##### Table of Contents



10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 (Mark One)  [X]
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarter ended June 30, 2004 OR  [   ]
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from  to Commission File Number
    
    1-31330
 Cooper Industries, Ltd. 
  Bermuda
    
    98-0355628(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)600 Travis, Suite 5800
    
    Houston, Texas 77002(Address of principal executive offices)
    
    (Zip Code)
 (713) 209-8400 
     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X]    No [   ] Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X]    No [   ] Number of registrants common stock outstanding as of June 30, 2004 was
91,680,300 Class A common shares that are held by the public and 3,006,000
Class A common shares and 55,499,770 Class B common shares that are held by the
issuers wholly-owned subsidiaries.




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TABLE OF CONTENTS  PART I  FINANCIAL INFORMATIONItem 1. Financial StatementsCONSOLIDATED INCOME STATEMENTSCONSOLIDATED BALANCE SHEETSCONSOLIDATED STATEMENTS OF CASH FLOWSNOTES TO CONSOLIDATED FINANCIAL STATEMENTSItem 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 4. Controls and ProceduresPART II  OTHER INFORMATIONItem 1. Legal ProceedingsItem 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity SecuritiesItem 4. Submission of Matters to a Vote of Security HoldersItem 6. Exhibits and Reports on Form 8-KSignaturesExhibit IndexComputation of Ratios of Earnings to Fixed ChargesConsent of Bates White, LLC.Certification pursuant to Section 302Certification pursuant to Section 302Certification pursuant to Section 906Certification pursuant to Section 906    Table of Contents  
 PART I  FINANCIAL INFORMATION 
 Item 1. Financial Statements COOPER INDUSTRIES, LTD. 
 CONSOLIDATED INCOME STATEMENTS
 Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003(in millions, where applicable)Revenues
    
    $
    1,109.3
    
    
    $
    1,010.9
    
    
    $
    2,173.9
    
    
    $
    1,968.7Cost of sales
    
    
    775.2
    
    
    
    716.7
    
    
    
    1,517.2
    
    
    
    1,391.4Selling and administrative expenses
    
    
    212.0
    
    
    
    194.9
    
    
    
    420.4
    
    
    
    387.2Restructuring
    
    
    
    
    
    
    (14.3
    )
    
    
    
    
    
    
    (14.3
    )Operating earnings
    
    
    122.1
    
    
    
    113.6
    
    
    
    236.3
    
    
    
    204.4Interest expense, net
    
    
    17.2
    
    
    
    19.5
    
    
    
    34.3
    
    
    
    39.6Income before income taxes
    
    
    104.9
    
    
    
    94.1
    
    
    
    202.0
    
    
    
    164.8Income taxes
    
    
    21.0
    
    
    
    21.7
    
    
    
    40.4
    
    
    
    35.8Net income
    
    $
    83.9
    
    
    $
    72.4
    
    
    $
    161.6
    
    
    $
    129.0Income per common share:Basic
    
    $
    .91
    
    
    $
    .79
    
    
    $
    1.74
    
    
    $
    1.40Diluted
    
    $
    .89
    
    
    $
    .78
    
    
    $
    1.70
    
    
    $
    1.39Cash dividends per common share
    
    $
    .35
    
    
    $
    .35
    
    
    $
    .70
    
    
    $
    .70
 The accompanying notes are an integral part of these statements. -2-




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COOPER INDUSTRIES, LTD. 
 CONSOLIDATED BALANCE SHEETS
 June 30,
    
    December 31,2004
    
    2003(in millions)ASSETSCash and cash equivalents
    
    $
    433.9
    
    
    $
    463.7Receivables
    
    
    817.9
    
    
    
    738.6Inventories
    
    
    576.2
    
    
    
    552.0Deferred income taxes and other current assets
    
    
    151.9
    
    
    
    206.5Total current assets
    
    
    1,979.9
    
    
    
    1,960.8Property, plant and equipment, less accumulated depreciation
    
    
    678.5
    
    
    
    711.4Goodwill
    
    
    2,066.8
    
    
    
    2,056.6Deferred income taxes and other noncurrent assets
    
    
    216.3
    
    
    
    236.5Total assets
    
    $
    4,941.5
    
    
    $
    4,965.3LIABILITIES AND SHAREHOLDERS EQUITYShort-term debt
    
    $
    7.5
    
    
    $
    6.2Accounts payable
    
    
    365.3
    
    
    
    329.1Accrued liabilities
    
    
    439.2
    
    
    
    433.7Accrual for discontinued operations
    
    
    217.3
    
    
    
    252.5Current maturities of long-term debt
    
    
    30.2
    
    
    
    0.4Total current liabilities
    
    
    1,059.5
    
    
    
    1,021.9Long-term debt
    
    
    1,289.4
    
    
    
    1,336.7Postretirement benefits other than pensions
    
    
    177.2
    
    
    
    181.1Other long-term liabilities
    
    
    312.5
    
    
    
    307.4Total liabilities
    
    
    2,838.6
    
    
    
    2,847.1Common stock, $.01 par value
    
    
    0.9
    
    
    
    0.9Capital in excess of par value
    
    
    403.1
    
    
    
    518.0Retained earnings
    
    
    1,859.3
    
    
    
    1,762.8Accumulated other nonowner changes in equity
    
    
    (160.4
    )
    
    
    (163.5
    )Total shareholders equity
    
    
    2,102.9
    
    
    
    2,118.2Total liabilities and shareholders equity
    
    $
    4,941.5
    
    
    $
    4,965.3
 The accompanying notes are an integral part of these statements. -3-




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COOPER INDUSTRIES, LTD. 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Six Months EndedJune 30,2004
    
    2003(in millions)Cash flows from operating activities:Net income
    
    $
    161.6
    
    
    $
    129.0Adjustments to reconcile to net cash provided by operating activities:Depreciation and amortization
    
    
    57.5
    
    
    
    61.8Deferred income taxes
    
    
    18.2
    
    
    
    61.7Restructuring charge payments
    
    
    (3.7
    )
    
    
    (11.1
    )Changes in assets and liabilities: (1)Receivables
    
    
    (83.3
    )
    
    
    (40.3
    )Inventories
    
    
    (25.8
    )
    
    
    (17.6
    )Accounts payable and accrued liabilities
    
    
    27.7
    
    
    
    (50.3
    )Other assets and liabilities, net
    
    
    67.1
    
    
    
    (15.1
    )Net cash provided by operating activities
    
    
    219.3
    
    
    
    118.1Cash flows from investing activities:Capital expenditures
    
    
    (39.0
    )
    
    
    (33.9
    )Cash paid for acquired businesses
    
    
    (10.1
    )
    
    
    Proceeds from sales of property, plant and equipment and other
    
    
    7.9
    
    
    
    5.9Net cash used in investing activities
    
    
    (41.2
    )
    
    
    (28.0
    )Cash flows from financing activities:Proceeds from issuances of debt
    
    
    2.0
    
    
    
    4.3Repayments of debt
    
    
    (1.5
    )
    
    
    (167.2
    )Dividends
    
    
    (65.1
    )
    
    
    (64.5
    )Subsidiary purchase of parent shares
    
    
    (164.9
    )
    
    
    (5.4
    )Activity under employee stock plans and other
    
    
    24.1
    
    
    
    2.1Net cash used in financing activities
    
    
    (205.4
    )
    
    
    (230.7
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    (2.5
    )
    
    
    7.5Decrease in cash and cash equivalents
    
    
    (29.8
    )
    
    
    (133.1
    )Cash and cash equivalents, beginning of period
    
    
    463.7
    
    
    
    302.0Cash and cash equivalents, end of period
    
    $
    433.9
    
    
    $
    168.9
 (1)     Net of the effects of acquisitions and translation. The accompanying notes are an integral part of these statements. -4-




