##### 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 September 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.(Exact name of registrant as specified in its charter)
 Bermuda
    
    98-0355628(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)600 Travis, Suite 5800
    
    Houston, Texas 77002(Address of principal executive offices)
    
    (Zip Code)
 (713) 209-8400(Registrants telephone number, including area code)
 (Former name, former address and former fiscal year, if changed since last report.)
 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 October 31, 2004 was
91,776,031 Class A common shares that are held by the public and 3,700,200
Class A common shares and 54,810,129 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 STATEMENTSConsolidating Income StatementsConsolidating Income StatementsConsolidating Balance SheetsConsolidating Balance SheetsConsolidating Statements of Cash FlowsConsolidating Statements of Cash FlowsItem 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 5. Other InformationItem 6. ExhibitsSignaturesExhibit IndexComputation of Ratios of Earnings to Fixed ChargesConsent of Bates White, LLCCertification 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
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003(in millions, where applicable)Revenues
    
    $
    1,140.2
    
    
    $
    1,048.7
    
    
    $
    3,314.1
    
    
    $
    3,017.4Cost of sales
    
    
    798.4
    
    
    
    744.8
    
    
    
    2,315.6
    
    
    
    2,136.2Selling and administrative expenses
    
    
    211.6
    
    
    
    197.3
    
    
    
    632.0
    
    
    
    584.5Restructuring
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14.3
    )Operating earnings
    
    
    130.2
    
    
    
    106.6
    
    
    
    366.5
    
    
    
    311.0Interest expense, net
    
    
    17.0
    
    
    
    18.3
    
    
    
    51.3
    
    
    
    57.9Income before income taxes
    
    
    113.2
    
    
    
    88.3
    
    
    
    315.2
    
    
    
    253.1Income taxes
    
    
    23.9
    
    
    
    17.7
    
    
    
    64.3
    
    
    
    53.5Net income
    
    $
    89.3
    
    
    $
    70.6
    
    
    $
    250.9
    
    
    $
    199.6Income per common share:Basic
    
    $
    .97
    
    
    $
    .76
    
    
    $
    2.71
    
    
    $
    2.16Diluted
    
    $
    .95
    
    
    $
    .75
    
    
    $
    2.65
    
    
    $
    2.14Cash dividends per common share
    
    $
    .35
    
    
    $
    .35
    
    
    $
    1.05
    
    
    $
    1.05
 The accompanying notes are an integral part of these statements. -2-




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COOPER INDUSTRIES, LTD. 
 CONSOLIDATED BALANCE SHEETS
 September 30,
    
    December 31,2004
    
    2003(in millions)ASSETSCash and cash equivalents
    
    $
    495.6
    
    
    $
    463.7Receivables
    
    
    836.9
    
    
    
    738.6Inventories
    
    
    543.4
    
    
    
    552.0Deferred income taxes and other current assets
    
    
    130.4
    
    
    
    206.5Total current assets
    
    
    2,006.3
    
    
    
    1,960.8Property, plant and equipment, less accumulated depreciation
    
    
    674.6
    
    
    
    711.4Goodwill
    
    
    2,069.1
    
    
    
    2,056.6Deferred income taxes and other noncurrent assets
    
    
    227.0
    
    
    
    236.5Total assets
    
    $
    4,977.0
    
    
    $
    4,965.3LIABILITIES AND SHAREHOLDERS EQUITYShort-term debt
    
    $
    7.6
    
    
    $
    6.2Accounts payable
    
    
    339.7
    
    
    
    329.1Accrued liabilities
    
    
    447.7
    
    
    
    433.7Accrual for discontinued operations
    
    
    199.3
    
    
    
    252.5Current maturities of long-term debt
    
    
    182.1
    
    
    
    0.4Total current liabilities
    
    
    1,176.4
    
    
    
    1,021.9Long-term debt
    
    
    1,146.9
    
    
    
    1,336.7Postretirement benefits other than pensions
    
    
    175.2
    
    
    
    181.1Other long-term liabilities
    
    
    329.3
    
    
    
    307.4Total liabilities
    
    
    2,827.8
    
    
    
