
    )
    
    
    (5.5
    )
    
    
    (56.4
    )Activity under employee stock plans and other
    
    
    78.4
    
    
    
    63.2
    
    
    
    3.2Net cash used in financing activities
    
    
    (165.9
    )
    
    
    (242.1
    )
    
    
    (132.5
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    21.0
    
    
    
    20.3
    
    
    
    (3.9
    )Increase in cash and cash equivalents
    
    
    189.1
    
    
    
    161.7
    
    
    
    290.5Cash and cash equivalents, beginning of year
    
    
    463.7
    
    
    
    302.0
    
    
    
    11.5Cash and cash equivalents, end of year
    
    $
    652.8
    
    
    $
    463.7
    
    
    $
    302.0
   (1)
    
    Net of the effects of acquisitions and translation. The Notes to Consolidated Financial Statements are an integral part of these statements. F-6




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COOPER INDUSTRIES, LTD. 
 CONSOLIDATED STATEMENTS
OF SHAREHOLDERS EQUITY
 Capital
    
    
    
    
    
    
    
    
    
    AccumulatedIn Excess
    
    
    
    
    
    
    
    
    
    NonownerCommon
    
    of Par
    
    Retained
    
    Treasury
    
    Changes inStock
    
    Value
    
    Earnings
    
    Stock
    
    Equity
    
    Total(in millions)Balance December 31, 2001
    
    $
    615.0
    
    
    $
    646.0
    
    
    $
    2,325.0
    
    
    $
    (1,435.0
    )
    
    $
    (127.8
    )
    
    $
    2,023.2Net income
    
    
    
    
    
    
    
    
    
    
    213.7
    
    
    
    
    
    
    
    
    
    
    
    213.7Minimum pension liability adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (33.4
    )
    
    
    (33.4
    )Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4.4
    )
    
    
    (4.4
    )Change in fair value of derivatives
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.2
    
    
    
    0.2Net income and other nonowner
changes in equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    176.1Common stock dividends
    
    
    
    
    
    
    
    
    
    
    (129.7
    )
    
    
    
    
    
    
    
    
    
    
    (129.7
    )Purchase of treasury shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (37.9
    )
    
    
    
    
    
    
    (37.9
    )Subsidiary purchase of parent shares
    
    
    
    
    
    
    (56.4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (56.4
    )Share conversion
    
    
    (614.1
    )
    
    
    (171.0
    )
    
    
    (664.8
    )
    
    
    1,449.9
    
    
    
    
    
    
    
    Stock issued under employee stock plans
    
    
    
    
    
    
    4.0
    
    
    
    
    
    
    
    21.6
    
    
    
    
    
    
    
    25.6Other activity
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    1.4
    
    
    
    
    
    
    
    1.5Balance December 31, 2002
    
    
    0.9
    
    
    
    422.7
    
    
    
    1,744.2
    
    
    
    
    
    
    
    (165.4
    )
    
    
    2,002.4Net income
    
    
    
    
    
    
    
    
    
    
    148.3
    
    
    
    
    
    
    
    
    
    
    
    148.3Minimum pension liability adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22.9
    )
    
    
    (22.9
    )Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26.2
    
    
    
    26.2Change in fair value of derivatives
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.4
    )
    
    
    (1.4
    )Net income and other nonowner
changes in equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    150.2Common stock dividends
    
    
    
    
    
    
    
    
    
    
    (129.7
    )
    
    
    
    
    
    
    
    
    
    
    (129.7
    )Stock-based compensation
    
    
    
    
    
    
    7.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7.1Subsidiary purchase of parent shares
    
    
    
    
    
    
    (5.5
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5.5
    )Stock issued under employee stock plans
    
    
    
    
    
    
    92.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    92.0Other activity
    
    
    
    
    
    
    1.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.7Balance December 31, 2003
    
    
    0.9
    
    
    
    518.0
    
    
    
    1,762.8
    
    
    
    
    
    
    
    (163.5
    )
    
    
    2,118.2Net income
    
    
    
    
    
    
    
    
    
    
    339.8
    
    
    
    
    
    
    
    
    
    
    
    339.8Minimum pension liability adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8.0
    )
    
    
    (8.0
    )Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36.3
    
    
    
    36.3Change in fair value of derivatives
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.0
    
    
    
    3.0Net income and other nonowner
changes in equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    371.1Common stock dividends
    
    
    
    
    
    
    
    
    
    
    (131.0
    )
    
    
    
    
    
    
    
    
    
    
    (131.0
    )Stock-based compensation
    
    
    
    
    
    
    21.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21.5Subsidiary purchase of parent shares
    
    
    
    
    
    
    (202.9
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (202.9
    )Stock issued under employee stock plans
    
    
    
    
    
    
    107.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    107.5Other activity
    
    
    
    
    
    
    2.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.1Balance December 31, 2004
    
    $
    0.9
    
    
    $
    446.2
    
    
    $
    1,971.6
    
    
    $
    
    
    
    $
    (132.2
    )
    
    $
    2,286.5
 The Notes to Consolidated Financial Statements are an integral part of these statements. F-7




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COOPER INDUSTRIES, LTD. 
 NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation:The consolidated financial statements of Cooper Industries, Ltd., a Bermuda
company (Cooper), have been prepared in accordance with generally accepted accounting principles
in the United States. Cooper is the parent company of Cooper Industries, Inc., an Ohio corporation
(Cooper Ohio), following a corporate reorganization (the reorganization) that became effective
on May 22, 2002. The reorganization was effected through the merger of Cooper Mergerco, Inc., an
Ohio corporation, into Cooper Ohio. Cooper Ohio was the surviving company in the merger and became
an indirect, wholly-owned subsidiary of Cooper. All outstanding shares of Cooper Ohio common stock
were automatically converted to Cooper Class A common shares. Cooper and its subsidiaries continue
to conduct the business previously conducted by Cooper Ohio and its subsidiaries. The
reorganization was accounted for as a reorganization of entities under common control and
accordingly, did not result in changes in the historical consolidated carrying amounts of assets,
liabilities and shareholders equity. Principles of Consolidation:The consolidated financial statements include the accounts of Cooper
and its majority-owned subsidiaries. Affiliated companies are accounted for on the equity method
where Cooper owns 20% to 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. Accounts Receivable:Cooper provides an allowance for doubtful trade accounts receivable,
determined under the specific identification method. The allowance was $5.3 million and $6.3
million at December 31, 2004 and 2003, respectively. Inventories:Inventories are carried at cost or, if lower, net realizable value. On the basis of
current costs, 57% and 58% of inventories at December 31, 2004 and 2003, respectively, were carried
on the last-in, first-out (LIFO) method. The remaining inventories are carried on the first-in,
first-out (FIFO) method. Cooper records provisions for potential obsolete and excess inventories.
See Note 4 of the Notes to the Consolidated Financial Statements. Property, Plant and Equipment:Property, plant and equipment are stated at cost. Depreciation is
provided over the estimated useful lives of the related assets using primarily the straight-line
method. This method is applied to group asset accounts, which in general have the following lives:
buildings  10 to 40 years; machinery and equipment  3 to 18 years; and tooling, dies, patterns
and other  3 to 10 years. Goodwill:On January 1, 2002, Cooper adopted Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets(SFAS No. 142). Under SFAS No. 142, goodwill is subject to
an annual impairment test. Cooper designated January 1 as the date of its annual goodwill
impairment test. If an event occurs or circumstances change that would more likely than not reduce
the fair value of a reporting unit below its carrying value, an interim impairment test would be
performed between annual tests. The first step of the SFAS No. 142 two step goodwill impairment
test compares the fair value of a reporting unit with its carrying value. Cooper has designated
seven reporting units, consisting of six units in the Electrical Products reportable operating
segment plus the Tools & Hardware reportable operating segment. If the carrying amount of a F-8




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##### Table of Contents



COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) reporting unit exceeds its fair value, the second step of the goodwill impairment test shall be
performed. Fair value is determined by estimating the present value of future cash flows. The
second step compares the implied fair value of reporting unit goodwill to the carrying amount of
the goodwill to measure the amount of impairment loss. See Note 6 of the Notes to the Consolidated
Financial Statements. Revenue Recognition:Cooper recognizes revenues when products are shipped. Accruals for sales
returns and other allowances are provided at the time of shipment based upon experience. The
accrual for sales returns and other allowances was $45.6 million and $33.8 million at December 31,
2004 and 2003, respectively. Shipping and handling costs of $132.2 million, $117.1 million and
$118.9 million in 2004, 2003 and 2002, respectively, are reported as a reduction of revenues in the
consolidated income statements. Research and Development Expenditures:Research and development expenditures are charged to
earnings as incurred. Research and development expenses were $70.6 million, $63.4 million and
$54.0 million in 2004, 2003 and 2002, respectively. Stock-Based Compensation:Effective January 1, 2003, Cooper adopted Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation(SFAS No. 123),
as amended. Coopers stock- based compensation plans are described in Note 10 of the Notes to the
Consolidated Financial Statements. Cooper utilized the prospective method of adoption. Cooper
accounted for stock-based compensation awards granted, modified or settled prior to January 1, 2003
using the intrinsic value method of accounting as prescribed by Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employeesand related interpretations (APB No. 25). In
accordance with APB No. 25, compensation expense was recognized for performance-based and
restricted stock awards. No compensation expense was recognized under Coopers fixed stock option
plans or Employee Stock Purchase Plan for grants prior to January 1, 2003. SFAS No. 123 provides an alternative fair value based method for recognizing stock-based
compensation in which compensation expense is measured at the grant date based on the value of the
award and is recognized over the service period, which is usually the vesting period. The fair
value of stock options is estimated on the grant date, using the Black-Scholes option-pricing model
with the following weighted average assumptions used for grants in 2004, 2003 and 2002
respectively: dividend yield of 2.5%, 3.8% and 3.9%, expected volatility of 34.0%, 34.0% and
33.0%, risk free interest rates of 3.1%, 2.7% and 4.8% and expected lives of 5 years in 2004, 4
years in 2003 and 7 years for 2002. The fair value of restricted stock and performance-based awards
granted in 2004 and 2003 was measured at the market price on the grant date. Total stock-based
compensation expense was $22.1 million in 2004 and $10.5 million in 2003. Previously accrued
stock-based compensation of $1.7 million related to performance based awards was reversed to income
during 2002 as it was determined that certain performance targets would not be met. The following table presents pro forma net income and earnings per share as if the fair value
based method had been applied to all outstanding and unvested awards in each year. F-9




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COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Year Ended December 312004
    
    
    2003
    
    
    2002(in millions)Net income, as reported
    
    $
    339.8
    
    
    $
    148.3
    
    
    $
    213.7Add: Stock-based employee compensation
expense included in reported net income, net of
related tax effects
    
    
    13.3
    
    
    
    6.3
    
    
    
    (1.0
    )Deduct: Total stock-based employee
compensation expense determined under fair
value based method for all awards, net of
related tax effects
    
    
    (14.6
    )
    
    
    (12.6
    )
    
    
    (12.9
    )Pro forma net income
    
    $
    338.5
    
    
    $
    142.0
    
    
    $
    199.8Earnings per share:Basic  as reported
    
    $
    3.67
    
    
    $
    1.60
    
    
    $
    2.29Basic  pro forma
    
    $
    3.66
    
    
    $
    1.53
    
    
    $
    2.14Diluted  as reported
    
    $
    3.58
    
    
    $
    1.58
    
    
    $
    2.28Diluted  pro forma
    
    $
    3.57
    
    
    $
    1.52
    
    
    $
    2.14
 Impact of New Accounting Standards:In January 2003, the Financial Accounting Standards Board
issued Interpretation No. 46, Consolidation of Variable Interest Entities(the Interpretation),
an interpretation of Accounting Research Bulletin No. 51. The Interpretation requires the
consolidation of variable interest entities in which an enterprise absorbs a majority of the
entitys expected losses, receives a majority of the entitys expected residual returns, or both,
as a result of ownership, contractual or other financial interest in the entity. For variable
interest entities created before February 1, 2003 the Interpretation was effective during the first
interim period ending after December 15, 2003. Adoption of the Interpretation had no effect on
Coopers consolidated results of operations, financial position or cash flows. In May 2004, the Financial Accounting Standards Board issued FASB Staff Position 106-2
Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and
Modernization Act of 2003(FSP 106-2). FSP 106-2 provides guidance on accounting for the effects
of the new Medicare prescription drug legislation by employers whose prescription drug benefits are
actuarially equivalent to the drug benefit under Medicare Part D. Cooper concluded that the
effects of FSP 106-2 did not constitute a significant event. Accordingly, Cooper incorporated the
effects of FSP 106-2 in the measurement of assets and obligations of affected postretirement plans
at December 31, 2004 resulting in an $11.3 million reduction in the accumulated postretirement
benefit obligation. In December 2004, the Financial Accounting Standards Board issued FASB Statement 123(R),
Share-Based Payment, which is a revision of SFAS No. 123. The revised statement is effective at
the beginning of the first interim period beginning after June 15, 2005. Statement 123(R) must be
applied to new awards and previously granted awards that are not fully vested on the effective
date. Cooper adopted SFAS No. 123 using the prospective transition method which applied only to
awards granted, modified or settled after the adoption date. Accordingly, compensation cost for
some previously granted awards that were not recognized under SFAS No. 123 will be recognized under
Statement 123(R). However, had we adopted Statement 123(R) in prior periods the impact of that
standard would have approximated the impact of SFAS No. 123 as described in the disclosure of pro
forma net income and earnings per share above. Statement 123(R) also requires the benefits of tax
deductions in excess of recognized compensation cost be reported as a financing cash flow, rather
than as an operating cash flow as required under current literature. This requirement will reduce
net operating cash flows and increase net financing cash flows in periods after adoption. While
Cooper cannot accurately estimate what those amounts will be in the future (as they depend on,
among other things, when employees exercise stock options), the amount of operating cash flows
recognized for such excess tax deductions were $5.3 million, $6.4 million and $0.6 million in 2004,
2003 and 2002, respectively. F-10