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COOPER INDUSTRIES, LTD. 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 1. 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. The financial information presented as of any date other than December 31
has been prepared from the books and records without audit. Financial
information as of December 31 has been derived from Coopers audited financial
statements, but does not include all disclosures required by generally accepted
accounting principles. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial information for the periods indicated, have been
included. For further information regarding Coopers accounting policies,
refer to the Consolidated Financial Statements and related notes for the year
ended December 31, 2003 included in Part IV of Coopers 2003 Annual Report on
Form 10-K. Recently Issued Accounting Standards 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. FSP 106-2 is effective for the first
interim or annual period beginning after June 15, 2004. Cooper has concluded
that the effects of FSP 106-2 do not constitute a significant event as it
relates to Coopers other postretirement benefits. Accordingly, Cooper will
incorporate the effects of FSP 106-2 in the next measurement of assets and
obligations of the postretirement plans affected by FSP 106-2. Note 2. Stock-Based Compensation 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. Effective January 1, 2003, Cooper adopted Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation(SFAS
No. 123), as amended. Cooper utilized the prospective method of adoption.
Cooper accounts 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 Employees and related interpretations (APB No. 25). 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 granted was
estimated using the Black-Scholes option-pricing model. The fair value of
restricted stock and performance-based awards granted was measured at the
market price on the grant date. Stock-based compensation expense was $11.6
million and $4.8 million during the six months ended June 30, 2004 and 2003,
respectively. -5-




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The following table presents pro forma income and earnings per share as if
the fair value based method had been applied to all outstanding and unvested
awards in each period. Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003(in millions)Net income, as reported
    
    $
    83.9
    
    
    $
    72.4
    
    
    $
    161.6
    
    
    $
    129.0Add: Stock-based employee compensation
expense included in reported net income,
net of related tax effects
    
    
    4.4
    
    
    
    1.6
    
    
    
    6.9
    
    
    
    2.8Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects
    
    
    (6.4
    )
    
    
    (3.4
    )
    
    
    (9.0
    )
    
    
    (8.1
    )Pro forma net income
    
    $
    81.9
    
    
    $
    70.6
    
    
    $
    159.5
    
    
    $
    123.7Earnings per share:Basic  as reported
    
    $
    .91
    
    
    $
    .79
    
    
    $
    1.74
    
    
    $
    1.40Basic  pro forma
    
    $
    .89
    
    
    $
    .77
    
    
    $
    1.72
    
    
    $
    1.34Diluted  as reported
    
    $
    .89
    
    
    $
    .78
    
    
    $
    1.70
    
    
    $
    1.39Diluted  pro forma
    
    $
    .87
    
    
    $
    .76
    
    
    $
    1.68
    
    
    $
    1.34
 Note 3. Acquisitions In March 2004, Cooper acquired a manufacturer of specification and
commercial grade lighting fixtures for $10.1 million. Note 4. Inventories June 30,
    
    December 31,2004
    
    2003(in millions)Raw materials
    
    $
    193.0
    
    
    $
    182.8Work-in-process
    
    
    121.1
    
    
    
    113.9Finished goods
    
    
    350.9
    
    
    
    346.3Perishable tooling and supplies
    
    
    20.8
    
    
    
    20.6685.8
    
    
    
    663.6Allowance for excess and obsolete inventory
    
    
    (48.9
    )
    
    
    (47.6
    )Excess of current standard costs over LIFO costs
    
    
    (60.7
    )
    
    
    (64.0
    )Net inventories
    
    $
    576.2
    
    
    $
    552.0
 -6-




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Note 5. Long-Term Debt At June 30, 2004, $225 million of a shelf registration to issue up to $500
million of debt securities was available. Effective August 4, 2004, Cooper
terminated the shelf registration with respect to the $225 million of debt
securities that was still available for issuance. Note 6. Shareholders Equity At June 30, 2004, 91,680,300 Class A common shares, $.01 par value were
issued and outstanding (excluding the 3,006,000 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 held
by wholly-owned subsidiaries) at December 31, 2003. During the first six
months of 2004, Cooper issued 888,535 Class A common shares primarily in
connection with employee incentive and benefit plans and Coopers dividend
reinvestment program. During the first six months of 2004, Coopers
wholly-owned subsidiaries purchased 3,006,000 Class A common shares for $164.9
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 the first six months of 2004, 1,130 Class A common
shares held by wholly-owned subsidiaries were issued primarily to satisfy the
matching obligation under the Retirement Savings and Stock Ownership Plan,
leaving 3,006,000 Class A common shares held by wholly-owned subsidiaries at
June 30, 2004. A wholly-owned subsidiary also owns all the issued and outstanding Class B
common shares. The subsidiarys investment in the Class B common shares is
eliminated in consolidation. If at any time a dividend is declared and paid on
the Class A common shares, a like dividend shall be declared and paid on the
Class B common shares in an equal amount per share. During the first six
months of 2004, Coopers wholly-owned subsidiaries waived their rights to
receive the regular quarterly dividend of $.35 per share (or an aggregate of
$40.5 million) on all shares held. Note 7. Segment Information RevenuesThree Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003(in millions)Electrical Products
    
    $
    928.9
    
    
    $
    839.0
    
    
    $
    1,819.6
    
    
    $
    1,643.2Tools & Hardware
    
    
    180.4
    
    
    
    171.9
    
    
    
    354.3
    
    
    
    325.5Total revenues
    
    $
    1,109.3
    
    
    $
    1,010.9
    
    
    $
    2,173.9
    
    
    $
    1,968.7
 -7-




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Operating EarningsThree Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003(in millions)Electrical Products
    
    $
    129.4
    
    
    $
    109.2
    
    
    $
    250.2
    
    
    $
    209.5Tools & Hardware
    
    
    12.6
    
    
    
    7.0
    
    
    
    24.4
    
    
    
    13.5Segment operating earnings
    
    
    142.0
    
    
    
    116.2
    
    
    
    274.6
    
    
    
    223.0Restructuring
    
    
    
    
    
    
    (14.3
    )
    
    
    
    
    
    
    (14.3
    )General Corporate expenses
    
    
    19.9
    
    
    
    16.9
    
    
    
    38.3
    
    
    
    32.9Total operating earnings
    
    
    122.1
    
    
    
    113.6
    
    
    
    236.3
    
    
    
    204.4Interest expense, net
    
    
    17.2
    
    
    
    19.5
    
    
    
    34.3
    
    
    
    39.6Income before income taxes
    
    $
    104.9
    
    
    $
    94.1
    
    
    $
    202.0
    
    
    $
    164.8
 Note 8. Pension and Other Postretirement Benefits Pension BenefitsThree Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003(in millions)Components of net periodic benefit cost:Service cost
    
    $
    3.7
    
    
    $
    3.9
    
    
    $
    8.1
    
    
    $
    8.4Interest cost
    
    
    10.6
    
    
    
    10.4
    
    
    
    20.7
    
    
    
    21.0Expected return on plan assets
    
    
    (11.9
    )
    
    
    (9.5
    )
    
    
    (23.4
    )
    
    
    (20.1
    )Amortization of unrecognized transition
obligation
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    0.2Amortization of prior service cost
    
    
    0.1
    
    
    
    0.2
    
    
    
    0.3
    
    
    
    0.3Recognized actuarial loss
    
    
    1.9
    
    
    
    2.6
    
    
    
    3.6
    
    
    
    4.5Net periodic benefit cost
    
    $
    4.4
    
    
    $
    7.7
    
    
    $
    9.3
    
    
    $
    14.3
 -8-




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Other Postretirement BenefitsThree Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003(in millions)Components of net periodic benefit cost:Service cost
    
    $
    0.1
    
    
    $
    
    
    
    $
    0.1
    
    
    $
    0.1Interest cost
    
    
    2.0
    
    
    
    2.3
    
    
    
    4.1
    
    
    