    2,847.1Common stock, $.01 par value
    
    
    0.9
    
    
    
    0.9Capital in excess of par value
    
    
    389.9
    
    
    
    518.0Retained earnings
    
    
    1,915.8
    
    
    
    1,762.8Accumulated other nonowner changes in equity
    
    
    (157.4
    )
    
    
    (163.5
    )Total shareholders equity
    
    
    2,149.2
    
    
    
    2,118.2Total liabilities and shareholders equity
    
    $
    4,977.0
    
    
    $
    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
 Nine Months EndedSeptember 30,2004
    
    2003(in millions)Cash flows from operating activities:Net income
    
    $
    250.9
    
    
    $
    199.6Adjustments to reconcile to net cash provided by operating activities:Depreciation and amortization
    
    
    88.8
    
    
    
    91.6Deferred income taxes
    
    
    29.0
    
    
    
    61.6Restructuring charge payments
    
    
    (3.8
    )
    
    
    (15.0
    )Changes in assets and liabilities:(1)Receivables
    
    
    (97.2
    )
    
    
    (81.2
    )Inventories
    
    
    10.7
    
    
    
    23.4Accounts payable and accrued liabilities
    
    
    (4.1
    )
    
    
    (25.6
    )Other assets and liabilities, net
    
    
    86.2
    
    
    
    1.2Net cash provided by operating activities
    
    
    360.5
    
    
    
    255.6Cash flows from investing activities:Capital expenditures
    
    
    (64.1
    )
    
    
    (53.9
    )Cash paid for acquired business
    
    
    (10.1
    )
    
    
    Proceeds from sales of property, plant and equipment and other
    
    
    8.5
    
    
    
    9.9Net cash used in investing activities
    
    
    (65.7
    )
    
    
    (44.0
    )Cash flows from financing activities:Proceeds from issuances of debt
    
    
    2.2
    
    
    
    4.3Repayments of debt
    
    
    (1.7
    )
    
    
    (170.8
    )Dividends
    
    
    (97.9
    )
    
    
    (97.1
    )Subsidiary purchase of parent shares
    
    
    (202.9
    )
    
    
    (5.4
    )Activity under employee stock plans and other
    
    
    37.2
    
    
    
    41.4Net cash used in financing activities
    
    
    (263.1
    )
    
    
    (227.6
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    0.2
    
    
    
    7.9Increase (Decrease) in cash and cash equivalents
    
    
    31.9
    
    
    
    (8.1
    )Cash and cash equivalents, beginning of period
    
    
    463.7
    
    
    
    302.0Cash and cash equivalents, end of period
    
    $
    495.6
    
    
    $
    293.9
 (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. 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 $16.1
million and $7.6 million during the nine months ended September 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
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003(in millions)Net income, as reported
    
    $
    89.3
    
    
    $
    70.6
    
    
    $
    250.9
    
    
    $
    199.6Add: Stock-based employee compensation
expense included in reported net income,
net of related tax effects
    
    
    2.7
    
    
    
    1.7
    
    
    
    9.6
    
    
    
    4.5Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects
    
    
    (2.3
    )
    
    
    (3.9
    )
    
    
    (11.3
    )
    
    
    (12.0
    )Pro forma net income
    
    $
    89.7
    
    
    $
    68.4
    
    
    $
    249.2
    
    
    $
    192.1Earnings per share:Basic  as reported
    
    $
    .97
    
    
    $
    .76
    
    
    $
    2.71
    
    
    $
    2.16Basic  pro forma
    
    $
    .98
    
    
    $
    .74
    
    
    $
    2.69
    
    
    $
    2.08Diluted  as reported
    
    $
    .95
    
    
    $
    .75
    
    
    $
    2.65
    
    
    $
    2.14Diluted  pro forma
    
    $
    .95
    
    
    $
    .73
    
    
    $
    2.63
    
    
    $
    2.07
 Note 3. Acquisitions In March 2004, Cooper acquired a manufacturer of specification and
commercial grade lighting fixtures for $10.1 million. Note 4. Inventories September 30,
    
    December 31,2004
    
    2003(in millions)Raw materials
    
    $
    190.3
    
    
    $
    182.8Work-in-process
    
    
    119.3
    
    
    