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##### Table of Contents



COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 2: RESTRUCTURING During the fourth quarter of 2003, Cooper recorded net restructuring charges of $16.9 million,
or $13.6 million after taxes ($.14 per diluted common share). This represented costs associated
with restructuring projects undertaken in 2003 of $18.4 million, partially offset by a $1.5 million
adjustment of estimates for restructuring projects initiated in 2002. The most significant action included in the charges was an announcement of the closing of
Cooper Wiring Devices manufacturing operations in New York City. This action will include the
withdrawal from a multiple-employer pension plan. Cooper recorded a $12.5 million obligation as an
estimate of Coopers portion of unfunded benefit obligations of the plan. The remaining $5.9
million charge primarily represents severance for announced employment reductions at several
locations. The 2003 net impact of the charges was $16.4 million on the Electrical Products
segment, $(0.4) million on the Tools & Hardware segment and $0.9 million related to General
Corporate. As of December 31, 2004 and 2003, Cooper had paid $4.9 million and $2.7 million,
respectively, for the actions, all of which was for severance costs. A total of 114 salaried and 150 hourly personnel were eliminated as a result of these actions.
A total of 106 personnel were terminated as of December 31, 2003 and the remainder terminated in
2004. The majority of the remaining severance obligation was paid in the first half of 2004. The
multiple-employer pension obligation is expected to be paid over 15 years, beginning in 2005. In 2001, Cooper accrued $35 million reflecting the contractual amount due to financial
advisors associated with Coopers strategic alternatives review. Cooper paid $5 million to the
advisors in the 2001 fourth quarter and $15.7 million during 2002, leaving a balance of $14.3
million payable upon the occurrence of certain events. During the second quarter of 2003, the
terms of the agreements with the financial advisors expired with the contingent events that
required payment not occurring. Accordingly, the accrual was reversed and reflected as a $14.3
million negative restructuring charge ($8.6 million, net of taxes) on the consolidated income
statement. Restructuring activity for 2003 totaled $2.6 million consisting of the fourth quarter net
restructuring charge of $16.9 million, less the $14.3 million negative restructuring charge. During the fourth quarter of 2002, Cooper committed to (1) the closure of ten manufacturing
facilities, (2) further employment reductions to appropriately size Coopers workforce to market
conditions, and (3) the write-off of assets related to production rationalization activities.
These actions were taken as a part of Cooper managements ongoing assessment of required production
capacity in consideration of the current demand levels. In connection with these commitments,
certain production capacity and related assets were sold, outsourced, discontinued or moved to a
lower cost environment. Cooper recorded a provision for these announced actions of $39.1 million
($15.0 million of which was non-cash), or $29.8 million after taxes ($.32 per diluted common
share). Of this amount, $24.0 million ($11.0 million of which was non-cash) was associated with the
Electrical Products segment, $12.7 million ($3.4 million of which was non-cash) was associated with
the Tools & Hardware segment and the remainder was related to General Corporate. During the fourth
quarter of 2003, Cooper reduced estimates of the cost related to those actions by $1.5 million. F-11




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##### Table of Contents



COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The following table reflects activity related to the fourth quarter 2002 restructuring charge. Number of
    
    
    Accrued
    
    
    Facilities ClosureEmployees
    
    
    Severance
    
    
    and Rationalization($ in millions)2002 Restructuring Charge
    
    
    1,206
    
    
    $
    18.3
    
    
    $
    20.8Asset write-offs
    
    
    
    
    
    
    
    
    
    
    (15.0
    )Employees terminated
    
    
    (184
    )
    
    
    
    
    
    
    Cash expenditures
    
    
    
    
    
    
    (2.1
    )
    
    
    Balance at December 31, 2002
    
    
    1,022
    
    
    
    16.2
    
    
    
    5.8Employees terminated
    
    
    (982
    )
    
    
    
    
    
    
    Cash expenditures
    
    
    
    
    
    
    (14.9
    )
    
    
    (2.9
    )Reversal of excess accrual
    
    
    (9
    )
    
    
    (0.9
    )
    
    
    (0.6
    )Balance at December 31, 2003
    
    
    31
    
    
    
    0.4
    
    
    
    2.3Employees terminated
    
    
    (31
    )
    
    
    
    
    
    
    Cash expenditures
    
    
    
    
    
    
    (0.4
    )
    
    
    (1.7
    )Balance at December 31, 2004
    
    
    
    
    
    $
    
    
    
    $
    0.6
 A total of 435 salaried and 771 hourly positions were eliminated as a result of the planned
closure and rationalization actions. Of those planned position eliminations, approximately 600
positions were replaced ultimately as a result of Coopers ongoing efforts to relocate production
capacity to lower cost locations. During the fourth quarter of 2001, Cooper committed to the consolidation or closure of certain
Electrical Products segment facilities and recorded a provision for severance and other related
costs of these announced actions of $7.1 million ($1.7 million of which was non-cash). Plans to
consolidate or close facilities arose as a result of Cooper management continuing to review and
modify their assessment of required production and distribution facilities and capacity, in
consideration of depressed demand levels. On August 1, 2001, Danaher Corporation (Danaher) announced it had made an unsolicited
proposal to Cooper for a merger through a stock and cash transaction subject to conducting due
diligence procedures. On August 8, 2001, Coopers Board of Directors unanimously rejected
Danahers proposal and authorized management to explore all strategic alternatives that would
maximize shareholder value including mergers, sales, strategic alliances, acquisitions or other
similar strategic alternatives. During the 2001 fourth quarter, Cooper recorded a General
Corporate restructuring charge of $35.0 million for the fees and expenses of financial advisors and
$1.0 million for legal and other external costs associated with performing Coopers strategic
alternatives review. On February 13, 2002, Cooper announced that it completed its strategic
alternatives review process. After careful review of all the available alternatives with management
and its financial advisors, Coopers Board of Directors concluded that it was in the best interests
of Coopers shareholders to move forward with its plan to reincorporate in Bermuda. The following table reflects activity related to the fourth quarter 2001 severance, facility
consolidation and closure and financial advisors and other cost accruals. A total of 77 salaried
and 196 hourly positions were eliminated as a result of these consolidation activities. F-12




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##### Table of Contents



COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Facility
    
    
    FinancialNo. of
    
    
    Accrued
    
    
    Consolidation
    
    
    AdvisorsEmployees
    
    
    Severance
    
    
    and Closure
    
    
    and Others($ in millions)Balance at December 31, 2001
    
    
    273
    
    
    $
    3.0
    
    
    $
    2.1
    
    
    $
    30.0Employees terminated
    
    
    (273
    )
    
    
    
    
    
    
    
    
    
    
    Cash expenditures
    
    
    
    
    
    
    (3.0
    )
    
    
    (2.1
    )
    
    
    (15.7
    )Balance at December 31, 2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14.3Reversal of accrual
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14.3
    )Balance at December 31, 2003
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 See Restructuring in Managements Discussion and Analysis of Financial Condition and
Results of Operations for additional information related to the restructuring. NOTE 3: ACQUISITIONS In March 2004, Cooper acquired a manufacturer of specification and commercial grade lighting
fixtures for $10.1 million. In November 2004, Cooper acquired a U.K. based manufacturer of visual
and audible alarms and public address speakers for $38.5 million. The results of operations of the
acquisitions are included in the consolidated income statement since the respective acquisition
dates. Pro-forma net income and earnings per share for 2004, assuming that the acquisitions had
been made at the beginning of the year, would not be materially different from reported net income
and earnings per share. During 2002, Cooper paid $1.1 million related to previously acquired businesses. The terms of
a previous acquisition agreement provided for additional consideration to be paid if earnings of
the acquired businesses exceeded certain targeted levels. NOTE 4: INVENTORIES December 31,2004
    
    
    2003(in millions)Raw materials
    
    $
    185.2
    
    
    $
    182.8Work-in-process
    
    
    118.6
    
    
    
    113.9Finished goods
    
    
    320.2
    
    
    
    346.3Perishable tooling and supplies
    
    
    13.2
    
    
    
    20.6637.2
    
    
    
    663.6Allowance for excess and obsolete inventory
    
    
    (58.9
    )
    
    
    (47.6
    )Excess of current standard costs over LIFO costs
    
    
    (55.3
    )
    
    
    (64.0
    )Net inventories
    
    $
    523.0
    
    
    $
    552.0
 F-13




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##### Table of Contents



COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 5: PROPERTY, PLANT AND EQUIPMENT December 31,2004
    
    
    2003(in millions)Land and land improvements
    
    $
    69.2
    
    
    $
    58.8Buildings
    
    
    478.9
    
    
    
    472.5Machinery and equipment
    
    
    802.2
    
    
    
    787.3Tooling, dies and patterns
    
    
    257.0
    
    
    
    240.6All other
    
    
    342.7
    
    
    
    316.3Construction in progress
    
    
    58.6
    
    
    
    44.92,008.6
    
    
    
    1,920.4Accumulated depreciation
    
    
    (1,312.2
    )
    
    
    (1,209.0
    )$
    696.4
    
    
    $
    711.4
 NOTE 6: GOODWILL AND OTHER INTANGIBLE ASSETS Changes in the carrying amount of goodwill by segment, were as follows: Electrical
    
    
    Tools &Products
    
    
    Hardware
    
    
    Total(in millions)Balance December 31, 2002
    
    $
    1,698.4
    
    
    $
    297.8
    
    
    $
    1,996.2Translation adjustments
    
    
    58.8
    
    
    
    1.6
    
    
    
    60.4Balance December 31, 2003
    
    
    1,757.2
    
    
    
    299.4
    
    
    
    2,056.6Additions to goodwill
    
    
    37.9
    
    
    
    
    
    
    
    37.9Translation adjustments
    
    
    45.0
    
    
    
    2.8
    
    
    
    47.8Balance December 31, 2004
    
    $
    1,840.1
    
    
    $
    302.2
    
    
    $
    2,142.3
 On January 1, 2002, Cooper adopted SFAS No. 142. Under SFAS No. 142, goodwill is subject
to an annual impairment test. See Note 1 of the Notes to the Consolidated Financial Statements. The
results of step one of the goodwill impairment test did not require the completion of step two of
the test for any reporting units in 2004, 2003 or 2002. Other intangible assets primarily consist of patents and trademarks. The gross carrying value
of other intangible assets was $11.4 million and $12.1 million at December 31, 2004 and 2003,
respectively. Accumulated amortization of other intangible assets was $9.0 million and $9.1
million at December 31, 2004 and 2003, respectively. Subsequent to the adoption of SFAS No. 142,
other intangible assets continue to be amortized over their remaining useful lives which were
evaluated and determined to remain appropriate. Amortization expense of other intangible assets
was $0.7 million in 2004, $0.6 million in 2003 and $0.8 million in 2002. Annual amortization
expense is expected to be $0.6 million in 2005, $0.5 million in 2006 and 2007, $0.4 million in 2008
and $0.3 million in 2009. F-14




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##### Table of Contents



COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 7: ACCRUED LIABILITIES December 31,2004
    
    
    2003(in millions)Salaries, wages and employee benefit plans
    
    $
    232.7
    
    
    $
    214.4Commissions and customer incentives
    
    
    115.6
    
    
    
    84.6Product and environmental liability accruals
    
    
    39.1
    
    
    
    34.3Facility integration of acquired businesses
    
    
    11.0
    
    
    
    18.1Other (individual items less than 5% of total current liabilities)
    
    
    90.4
    
    
    
    82.3$
    488.8
    
    
    $
    433.7
 At December 31, 2004, Cooper had accruals of $20.4 million with respect to potential product
liability claims and $36.5 million with respect to potential environmental liabilities, including
$17.8 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 $7.4 million of known claims with respect to ongoing
operations, $2.3 million of known claims for previously divested operations and $10.7 million which
represents an estimate of claims that have been incurred but not yet reported. While Cooper is
generally self-insured with respect to product liability claims, Cooper has insurance coverage for
individual 2004 claims above $5.0 million. Environmental remediation costs are accrued based on estimates of known environmental
remediation exposures. Such accruals are adjusted as information develops or circumstances change.
The environmental liability accrual includes $7.6 million related to sites owned by Cooper and
$28.9 million for retained environmental liabilities related to sites previously owned by Cooper
and third-party sites where Cooper was a potentially responsible party. Third-party sites usually
involve multiple contributors where Coopers liability will be determined based on an estimate of
Coopers proportionate responsibility for the total cleanup. The amount actually accrued for such
sites is based on these estimates as well as an assessment of the financial capacity of the other
potentially responsible parties. It has been Coopers consistent practice to include the entire product liability accrual and a
significant portion of the environmental liability accrual as current liabilities, although only
approximately 15-25% of the balance classified as current is normally spent on an annual basis.
The annual effect on earnings for product liability is essentially equal to the amounts disbursed.
In the case of the 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. F-15




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##### Table of Contents



COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) In connection with acquisitions, 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. The following table summarizes the accrual balances and
activity during each of the last three years: 2004
    
    
    2003
    
    
    2002(in millions)Balance, beginning of year
    
    $
    18.1
    
    
    $
    29.1
    
    
    $
    39.3Spending
    
    
    (7.1
    )
    
    
    (11.0
    )
    
    
    (7.2
    )Reversal of excess accruals
    
    
    
    
    
    
    
    
    
    
    (2.4
    )Translation
    

    
    
    

    
    
    

    (0.6
    )Balance, end of year
    
    $
    11.0
    
    
    $
    18.1
    
    
    $
    29.1
 At December 31, 2004 and 2003, respectively, $11.0 million and $17.7 million of the
balance is related to facilities shutdown and realignment costs resulting from the acquisition of
Eagle Electric in 2000. During the three years ended December 31, 2004, the annual spending was primarily related to
downsizing and consolidating facilities. Reversal of excess accruals represents the excess of
facilities shut-down and realignment accruals over the ultimate amount expended on certain
completed activities. The excess facilities shut-down and realignment accrual of $2.4 million and
related deferred tax asset balance was reversed in 2002 with a corresponding reduction in goodwill. Involuntary termination benefits of $1.2 million, $7.9 million and $4.2 million were paid as
68, 624 and 296 hourly positions were eliminated during 2004, 2003 and 2002, respectively. A total
of 344 additional hourly positions are expected to be eliminated as a result of planned facilities
shut-downs. The remaining terminations and facility shut-down activities are expected to be
substantially completed in early 2006. NOTE 8: DEBT AND LEASE COMMITMENTS December 31,2004
    
    
    2003(in millions)6.47% - 6.91% second series medium-term notes, due through 2010
    
    $
    242.3
    
    
    $
    242.36.38% third series medium-term notes, due through 2008
    
    
    100.0
    
    
    
    100.05.25% senior unsecured notes, due July 2007
    
    
    300.2
    
    
    
    305.25.50% senior unsecured notes, due November 2009
    
    
    275.0
    
    
    
    275.06.25% Euro bonds maturing in October 2005
    
    
    409.1
    
    
    