    4.6Recognized actuarial loss
    
    
    (0.7
    )
    
    
    (0.9
    )
    
    
    (1.4
    )
    
    
    (1.8
    )Net periodic benefit cost
    
    $
    1.4
    
    
    $
    1.4
    
    
    $
    2.8
    
    
    $
    2.9
 Note 9. Net Income Per Common Share Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003(in millions)Basic:Net income applicable to common stock
    
    $
    83.9
    
    
    $
    72.4
    
    
    $
    161.6
    
    
    $
    129.0Weighted average common shares outstanding
    
    
    92.2
    
    
    
    92.2
    
    
    
    92.9
    
    
    
    92.1Diluted:Net income applicable to common stock
    
    $
    83.9
    
    
    $
    72.4
    
    
    $
    161.6
    
    
    $
    129.0Weighted average common shares outstanding
    
    
    92.2
    
    
    
    92.2
    
    
    
    92.9
    
    
    
    92.1Incremental shares from assumed conversions:Options, performance-based stock
awards and other employee awards
    
    
    2.2
    
    
    
    0.5
    
    
    
    2.2
    
    
    
    0.5Weighted average common shares
and common share equivalents
    
    
    94.4
    
    
    
    92.7
    
    
    
    95.1
    
    
    
    92.6
 Options and employee awards are not considered in the calculations if the
effect would be antidilutive. -9-




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Note 10. Net Income and Other Nonowner Changes in Equity The components of net income and other nonowner changes in equity, net of
related taxes, were as follows: Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003(in millions)Net income
    
    $
    83.9
    
    
    $
    72.4
    
    
    $
    161.6
    
    
    $
    129.0Foreign currency translation gains (losses)
    
    
    (13.1
    )
    
    
    22.0
    
    
    
    1.8
    
    
    
    13.5Change in fair value of derivatives
    
    
    (0.1
    )
    
    
    (2.9
    )
    
    
    1.3
    
    
    
    (3.0
    )Net income and other nonowner
changes in equity
    
    $
    70.7
    
    
    $
    91.5
    
    
    $
    164.7
    
    
    $
    139.5
 Note 11. 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 June 30, 2004, Cooper had paid
a total of $4.4 million for these actions, all of which was for severance and
related costs. A total of 114 salaried and 150 hourly personnel were scheduled to be
eliminated as a result of these actions, and substantially all personnel were
terminated as of March 31, 2004. The multiple-employer pension obligation is
expected to be paid over 15 years, beginning in 2005. In 2001, Cooper accrued $35.0 million reflecting the contractual amounts
due to financial advisors associated with Coopers strategic alternatives
review. Cooper paid $5.0 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. 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 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. -10-




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##### Table of Contents



The following table reflects activity related to the fourth quarter 2002
restructuring charge. FacilitiesNumber of
    
    Accrued
    
    Closure andEmployees
    
    Severance
    
    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
    )
    
    
    (1.6
    )Balance at June 30, 2004
    
    
    
    
    
    $
    
    
    
    $
    0.7
 A total of 435 salaried and 771 hourly positions were scheduled to be
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. Substantially all of the closure and
rationalization activities were initiated and completed by the end of 2003. See Restructuring in Managements Discussion and Analysis of Financial
Condition and Results of Operations for additional information. Note 12. 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
yet filed any notice to reject 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 June 30, 2004, a total of 123,960 Abex Claims were filed, of
which 64,361 claims have been resolved leaving 59,599 Abex Claims pending at
June 30, 2004, that are the responsibility of Federal-Mogul. During the three
months ended June 30, 2004, 3,816 claims were filed and 1,247 claims were
resolved. Since August 28, 1998, the average indemnity payment for resolved
Abex Claims was $2,143
before insurance. A total of $56.4 million was spent on defense costs for the
period August 28, 1998 through June 30, 2004. Historically, existing insurance
coverage has provided 50% to 80% of the total defense and indemnity payments
for Abex Claims. During the second quarter, negotiations took place that
resulted in the settlement of several blocks of cases totaling approximately
13,000 claims early in the third quarter of 2004. Including these settlements,
the average indemnity for Abex claims resolved since August 28, 1998 is $1,782. -11-




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##### Table of Contents



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 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 early 2004, Cooper
concluded that it is 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 million income
tax benefit, in the fourth quarter of 2003. Cooper is continuing negotiations with the Representatives. At this time,
the amount of any negotiated settlement through the Federal-Mogul bankruptcy
and the exact manner in which this issue will be resolved is not known. At
June 30, 2004, the accrual for potential liabilities related to the Automotive
Products sale and the Federal-Mogul bankruptcy was $217.3 million. -12-




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##### Table of Contents



Note 13. Consolidating Financial Information Cooper fully and unconditionally guarantees the registered debt securities
of Cooper Industries, Inc. (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
Three Months Ended June 30, 2004
(in millions) Cooper
    
    Other
    
    ConsolidatingCooper
    
    Ohio
    
    Subsidiaries
    
    Adjustments
    
    TotalRevenues
    
    $
    
    
    
    $
    73.3
    
    
    $
    1,041.0
    
    
    $
    (5.0
    )
    
    $
    1,109.3Cost of sales
    
    
    0.2
    
    
    
    48.9
    
    
    
    731.1
    
    
    
    (5.0
    )
    
    
    775.2Selling and administrative expenses
    
    
    2.7
    
    
    
    26.8
    
    
    
    182.5
    
    
    
    
    
    
    
    212.0Interest expense, net
    
    
    (0.3
    )
    
    
    12.1
    
    
    
    5.4
    
    
    
    
    
    
    
    17.2Equity in earnings of subsidiaries,
net of tax
    
    
    88.0
    
    
    
    103.1
    
    
    
    41.0
    
    
    
    (232.1
    )
    
    
    Intercompany income (expense)
    
    
    (1.5
    )
    
    
    (77.6
    )
    
    
    79.1
    
    
    
    
    
    
    
    Income before income taxes
    
    
    83.9
    
    
    
    11.0
    
    
    
    242.1
    
    
    
    (232.1
    )
    
    
    104.9Income tax expense (benefit)
    
    
    
    
    
    
    (30.0
    )
    
    
    51.0
    
    
    
    
    
    
    
    21.0Net income
    
    $
    83.9
    
    
    $
    41.0
    
    
    $
    191.1
    
    
    $
    (232.1
    )
    
    $
    83.9
 Three Months Ended June 30, 2003
(in millions) Cooper
    
    Other
    
    ConsolidatingCooper
    
    Ohio
    
    Subsidiaries
    
    Adjustments
    
    TotalRevenues
    
    $
    
    
    
    $
    70.0
    
    
    $
    944.6
    
    
    $
    (3.7
    )
    
    $
    1,010.9Cost of sales
    
    
    
    
    
    
    46.2
    
    
    
    674.2
    
    
    
    (3.7
    )
    
    
    716.7Selling and administrative expenses
    
    
    1.8
    
    
    
    25.6
    
    
    
    167.5
    
    
    
    
    
    
    
    194.9Restructuring
    
    
    
    
    
    
    (14.3
    )
    
    
    
    
    
    
    
    
    
    
    (14.3
    )Interest expense, net
    
    
    (0.1
    )
    
    
    14.1
    
    
    
    5.5
    
    
    
    
    
    
    
    19.5Equity in earnings of subsidiaries,
net of tax
    
    
    74.5
    
    
    
    94.7
    
    
    
    29.0
    
    
    
    (198.2
    )
    
    
    Intercompany income (expense)
    
    
    0.3
    
    
    
    (82.8
    )
    
    
    83.2
    
    
    
    (0.7
    )
    
    
    Income before income taxes
    
    
    73.1
    
    
    
    10.3
    
    
    
    209.6
    
    
    
    (198.9
    )
    
    
    94.1Income tax expense (benefit)
    
    
    
    
    