    113.9Finished goods
    
    
    336.8
    
    
    
    346.3Perishable tooling and supplies
    
    
    14.3
    
    
    
    20.6660.7
    
    
    
    663.6Allowance for excess and obsolete inventory
    
    
    (58.7
    )
    
    
    (47.6
    )Excess of current standard costs over LIFO costs
    
    
    (58.6
    )
    
    
    (64.0
    )Net inventories
    
    $
    543.4
    
    
    $
    552.0
 -6-




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Note 5. Long-Term Debt Effective August 6, 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 September 30, 2004, 91,445,028 Class A common shares, $.01 par value
were issued and outstanding (excluding the 3,700,200 Class A common shares held
by wholly-owned subsidiaries as discussed below) compared to 93,797,765 Class A
common shares, $.01 par value (excluding the 1,130 Class A common shares held
by wholly-owned subsidiaries) at December 31, 2003. During the first nine
months of 2004, Cooper issued 1,347,463 Class A common shares primarily in
connection with employee incentive and benefit plans and Coopers dividend
reinvestment program. During the first nine months of 2004, Coopers
wholly-owned subsidiaries purchased 3,700,200 Class A common shares for $202.9
million. The share purchases are recorded by Coopers wholly-owned subsidiaries
as an investment in its parent company that is eliminated in consolidation.
During the first nine 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
3,700,200 Class A common shares held by wholly-owned subsidiaries at September
30, 2004. On November 2, 2004, Coopers Board of Directors authorized the
purchase of up to five million shares of Coopers Class A common stock. This
authorization is in addition to 161,050 shares remaining available for purchase
under an existing five million share authorization approved in February 2000. 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 nine
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
$61.1 million) on all shares held. Note 7. Segment Information RevenuesThree Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003(in millions)Electrical Products
    
    $
    952.2
    
    
    $
    861.2
    
    
    $
    2,771.8
    
    
    $
    2,504.4Tools & Hardware
    
    
    188.0
    
    
    
    187.5
    
    
    
    542.3
    
    
    
    513.0Total revenues
    
    $
    1,140.2
    
    
    $
    1,048.7
    
    
    $
    3,314.1
    
    
    $
    3,017.4
 -7-




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Operating EarningsThree Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003(in millions)Electrical Products
    
    $
    131.2
    
    
    $
    115.2
    
    
    $
    381.4
    
    
    $
    324.7Tools & Hardware
    
    
    18.3
    
    
    
    9.0
    
    
    
    42.7
    
    
    
    22.5Segment operating earnings
    
    
    149.5
    
    
    
    124.2
    
    
    
    424.1
    
    
    
    347.2Restructuring
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14.3
    )General Corporate expenses
    
    
    19.3
    
    
    
    17.6
    
    
    
    57.6
    
    
    
    50.5Total operating earnings
    
    
    130.2
    
    
    
    106.6
    
    
    
    366.5
    
    
    
    311.0Interest expense, net
    
    
    17.0
    
    
    
    18.3
    
    
    
    51.3
    
    
    
    57.9Income before income taxes
    
    $
    113.2
    
    
    $
    88.3
    
    
    $
    315.2
    
    
    $
    253.1
 Note 8. Pension and Other Postretirement Benefits Pension BenefitsThree Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003(in millions)Components of net periodic benefit cost:Service cost
    
    $
    4.1
    
    
    $
    4.3
    
    
    $
    12.2
    
    
    $
    12.7Interest cost
    
    
    10.4
    
    
    
    10.5
    
    
    
    31.1
    
    
    
    31.5Expected return on plan assets
    
    
    (11.7
    )
    
    
    (10.0
    )
    
    
    (35.1
    )
    
    
    (30.1
    )Amortization of unrecognized transition
obligation
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    0.3Amortization of prior service cost
    
    
    0.2
    
    
    
    0.1
    
    
    
    0.5
    
    
    
    0.4Recognized actuarial loss
    
    
    1.8
    
    
    
    2.2
    
    
    
    5.4
    
    
    