    374.64.45%* Pound Sterling notes payable maturing at various dates through 2005
    
    
    26.9
    
    
    
    30.4Other
    

    10.5
    
    

    9.6Total long-term debt
    
    
    1,364.0
    
    
    
    1,337.1Current maturities
    
    
    (665.4
    )
    
    
    (0.4
    )Long-term portion
    
    $
    698.6
    
    
    $
    1,336.7
   *
    
    The weighted average interest rate on the Pound Sterling notes was 3.64% at December 31,
2003. Cooper has a U.S. committed credit facility of $500 million, which matures in November
2009. At December 31, 2004, all of Coopers $500 million U.S. committed credit facility was
available. At December F-16




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##### Table of Contents



COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 31, 2003, all of Coopers $450 million U.S. committed credit facility was available. The
agreement for the credit facility requires that Cooper maintain certain financial ratios, including
a prescribed limit on debt as a percentage of total capitalization and a minimum earnings before
interest, income taxes, depreciation and amortization to interest ratio. Retained earnings are
unrestricted as to the payment of dividends, except to the extent that payment would cause a
violation of the prescribed limit on the debt-to-total capitalization ratio. During June 2002, Cooper Ohio issued $300 million senior unsecured notes due July 1, 2007 with
a 5.25% interest rate. Proceeds from the notes were used to repay commercial paper obligations.
During September 2002, Cooper Ohio filed a Form S-4 Registration Statement to exchange the original
notes for notes with substantially identical terms, except that the exchange notes are registered
under the Securities Act of 1933, as amended, and the transfer restrictions and registration rights
applicable to the original notes do not apply to the exchange notes. The original and exchange
notes are fully and unconditionally guaranteed by Cooper. The exchange offer was completed on
November 4, 2002 with all holders exchanging their notes. Cooper Ohio did not receive any proceeds
from the exchange offer. During August 2003, Cooper entered into interest-rate swaps to
effectively convert this fixed-rate debt to variable-rate debt (see Note 17). The fair value of
the interest rate swaps are included in noncurrent assets and long-term debt on the consolidated
balance sheets. During 1999, Cooper Ohio completed a shelf registration statement to issue up to $500 million
of debt securities. On October 28, 2002, Cooper Ohio issued $275 million senior unsecured notes
due November 1, 2009, with a 5.5% interest rate. Proceeds from the notes were used to repay
short-term debt and other maturing indebtedness in 2002 and current maturities of long-term debt in
2003. The notes are fully and unconditionally guaranteed by Cooper. Cooper terminated the shelf
registration effective August 6, 2004. Maturities of long-term debt for the five years subsequent to December 31, 2004 are $665.4
million, $12.2 million, $300.8 million, $100.4 million and $275.0 million, respectively. The
future net minimum lease payments under capital leases are not significant. Short-term debt of $97.6 million at December 31, 2004 primarily consists of $92.2 million
borrowed in December 2004 and maturing in February 2005. Total interest paid during 2004, 2003 and 2002 was $82 million, $83 million and $65 million,
respectively. Cooper has entered into various operating lease agreements, primarily for manufacturing,
warehouse and sales office facilities and equipment. Generally, the leases include renewal
provisions and rental payments may be adjusted for increases in taxes, insurance and maintenance
related to the property. Rent expense for all operating leases was $35.0 million, $39.4 million
and $44.0 million during 2004, 2003 and 2002, respectively. At December 31, 2004, minimum annual rental commitments under noncancellable operating leases
that have an initial or remaining lease term in excess of one year were $21.0 million in 2005,
$19.7 million in 2006, $16.1 million in 2007, $12.2 million in 2008, $6.6 million in 2009 and $13.9
million thereafter. NOTE 9: COMMON AND PREFERRED STOCK Coopers authorized share capital is U.S. $4,100,000 consisting of 250,000,000 Class A common
shares, par value of $.01 per share, 150,000,000 Class B common shares, par value $.01 per share
and 10,000,000 preferred shares, par value $.01 per share, which preferred shares may be designated
and created as shares of any other classes or series of shares with the respective rights and
restrictions determined by action of the Board of Directors. No preferred shares were outstanding
at December 31, 2004, 2003 or 2002. At December 31, 2004, 92,543,660 Class A common shares, $.01 par value were issued and
outstanding (excluding the 3,700,200 Class A common shares held by wholly-owned subsidiaries as
discussed below) compared to 93,797,765 Class A common shares, $.01 par value (excluding the 1,130
Class A common shares F-17




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##### Table of Contents



COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) held by wholly-owned subsidiaries) at December 31, 2003. During 2004, Cooper issued 2,446,095
Class A common shares primarily in connection with employee incentive and benefit plans and
Coopers dividend reinvestment program. During 2004, Coopers wholly-owned subsidiaries purchased
3,700,200 Class A common shares for $202.9 million. The share purchases are recorded by Coopers
wholly-owned subsidiaries as an investment in its parent company that is eliminated in
consolidation. During 2004, 1,130 Class A common shares held by wholly-owned subsidiaries were
issued primarily in connection with employee benefit plans, leaving 3,700,200 Class A common shares
held by wholly-owned subsidiaries at December 31, 2004. At December 31, 2003, 93,797,765 Class A common shares, $.01 par value were issued and
outstanding (excluding 1,130 Class A common shares held by Cooper Ohio) compared to 91,709,144
Class A common shares, $.01 par value that were issued and outstanding (excluding 1,519,214 Class A
common shares held by Cooper Ohio) at December 31, 2002. During 2003, Cooper Ohio purchased
153,500 Class A common shares for $5.5 million. During 2003, Cooper issued 2,242,121 Class A common
shares (including 1,671,584 shares held by Cooper Ohio) primarily in connection with employee
benefit plans and Coopers dividend reinvestment program. At December 31, 2001, 93,761,587 common shares, $5 par value were issued and outstanding. In
2002, prior to the reorganization, Cooper Ohio repurchased 1,000,000 shares of its common stock at
a cost of $37.9 million and issued 337,570 common shares primarily in connection with employee
benefit plans. Effective May 22, 2002, Cooper became the parent company of Cooper Ohio following a
reorganization. The reorganization was effected through the merger of Cooper Mergerco, Inc. into
Cooper Ohio (see Note 1). Upon consummation of the merger, 93,099,157 issued and outstanding
Cooper Ohio common shares, $5 par value, automatically became 93,099,157 Cooper Class A common
shares, $.01 par value. The decrease in the par value of the common shares of $464.5 million was
recorded as a decrease to common stock and an increase to capital in excess of par value on the
consolidated balance sheet. On May 22, 2002, 29,893,919 Cooper Ohio treasury shares were retired
due to the reorganization. The treasury stock retirement was recorded by eliminating the $1,449.9
million treasury stock balance and reducing common stock, $5 par value $149.6 million, capital in
excess of par value $635.5 million and retained earnings $664.8 million on the consolidated balance
sheet. Additionally, Cooper issued 129,201 Class A common shares in 2002 after the reorganization
primarily in connection with employee benefits plans. During the third and fourth quarters of 2002,
Cooper Ohio purchased 1,804,250 Class A common shares for $56.4 million. The share purchases are
recorded by Cooper Ohio as an investment in its parent company that is eliminated in consolidation.
During 2002, 285,036 of the Class A common shares held by Cooper Ohio were issued primarily to
satisfy the matching obligation under the Cooper Ohio Retirement Savings and Stock Ownership Plan,
leaving 1,519,214 Class A common shares held by Cooper Ohio at December 31, 2002. As part of the reorganization, Cooper Ohio transferred the shares of certain subsidiaries to
Cooper in exchange for Cooper Class B common shares. The Class B common shares held by Cooper Ohio
are accounted for as an investment in the parent company that is eliminated in consolidation. The
Class B common shares are not entitled to vote, except as to matters for which Bermuda law
specifically requires voting rights for otherwise nonvoting shares. Cooper and its wholly-owned
subsidiaries have entered into a voting agreement which provides that in those limited
circumstances where the Class B common shares have the right to vote, Coopers wholly-owned
subsidiaries shall vote the Class B common shares and any Class A common shares that may be held by
Coopers wholly-owned subsidiaries in the same proportion as the holders of Class A common shares.
If at any time a dividend is declared or paid on the Class A common shares, a like dividend shall
be declared and paid on Class B common shares in an equal amount per share. During 2004, 2003 and
2002, Coopers wholly-owned subsidiaries waived their rights to receive the regular quarterly
dividend declared of $.35 per share (a total of $81.6 million in 2004, $80.6 million in 2003 and
$40.6 million in 2002) on both the Class A and Class B common shares held by Coopers wholly-owned
subsidiaries. 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 F-18




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##### Table of Contents



COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) brokerage commissions or service charges. At December 31, 2004, Cooper had 16,007,568 shares
reserved for the Dividend Reinvestment Plan, grants and exercises of stock options,
performance-based stock awards, restricted stock awards and subscriptions under the Employee Stock
Purchase Plan and other plans. On February 9, 2005, Coopers Board of Directors announced an increase in the annual dividend
rate of Coopers common stock by eight cents per share to $1.48, or 37 cents per quarter. During May 2002, Cooper adopted a Shareholder Rights Plan to replace the rights attached to
the common stock of Cooper Ohio. The Board of Directors authorized the issuance of one right for
each common share outstanding on May 22, 2002. Each Right entitles the holder to buy one
one-hundredth of a share of Series A Participating Preferred Stock at a purchase price of $225 per
one one-hundredth of a share or, in certain circumstances common shares having a value of twice the
purchase price. Each Right becomes exercisable only in certain circumstances constituting a
potential change of control on a basis considered inadequate by the Board of Directors. The Rights
expire August 5, 2007 and, at Coopers option, may be redeemed prior to expiration for $.01 per
Right. NOTE 10: STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN Under Cooper stock option plans, officers, directors and key employees may be granted options
to purchase Coopers common stock at no less than 100% of the market price on the date the option
is granted. Options generally become exercisable ratably over a three-year period commencing one
year from the grant date and have a maximum term of ten years. The plans also provide for the
granting of performance-based stock awards and restricted stock awards to certain key executives
that generally vest over periods ranging from three to five years. A summary of the status of Coopers fixed stock option plans for officers and employees as of
December 31, 2004 and activity during the three years ended December 31, 2004 is presented below: 2004
    
    
    2003
    
    
    2002Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    Exercise
    
    
    
    
    
    
    ExerciseShares
    
    
    Price
    
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    PriceOutstanding at beginning of year
    
    
    7,325,526
    
    
    $
    40.32
    
    
    
    7,318,903
    
    
    $
    40.74
    
    
    
    4,740,658
    
    
    $
    44.07Granted
    
    
    1,062,750
    
    
    $
    55.65
    
    
    
    1,421,100
    
    
    $
    37.36
    
    
    
    2,806,425
    
    
    $
    35.21Exercised
    
    
    (1,993,088
    )
    
    $
    40.93
    
    
    
    (1,184,395
    )
    
    $
    39.40
    
    
    
    (41,096
    )
    
    $
    38.52Canceled
    
    
    (139,456
    )
    
    $
    42.04
    
    
    
    (230,082
    )
    
    $
    40.12
    
    
    
    (187,084)
    )
    
    $
    42.78Outstanding at end of year
    
    
    6,255,732
    
    
    $
    42.69
    
    
    
    7,325,526
    
    
    $
    40.32
    
    
    
    7,318,903
    
    
    $
    40.74Options exercisable at end of year
    
    
    3,488,466
    
    
    
    
    
    
    
    3,642,301
    
    
    
    
    
    
    
    3,033,777Options available for grant at end of year
    
    
    5,013,148
    
    
    
    
    
    
    
    1,351,330
    
    
    
    
    
    
    
    2,359,814
 F-19




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##### Table of Contents



COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Options Outstanding
    
    
    Options ExercisableWeightedShares
    
    
    Average
    
    
    Weighted
    
    
    Shares
    
    
    WeightedOutstanding
    
    
    Remaining
    
    
    Average
    
    
    Exercisable
    
    
    AverageRange of
    
    At
    
    
    Contractual
    
    
    Exercise
    
    
    At
    
    
    ExerciseExercise Prices
    
    12/31/04
    
    
    Life
    
    
    Price
    
    
    12/31/04
    
    
    Price$29.46 - $35.21
    
    
    1,743,130
    
    
    
    6.4
    
    
    $
    35.14
    
    
    
    891,643
    
    
    $
    35.10$36.76 - $39.06
    
    
    1,663,098
    
    
    
    3.6
    
    
    $
    37.52
    
    
    
    792,653
    
    
    $
    37.75$39.77 - $43.47
    
    
    425,896
    
    
    
    4.0
    
    
    $
    43.43
    
    
    
    422,562
    
    
    $
    43.45$45.06 - $46.10
    
    
    1,059,279
    
    
    
    5.2
    
    
    $
    45.97
    
    
    
    1,059,279
    
    
    $
    45.97$50.67 - $57.56
    
    
    1,364,329
    
    
    
    5.4
    
    
    $
    55.86
    
    
    
    322,329
    
    
    $
    56.606,255,732
    
    
    
    
    
    
    
    
    
    
    
    3,488,466
 During 2004, 2003 and 2002, respectively, options to purchase 18,000, 18,000 and 9,000
shares of common stock were granted to nonemployee directors at an exercise price of $57.27, $37.28
and $41.08. During 2004, options for 5,000 shares were exercised at prices ranging from $42.13 to
$49.03 per share. No nonemployee director options were exercised in 2003 or 2002. At December 31,
2004, options under the director plans for 44,000 common shares were exercisable at $33.66 to
$63.78 per share, and 54,968 shares were reserved for future grants. Participants in the Employee Stock Purchase Plan receive an option to purchase common stock at
a price that is the lesser of 85% of the market value on the offering date or 85% of the market
value on the purchase date. On September 10, 2003, a total of 483,091 shares were sold to employees
at $34.07 per share. There is currently no outstanding offering under the plan. At December 31,
2004, an aggregate of 1,940,885 shares of common stock were reserved for future issuance. See Note 1 of the Notes to the Consolidated Financial Statements for information on
stock-based compensation expense. NOTE 11: ACCUMULATED NONOWNER CHANGES IN EQUITY GainMinimum
    
    
    (Loss) On
    
    
    CumulativePension
    
    
    Derivative
    
    
    TranslationLiability
    
    
    Instruments
    
    
    Adjustment
    
    
    Total(in millions)Balance December 31, 2001
    
    $
    (3.4
    )
    