    
    (18.7
    )
    
    
    40.4
    
    
    
    
    
    
    
    21.7Net income
    
    $
    73.1
    
    
    $
    29.0
    
    
    $
    169.2
    
    
    $
    (198.9
    )
    
    $
    72.4
 -13-




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##### Table of Contents



Consolidating Income Statements
Six Months Ended June 30, 2004
(in millions) Cooper
    
    Other
    
    ConsolidatingCooper
    
    Ohio
    
    Subsidiaries
    
    Adjustments
    
    TotalRevenues
    
    $
    
    
    
    $
    140.3
    
    
    $
    2,043.7
    
    
    $
    (10.1
    )
    
    $
    2,173.9Cost of sales
    
    
    0.6
    
    
    
    92.3
    
    
    
    1,434.4
    
    
    
    (10.1
    )
    
    
    1,517.2Selling and administrative expenses
    
    
    4.7
    
    
    
    52.7
    
    
    
    363.0
    
    
    
    
    
    
    
    420.4Interest expense, net
    
    
    (0.5
    )
    
    
    23.9
    
    
    
    10.9
    
    
    
    
    
    
    
    34.3Equity in earnings of subsidiaries,
net of tax
    
    
    169.1
    
    
    
    226.5
    
    
    
    75.7
    
    
    
    (471.3
    )
    
    
    Intercompany income (expense)
    
    
    (2.7
    )
    
    
    (203.9
    )
    
    
    206.6
    
    
    
    
    
    
    
    Income (loss) before income taxes
    
    
    161.6
    
    
    
    (6.0
    )
    
    
    517.7
    
    
    
    (471.3
    )
    
    
    202.0Income tax expense (benefit)
    
    
    
    
    
    
    (81.7
    )
    
    
    122.1
    
    
    
    
    
    
    
    40.4Net income
    
    $
    161.6
    
    
    $
    75.7
    
    
    $
    395.6
    
    
    $
    (471.3
    )
    
    $
    161.6
 Six Months Ended June 30, 2003
(in millions) Cooper
    
    Other
    
    ConsolidatingCooper
    
    Ohio
    
    Subsidiaries
    
    Adjustments
    
    TotalRevenues
    
    $
    
    
    
    $
    137.4
    
    
    $
    1,841.3
    
    
    $
    (10.0
    )
    
    $
    1,968.7Cost of sales
    
    
    
    
    
    
    90.3
    
    
    
    1,311.1
    
    
    
    (10.0
    )
    
    
    1,391.4Selling and administrative expenses
    
    
    3.9
    
    
    
    49.5
    
    
    
    333.8
    
    
    
    
    
    
    
    387.2Restructuring
    
    
    
    
    
    
    (14.3
    )
    
    
    
    
    
    
    
    
    
    
    (14.3
    )Interest expense, net
    
    
    (0.1
    )
    
    
    29.1
    
    
    
    10.6
    
    
    
    
    
    
    
    39.6Equity in earnings of subsidiaries,
net of tax
    
    
    133.5
    
    
    
    181.5
    
    
    
    42.8
    
    
    
    (357.8
    )
    
    
    Intercompany income (expense)
    
    
    0.3
    
    
    
    (186.0
    )
    
    
    186.7
    
    
    
    (1.0
    )
    
    
    Income (loss) before income taxes
    
    
    130.0
    
    
    
    (21.7
    )
    
    
    415.3
    
    
    
    (358.8
    )
    
    
    164.8Income tax expense (benefit)
    
    
    
    
    
    
    (64.5
    )
    
    
    100.3
    
    
    
    
    
    
    
    35.8Net income
    
    $
    130.0
    
    
    $
    42.8
    
    
    $
    315.0
    
    
    $
    (358.8
    )
    
    $
    129.0
 -14-




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##### Table of Contents



Consolidating Balance Sheets
June 30, 2004
(in millions) Cooper
    
    Other
    
    ConsolidatingCooper
    
    Ohio
    
    Subsidiaries
    
    Adjustments
    
    TotalCash and cash equivalents
    
    $
    61.1
    
    
    $
    206.6
    
    
    $
    166.2
    
    
    $
    
    
    
    $
    433.9Receivables
    
    
    0.1
    
    
    
    63.3
    
    
    
    754.5
    
    
    
    
    
    
    
    817.9Intercompany receivables
    
    
    474.4
    
    
    
    
    
    
    
    817.7
    
    
    
    (1,292.1
    )
    
    
    Inventories
    
    
    
    
    
    
    14.3
    
    
    
    561.9
    
    
    
    
    
    
    
    576.2Deferred income taxes and
other current assets
    
    
    0.4
    
    
    
    157.2
    
    
    
    (5.7
    )
    
    
    
    
    
    
    151.9Total current assets
    
    
    536.0
    
    
    
    441.4
    
    
    
    2,294.6
    
    
    
    (1,292.1
    )
    
    
    1,979.9Property, plant and equipment, less
accumulated depreciation
    
    
    
    
    
    
    65.7
    
    
    
    612.8
    
    
    
    
    
    
    
    678.5Goodwill
    
    
    
    
    
    
    41.4
    
    
    
    2,025.4
    
    
    
    
    
    
    
    2,066.8Investment in subsidiaries
    
    
    2,529.4
    
    
    
    6,209.4
    
    
    
    40.1
    
    
    
    (8,778.9
    )
    
    
    Investment in parent
    
    
    
    
    
    
    2,273.8
    
    
    
    164.1
    
    
    
    (2,437.9
    )
    
    
    Intercompany notes receivable
    
    
    34.1
    
    
    
    85.3
    
    
    
    4,840.3
    
    
    
    (4,959.7
    )
    
    
    Deferred income taxes and other
noncurrent assets
    
    
    
    
    
    
    177.8
    
    
    
    38.5
    
    
    
    
    
    
    
    216.3Total assets
    
    $
    3,099.5
    
    
    $
    9,294.8
    
    
    $
    10,015.8
    
    
    $
    (17,468.6
    )
    
    $
    4,941.5Short-term debt
    
    $
    
    
    
    $
    
    
    
    $
    7.5
    
    
    $
    
    
    
    $
    7.5Accounts payable
    
    
    32.1
    
    
    
    34.4
    
    
    
    298.8
    
    
    
    
    
    
    
    365.3Accrued liabilities
    
    
    1.8
    
    
    
    147.0
    
    
    
    290.4
    
    
    
    
    
    
    
    439.2Accrual for discontinued operations
    
    
    
    
    
    
    217.3
    
    
    
    
    
    
    
    
    
    
    
    217.3Intercompany payables
    
    
    
    
    
    
    1,292.1
    
    
    
    
    
    
    
    (1,292.1
    )
    
    
    Current maturities of long-term debt
    
    
    
    
    
    
    
    
    
    
    30.2
    
    
    
    
    
    
    
    30.2Total current liabilities
    
    
    33.9
    
    
    
    1,690.8
    
    
    
    626.9
    
    
    
    (1,292.1
    )
    
    
    1,059.5Long-term debt
    
    
    
    
    
    
    917.3
    
    
    
    372.1
    
    
    
    
    
    
    
    1,289.4Intercompany notes payable
    
    
    27.2
    
    
    
    4,813.1
    
    
    
    119.4
    
    
    
    (4,959.7
    )
    
    
    Other long-term liabilities
    
    
    
    
    
    
    331.2
    
    
    
    158.5
    
    
    
    
    
    
    
    489.7Total liabilities
    
    
    61.1
    
    
    
    7,752.4
    
    
    
    1,276.9
    
    
    
    (6,251.8
    )
    
    
    2,838.6Class A common stock
    
    
    0.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.9Class B common stock
    
    
    0.6
    
    
    
    
    
    
    
    
    
    
    
    (0.6
    )
    
    
    Subsidiary common stock
    
    
    
    
    