    6.7Net periodic benefit cost
    
    $
    4.8
    
    
    $
    7.2
    
    
    $
    14.1
    
    
    $
    21.5
 -8-




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Other Postretirement BenefitsThree Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003(in millions)Components of net periodic benefit cost:Service cost
    
    $
    
    
    
    $
    
    
    
    $
    0.1
    
    
    $
    0.1Interest cost
    
    
    2.1
    
    
    
    2.3
    
    
    
    6.2
    
    
    
    6.9Recognized actuarial gain
    
    
    (0.7
    )
    
    
    (0.8
    )
    
    
    (2.1
    )
    
    
    (2.6
    )Net periodic benefit cost
    
    $
    1.4
    
    
    $
    1.5
    
    
    $
    4.2
    
    
    $
    4.4
 Note 9. Net Income Per Common Share Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003(in millions)Basic:Net income applicable to common stock
    
    $
    89.3
    
    
    $
    70.6
    
    
    $
    250.9
    
    
    $
    199.6Weighted average common shares outstanding
    
    
    91.8
    
    
    
    92.7
    
    
    
    92.5
    
    
    
    92.3Diluted:Net income applicable to common stock
    
    $
    89.3
    
    
    $
    70.6
    
    
    $
    250.9
    
    
    $
    199.6Weighted average common shares outstanding
    
    
    91.8
    
    
    
    92.7
    
    
    
    92.5
    
    
    
    92.3Incremental shares from assumed conversions:Options, performance-based stock
awards and other employee awards
    
    
    2.2
    
    
    
    1.4
    
    
    
    2.2
    
    
    
    0.8Weighted average common shares
and common share equivalents
    
    
    94.0
    
    
    
    94.1
    
    
    
    94.7
    
    
    
    93.1
 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
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003(in millions)Net income
    
    $
    89.3
    
    
    $
    70.6
    
    
    $
    250.9
    
    
    $
    199.6Foreign currency translation gains (losses)
    
    
    3.1
    
    
    
    (1.2
    )
    
    
    4.9
    
    
    
    12.3Change in fair value of derivatives
    
    
    (0.1
    )
    
    
    0.9
    
    
    
    1.2
    
    
    
    (2.1
    )Net income and other nonowner
changes in equity
    
    $
    92.3
    
    
    $
    70.3
    
    
    $
    257.0
    
    
    $
    209.8
 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 September 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
    )
    
    
    (1.7
    )Balance at September 30, 2004
    
    
    
    
    
    $
    
    
    
    $
    0.6
 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 September 30, 2004, a total of 131,844 Abex Claims were filed,
of which 84,776 claims have been resolved leaving 47,068 Abex Claims pending at
September 30, 2004, that are the responsibility of Federal-Mogul. During the
three months ended September 30, 2004, 7,884 claims were filed and 20,415
claims were resolved. Since August 28, 1998, the average indemnity payment for
resolved Abex Claims was $1,778 before insurance. A total of $61.4 million was
spent on defense costs for the period August 28, 1998 through September 30,
2004. Historically, existing insurance coverage has provided 50% to 80% of the
total defense and indemnity payments for Abex Claims. -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 has continued negotiations with the Representatives, but to date
has been unable to reach a satisfactory conclusion. At this time, the exact
manner in which this issue will be resolved is not known. At September 30,
2004, the accrual for potential liabilities related to the Automotive Products
sale and the Federal-Mogul bankruptcy was $199.3 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 September 30, 2004
(in millions) Cooper
    
    Other
    
    ConsolidatingCooper
    
    Ohio
    
    Subsidiaries
    
    Adjustments
    
    TotalRevenues
    
    $
    
    
    
    $
    45.2
    
    
    $
    1,098.2
    
    
    $
    (3.2
    )
    
    $
    1,140.2Cost of sales
    
    
    
    
    
    
    31.0
    
    
    
    770.6
    
    
    
    (3.2
    )
    
    
    798.4Selling and administrative expenses
    
    
    2.0
    
    
    
    23.6
    
    
    
    186.0
    
    
    
    
    
    
    
    211.6Interest expense, net
    
    
    (0.2
    )
    
    
    12.2
    
    
    
    5.0
    
    
    
    
    
    
    