    $
    (0.3
    )
    
    $
    (124.1
    )
    
    $
    (127.8
    )Current year other nonowner changes in equity
    
    
    (33.4
    )
    
    
    0.2
    
    
    
    (4.4
    )
    
    
    (37.6
    )Balance December 31, 2002
    
    
    (36.8
    )
    
    
    (0.1
    )
    
    
    (128.5
    )
    
    
    (165.4
    )Current year other nonowner changes in equity
    
    
    (22.9
    )
    
    
    (1.4
    )
    
    
    26.2
    
    
    
    1.9Balance December 31, 2003
    
    
    (59.7
    )
    
    
    (1.5
    )
    
    
    (102.3
    )
    
    
    (163.5
    )Current year other nonowner changes in equity
    
    
    (8.0
    )
    
    
    3.0
    
    
    
    36.3
    
    
    
    31.3Balance December 31, 2004
    
    $
    (67.7
    )
    
    $
    1.5
    
    
    $
    (66.0
    )
    
    $
    (132.2
    )
 F-20




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##### Table of Contents



COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 2004
    
    
    2003
    
    
    2002Before
    
    
    Tax
    
    
    
    
    
    
    Before
    
    
    Tax
    
    
    
    
    
    
    Before
    
    
    TaxTax
    
    
    (Expense)
    
    
    Net
    
    
    Tax
    
    
    (Expense)
    
    
    Net
    
    
    Tax
    
    
    (Expense)
    
    
    NetAmount
    
    
    Benefit
    
    
    Amount
    
    
    Amount
    
    
    Benefit
    
    
    Amount
    
    
    Amount
    
    
    Benefit
    
    
    Amount(in millions)Minimum
pension liability adjustment

    
    $
    (13.3
    )
    
    $
    5.3
    
    
    $
    (8.0
    )
    
    $
    (38.1
    )
    
    $
    15.2
    
    
    $
    (22.9
    )
    
    $
    (55.7
    )
    
    $
    22.3
    
    
    $
    (33.4
    )Change in fair value
of
derivatives
    
    
    5.2
    
    
    
    (2.1
    )
    
    
    3.1
    
    
    
    (4.7
    )
    
    
    1.9
    
    
    
    (2.8
    )
    
    
    0.1
    
    
    
    
    
    
    
    0.1Reclassification to
earnings
    
    
    (0.2
    )
    
    
    0.1
    
    
    
    (0.1
    )
    
    
    2.4
    
    
    
    (1.0
    )
    
    
    1.4
    
    
    
    0.2
    
    
    
    (0.1
    )
    
    
    0.15.0
    
    
    
    (2.0
    )
    
    
    3.0
    
    
    
    (2.3
    )
    
    
    0.9
    
    
    
    (1.4
    )
    
    
    0.3
    
    
    
    (0.1
    )
    
    
    0.2Translation adjustment
    
    
    55.8
    
    
    
    (19.5
    )
    
    
    36.3
    
    
    
    40.2
    
    
    
    (14.0
    )
    
    
    26.2
    
    
    
    (6.8
    )
    
    
    2.4
    
    
    
    (4.4
    )Other nonowner
changes in equity
    
    $
    47.5
    
    
    $
    (16.2
    )
    
    $
    31.3
    
    
    $
    (0.2
    )
    
    $
    2.1
    
    
    $
    1.9
    
    
    $
    (62.2
    )
    
    $
    24.6
    
    
    $
    (37.6
    )
 NOTE 12: INCOME TAXES Year Ended December 31,2004
    
    
    2003
    
    
    2002($ in millions)Components of income from continuing operations
before income taxes:U.S. operations
    
    $
    71.3
    
    
    $
    56.1
    
    
    $
    81.4Foreign operations
    
    
    357.2
    
    
    
    290.4
    
    
    
    198.8Income from continuing operations before income taxes
    
    $
    428.5
    
    
    $
    346.5
    
    
    $
    280.2Components of income tax expense:Current:U.S. Federal
    
    $
    4.6
    
    
    $
    (62.1
    )
    
    $
    8.0U.S. state and local
    
    
    4.9
    
    
    
    (8.2
    )
    
    
    5.4Foreign
    
    
    51.5
    
    
    
    43.2
    
    
    
    49.461.0
    
    
    
    (27.1
    )
    
    
    62.8Deferred:U.S. Federal
    
    
    19.8
    
    
    
    79.7
    
    
    
    30.5U.S. state and local
    
    
    4.7
    
    
    
    21.0
    
    
    
    3.3Foreign
    
    
    3.2
    
    
    
    (1.4
    )
    
    
    (30.1
    )27.7
    
    
    
    99.3
    
    
    
    3.7Income tax expense
    
    $
    88.7
    
    
    $
    72.2
    
    
    $
    66.5Total income taxes paid
    
    $
    87.3
    
    
    $
    30.8
    
    
    $
    27.9Effective tax rate reconciliation:U.S. Federal statutory rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    35.0
    %State and local income taxes
    
    
    1.5
    
    
    
    2.4
    
    
    
    2.0Non U.S. Operations
    
    
    (13.5
    )
    
    
    (15.8
    )
    
    
    (11.5
    )Extraterritorial income exclusion
    
    
    (1.0
    )
    
    
    (1.2
    )
    
    
    (1.4
    )Tax credits
    
    
    (1.3
    )
    
    
    (0.2
    )
    
    
    (0.2
    )Other
    
    
    
    
    
    
    0.6
    
    
    
    (0.2
    )Effective tax rate attributable to continuing operations
    
    
    20.7
    %
    
    
    20.8
    %
    
    
    23.7
    %
 F-21




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##### Table of Contents



COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Cooper entered into a settlement with the Internal Revenue Service covering years 1994-1996
which also included final disposition of certain refund claims relating to tax years prior to 1994.
During October 2003, Cooper received a refund of $75.9 million including interest of $28.6 million
after the settlement was approved by the Joint Committee on Taxation of Congress. The $47.3
million refund balance primarily reduced tax-related assets. December 31,2004
    
    
    2003(in millions)Components of deferred tax assets and liabilities:Deferred tax assets:Postretirement and other employee welfare benefits
    
    $
    71.2
    
    
    $
    72.8Accrued liabilities
    
    
    211.6
    
    
    
    182.3Minimum pension liability
    
    
    45.1
    
    
    
    39.8Other
    
    
    24.4
    
    
    
    61.2Total deferred tax assets
    
    
    352.3
    
    
    
    356.1Deferred tax liabilities:Property, plant and equipment and intangibles
    
    
    (180.5
    )
    
    
    (167.2
    )Inventories
    
    
    (13.9
    )
    
    
    (14.4
    )Pension plans
    
    
    (71.0
    )
    
    
    (53.9
    )Other
    
    
    (4.0
    )
    
    
    (7.7
    )Total deferred tax liabilities
    
    
    (269.4
    )
    
    
    (243.2
    )Net deferred tax asset
    
    $
    82.9
    
    
    $
    112.9
 Generally, Cooper provides United States income tax that would be imposed on the repatriation
of the earnings of its non-U.S. operations. However, as of December 31, 2004, United States income
taxes have not been provided on approximately $110 million of undistributed non-U.S. earnings that
are expected to be permanently reinvested outside the United States. Cooper is currently under audit by the Internal Revenue Service for the years 2000-2001 as
well as by other taxing authorities. Cooper fully cooperates with all audits, but defends existing
positions vigorously. These audits are in various stages of completion. To provide for potential
tax exposures, Cooper maintains an allowance for tax contingencies, which management believes is
adequate. The results of future audit assessments, if any, could have a material effect on
Coopers cash flows as these audits are completed. However, management does not believe that any
of these matters will have a material adverse effect on Coopers consolidated results of
operations. NOTE 13: PENSION AND OTHER POSTRETIREMENT BENEFITS Cooper and its subsidiaries have numerous defined benefit pension plans and other
postretirement benefit plans. The benefits provided under Coopers various postretirement benefit
plans other than pensions, all of which are unfunded, include retiree medical care, dental care,
prescriptions and life insurance, with medical care accounting for approximately 90% of the total.
Current employees, unless grandfathered under plans assumed in acquisitions, are not provided
postretirement benefits other than pensions. The vast majority of the annual other postretirement
benefit expense is related to employees who are already retired. The measurement date for all plan
disclosures is December 31. F-22




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##### Table of Contents



COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) OtherPension Benefits
    
    
    Postretirement Benefits2004
    
    
    2003
    
    
    2004
    
    
    2003(in millions)Change in benefit obligation:Benefit obligation at January 1
    
    $
    691.5
    
    
    $
    650.1
    
    
    $
    138.8
    
    
    $
    139.0Service cost
    
    
    16.2
    
    
    
    16.8
    
    
    
    0.2
    
    
    
    0.2Interest cost
    
    
    41.8
    
    
    
    42.0
    
    
    
    8.2
    
    
    
    9.2Benefit payments
    
    
    (52.4
    )
    
    
    (47.6
    )
    
    
    (13.3
    )
    
    
    (13.8
    )Actuarial (gain) loss
    
    
    46.4
    
    
    
    12.2
    
    
    
    (4.4
    )
    
    
    4.2Exchange rate changes
    
    
    11.1
    
    
    
    15.4
    
    
    
    
    
    
    
    Other
    
    
    9.1
    
    
    
    2.6
    
    
    
    
    
    
    
    Benefit obligation at December 31
    
    
    763.7
    
    
    
    691.5
    
    
    
    129.5
    
    
    
    138.8Change in plan assets:Fair value of plan assets at January 1
    
    
    584.6
    
    
    
    534.3
    
    
    
    
    
    
    
    Actual return on plan assets
    
    
    50.9
    
    
    
    68.9
    
    
    
    
    
    
    
    Employer contributions
    
    
    61.7
    
    
    
    44.1
    
    
    
    13.3
    
    
    
    13.8Benefit payments
    
    
    (49.8
    )
    
    
    (45.6
    )
    
    
    (13.3
    )
    
    
    (13.8
    )Exchange rate changes
    
    
    4.9
    
    
    
    4.6
    
    
    
    
    
    
    
    Other
    
    
    8.2
    
    
    
    (21.7
    )
    
    
    
    
    
    
    Fair value of plan assets at December 31
    
    
    660.5
    
    
    
    584.6
    
    
    
    
    
    
    
    Funded status
    
    
    (103.2
    )
    
    
    (106.9
    )
    
    
    (129.5
    )
    
    
    (138.8
    )Unrecognized actuarial (gain) loss
    
    
    204.0
    
    
    
    166.8
    
    
    
    (43.0
    )
    
    
    (41.4
    )Unrecognized prior service cost
    
    
    8.0
    
    
    
    7.9
    
    
    
    (0.8
    )
    
    
    (0.9
    )Net amount recognized
    
    $
    108.8
    
    
    $
    67.8
    
    
    $
    (173.3
    )
    
    $
    (181.1
    )Amounts recognized in the balance sheet consist of:Prepaid benefit asset
    
    $
    120.2
    
    
    $
    80.1
    
    
    $
    
    
    
    $
    Accrued benefit liability
    
    
    (124.1
    )
    
    
    (111.7
    )
    
    
    (173.3
    )
    
    
    (181.1
    )Accumulated other nonowner changes in equity
    
    
    112.7
    
    
    
    99.4
    
    
    
    
    
    
    
    Net amount recognized
    
    $
    108.8
    
    
    $
    67.8
    
    
    $
    (173.3
    )
    
    $
    (181.1
    )
 The accumulated benefit obligation for defined benefit pension plans was $738.8 million and
$673.3 million at December 31, 2004 and 2003, respectively. The projected benefit obligation, accumulated benefit obligation and fair value of plan assets
of defined benefit pension plans with accumulated benefit obligations in excess of plan assets were
$298.3 million, $291.9 million and $175.0 million, respectively as of December 31, 2004 and $268.5
million, $262.6 million and $159.9 million, respectively at December 31, 2003. F-23




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##### Table of Contents



COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Pension Benefits
    
    
    Other Postretirement Benefits2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2002(in millions)Components of net periodic benefit cost:Service cost
    
    $
    16.2
    
    
    $
    16.8
    
    
    $
    16.0
    
    
    $
    0.2
    
    
    $
    0.2
    
    
    $
    0.2Interest cost
    
    
    41.8
    
    
    
    42.0
    
    
    
    42.9
    
    
    
    8.2
    
    
    
    9.2
    
    
    
    9.7Expected return on plan assets
    
    
    (47.1
    )
    
    
    (40.1
    )
    
    
    (46.3
    )
    
    
    
    
    
    
    
    
    
    
    Amortization of unrecognized
transition obligation
    
    
    
    
    
    
    0.3
    
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    0.6
    
    
    
    0.6
    
    
    
    0.6
    
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    
    (0.8
    )Recognized actuarial (gain) loss
    
    
    7.4
    
    
    
    8.9
    
    
    
    3.3
    
    
    
    (2.8
    )
    
    
    (3.5
    )
    
    
    (3.9
    )Curtailment
    
    
    
    
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net periodic benefit cost
    
    $
    18.9
    
    
    $
    28.7
    
    
    $
    16.7
    
    
    $
    5.5
    
    
    $
    5.8
    
    
    $
    5.2
 OtherPension Benefits
    
    
    Postretirement Benefits2004
    
    
    2003
    
    
    2004
    
    
    2003Weighted average assumptions
used to determine benefit
obligations as of December
31:Discount rate
    
    
    5.00% - 5.75
    %
    
    
    5.50% - 6.25
    %
    
    
    5.75
    %
    
    
    6.25
    %Rate of compensation increase
    
    
    2.25% - 4.00
    %
    
    
    2.75% - 4.00
    %
    
    
    
    
    
    
    
 OtherPension Benefits
    
    
    Postretirement Benefits2004
    
    
    2003
    
    
    2004
    
    
    2003Weighted average assumptions
used to determine net costs
for the years ended December
31:Discount rate
    
    
    5.50% - 6.25
    %
    
    
    6.00% - 7.00
    %
    
    
    6.25
    %
    
    
    7.00
    %Expected return on plan assets
    
    
    6.25% - 8.50
    %
    
    
    6.50% - 8.50
    %
    
    
    
    
    
    
    Rate of compensation increase
    
    
    2.75% - 4.00
    %
    
    
    2.75% - 4.25
    %
    
    
    
    
    
    
    
 2004
    
    
    2003Assumed healthcare cost trend rates:Healthcare cost trend rate assumed for next year
    