    
    
    
    
    
    145.5
    
    
    
    (145.5
    )
    
    
    Capital in excess of par value
    
    
    2,829.2
    
    
    
    8.5
    
    
    
    7,203.7
    
    
    
    (9,638.3
    )
    
    
    403.1Retained earnings
    
    
    237.7
    
    
    
    1,694.3
    
    
    
    1,549.6
    
    
    
    (1,622.3
    )
    
    
    1,859.3Accumulated other nonowner changes
in equity
    
    
    (30.0
    )
    
    
    (160.4
    )
    
    
    (159.9
    )
    
    
    189.9
    
    
    
    (160.4
    )Total shareholders equity
    
    
    3,038.4
    
    
    
    1,542.4
    
    
    
    8,738.9
    
    
    
    (11,216.8
    )
    
    
    2,102.9Total liabilities and shareholders
equity
    
    $
    3,099.5
    
    
    $
    9,294.8
    
    
    $
    10,015.8
    
    
    $
    (17,468.6
    )
    
    $
    4,941.5
 -15-




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##### Table of Contents



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
 -16-




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##### Table of Contents



Consolidating Statements of Cash Flows
Six Months Ended June 30, 2004
(in millions) Cooper
    
    Other
    
    ConsolidatingCooper
    
    Ohio
    
    Subsidiaries
    
    Adjustments
    
    TotalNet cash provided by (used in)
operating activities
    
    $
    (3.8
    )
    
    $
    (53.8
    )
    
    $
    276.9
    
    
    $
    
    
    
    $
    219.3Cash flows from investing activities:Capital expenditures
    
    
    
    
    
    
    (10.4
    )
    
    
    (28.6
    )
    
    
    
    
    
    
    (39.0
    )Cash paid for acquired businesses
    
    
    
    
    
    
    
    
    
    
    (10.1
    )
    
    
    
    
    
    
    (10.1
    )Intercompany sale (purchase) of
investment in parent
    
    
    
    
    
    
    109.5
    
    
    
    (109.5
    )
    
    
    
    
    
    
    Intercompany sale (purchase) of
investment in subsidiaries
    
    
    
    
    
    
    (182.1
    )
    
    
    182.1
    
    
    
    
    
    
    
    Investment in affiliates
    
    
    (3.8
    )
    
    
    
    
    
    
    
    
    
    
    3.8
    
    
    
    Loans to affiliates
    
    
    (34.1
    )
    
    
    (3.7
    )
    
    
    (67.7
    )
    
    
    105.5
    
    
    
    Repayments of loans from affiliates
    
    
    
    
    
    
    
    
    
    
    84.5
    
    
    
    (84.5
    )
    
    
    Dividends from subsidiaries
    
    
    134.0
    
    
    
    3.3
    
    
    
    
    
    
    
    (137.3
    )
    
    
    Other
    
    
    
    
    
    
    0.7
    
    
    
    7.2
    
    
    
    
    
    
    
    7.9Net cash provided by (used in)
investing activities
    
    
    96.1
    
    
    
    (82.7
    )
    
    
    57.9
    
    
    
    (112.5
    )
    
    
    (41.2
    )Cash flows from financing activities:Proceeds from issuances of debt
    
    
    
    
    
    
    
    
    
    
    2.0
    
    
    
    
    
    
    
    2.0Repayments of debt
    
    
    
    
    
    
    
    
    
    
    (1.5
    )
    
    
    
    
    
    
    (1.5
    )Borrowings from affiliates
    
    
    67.7
    
    
    
    
    
    
    
    37.8
    
    
    
    (105.5
    )
    
    
    Repayments of loans to affiliates
    
    
    (132.1
    )
    
    
    
    
    
    
    47.6
    
    
    
    84.5
    
    
    
    Other intercompany financing
activities
    
    
    1.9
    
    
    
    172.1
    
    
    
    (174.0
    )
    
    
    
    
    
    
    Dividends
    
    
    (65.1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (65.1
    )Dividends paid to affiliates
    
    
    
    
    
    
    
    
    
    
    (137.3
    )
    
    
    137.3
    
    
    
    Subsidiary purchase of parent shares
    
    
    
    
    
    
    (110.3
    )
    
    
    (54.6
    )
    
    
    
    
    
    
    (164.9
    )Employee stock plan activity and
other
    
    
    
    
    
    
    24.1
    
    
    
    3.8
    
    
    
    (3.8
    )
    
    
    24.1Net cash provided by (used in)
financing activities
    
    
    (127.6
    )
    
    
    85.9
    
    
    
    (276.2
    )
    
    
    112.5
    
    
    
    (205.4
    )Effect of exchange rate changes on
cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    (2.5
    )
    
    
    
    
    
    
    (2.5
    )Increase (decrease) in cash and cash
equivalents
    
    
    (35.3
    )
    
    
    (50.6
    )
    
    
    56.1
    
    
    
    
    
    
    
    (29.8
    )Cash and cash equivalents, beginning
of period
    
    
    96.4
    
    
    
    257.2
    
    
    
    110.1
    
    
    
    
    
    
    
    463.7Cash and cash equivalents, end of
period
    
    $
    61.1
    
    
    $
    206.6
    
    
    $
    166.2
    
    
    $
    
    
    
    $
    433.9
 -17-




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##### Table of Contents



Consolidating Statements of Cash Flows
Six Months Ended June 30, 2003
(in millions) Cooper
    
    Other
    
    ConsolidatingCooper
    
    Ohio
    
    Subsidiaries
    
    Adjustments
    
    TotalNet cash provided by (used in)
operating activities
    
    $
    (2.7
    )
    
    $
    (149.3
    )
    
    $
    270.1
    
    
    $
    
    
    
    $
    118.1Cash flows from investing activities:Capital expenditures
    
    
    
    
    
    
    (5.8
    )
    
    
    (28.1
    )
    
    
    
    
    
    
    (33.9
    )Loans to affiliates
    
    
    (15.0
    )
    
    
    (20.9
    )
    
    
    (15.0
    )
    
    
    50.9
    
    
    
    Repayments of loans from affiliates
    
    
    
    
    
    
    1.0
    
    
    
    
    
    
    
    (1.0
    )
    
    
    Dividends from subsidiaries
    
    
    101.0
    
    
    
    2.0
    
    
    
    
    
    
    
    (103.0
    )
    
    
    Other
    
    
    
    
    
    
    (1.0
    )
    
    
    5.9
    
    
    
    1.0
    
    
    
    5.9Net cash provided by (used in)
investing activities
    
    
    86.0
    
    
    
    (24.7
    )
    
    
    (37.2
    )
    
    
    (52.1
    )
    
    
    (28.0
    )Cash flows from financing activities:Proceeds from issuances of debt
    
    
    
    
    
    
    
    
    
    
    4.3
    
    
    
    
    
    
    
    4.3Repayments of debt
    
    
    
    
    
    
    (166.7
    )
    
    
    (0.5
    )
    
    
    
    
    
    
    (167.2
    )Borrowings from affiliates
    
    
    
    
    
    
    15.0
    
    
    
    35.9
    
    
    
    (50.9
    )
    
    
    Repayments of loans to affiliates
    
    
    
    
    
    
    
    
    
    
    (1.0
    )
    
    
    1.0
    
    
    
    Other intercompany financing
activities
    
    
    1.3
    
    
    
    143.2
    
    
    
    (144.5
    )
    
    
    
    
    
    
    Dividends
    
    
    (64.5
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (64.5
    )Dividends paid to parent
    
    
    
    
    
    
    
    
    
    
    (103.0
    )
    
    
    103.0
    
    
    
    Subsidiary purchase of parent shares
    
    
    
    
    
    
    (5.4
    )
    
    
    
    
    
    
    
    
    
    
    (5.4
    )Employee stock plan activity and
other
    
    
    0.7
    
    
    