    
    9.00
    %
    
    
    9.00
    %Rate to which trend rate is assumed to decline (ultimate trend rate)
    
    
    5.00
    %
    
    
    5.00
    %Year that rate reaches ultimate trend rate
    
    
    2009
    
    
    
    2008
 1-Percentage-
    
    
    1-Percentage-Point Increase
    
    
    Point Decrease(in millions)A one-percentage-point change in the assumed health care cost
trend rate would have the following effects:Effect on total of service and interest cost components
    
    $
    0.6
    
    
    $
    (0.5
    )Effect on the postretirement benefit obligation
    
    $
    8.9
    
    
    $
    (7.9
    )
 F-24




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##### Table of Contents



COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Defined benefit pension plan assets consist of: Percentage of Plan Assetsat December 31,Asset Category
    
    2004
    
    
    2003Equity Securities
    
    
    75
    %
    
    
    53
    %Debt Securities
    
    
    25
    %
    
    
    47
    %100
    %
    
    
    100
    %
 Coopers policy is to invest its pension assets in equity and fixed income investments.
The plan investments are managed by outside investment advisors and include equity futures, other
equity derivatives, fixed income futures and short to intermediate duration fixed income
securities. The allocation of plan assets is determined based on plan liabilities and funded
status. Coopers overall expected long-term rate of return on assets assumption is based upon (i) a
long-term expected inflation rate, (ii) long-term expected stock and bond market risk premiums over
the expected inflation rate, and (iii) a target allocation of equity and fixed income securities
that will generate the overall expected long-term rate of return. During 2005, Cooper expects to contribute approximately $20 million in cash to the defined
benefit pension plans. Other postretirement benefit plans are not subject to any minimum
regulatory funding requirements. Cooper funds these benefits payments as incurred. Estimated future benefit payments for the next five fiscal years, and in the aggregate for the
five fiscal years thereafter, are $48.6 million in 2005, $53.8 million in 2006, $54.3 million in
2007, $53.7 million in 2008, $57.3 million in 2009 and $297.3 million for 2010 through 2014. During the fourth quarter of 2003, Cooper recorded a $12.5 million restructuring charge as an
estimate of Coopers portion of unfunded benefit obligations related to the withdrawal from a
multiple-employer pension plan associated with the closing of Cooper Wiring Device manufacturing
operations in New York City. Cooper participates in three other multiple-employer plans.
Obligations under these plans are insignificant. During 2004, 2003 and 2002, expense with respect to domestic and foreign defined contribution
plans (primarily related to various groups of hourly employees) totaled $16.4 million, $14.1
million and $15.5 million, respectively. NOTE 14: RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN All full-time domestic employees, except for certain bargaining unit employees, are eligible
to participate in the Cooper Ohio Retirement Savings and Stock Ownership Plan (CO-SAV). Under
the terms of the CO-SAV plan, employee savings deferrals are partially matched with Cooper common
stock. Compensation expense for the CO-SAV plan was $20.0 million, $18.9 million and $19.3 million in
2004, 2003 and 2002, respectively. NOTE 15: INDUSTRY SEGMENTS AND GEOGRAPHIC INFORMATION Industry Segments Coopers operations consist of two segments: Electrical Products and Tools & Hardware. Markets
for Coopers products and services are worldwide, with the United States being the largest market. F-25




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##### Table of Contents



COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The Electrical Products segment manufactures, markets and sells electrical and circuit
protection products, including fittings, support systems, enclosures, wiring devices, plugs,
receptacles, lighting fixtures, fuses, emergency lighting, fire detection systems and security
products for use in residential, commercial and industrial construction, maintenance and repair
applications. The segment also manufactures, markets and sells products for use by utilities and
in industry for electrical power transmission and distribution. The Tools & Hardware segment manufactures, markets and sells hand tools for industrial,
construction and consumer markets; automated assembly systems for industrial markets and electric
and pneumatic industrial power tools for general industry, primarily automotive and aerospace
manufacturers. The performance of businesses is evaluated at the segment level and resources are allocated
among the segments. The Cooper executive responsible for the segments further allocates resources
among the various division operating units that compose the segments and, in international markets,
determines the integration of product lines and operations across division operating units. The
accounting policies of the segments are the same as those described in the summary of significant
accounting policies in Note 1. Cooper manages cash, debt and income taxes centrally. Accordingly,
Cooper evaluates performance of its segments and operating units based on operating earnings
exclusive of financing activities and income taxes. Restructuring charges are excluded from the
evaluations. The segments are managed separately because they manufacture and distribute distinct
products. Intersegment sales and related receivables for each of the years presented were
insignificant. Financial information by industry segment was as follows: Revenues
    
    
    Operating Earnings
    
    
    Total AssetsYear Ended December 31,
    
    
    Year Ended December 31,
    
    
    Year Ended December 31,2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2002(in millions)Electrical Products
    
    $
    3,722.2
    
    
    $
    3,358.4
    
    
    $
    3,324.9
    
    
    $
    511.2
    
    
    $
    435.1
    
    
    $
    400.6
    
    
    $
    3,591.8
    
    
    $
    3,433.2
    
    
    $
    3,394.0Tools & Hardware
    
    
    740.7
    
    
    
    703.0
    
    
    
    635.6
    
    
    
    62.7
    
    
    
    39.0
    
    
    
    27.3
    
    
    
    737.0
    
    
    
    734.6
    
    
    
    724.2Total management reporting
    
    $
    4,462.9
    
    
    $
    4,061.4
    
    
    $
    3,960.5
    
    
    
    573.9
    
    
    
    474.1
    
    
    
    427.9
    
    
    
    4,328.8
    
    
    
    4,167.8
    
    
    
    4,118.2Segment restructuring
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16.0
    )
    
    
    (36.7
    )Net segment operating earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    573.9
    
    
    
    458.1
    
    
    
    391.2General Corporate:Restructuring
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13.4
    
    
    
    (2.4
    )Expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (77.3
    )
    
    
    (79.5
    )
    
    
    (34.1
    )Operating earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    496.6
    
    
    
    392.0
    
    
    
    354.7Interest expense, net
    
    
    
    
    
    
    

    
    
    
    
    
    
    
    (68.1
    )
    
    
    (74.1
    )
    
    
    (74.5
    )Interest income on tax refund
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28.6
    
    
    
    Consolidated income from
continuing
operations before
income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    428.5
    
    
    $
    346.5
    
    
    $
    280.2Corporate assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    

    1,012.0
    
    

    797.5
    
    

    569.7Consolidated assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    5,340.8
    
    
    $
    4,965.3
    
    
    $
    4,687.9
 F-26




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##### Table of Contents



COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Electrical
    
    
    Tools &
    
    
    
    
    
    
    ConsolidatedProducts
    
    
    Hardware
    
    
    Corporate
    
    
    Total(in millions)2004Depreciation
    
    $
    93.9
    
    
    $
    21.7
    
    
    $
    2.0
    
    
    $
    117.6Capital expenditures
    
    
    73.0
    
    
    
    10.2
    
    
    
    19.6
    
    
    
    102.8Investment in
unconsolidated affiliates
    
    
    23.3
    
    
    
    
    
    
    
    
    
    
    
    23.32003Depreciation
    
    $
    90.3
    
    
    $
    26.9
    
    
    $
    4.2
    
    
    $
    121.4Restructuring
    
    
    16.4
    
    
    
    (0.4
    )
    
    
    (13.4
    )
    
    
    2.6Capital expenditures
    
    
    54.7
    
    
    
    12.8
    
    
    
    12.4
    
    
    
    79.9Investment in
unconsolidated affiliates
    
    
    21.9
    
    
    
    
    
    
    
    
    
    
    
    21.92002Depreciation
    
    $
    89.3
    
    
    $
    29.1
    
    
    $
    3.3
    
    
    $
    121.7Restructuring
    
    
    24.0
    
    
    
    12.7
    
    
    
    2.4
    
    
    
    39.1Capital expenditures
    
    
    57.6
    
    
    
    12.2
    
    
    
    4.0
    
    
    
    73.8Investment in
unconsolidated affiliates
    
    
    20.9
    
    
    
    
    
    
    
    
    
    
    
    20.9
 Geographic Information Revenues and long-lived assets by country are summarized below. Revenues are attributed to
geographic areas based on the location of the assets producing the revenues. Revenues are
generally denominated in the currency of the location of the assets producing the revenues. Revenues
    
    
    Long-Lived Assets2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2002(in millions)United States
    
    $
    3,264.4
    
    
    $
    2,984.3
    
    
    $
    3,023.2
    
    
    $
    703.4
    
    
    $
    674.5
    
    
    $
    691.8Germany
    
    
    249.7
    
    
    
    250.2
    
    
    
    191.0
    
    
    
    42.4
    
    
    
    41.4
    
    
    
    39.4United Kingdom
    
    
    283.6
    
    
    
    241.1
    
    
    
    225.7
    
    
    
    67.3
    
    
    
    56.0
    
    
    
    52.5Canada
    
    
    181.6
    
    
    
    159.8
    
    
    
    142.0
    
    
    
    0.9
    
    
    
    0.9
    
    
    
    0.9Mexico
    
    
    132.1
    
    
    
    126.5
    
    
    
    130.4
    
    
    
    85.6
    
    
    
    74.6
    
    
    
    81.7Other foreign countries
    
    
    351.5
    
    
    
    299.5
    
    
    
    248.2
    
    
    
    54.5
    
    
    
    45.9
    
    
    
    38.5$
    4,462.9
    
    
    $
    4,061.4
    
    
    $
    3,960.5
    
    
    $
    954.1
    
    
    $
    893.3
    
    
    $
    904.8
 F-27




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COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) International revenues by destination, based on the location products were delivered, were as
follows by segment: International Revenues2004
    
    
    2003
    
    
    2002(in millions)Electrical Products
    
    $
    1,052.5
    
    
    $
    913.3
    
    
    $
    832.6Tools & Hardware
    
    
    329.0
    
    
    
    324.0
    
    
    
    281.3$
    1,381.5
    
    
    $
    1,237.3
    
    
    $
    1,113.9
 NOTE 16: CHARGE RELATED TO DISCONTINUED OPERATIONS In October 1998, Cooper sold its Automotive Products business to Federal-Mogul Corporation
(Federal-Mogul). These discontinued businesses (including the Abex product line obtained from
Pneumo-Abex Corporation (Pneumo) in 1994) were operated through subsidiary companies, and the
stock of those subsidiaries was sold to Federal-Mogul pursuant to a Purchase and Sale Agreement
dated August 17, 1998 (1998 Agreement). In conjunction with the sale, Federal-Mogul indemnified
Cooper for certain liabilities of these subsidiary companies, including liabilities related to the
Abex product line and any potential liability that Cooper may have to Pneumo pursuant to a 1994
Mutual Guaranty Agreement between Cooper and Pneumo. On October 1, 2001, Federal-Mogul and several
of its affiliates filed a Chapter 11 bankruptcy petition and indicated that Federal-Mogul may not
honor the indemnification obligations to Cooper. As of the date of this filing, Federal-Mogul had
not rejected the 1998 Agreement, which includes the indemnification to Cooper. If Federal-Mogul
rejects the 1998 Agreement, Cooper will be relieved of its future obligations under the 1998
Agreement, including specific indemnities relating to payment of taxes and certain obligations
regarding insurance for its former Automotive Products businesses. To the extent Cooper is
obligated to Pneumo for any asbestos-related claims arising from the Abex product line (Abex
Claims), Cooper has rights, confirmed by Pneumo, to significant insurance for such claims. Based
on information provided by representatives of Federal-Mogul and recent claims experience, from
August 28, 1998 through December 31, 2004, a total of 133,161 Abex Claims were filed, of which
86,461 claims have been resolved leaving 46,700 Abex Claims pending at December 31, 2004, that are
the responsibility of Federal-Mogul. During the year ended December 31, 2004, 18,185 claims were
filed and 34,180 claims were resolved. Since August 28, 1998, the average indemnity payment for
resolved Abex Claims was $1,911 before insurance. A total of $66 million was spent on defense
costs for the period August 28, 1998 through December 31, 2004. Historically, existing insurance
coverage has provided 50% to 80% of the total defense and indemnity payments for Abex Claims. With the assistance of independent advisors, Bates White, LLC, in the fourth quarter of 2001
Cooper completed a thorough analysis of its potential exposure for asbestos liabilities in the
event Federal-Mogul rejects the 1998 Agreement. Based on Coopers analysis of its contingent
liability exposure resulting from Federal-Moguls bankruptcy, Cooper concluded that an additional
fourth-quarter 2001 discontinued operations provision of $30 million after-tax, or $.32 per share,
was appropriate to reflect the potential net impact of this issue. The analysis included a review
of the twenty-year history of Abex Claims; the average indemnity payments for resolved claims; the
jurisdictions in which claims had been filed; Bates White, LLC data on the incidence of asbestos
exposure and diseases in various industries; existing insurance coverage including the insurance
recovered by Pneumo and Federal-Mogul for pre-bankruptcy claims and the contractual indemnities.
Assumptions were made regarding future claim filings and indemnity payments, and, based on the
advisors data, the expected population of persons exposed to asbestos in particular industries.
All of this data was used to determine a reasonable expectation of future claims, indemnity
payments and insurance coverage. Cooper is preserving its rights as a creditor for breach of
Federal-Moguls indemnification to Cooper and its rights against all Federal-Mogul subsidiaries.
Cooper intends to take all actions to seek a resolution of the indemnification issues and future
handling of the Abex-related claims within the Federal-Mogul bankruptcy proceedings. F-28




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##### Table of Contents



COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Coopers fourth-quarter 2001 analysis of the contingent liability exposure assumed that the
liabilities would be settled within the Federal-Mogul bankruptcy proceedings. This analysis
assumed that representatives of Federal-Mogul, its bankruptcy committees and the future claimants
(the Representatives) would reach similar conclusions regarding the potential future liabilities
and insurance recoveries as Cooper did based on the Bates White, LLC analysis. Throughout 2003,
Cooper worked towards resolution of the indemnification issues and future handling of the
Abex-related claims within the Federal-Mogul bankruptcy proceedings. This included negotiations
with the Representatives regarding participation in Federal-Moguls proposed 524(g) asbestos trust.
Based on the status of the negotiations in 2004, Cooper concluded that it was probable that
Federal-Mogul will reject the 1998 Agreement. Cooper also concluded that the Representatives would
require any negotiated settlement through the Federal-Mogul bankruptcy to be at the high end of the
Bates White, LLC liability analysis and with substantially lower insurance recovery assumptions and
higher administrative costs. While Cooper believes that the insurance has significant additional value, extensive
litigation with the insurance carriers may be required to receive recoveries and there is risk that
court decisions could reduce the value of the recoveries. Additionally, the assumptions on
liability payments could prove inaccurate over time. If Cooper is unable to reach a settlement
with the Representatives and the 1998 Agreement is rejected, Cooper would be required to reflect an
accrual for the total estimated liability and a receivable for the probable insurance recoveries.
Generally accepted accounting principles provide relatively conservative requirements for the
recording of insurance recoveries and a substantial portion of the potential insurance recoveries
would not be reflected as receivables until future events occur. During late February and early March 2004, Cooper reassessed the accrual required based on the
then current status of the negotiations with the Representatives and the liability and insurance
receivable that would be required to be recorded if this matter is not settled within the
Federal-Mogul bankruptcy. Cooper concluded that resolution within the Federal-Mogul proposed
524(g) asbestos trust would likely be within the range of the liabilities, net of insurance
recoveries, that Cooper would accrue if this matter were not settled within the Federal-Mogul
bankruptcy. Accordingly, Cooper recorded a $126.0 million after-tax discontinued operations charge,
net of a $70.9 income tax benefit, in the fourth quarter of 2003. Cooper has continued discussions with the Representatives, but to date has been unable to
reach a satisfactory conclusion. At this time, the exact manner in which this issue will be
resolved is not known. The accrual for potential liabilities related to the Automotive Products
sale and the Federal-Mogul bankruptcy was $225.1 million and $252.5 million at December 31, 2004
and 2003, respectively. NOTE 17: FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES, CONCENTRATIONS OF CREDIT RISK AND FAIR
                    VALUE OF FINANCIAL INSTRUMENTS Derivative Instruments and Hedging Activities Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities(SFAS No. 133), as amended, requires that all derivatives be recognized as assets and
liabilities and measured at fair value. For derivative instruments that are not designated as
hedges, the gain or loss on the derivative is recognized in earnings currently. A derivative
instrument may be designated as a hedge of the exposure to changes in the fair value of an asset or
liability or variability in expected future cash flows if the hedging relationship is expected to
be highly effective in offsetting changes in fair value or cash flows attributable to the hedged
risk during the period of designation. If a derivative is designated as a fair value hedge, the
gain or loss on the derivative and the offsetting loss or gain on the hedged asset, liability or
firm commitment is recognized in earnings. For derivative instruments designated as a cash flow
hedge, the effective portion of the gain or loss on the derivative instrument is reported as a
component of accumulated nonowner changes in equity and reclassified into earnings in the same
period that the hedged transaction affects earnings. The ineffective portion of the gain or loss
is immediately recognized in earnings. F-29




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COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Hedge accounting is discontinued prospectively when (1) it is determined that a
derivative is no longer effective in offsetting changes in the fair value or cash flows of a hedged
item; (2) the derivative is sold, terminated or exercised; (3) the hedged item no
longer meets the definition of a firm commitment; or (4) it is unlikely that a forecasted
transaction will occur within two months of the originally specified time period. When hedge accounting is discontinued because it is determined that the derivative no longer
qualifies as an effective fair-value hedge, the derivative will continue to be carried on the
balance sheet at its fair value, and the hedged asset or liability will no longer be adjusted for
changes in fair value. When hedge accounting is discontinued because a hedged item no longer meets
the definition of a firm commitment, the derivative will continue to be carried on the balance
sheet at its fair value, and any asset or liability that was recorded pursuant to recognition of
the firm commitment will be removed from the balance sheet and recognized as a gain or loss
currently in earnings. When hedge accounting is discontinued because it is probable that a
forecasted transaction will not occur within two months of the originally specified time period,
the derivative will continue to be carried on the balance sheet at its fair value, and gains and
losses reported in accumulated nonowner changes in equity will be recognized immediately in
earnings. Cooper enters into foreign currency forward exchange contracts and commodity futures contracts
to reduce the risks of adverse changes in foreign exchange rates and commodity prices. In 2003,
Cooper entered into interest-rate swaps to reduce the interest-rate risk associated with certain
fixed-rate debt. Cooper does not enter into speculative derivative transactions. As a result of having sales, purchases and certain intercompany transactions denominated in
currencies other than the functional currencies of Coopers businesses, Cooper is exposed to the
effect of foreign exchange rate changes on its cash flows and earnings. Cooper enters into foreign
currency forward exchange contracts to hedge significant foreign currency denominated transactions
for periods consistent with the terms of the underlying transactions. Contracts generally have
maturities that do not exceed one year. Foreign currency forward exchange contracts executed to hedge a recognized asset, liability or
firm commitment are accounted for as fair value hedges. The net gain or loss on contracts
designated as fair value hedges was not material during 2004, 2003 or 2002. Foreign currency
forward exchange contracts executed to hedge forecasted transactions are accounted for as cash flow
hedges. The net gain or loss on contracts designated as cash flow hedges was not material during
2004, 2003 or 2002. Cooper also enters into certain foreign currency forward exchange contracts
that are not designated as hedges. These contracts are intended to reduce cash flow volatility
related to intercompany financing transactions. Cooper enters into commodity futures contracts to reduce the volatility of price fluctuations
on a portion of its forecasted annual raw material purchases. These instruments are designated as
cash flow hedges. The net gain or loss on commodity futures contracts was not material in 2004,
2003 or 2002. During August 2003, Cooper entered into interest-rate swaps to effectively convert $300
million of 5.25% long-term fixed-rate debt to variable-rate debt at the six-month LIBOR rate plus
1.91% (with semi-annual reset). The interest-rate swaps are designated as fair value hedges. The
notional principal amount and maturity dates of the interest-rate swaps match the underlying
long-term debt. During the years ended December 31, 2004 and 2003, respectively, Cooper recognized
a $5.1 million and $2.4 million reduction of interest expense, net related to the interest-rate
swaps. Gains or losses on derivative instruments are reported in the same line item as the underlying
hedged transaction in the consolidated statements of income. At December 31, 2004, Cooper expects
to reclassify $1.5 million of net gains on derivative instruments designated as cash flow hedges
from accumulated nonowner changes in equity to earnings during the next twelve months. The amount
of discontinued cash flow hedges during 2004, 2003 and 2002 was not material. F-30




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##### Table of Contents



COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The table below summarizes the U. S. dollar equivalent contractual amounts of Coopers forward
exchange contracts at December 31, 2004 and 2003. December 31,2004
    
    
    2003(in millions)Canadian Dollar
    
    $
    92.2
    
    
    $
    U.S. Dollar
    
    
    17.4
    
    
    
    39.5Euro
    
    
    15.2
    
    
    
    4.4British Pound Sterling
    
    
    2.9
    
    
    
    Mexican Peso
    
    
    
    
    
    
    9.6Swiss Franc
    
    
    
    
    
    
    1.1Other
    
    
    
    
    
    
    1.5$
    127.7
    
    
    $
    56.1
 Other Instruments In the normal course of business, Cooper executes stand-by letters of credit, performance
bonds and other guarantees that ensure Coopers performance or payment to third parties that are
not reflected in the consolidated balance sheets. The aggregate notional value of these instruments
was $106.6 million and $99.9 million at December 31, 2004 and 2003, respectively. In the past, no
significant claims have been made against these financial instruments. Management believes the
likelihood of demand for payment under these instruments is minimal and expects no material losses
to occur in connection with these instruments. The following transactions were implemented to partially align Coopers interest rate exposure
profile with its short term interest rate expectations in an economically efficient manner that is
consistent with its tax position. During 2002, Cooper sold at a premium U.S. Treasury securities due August 15, 2003 with a face
amount of $750 million. Cooper obtained these securities pursuant to a repurchase agreement
containing provisions that limit Coopers interest rate exposure under this agreement to a maximum
amount of $7.2 million. During the fourth quarter of 2002, Cooper settled the interest rate
exposure with a cash payment of $7.0 million. During 2001, Cooper sold at a premium U.S. Treasury
securities due November 2002 with a face amount of $1.0 billion. Cooper obtained these securities
pursuant to a repurchase agreement containing provisions that limit Coopers interest rate exposure
under this agreement to a maximum amount of $7.0 million. During the second quarter of 2002,
Cooper settled the interest rate exposure with a cash payment of $6.0 million. The repurchase
agreements were settled immediately prior to the maturity of the securities. Settlement of these
transactions did not require any financing by Cooper and the transactions did not create an asset
or liability, other than as described above. Also during 2001, Cooper purchased at a discount Federal Home Loan Mortgage Corporation Notes
due February 2003 and immediately transferred these notes pursuant to a securities loan agreement.
Subsequently, Cooper eliminated any interest rate exposure under the securities loan agreement and
received a cash payment of approximately $1.9 million upon maturity of the notes. The securities
loan agreement was settled immediately prior to the maturity of the notes. Settlement of this
transaction did not require any financing by Cooper and this transaction did not create a
liability. The face amount of the notes was $480 million. F-31




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##### Table of Contents



COOPER INDUSTRIES, LTD.
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 as well as their dispersion across many different geographic areas with no one
customer receivable exceeding 5% of accounts receivable. Fair Value of Financial Instruments Other than Derivatives Coopers financial instruments other than derivative instruments, consist primarily of cash
and cash equivalents, trade receivables, trade payables and debt instruments. The book values of
cash and cash equivalents, trade receivables and trade payables are considered to be representative
of their respective fair values. Cooper had approximately $1.5 billion and $1.3 billion of debt
instruments at December 31, 2004 and 2003, respectively. The book value of these instruments was
approximately equal to fair value (as represented primarily by quoted market prices) at December
31, 2004 and 2003. NOTE 18: NET INCOME PER COMMON SHARE Basic
    
    
    DilutedYear Ended December 31,
    
    
    Year Ended December 31,2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2002($ in millions, shares in thousands)Income from continuing operations
    
    $
    339.8
    
    
    $
    274.3
    
    
    $
    213.7
    
    
    $
    339.8
    
    
    $
    274.3
    
    
    $
    213.7Charge from discontinued operations
    
    
    
    
    
    
    126.0
    
    
    
    
    
    
    
    
    
    
    
    126.0
    
    
    
    Net income applicable to Common stock
    
    $
    339.8
    
    
    $
    148.3
    
    
    $
    213.7
    
    
    $
    339.8
    
    
    $
    148.3
    
    
    $
    213.7Weighted average Common shares outstanding
    
    
    92,480
    
    
    
    92,683
    
    
    
    93,152
    
    
    
    92,480
    
    
    
    92,683
    
    
    
    93,152Incremental shares from assumed conversions:Options, performance-based stock awards
and other employee awards
    
    
    
    
    
    
    
    
    
    
    
    
    

    2,283
    
    

    1,088
    
    

    517Weighted average Common shares and
Common share equivalents
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    94,763
    
    
    
    93,771
    
    
    
    93,669
 Options and employee awards are not considered in the calculations if the effect would be
antidilutive. F-32




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##### Table of Contents



COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 19: UNAUDITED QUARTERLY OPERATING RESULTS 2004 (by quarter)1
    
    
    2
    
    
    3
    
    
    4(in millions, except per share data)Revenues
    
    $
    1,064.6
    
    
    $
    1,109.3
    
    
    $
    1,140.2
    
    
    $
    1,148.8Cost of sales
    
    
    742.0
    
    
    
    775.2
    
    
    
    798.4
    
    
    
    804.1Selling and administrative expenses
    
    
    208.4
    
    
    
    212.0
    
    
    
    211.6
    
    
    
    214.6Operating earnings
    
    
    114.2
    
    
    
    122.1
    
    
    
    130.2
    
    
    
    130.1Interest expense, net
    
    
    17.1
    
    
    
    17.2
    
    
    
    17.0
    
    
    
    16.8Income before income taxes
    
    
    97.1
    
    
    
    104.9
    
    
    
    113.2
    
    
    
    113.3Income taxes
    
    
    19.4
    
    
    
    21.0
    
    
    
    23.9
    
    
    
    24.4Net income
    
    $
    77.7
    
    
    $
    83.9
    
    
    $
    89.3
    
    
    $
    88.9Income per Common shareBasic
    
    $
    .83
    
    
    $
    .91
    
    
    $
    .97
    
    
    $
    .96Diluted
    
    $
    .81
    
    
    $
    .89
    
    
    $
    .95
    
    
    $
    .94
 2003 (by quarter)1
    
    
    2
    
    
    3
    
    
    4(in millions, except per share data)Revenues
    
    $
    957.8
    
    
    $
    1,010.9
    
    
    $
    1,048.7
    
    
    $
    1,044.0Cost of sales
    
    
    674.7
    
    
    
    716.7
    
    
    
    744.8
    
    
    
    735.7Selling and administrative expenses
    
    
    192.3
    
    
    
    194.9
    
    
    
    197.3
    
    
    
    210.4Restructuring
    
    
    
    
    
    
    (14.3
    )
    
    
    
    
    
    
    16.9Operating earnings
    
    
    90.8
    
    
    
    113.6
    
    
    
    106.6
    
    
    
    81.0Interest expense, net
    
    
    20.1
    
    
    
    19.5
    
    
    
    18.3
    
    
    
    16.2Interest income on tax refund
    

    
    
    

    
    
    

    
    
    

    (28.6
    )Income from continuing operations before income taxes
    
    
    70.7
    
    
    
    94.1
    
    
    
    88.3
    
    
    
    93.4Income taxes
    
    
    14.1
    
    
    
    21.7
    
    
    
    17.7
    
    
    
    18.7Income from continuing operations
    
    
    56.6
    
    
    
    72.4
    
    
    
    70.6
    
    
    
    74.7Charge related to discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    126.0Net income (loss)
    
    $
    56.6
    
    
    $
    72.4
    
    
    $
    70.6
    
    
    $
    (51.3
    )Income (loss) per Common shareBasic:Income from continuing operations
    
    $
    .62
    
    
    $
    .79
    
    
    $
    .76
    
    
    $
    .80Charge from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.34Net income (loss)
    
    $
    .62
    
    
    $
    .79
    
    
    $
    .76
    
    
    $
    (.54
    )Diluted:Income from continuing operations
    
    $
    .61
    
    
    $
    .78
    
    
    $
    .75
    
    
    $
    .78Charge from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.32Net income (loss)
    