    1.4
    
    
    
    1.0
    
    
    
    (1.0
    )
    
    
    2.1Net cash used in financing
activities
    
    
    (62.5
    )
    
    
    (12.5
    )
    
    
    (207.8
    )
    
    
    52.1
    
    
    
    (230.7
    )Effect of exchange rate changes on
cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    7.5
    
    
    
    
    
    
    
    7.5Increase (decrease) in cash and cash
equivalents
    
    
    20.8
    
    
    
    (186.5
    )
    
    
    32.6
    
    
    
    
    
    
    
    (133.1
    )Cash and cash equivalents, beginning
of period
    
    
    33.9
    
    
    
    244.3
    
    
    
    23.8
    
    
    
    
    
    
    
    302.0Cash and cash equivalents, end of
period
    
    $
    54.7
    
    
    $
    57.8
    
    
    $
    56.4
    
    
    $
    
    
    
    $
    168.9
 -18-




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations Results of Operations Three Months Ended June 30, 2004 Compared With Three Months Ended June 30, 2003 Net income for the second quarter of 2004 was $83.9 million on revenues of
$1,109.3 million compared with 2003 second quarter net income of $72.4 million
on revenues of $1,010.9 million. Second quarter diluted earnings per share
increased 14% to $.89 from $.78 in 2003. Second quarter 2003 net income
included $8.6 million, or $.09 per diluted share, from the reversal of a
restructuring accrual. Revenues: Revenues for the second quarter of 2004 increased 10% compared to the
second quarter of 2003. The impact of foreign currency translation increased
reported revenues by approximately 1% for the quarter. Electrical Products segment revenues for the second quarter of 2004
increased 11% compared to the second quarter of 2003. Foreign currency
translation increased revenues by approximately 1% for the quarter. All of
Coopers Electrical Products businesses experienced revenue growth during the
quarter. Growth for the period was driven by stronger distribution channel and
utility market demand. Improving commercial, industrial and electronic
industries as well as new product introductions and market penetration programs
supported increases in circuit protection, lighting and hazardous duty
products. Increased spending by utilities on maintenance and reliability
enhancements bolstered growth in Coopers power transmission and distribution
equipment business. Retail channel sales declined compared to the prior year
reflecting anticipated adjustments in inventory levels across the industry. Tools & Hardware segment revenues for the second quarter of 2004 increased
5% from the second quarter of 2003. Foreign currency translation increased
revenues by approximately 2% for the quarter. Tools & Hardware segment
revenues were driven by new products introduced through the retail channel and
improved industrial and electronic markets for hand tool products. These gains
were partially offset by an expected reduction in shipments of large automated
assembly systems to the automotive industry. Costs and Expenses: Cost of sales, as a percentage of revenues, was 69.9% for the second
quarter of 2004 compared to 70.9% for the comparable 2003 quarter. The
decrease in the cost of sales percentage was primarily due to benefits of
restructuring activities undertaken during 2003 and ongoing sourcing and
productivity initiatives, as well as increased revenue levels. Electrical Products segment cost of sales, as a percentage of revenues,
was 69.1% for the second quarter of 2004 compared to 70.0% for the second
quarter of 2003. The decrease in cost of sales percentage was the result of
improved productivity and revenue leverage, which more than offset significant
cost increases in several key materials and components used in Coopers
products. Tools & Hardware segment cost of sales, as a percentage of revenues,
was 73.2% for the second quarter of 2004 compared to 76.0% for the second
quarter of 2003. The decrease in cost of sales percentage reflects
improvements in the segments cost structure, productivity gains and increased
revenue leverage. Selling and administrative expenses, as a percentage of revenues, for the
second quarter of 2004 were 19.1% compared to 19.3% for the second quarter of
2003. The decrease in the selling and administrative expenses percentage is
due to increased revenues, partially offset by higher stock-based compensation
and other incentive programs. -19-




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##### Table of Contents



Electrical Products segment selling and administrative expenses, as a
percentage of revenues, for the second quarter of 2004 were 16.9% compared to
17.0% for the second quarter of 2003. The decrease in selling and
administrative expenses percentage is primarily due to improved sales volumes
partially offset by increases in incentive compensation costs. Tools & Hardware segment selling and administrative expenses, as a
percentage of revenues, for the second quarter of 2004 were 19.8% compared to
19.9% for the second quarter of 2003. The decrease in the selling and
administrative expenses percentage is primarily due to improved sales volumes
partially offset by expenses related to sales growth initiatives. Interest expense, net for the second quarter of 2004 decreased $2.3
million from the 2003 second quarter primarily as a result of lower average
interest rates and slightly lower average debt balances, along with higher
average cash and cash equivalents balances. Average debt balances were $1.33
billion and $1.34 billion and average interest rates were 5.6% and 5.9% for the
second quarter of 2004 and 2003, respectively. The decrease in average
interest rates primarily resulted from the benefit of interest-rate swaps that
effectively converted $300 million of 5.25% fixed-rate debt to variable-rate
debt at the six month LIBOR rate plus 1.91%. Operating Earnings: Electrical Products segment second quarter 2004 operating earnings
increased 19% to $129.4 million from $109.2 million for the same quarter of
last year. The increase was primarily due to the combination of revenue
increases, cost reduction actions and productivity improvement initiatives,
tempered by increased material costs and higher incentive compensation costs. Tools & Hardware segment second quarter 2004 operating earnings increased
80% to $12.6 million compared to $7.0 million in the second quarter of 2003.
The increase primarily reflects the favorable impact of manufacturing
rationalization efforts undertaken, productivity improvements and the impact of
additional sales volumes, partially offset by lower volume in the assembly
equipment business following record shipments in 2003. General Corporate expense increased $3.0 million to $19.9 million during
the second quarter of 2004 compared to $16.9 million during the second quarter
of 2003. This increase primarily resulted from the incremental impact of
stock-based compensation expenses. Restructuring: In 2001, Cooper accrued $35.0 million reflecting the contractual amounts
due to financial advisors associated with Coopers strategic alternatives
review. Cooper paid $5.0 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. See
Restructuring below for additional information. Income Taxes: The effective tax rate was 20.0% for the three months ended June 30, 2004
and 23.1% for the three months ended June 30, 2003. The reversal of the
restructuring accrual discussed above increased the effective tax rate for the
three months ended June 30, 2003 by 3.1 percentage points. -20-