    $
    .61
    
    
    $
    .78
    
    
    $
    .75
    
    
    $
    (.54
    )
 F-33




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##### Table of Contents



COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 20: CONSOLIDATING FINANCIAL INFORMATION Cooper fully and unconditionally guarantees the registered debt securities of Cooper Ohio, a
wholly owned indirect subsidiary. The following condensed consolidating financial information is
included so that separate financial statements of Cooper Ohio are not required to be filed with the
Securities and Exchange Commission. The consolidating financial statements present investments in
subsidiaries using the equity method of accounting. Intercompany investments in the Class A and
Class B common shares are accounted for using the cost method. Consolidating Income Statements
Year Ended December 31, 2004
(in millions) Cooper
    
    
    Other
    
    
    ConsolidatingCooper
    
    
    Ohio
    
    
    Subsidiaries
    
    
    Adjustments
    
    
    TotalRevenues
    
    $
    
    
    
    $
    185.5
    
    
    $
    4,290.8
    
    
    $
    (13.4
    )
    
    $
    4,462.9Cost of sales
    
    
    0.7
    
    
    
    124.1
    
    
    
    3,008.3
    
    
    
    (13.4
    )
    
    
    3,119.7Selling and administrative expenses
    
    
    9.5
    
    
    
    90.5
    
    
    
    746.6
    
    
    
    
    
    
    
    846.6Interest expense, net
    
    
    (1.0
    )
    
    
    47.8
    
    
    
    21.3
    
    
    
    
    
    
    
    68.1Equity in earnings of subsidiaries,
net of tax
    
    
    353.4
    
    
    
    377.5
    
    
    
    162.0
    
    
    
    (892.9
    )
    
    
    Intercompany income (expense)
    
    
    (4.4
    )
    
    
    (256.9
    )
    
    
    261.3
    
    
    
    
    
    
    
    Income before income taxes
    
    
    339.8
    
    
    
    43.7
    
    
    
    937.9
    
    
    
    (892.9
    )
    
    
    428.5Income tax expense (benefit)
    
    
    
    
    
    
    (118.3
    )
    
    
    207.0
    
    
    
    
    
    
    
    88.7Net income
    
    $
    339.8
    
    
    $
    162.0
    
    
    $
    730.9
    
    
    $
    (892.9
    )
    
    $
    339.8
 Consolidating Income Statements
Year Ended December 31, 2003
(in millions) Cooper
    
    
    Other
    
    
    ConsolidatingCooper
    
    
    Ohio
    
    
    Subsidiaries
    
    
    Adjustments
    
    
    TotalRevenues
    
    $
    
    
    
    $
    281.8
    
    
    $
    3,804.3
    
    
    $
    (24.7
    )
    
    $
    4,061.4Cost of sales
    
    
    
    
    
    
    183.9
    
    
    
    2,712.7
    
    
    
    (24.7
    )
    
    
    2,871.9Selling and administrative expenses
    
    
    7.2
    
    
    
    115.1
    
    
    
    672.6
    
    
    
    
    
    
    
    794.9Restructuring
    
    
    
    
    
    
    (13.1
    )
    
    
    15.7
    
    
    
    
    
    
    
    2.6Interest expense, net
    
    
    (0.3
    )
    
    
    53.3
    
    
    
    21.1
    
    
    
    
    
    
    
    74.1Interest income on tax refund
    
    
    
    
    
    
    (28.6
    )
    
    
    
    
    
    
    
    
    
    
    (28.6
    )Equity in earnings of subsidiaries,
net of tax
    
    
    165.8
    
    
    
    342.1
    
    
    
    (17.0
    )
    
    
    (490.9
    )
    
    
    Intercompany income (expense)
    
    
    (0.2
    )
    
    
    (338.3
    )
    
    
    348.9
    
    
    
    (10.4
    )
    
    
    Income from continuing operations
before income taxes
    
    
    158.7
    
    
    
    (25.0
    )
    
    
    714.1
    
    
    
    (501.3
    )
    
    
    346.5Income tax expense (benefit)
    
    
    
    
    
    
    (134.0
    )
    
    
    206.2
    
    
    
    
    
    
    
    72.2Income from continuing operations
    
    
    158.7
    
    
    
    109.0
    
    
    
    507.9
    
    
    
    (501.3
    )
    
    
    274.3Charge related to discontinued
operations, net of taxes
    
    
    
    
    
    
    126.0
    
    
    
    
    
    
    
    
    
    
    
    126.0Net income (loss)
    
    $
    158.7
    
    
    $
    (17.0
    )
    
    $
    507.9
    
    
    $
    (501.3
    )
    
    $
    148.3
 F-34




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##### Table of Contents



COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Year Ended December 31, 2002
(in millions) Cooper
    
    
    Other
    
    
    ConsolidatingCooper
    
    
    Ohio
    
    
    Subsidiaries
    
    
    Adjustments
    
    
    TotalRevenues
    
    $
    
    
    
    $
    280.1
    
    
    $
    3,700.8
    
    
    $
    (20.4
    )
    
    $
    3,960.5Cost of sales
    
    
    
    
    
    
    172.1
    
    
    
    2,679.2
    
    
    
    (20.4
    )
    
    
    2,830.9Selling and administrative expenses
    
    
    2.9
    
    
    
    83.9
    
    
    
    649.0
    
    
    
    
    
    
    
    735.8Restructuring
    
    
    
    
    
    
    5.7
    
    
    
    33.4
    
    
    
    
    
    
    
    39.1Interest expense, net
    
    
    0.1
    
    
    
    53.2
    
    
    
    21.2
    
    
    
    
    
    
    
    74.5Equity in earnings of subsidiaries,
net of tax
    
    
    113.6
    
    
    
    338.3
    
    
    
    2.7
    
    
    
    (454.6
    )
    
    
    Intercompany income (expense)
    
    
    66.0
    
    
    
    (383.4
    )
    
    
    318.2
    
    
    
    (0.8
    )
    
    
    Income (loss) before income taxes
    
    
    176.6
    
    
    
    (79.9
    )
    
    
    638.9
    
    
    
    (455.4
    )
    
    
    280.2Income tax expense (benefit)
    
    
    
    
    
    
    (120.5
    )
    
    
    187.0
    
    
    
    
    
    
    
    66.5Net income
    
    $
    176.6
    
    
    $
    40.6
    
    
    $
    451.9
    
    
    $
    (455.4
    )
    
    $
    213.7
 F-35




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##### Table of Contents



COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Consolidating Balance Sheets
December 31, 2004
(in millions) Cooper
    
    
    Other
    
    
    ConsolidatingCooper
    
    
    Ohio
    
    
    Subsidiaries
    
    
    Adjustments
    
    
    TotalCash and cash equivalents
    
    $
    111.5
    
    
    $
    246.1
    
    
    $
    295.2
    
    
    $
    
    
    
    $
    652.8Receivables
    
    
    
    
    
    
    15.0
    
    
    
    805.9
    
    
    
    
    
    
    
    820.9Intercompany receivables
    
    
    514.0
    
    
    
    
    
    
    
    681.9
    
    
    
    (1,195.9
    )
    
    
    Inventories
    
    
    
    
    
    
    
    
    
    
    523.0
    
    
    
    
    
    
    
    523.0Deferred income taxes and other
current assets
    
    
    1.3
    
    
    
    215.0
    
    
    
    5.6
    
    
    
    
    
    
    
    221.9Total current assets
    
    
    626.8
    
    
    
    476.1
    
    
    
    2,311.6
    
    
    
    (1,195.9
    )
    
    
    2,218.6Property, plant and equipment, less
accumulated depreciation
    
    
    
    
    
    
    34.5
    
    
    
    661.9
    
    
    
    
    
    
    
    696.4Goodwill
    
    
    
    
    
    
    
    
    
    
    2,142.3
    
    
    
    
    
    
    
    2,142.3Investment in subsidiaries
    
    
    2,785.8
    
    
    
    4,796.1
    
    
    
    193.5
    
    
    
    (7,775.4
    )
    
    
    Investment in parent
    
    
    
    
    
    
    2,245.5
    
    
    
    202.2
    
    
    
    (2,447.7
    )
    
    
    Intercompany notes receivable
    
    
    25.6
    
    
    
    21.3
    
    
    
    3,899.6
    
    
    
    (3,946.5
    )
    
    
    Deferred income taxes and other
noncurrent assets
    
    
    
    
    
    
    112.6
    
    
    
    170.9
    
    
    
    
    
    
    
    283.5Total assets
    
    $
    3,438.2
    
    
    $
    7,686.1
    
    
    $
    9,582.0
    
    
    $
    (15,365.5
    )
    
    $
    5,340.8Short-term debt
    
    $
    
    
    
    $
    
    
    
    $
    97.6
    
    
    $
    
    
    
    $
    97.6Accounts payable
    
    
    32.5
    
    
    
    21.1
    
    
    
    297.1
    
    
    
    
    
    
    
    350.7Accrued liabilities
    
    
    2.9
    
    
    
    130.6
    
    
    
    355.3
    
    
    
    
    
    
    
    488.8Accrual for discontinued operations
    
    
    
    
    
    
    225.1
    
    
    
    
    
    
    
    
    
    
    
    225.1Intercompany payables
    
    
    
    
    
    
    1,195.9
    
    
    
    
    
    
    
    (1,195.9
    )
    
    
    Current maturities of long-term debt
    
    
    
    
    
    
    229.0
    
    
    
    436.4
    
    
    
    
    
    
    
    665.4Total current liabilities
    
    
    35.4
    
    
    
    1,801.7
    
    
    
    1,186.4
    
    
    
    (1,195.9
    )
    
    
    1,827.6Long-term debt
    
    
    
    
    
    
    688.3
    
    
    
    10.3
    
    
    
    
    
    
    
    698.6Intercompany notes payable
    
    
    135.7
    
    
    
    3,763.9
    
    
    
    46.9
    
    
    
    (3,946.5
    )
    
    
    Other long-term liabilities
    
    
    
    
    
    
    253.2
    
    
    
    274.9
    
    
    
    
    
    
    
    528.1Total liabilities
    
    
    171.1
    
    
    
    6,507.1
    
    
    
    1,518.5
    
    
    
    (5,142.4
    )
    
    
    3,054.3Class A common stock
    
    
    0.9
    
    
    
    
    
    
    
    
    
    
    
    

    
    
    
    0.9Class B common stock
    
    
    0.5
    
    
    
    
    
    
    
    
    
    
    
    (0.5
    )
    
    
    Subsidiary common stock
    
    
    
    
    
    
    
    
    
    
    137.0
    
    
    
    (137.0
    )
    
    
    Capital in excess of par value
    
    
    2,882.2
    
    
    
    12.1
    
    
    
    7,252.0
    
    
    
    (9,700.1
    )
    
    
    446.2Retained earnings
    
    
    350.0
    
    
    
    1,263.8
    
    
    
    773.1
    
    
    
    (415.3
    )
    
    
    1,971.6Accumulated other nonowner changes
in equity
    
    
    33.5
    
    
    
    (96.9
    )
    
    
    (98.6
    )
    
    
    29.8
    
    
    
    (132.2
    )Total shareholders equity
    
    
    3,267.1
    
    
    
    1,179.0
    
    
    
    8,063.5
    
    
    
    (10,223.1
    )
    
    
    2,286.5Total liabilities and shareholders
equity
    
    $
    3,438.2
    
    
    $
    7,686.1
    
    
    $
    9,582.0
    
    
    $
    (15,365.5
    )
    
    $
    5,340.8
 F-36




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##### Table of Contents



COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Consolidating Balance Sheets
December 31, 2003
(in millions) Cooper
    
    
    Other
    
    
    ConsolidatingCooper
    
    
    Ohio
    
    
    Subsidiaries
    
    
    Adjustments
    
    
    TotalCash and cash equivalents
    
    $
    96.4
    
    
    $
    257.2
    
    
    $
    110.1
    
    
    $
    
    
    
    $
    463.7Receivables
    
    
    
    
    
    
    49.8
    
    
    
    688.8
    
    
    
    
    
    
    
    738.6Intercompany receivables
    
    
    465.9
    
    
    
    
    
    
    
    645.9
    
    
    
    (1,111.8
    )
    
    
    Inventories
    
    
    
    
    
    
    14.2
    
    
    
    537.8
    
    
    
    
    
    
    
    552.0Deferred income taxes and other
current assets
    
    
    1.6
    
    
    
    227.8
    
    
    
    (22.9
    )
    
    
    
    
    
    
    206.5Total current assets
    
    
    563.9
    
    
    
    549.0
    
    
    
    1,959.7
    
    
    
    (1,111.8
    )
    
    
    1,960.8Property, plant and equipment, less
accumulated depreciation
    
    
    
    
    
    
    60.1
    
    
    
    651.3
    
    
    
    
    
    
    
    711.4Goodwill
    
    
    
    
    
    
    41.4
    
    
    
    2,015.2
    
    
    
    
    
    
    
    2,056.6Investment in subsidiaries
    
    
    2,485.6
    
    
    
    5,849.1
    
    
    
    (40.5
    )
    
    
    (8,294.2
    )
    
    
    Investment in parent
    
    
    
    
    
    
    2,308.2
    
    
    
    
    
    
    
    (2,308.2
    )
    
    
    Intercompany notes receivable
    
    
    0.1
    
    
    
    81.6
    
    
    
    4,905.0
    
    
    
    (4,986.7
    )
    
    
    Deferred income taxes and other
noncurrent assets
    
    
    
    
    
    
    186.3
    
    
    
    50.2
    
    
    
    
    
    
    
    236.5Total assets
    
    $
    3,049.6
    
    
    $
    9,075.7
    
    
    $
    9,540.9
    
    
    $
    (16,700.9
    )
    
    $
    4,965.3Short-term debt
    
    $
    
    
    
    $
    
    
    
    $
    6.2
    
    
    $
    
    
    
    $
    6.2Accounts payable
    
    
    32.4
    
    
    
    33.0
    
    
    
    263.7
    
    
    
    
    
    
    
    329.1Accrued liabilities
    
    
    1.3
    
    
    
    153.5
    
    
    
    278.9
    
    
    
    
    
    
    
    433.7Accrual for discontinued operations
    
    
    
    
    
    
    252.5
    
    
    
    
    
    
    
    
    
    
    
    252.5Intercompany payables
    
    
    
    
    
    
    1,111.3
    
    
    
    0.5
    
    
    
    (1,111.8
    )
    
    
    Current maturities of long-term debt
    
    
    
    
    
    
    
    
    
    
    0.4
    
    
    