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##### Table of Contents



Six Months Ended June 30, 2004 Compared With Six Months Ended June 30, 2003 Net income for the first six months of 2004 was $161.6 million on revenues
of $2,173.9 million compared with 2003 first half net income of $129.0 million
on revenues of $1,968.7 million. First half diluted earnings per share
increased 22% to $1.70 from $1.39 in 2003. Net income for the first six months
of 2003 included $8.6 million, or $.09 per diluted share, from the reversal of
a restructuring accrual. Revenues: Revenues for the first six months of 2004 increased 10% compared to the
first six months of 2003. The impact of foreign currency translation increased
revenues by approximately 2% for the first half of the year. Electrical Products segment revenues for the first six months of 2004
increased 11% compared to the first half of 2003. Foreign currency translation
contributed approximately 2% to the revenue increase during the first six
months of 2004. Improving demand and the impact of strategic initiatives
resulted in all of Coopers Electrical Products businesses experiencing revenue
growth during the first six months of the year. Sales growth was supported by
an improving industrial and electronics market, successful introduction of new
products and higher spending by utilities on maintenance and reliability
programs and Coopers key market penetration program. Tools & Hardware segment revenues for the first six months of 2004
increased 9% from the first half of 2003. Foreign currency translation
increased revenues by approximately 4% in the first six months of 2004. Tools
& Hardware segment revenues were driven by improved industrial markets, strong
retail channel sales and new product introductions, partially offset by lower
shipments of automated assembly equipment to the worldwide automotive industry. Costs and Expenses: Cost of sales, as a percentage of revenues, was 69.8% for the first six
months of 2004 compared to 70.7% for the comparable 2003 period. The decrease
in the cost of sales percentage was primarily the result of restructuring
activities undertaken during 2003, increased leverage and productivity
improvements. These reductions were partially offset by increased cost
pressures on key components and materials. Electrical Products segment cost of sales, as a percentage of revenues,
was 69.1% for the first six months of 2004 compared to 70.0% for the first half
of 2003. The decrease in the cost of sales percentage was primarily a result
of productivity improvements and improved leverage, partially offset by
industry-wide cost increases on key components and materials. Tools & Hardware
segment cost of sales, as a percentage of revenues, was 73.1% for the first
half of 2004 compared to 74.6% for the same period of 2003. The decrease in
cost of sales percentage reflects cost efficiencies from restructuring
activities and increased revenue levels. Selling and administrative expenses, as a percentage of revenues, for the
first six months of 2004 were 19.3% compared to 19.7% for the first half of
2003. The decrease in the selling and administrative expenses percentage is
due to increased revenues, partially offset by higher stock-based and other
incentive compensation costs. Electrical Products segment selling and administrative expenses, as a
percentage of revenues, for the first six months of 2004 were 17.2% compared to
17.3% for the first half of 2003. The decrease in selling and administrative
expenses percentage is primarily due to higher sales volumes partially offset
by increased incentive based compensation costs. Tools & Hardware segment selling and administrative expenses, as a
percentage of revenues, for the first six months of 2004 were 20.0% compared to
21.2% for the first six months of 2003. The decrease in the selling and
administrative expenses percentage is primarily due to ongoing efforts to
reduce and control costs, coupled with the impact of increased revenues. -21-




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##### Table of Contents



Interest expense, net for the first six months of 2004 decreased $5.3
million from the 2003 first six months primarily as a result of lower average
interest rates and slightly lower average debt balances, along with higher
average cash and cash equivalents balances. Average debt balances were $1.33
billion and $1.36 billion and average interest rates were 5.6% and 6.0% for the
first six months of 2004 and 2003, respectively. The decrease in average
interest rates primarily resulted from the benefit of interest-rate swaps that
effectively converted $300 million of 5.25% fixed-rate debt to variable-rate
debt at the six month LIBOR rate plus 1.91%. Operating Earnings: Electrical Products segment first half 2004 operating earnings increased
19% to $250.2 million from $209.5 million for the same period of last year.
The increase was primarily due to the combination of revenue increases, cost
reduction actions and productivity improvement initiatives partially offset by
higher material costs. Tools & Hardware segment first half 2004 operating earnings increased 81%
to $24.4 million compared to $13.5 million in the same period of 2003. The
increase primarily reflects the favorable impact of restructuring efforts
undertaken and the impact of additional sales volumes, partially offset by
lower volume in the automated assembly equipment business following record
shipments in 2003. General Corporate expense increased $5.4 million to $38.3 million during
the first six months of 2004 compared to $32.9 million during the same period
of 2003. This increase primarily resulted from the incremental impact of
stock-based compensation 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 June 30, 2004, Cooper had paid
a total of $4.4 million for these actions; substantially all of which was for
severance and related costs. A total of 114 salaried and 150 hourly personnel were scheduled to be
eliminated as a result of these actions, and substantially all of the personnel
were terminated as of March 31, 2004. The majority of the remaining severance
obligation will be paid by December 31, 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 will be
approximately $6.0 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 $1.0 million per year and are expected to begin in 2005.
The majority of the eliminated costs previously were reflected as cost of
sales. 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 current -22-




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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. Of the $24.1 million of charges resulting in cash
expenditures, $0.7 million remained to be expended at June 30, 2004. The following table reflects activity related to the fourth quarter 2002
restructuring charge. FacilitiesNumber of
    
    Accrued
    
    Closure andEmployees
    
    Severance
    
    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
    )
    
    
    (1.6
    )Balance at June 30, 2004
    
    
    
    
    
    $
    
    
    
    $
    0.7
 A total of 435 salaried and 771 hourly positions were scheduled to be
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. Substantially all of the closure and
rationalization activities were initiated and completed by the end of 2003. 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. The initial savings were realized from personnel
reductions that principally impacted selling and administrative expenses and
lower costs of sales. Cooper expects that incremental savings of $25.0 to
$30.0 million will be realized in 2004, largely reflected as lower cost of
sales. Income Taxes: The effective tax rate was 20.0% for the six months ended June 30, 2004
and 21.7% for the six months ended June 30, 2003. The reversal of a
restructuring accrual increased the effective tax rate for the six months ended
June 30, 2003 by 1.7 percentage points. Liquidity and Capital Resources Liquidity: Coopers operating working capital (defined as receivables and inventories
less accounts payable) increased $67 million during the first six months of
2004. The increase included a $79 million increase in receivables and a $24
million increase in inventories, partially offset by a $36 million increase in
accounts payable, which were all driven by increased sales volume. However,
operating working capital turnover (defined as annualized revenues divided by
average quarterly operating working capital) for the first six -23-




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months of 2004 of 4.4 turns increased from 3.9 turns in the same period of
2003. This increase was the result of the higher revenue level and a lower
average operating working capital balance during the 2004 period driven by
Cooper productivity initiatives. Cash provided by operating activities was $219 million during the first
six months of 2004. This cash, plus an additional $30 million of cash and cash
equivalents and $24 million of cash received from employee stock activity were
primarily used to fund capital expenditures of $39 million, an acquisition of
$10 million, dividends of $65 million and share purchases of $165 million. Cash provided by operating activities was $118 million for the first six
months of 2003. Cash provided by operating activities plus $133 million of
cash and cash equivalents were used to fund capital expenditures of $34
million, dividends of $65 million, net debt repayments of $163 million and
share purchases of $5 million during the first half of 2003. Cooper is continuing to focus on initiatives to maximize cash flows.
Cooper currently anticipates a continuation of its long-term ability to
annually generate approximately $200 million in cash flow available for
acquisitions, debt repayments and common stock repurchases. In connection with acquisitions accounted for as purchases, 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. Cash flows from operating
activities are reduced by the amounts expended against the various accruals
established in connection with each acquisition. Spending against these
accruals was $3.0 million and $5.5 million during the six months ended June 30,
2004 and 2003, respectively. Capital Resources: Cooper has targeted a 35% to 45% debt-to-total capitalization ratio and
intends to utilize cash flows to maintain a debt-to-total capitalization ratio
within this range. Excess cash flows are utilized to fund acquisitions or to
purchase shares of Cooper common stock. Coopers debt-to-total capitalization
ratio was 38.7% at June 30, 2004, 38.8% at December 31, 2003 and 38.6% at June
30, 2003. At June 30, 2004 and December 31, 2003, Cooper had no commercial paper
outstanding and cash and cash equivalents of $433.9 million and $463.7 million,
respectively. Coopers practice is to back up outstanding commercial paper balances with
a combination of cash and committed bank credit facilities. As of June 30,
2004, committed bank credit facilities totalled $450 million and mature on
November 17, 2004. Cooper intends to enter into a new committed bank credit
facility during 2004. With no commercial paper outstanding and more than
adequate cash and cash equivalents available to fund operations, Cooper is not
currently dependent upon its committed bank credit facilities to finance its
operations. Outstanding commercial paper balances, to the extent not backed up
by cash, reduce the amount of available borrowings under the committed bank
credit facilities. The credit facility agreements do not contain a material
adverse change clause. The principal financial covenants in the agreements
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 agreements. 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 bank credit facilities to provide short-term funding.
The committed bank credit facilities do not contain any provision which makes
their availability to Cooper dependent on Coopers credit ratings. At June 30, 2004, $225 million of Cooper Ohios shelf registration to
issue up to $500 million of debt securities was available. In consideration of
the June 30, 2004 cash and cash equivalents balance and -24-