    
    
    
    
    0.4Total current liabilities
    
    
    33.7
    
    
    
    1,550.3
    
    
    
    549.7
    
    
    
    (1,111.8
    )
    
    
    1,021.9Long-term debt
    
    
    
    
    
    
    922.4
    
    
    
    414.3
    
    
    
    
    
    
    
    1,336.7Intercompany notes payable
    
    
    91.9
    
    
    
    4,813.2
    
    
    
    81.7
    
    
    
    (4,986.8
    )
    
    
    Other long-term liabilities
    
    
    
    
    
    
    328.0
    
    
    
    160.5
    
    
    
    
    
    
    
    488.5Total liabilities
    
    
    125.6
    
    
    
    7,613.9
    
    
    
    1,206.2
    
    
    
    (6,098.6
    )
    
    
    2,847.1Class A common stock
    
    
    0.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.9Class B common stock
    
    
    0.6
    
    
    
    
    
    
    
    
    
    
    
    (0.6
    )
    
    
    Subsidiary common stock
    
    
    
    
    
    
    
    
    
    
    141.0
    
    
    
    (141.0
    )
    
    
    Capital in excess of par value
    
    
    2,814.4
    
    
    
    6.9
    
    
    
    7,065.2
    
    
    
    (9,368.5
    )
    
    
    518.0Retained earnings
    
    
    141.2
    
    
    
    1,618.6
    
    
    
    1,291.3
    
    
    
    (1,288.3
    )
    
    
    1,762.8Accumulated other nonowner changes
in equity
    
    
    (33.1
    )
    
    
    (163.7
    )
    
    
    (162.8
    )
    
    
    196.1
    
    
    
    (163.5
    )Total shareholders equity
    
    
    2,924.0
    
    
    
    1,461.8
    
    
    
    8,334.7
    
    
    
    (10,602.3
    )
    
    
    2,118.2Total liabilities and shareholders
equity
    
    $
    3,049.6
    
    
    $
    9,075.7
    
    
    $
    9,540.9
    
    
    $
    (16,700.9
    )
    
    $
    4,965.3
 F-37




---



##### Table of Contents



COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Consolidating Statements of Cash Flows
Year Ended December 31, 2004
(in millions) Cooper
    
    
    Other
    
    
    ConsolidatingCooper
    
    
    Ohio
    
    
    Subsidiaries
    
    
    Adjustments
    
    
    TotalNet cash provided by (used in)
operating activities
    
    $
    (7.3
    )
    
    $
    (107.4
    )
    
    $
    588.3
    
    
    $
    
    
    
    $
    473.6Cash flows from investing activities:Capital expenditures
    
    
    
    
    
    
    (21.4
    )
    
    
    (81.4
    )
    
    
    
    
    
    
    (102.8
    )Cash paid for acquired business
    
    
    
    
    
    
    
    
    
    
    (48.6
    )
    
    
    
    
    
    
    (48.6
    )Intercompany sale (purchase) of
investment in parent
    
    
    
    
    
    
    (182.1
    )
    
    
    182.1
    
    
    
    
    
    
    
    Intercompany sale (purchase) of
investment in subsidiaries
    
    
    
    
    
    
    109.5
    
    
    
    (109.5
    )
    
    
    
    
    
    
    Investments in affiliates
    
    
    (9.0
    )
    
    
    (80.3
    )
    
    
    
    
    
    
    89.3
    
    
    
    Loans to affiliates
    
    
    (60.5
    )
    
    
    (23.6
    )
    
    
    (154.0
    )
    
    
    238.1
    
    
    
    Repayments of loans from affiliates
    
    
    35.1
    
    
    
    23.0
    
    
    
    84.5
    
    
    
    (142.6
    )
    
    
    Dividends from subsidiaries
    
    
    134.0
    
    
    
    87.7
    
    
    
    
    
    
    
    (221.7
    )
    
    
    Other
    
    
    
    
    
    
    28.3
    
    
    
    11.8
    
    
    
    (28.3
    )
    
    
    11.8Net cash provided by (used in)
investing activities
    
    
    99.6
    
    
    
    (58.9
    )
    
    
    (115.1
    )
    
    
    (65.2
    )
    
    
    (139.6
    )Cash flows from financing activities:Proceeds from issuances of debt
    
    
    
    
    
    
    
    
    
    
    94.3
    
    
    
    
    
    
    
    94.3Repayments of debt
    
    
    
    
    
    
    
    
    
    
    (4.7
    )
    
    
    
    
    
    
    (4.7
    )Borrowings from affiliates
    
    
    176.1
    
    
    
    
    
    
    
    62.0
    
    
    
    (238.1
    )
    
    
    Repayments of loans from affiliates
    
    
    (132.1
    )
    
    
    
    
    
    
    (10.5
    )
    
    
    142.6
    
    
    
    Other intercompany financing
activities
    
    
    9.8
    
    
    
    187.1
    
    
    
    (196.9
    )
    
    
    
    
    
    
    Dividends
    
    
    (131.0
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (131.0
    )Dividends paid to parent
    
    
    
    
    
    
    
    
    
    
    (221.7
    )
    
    
    221.7
    
    
    
    Subsidiary purchase of parent shares
    
    
    
    
    
    
    (110.3
    )
    
    
    (92.6
    )
    
    
    
    
    
    
    (202.9
    )Issuance of stock
    
    
    
    
    
    
    
    
    
    
    89.3
    
    
    
    (89.3
    )
    
    
    Employee stock plan activity and other
    
    
    
    
    
    
    78.4
    
    
    
    (28.3
    )
    
    
    28.3
    
    
    
    78.4Net cash provided by (used in)
financing activities
    
    
    (77.2
    )
    
    
    155.2
    
    
    
    (309.1
    )
    
    
    65.2
    
    
    
    (165.9
    )Effect of exchange rate changes on
cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    21.0
    
    
    
    
    
    
    
    21.0Increase (decrease) in cash and cash
equivalents
    
    
    15.1
    
    
    
    (11.1
    )
    
    
    185.1
    
    
    
    
    
    
    
    189.1Cash and cash equivalents, beginning
of year
    
    
    96.4
    
    
    
    257.2
    
    
    
    110.1
    
    
    
    
    
    
    
    463.7Cash and cash equivalents, end of year
    
    $
    111.5
    
    
    $
    246.1
    
    
    $
    295.2
    
    
    $
    
    
    
    $
    652.8
 F-38




---



##### Table of Contents



COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Consolidating Statements of Cash Flows
Year Ended December 31, 2003
(in millions) Cooper
    
    
    Other
    
    
    ConsolidatingCooper
    
    
    Ohio
    
    
    Subsidiaries
    
    
    Adjustments
    
    
    TotalNet cash provided by (used in)
operating activities
    
    $
    (6.1
    )
    
    $
    (297.7
    )
    
    $
    749.1
    
    
    $
    
    
    
    $
    445.3Cash flows from investing activities:Capital expenditures
    
    
    
    
    
    
    (16.4
    )
    
    
    (63.5
    )
    
    
    
    
    
    
    (79.9
    )Investments in affiliates
    
    
    
    
    
    
    (23.2
    )
    
    
    
    
    
    
    23.2
    
    
    
    Loans to affiliates
    
    
    
    
    
    
    (27.9
    )
    
    
    (122.0
    )
    
    
    149.9
    
    
    
    Repayments from affiliates
    
    
    
    
    
    
    26.5
    
    
    
    15.0
    
    
    
    (41.5
    )
    
    
    Dividends from subsidiaries
    
    
    101.0
    
    
    
    5.6
    
    
    
    
    
    
    
    (106.6
    )
    
    
    Other
    
    
    
    
    
    
    8.7
    
    
    
    9.4
    
    
    
    
    
    
    
    18.1Net cash provided by (used in)
investing activities
    
    
    101.0
    
    
    
    (26.7
    )
    
    
    (161.1
    )
    
    
    25.0
    
    
    
    (61.8
    )Cash flows from financing activities:Proceeds from issuances of debt
    
    
    
    
    
    
    
    
    
    
    4.3
    
    
    
    
    
    
    
    4.3Repayments of debt
    
    
    
    
    
    
    (169.7
    )
    
    
    (4.7
    )
    
    
    
    
    
    
    (174.4
    )Borrowings from affiliates
    
    
    91.9
    
    
    
    15.0
    
    
    
    43.0
    
    
    
    (149.9
    )
    
    
    Repayments to affiliates
    
    
    
    
    
    
    (15.0
    )
    
    
    (26.5
    )
    
    
    41.5
    
    
    
    Other intercompany financing
activities activities
    
    
    4.0
    
    
    
    450.7
    
    
    
    (454.7
    )
    
    
    
    
    
    
    Dividends
    
    
    (129.7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (129.7
    )Dividends paid to parent
    
    
    
    
    
    
    
    
    
    
    (106.6
    )
    
    
    106.6
    
    
    
    Subsidiary purchase of parent shares
    
    
    
    
    
    
    (5.5
    )
    
    
    
    
    
    

    
    
    
    
    (5.5
    )Issuance of stock
    
    
    
    
    
    
    
    
    
    
    23.2
    
    
    
    (23.2
    )
    
    
    Employee stock plan activity and other
    
    
    1.4
    
    
    
    61.8
    
    
    
    
    
    
    
    
    
    
    
    63.2Net cash provided by (used in)
financing activities
    
    
    (32.4
    )
    
    
    337.3
    
    
    
    (522.0
    )
    
    
    (25.0
    )
    
    
    (242.1
    )Effect of exchange rate changes on
cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    20.3
    
    
    
    
    
    
    
    20.3Increase in cash and cash equivalents
    
    
    62.5
    
    
    
    12.9
    
    
    
    86.3
    
    
    
    
    
    
    
    161.7Cash and cash equivalents, beginning
of year
    
    
    33.9
    
    
    
    244.3
    
    
    
    23.8
    
    
    
    
    
    
    
    302.0Cash and cash equivalents, end of year
    
    $
    96.4
    
    
    $
    257.2
    
    
    $
    110.1
    
    
    $
    
    
    
    $
    463.7
 F-39




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##### Table of Contents



COOPER INDUSTRIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Consolidating Statements of Cash Flows
Year Ended December 31, 2002
(in millions) Cooper
    
    
    Other
    
    
    ConsolidatingCooper
    
    
    Ohio
    
    
    Subsidiaries
    
    
    Adjustments
    
    
    TotalNet cash provided by (used in)
operating activities
    
    $
    29.7
    
    
    $
    (223.9
    )
    
    $
    674.0
    
    
    $
    
    
    
    $
    479.8Cash flows from investing activities:Capital expenditures
    
    
    
    
    
    
    (6.1
    )
    
    
    (67.7
    )
    
    
    
    
    
    
    (73.8
    )Investments in affiliates
    
    
    
    
    
    
    (34.0
    )
    
    
    
    
    
    
    34.0
    
    
    
    Loans to affiliates
    
    
    (0.1
    )
    
    
    (0.7
    )
    
    
    (29.2
    )
    
    
    30.0
    
    
    
    Dividends from subsidiaries
    
    
    67.0
    
    
    
    7.4
    
    
    
    
    
    
    
    (74.4
    )
    
    
    Other
    
    
    
    
    
    
    2.3
    
    
    
    18.6
    
    
    
    
    
    
    
    20.9Net cash provided by (used in)
investing activities
    
    
    66.9
    
    
    
    (31.1
    )
    
    
    (78.3
    )
    
    
    (10.4
    )
    
    
    (52.9
    )Cash flows from financing activities:Proceeds from issuances of debt
    
    
    
    
    
    
    575.0
    
    
    
    33.3
    
    
    
    
    
    
    
    608.3Repayments of debt
    
    
    
    
    
    
    (380.4
    )
    
    
    (133.1
    )
    
    
    
    
    
    
    (513.5
    )Borrowings from affiliates
    
    
    
    
    
    
    29.2
    
    
    
    0.8
    
    
    
    (30.0
    )
    
    
    Other intercompany financing
activities
    
    
    1.7
    
    
    
    435.6
    
    
    
    (437.3
    )
    
    
    
    
    
    
    Dividends
    
    
    (64.4
    )
    
    
    (65.3
    )
    
    
    
    
    
    
    
    
    
    
    (129.7
    )Dividends paid to affiliates
    
    
    
    
    
    
    
    
    
    
    (74.4
    )
    
    
    74.4
    
    
    
    Acquisition of treasury shares
    
    
    
    
    
    
    (37.9
    )
    
    
    
    
    
    
    
    
    
    
    (37.9
    )Subsidiary purchase of parent shares
    
    
    
    
    
    
    (56.4
    )
    
    
    
    
    
    
    
    
    
    
    (56.4
    )Issuance of stock
    
    
    
    
    
    
    
    
    
    
    34.0
    
    
    
    (34.0
    )
    
    
    Employee stock plan activity and other
    
    
    
    
    
    
    (3.3
    )
    
    
    
    
    
    
    
    
    
    
    (3.3
    )Net cash provided by (used in)
financing activities
    
    
    (62.7
    )
    
    
    496.5
    
    
    
    (576.7
    )
    
    
    10.4
    
    
    
    (132.5
    )Effect of exchange rate changes on
cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    (3.9
    )
    
    
    
    
    
    
    (3.9
    )Increase in cash and cash equivalents.
    
    
    33.9
    
    
    
    241.5
    
    
    
    15.1
    
    
    
    
    
    
    
    290.5Cash and cash equivalents, beginning
of year
    
    
    
    
    
    
    2.8
    
    
    
    8.7
    
    
    
    
    
    
    
    11.5Cash and cash equivalents, end of
year
    
    $
    33.9
    
    
    $
    244.3
    
    
    $
    23.8
    
    
    $
    
    
    
    $
    302.0
 F-40




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##### Table of Contents








INDEX TO EXHIBITS



|3. | Exhibit
|-- | -------

10.25
    
    
    Five-Year Credit Agreement dated November 3, 2004 among Cooper Industries, Ltd., Cooper US, Inc. and the banks named therein.12.0
    
    
    Computation of Ratios of Earnings to Fixed Charges for the Calendar years 2000 through 2004.21.0
    
    
    List of Cooper Industries, Ltd. Subsidiaries.23.1
    
    
    Consent of Ernst & Young LLP.23.2
    
    
    Consent of Bates White, LLC.24.0
    
    
    Powers of Attorney from members of the Board of Directors of Cooper Industries, Ltd.31.1
    
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


See Item 15(a)3 for a list of Exhibits incorporated by reference.