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anticipated future liquidity, Cooper terminated the shelf registration
with respect to the $225 million of debt securities that was still available
for issuance effective August 4, 2004. Off-Balance Sheet Arrangements and Aggregate Contractual Obligations As of June 30, 2004, there have been no material changes to Coopers
off-balance sheet arrangements and contractual obligations as described in its
Annual Report on Form 10-K for the year ended December 31, 2003. Backlog Sales backlog represents the dollar amount of all firm open orders for
which all terms and conditions pertaining to the sale have been approved such
that a future sale is reasonably expected. Sales backlog by segment was as
follows: June 30,2004
    
    2003(in millions)Electrical Products
    
    $
    330.1
    
    
    $
    239.1Tools & Hardware
    
    
    86.4
    
    
    
    104.3$
    416.5
    
    
    $
    343.4
 Private Securities Litigation Reform Act Safe Harbor Statement This Form 10-Q 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 the facilities closure and production rationalization plan and
cost-reduction programs, potential liability exposure resulting from
Federal-Mogul Corporations (Federal-Mogul) bankruptcy filing, and any
statements regarding future revenues, cost and expenses, earnings, earnings per
share, margins, cash flows 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, the successful implementation of Coopers strategic initiatives,
changes in mix of products sold, mergers and acquisitions and their integration
into Cooper, the timing and amount of any share repurchases, changes in
financial markets including foreign currency 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. -25-




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Item 4. 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. Cooper has begun 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. 
 PART II  OTHER INFORMATION 
 Item 1. Legal Proceedings Cooper is subject to various suits, legal proceedings and claims that
arise in the normal course of business. While it is not feasible to predict the
outcome of these matters with certainty, management is of the opinion that
their ultimate disposition should not have a material adverse effect on
Coopers financial statements. 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
yet filed any notice to reject 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 June 30, 2004, a total of 123,960 Abex Claims were filed, of
which 64,361 claims have been resolved leaving 59,599 Abex Claims pending at
June 30, 2004, that are the responsibility of Federal-Mogul. During the three
months ended June 30, 2004, 3,816 claims were filed and 1,247 claims were
resolved. Since August 28, 1998, the average indemnity payment for resolved
Abex Claims was $2,143 before insurance. A total of $56.4 million was spent on
defense costs for the period August 28, 1998 through June 30, 2004.
Historically, existing insurance coverage has provided 50% to 80% of the total
defense and indemnity payments for Abex Claims. During the second quarter,
negotiations took place that resulted in the settlement of several blocks of
cases totaling approximately 13,000 claims early in the third quarter of 2004.
Including these settlements, the average indemnity for Abex claims resolved
since August 28, 1998 is $1,782. 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 -26-




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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 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 recent negotiations in early 2004,
Cooper concluded that it is 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 million
income tax benefit, in the fourth quarter of 2003. Cooper is continuing negotiations with the Representatives. At this time,
the amount of any negotiated settlement through the Federal-Mogul bankruptcy
and the exact manner in which this issue will be resolved is not known. At
June 30, 2004, the accrual for potential liabilities related to the Automotive
Products sale and the Federal-Mogul bankruptcy was $217.3 million. -27-




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Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
Securities The following table reflects activity related to equity securities
purchased by Coopers wholly-owned subsidiaries during the three months ended
June 30, 2004: Purchases of Equity Securities Total Number of Shares
    
    Maximum Number ofPurchased as Part of
    
    Shares that May YetTotal Number of
    
    Average Price Paid
    
    Publicly Announced
    
    Be Purchased UnderPeriod
    
    Shares Purchased
    
    per Share
    
    Plans or Programs (1)
    
    the Plans or Programs(1)As of 3/31/04
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,474,2504/01/044/30/04
    
    
    177,800
    
    
    $
    55.69
    
    
    
    177,800
    
    
    
    1,296,4505/01/045/31/04
    
    
    841,200
    
    
    
    54.12
    
    
    
    841,200
    
    
    
    455,2506/01/046/30/04
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    455,250Total
    
    
    1,019,000
    
    
    $
    54.39
    
    
    
    1,019,000
  (1)
 
 Item 4. Submission of Matters to a Vote of Security Holders The annual meeting of shareholders was held on April 27, 2004 in Houston,
Texas. Five proposals, as described in Coopers Proxy statement dated March
18, 2004, were voted upon at the meeting. The following is a brief description
of the matters voted upon and the results of voting.  1.
    
    Management proposal for the election of three directors for terms
expiring in 2007: Stephen G. Butler
    
    Dan F. Smith
    
    Gerald B. Smith.Votes For:
    
    
    76,081,474
    
    
    
    76,031,550
    
    
    
    76,069,430Votes Withheld:
    
    
    2,324,944
    
    
    
    2,374,868
    
    
    
    2,336,988
  2.
    
    Management proposal to appoint Ernst & Young LLP as independent
auditors for 2004: Votes For:
    
    
    76,408,531Votes Against:
    
    
    1,911,992Abstain:
    
    
    594,779Non-Vote:
    
    
    
  3.
    
    Management proposal to approve the Amended and Restated Stock
Incentive Plan: Votes For:
    
    
    55,488,852Votes Against:
    
    
    13,596,459Abstain:
    
    
    946,059Non-Vote:
    
    
    8,883,932
  4.
    
    Shareholder proposal relating to social and environmental
issues concerning sustainability: Votes For:
    
    
    17,660,286Votes Against:
    
    
    42,417,988Abstain:
    
    
    9,953,096Non-Vote:
    
    
    8,883,932
 -28-




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5.
    
    Shareholder proposal relating to executive equity compensation
plans: Votes For:
    
    
    4,617,765Votes Against:
    
    
    64,349,872Abstain:
    
    
    1,063,733Non-Vote:
    
    
    8,883,932
 
 Item 6. Exhibits and Reports on Form 8-K  (a)
    
    Exhibits  10.
    
    Cooper Industries, Inc. Amended and Restated Stock Incentive
Plan (February 11, 2004 Restatement) (Incorporated by reference to
Appendix B of Coopers proxy statement for the Annual Meeting of
Shareholders held on April 27, 2004).12.
    
    Computation of Ratios of Earnings to Fixed Charges for the
Calendar Years 1999 through 2003 and the Six Months Ended June 30,
2004 and 2003.23.
    
    Consent of Bates White, LLC.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.  (b)
    
    Reports on Form 8-K  Cooper filed or furnished the following reports on Form 8-K during the
second quarter of 2004:  
    
    Form 8-K dated April 22, 2004, which furnished a copy of a
press release containing Coopers financial results for the quarter
ended March 31, 2004 and Sales Trends information to be posted on
Coopers website.  
    
    Form 8-K dated May 20, 2004, which furnished Sales Trends
information to be posted on Coopers website.  
    
    Form 8-K dated June 17, 2004, which furnished Sales Trends
information to be posted on Coopers website. -29-




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Signatures Pursuant to the requirements 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.(Registrant)Date: August 4, 2004
    
    /s/ Terry A. KlebeTerry A. KlebeSenior Vice President andChief Financial OfficerDate: August 4, 2004
    
    /s/ Jeffrey B. LevosJeffrey B. LevosVice President and Controller andChief Accounting Officer
 -30-




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Exhibit Index Exhibit No.  10.
    
    Cooper Industries, Inc. Amended and Restated Stock Incentive Plan (February 11, 2004 Restatement) (Incorporated by reference to Appendix B of Coopers proxy statement for the Annual Meeting of Shareholders held on April 27, 2004).12.
    
    Computation of Ratios of Earnings to Fixed Charges for the Calendar Years 1999 through 2003
and the six months ended June 30, 2004 and 2003.23.
    
    Consent of Bates White, LLC.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.