    17.0Equity in earnings of subsidiaries,
net of tax
    
    
    91.8
    
    
    
    104.4
    
    
    
    42.1
    
    
    
    (238.3
    )
    
    
    Intercompany income (expense)
    
    
    (0.7
    )
    
    
    (76.6
    )
    
    
    77.3
    
    
    
    
    
    
    
    Income before income taxes
    
    
    89.3
    
    
    
    6.2
    
    
    
    256.0
    
    
    
    (238.3
    )
    
    
    113.2Income tax expense (benefit)
    
    
    
    
    
    
    (35.9
    )
    
    
    59.8
    
    
    
    
    
    
    
    23.9Net income
    
    $
    89.3
    
    
    $
    42.1
    
    
    $
    196.2
    
    
    $
    (238.3
    )
    
    $
    89.3
 Three Months Ended September 30, 2003
(in millions) Cooper
    
    Other
    
    ConsolidatingCooper
    
    Ohio
    
    Subsidiaries
    
    Adjustments
    
    TotalRevenues
    
    $
    
    
    
    $
    72.9
    
    
    $
    980.8
    
    
    $
    (5.0
    )
    
    $
    1,048.7Cost of sales
    
    
    
    
    
    
    48.5
    
    
    
    701.3
    
    
    
    (5.0
    )
    
    
    744.8Selling and administrative expenses
    
    
    1.7
    
    
    
    26.5
    
    
    
    169.1
    
    
    
    
    
    
    
    197.3Interest expense, net
    
    
    (0.1
    )
    
    
    12.9
    
    
    
    5.5
    
    
    
    
    
    
    
    18.3Equity in earnings of subsidiaries,
net of tax
    
    
    78.5
    
    
    
    92.8
    
    
    
    32.7
    
    
    
    (204.0
    )
    
    
    Intercompany income (expense)
    
    
    0.2
    
    
    
    (76.4
    )
    
    
    82.7
    
    
    
    (6.5
    )
    
    
    Income before income taxes
    
    
    77.1
    
    
    
    1.4
    
    
    
    220.3
    
    
    
    (210.5
    )
    
    
    88.3Income tax expense (benefit)
    
    
    
    
    
    
    (31.3
    )
    
    
    49.0
    
    
    
    
    
    
    
    17.7Net income
    
    $
    77.1
    
    
    $
    32.7
    
    
    $
    171.3
    
    
    $
    (210.5
    )
    
    $
    70.6
 -13-




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##### Table of Contents



Consolidating Income Statements
Nine Months Ended September 30, 2004
(in millions) Cooper
    
    Other
    
    ConsolidatingCooper
    
    Ohio
    
    Subsidiaries
    
    Adjustments
    
    TotalRevenues
    
    $
    
    
    
    $
    185.5
    
    
    $
    3,141.9
    
    
    $
    (13.3
    )
    
    $
    3,314.1Cost of sales
    
    
    0.6
    
    
    
    123.3
    
    
    
    2,205.0
    
    
    
    (13.3
    )
    
    
    2,315.6Selling and administrative expenses
    
    
    6.7
    
    
    
    76.3
    
    
    
    549.0
    
    
    
    
    
    
    
    632.0Interest expense, net
    
    
    (0.7
    )
    
    
    36.1
    
    
    
    15.9
    
    
    
    
    
    
    
    51.3Equity in earnings of subsidiaries,
net of tax
    
    
    260.9
    
    
    
    330.9
    
    
    
    117.8
    
    
    
    (709.6
    )
    
    
    Intercompany income (expense)
    
    
    (3.4
    )
    
    
    (280.5
    )
    
    
    283.9
    
    
    
    
    
    
    
    Income before income taxes
    
    
    250.9
    
    
    
    0.2
    
    
    
    773.7
    
    
    
    (709.6
    )
    
    
    315.2Income tax expense (benefit)
    
    
    
    
    
    
    (117.6
    )
    
    
    181.9
    
    
    
    
    
    
    
    64.3Net income
    
    $
    250.9
    
    
    $
    117.8
    
    
    $
    591.8
    
    
    $
    (709.6
    )
    
    $
    250.9
 Nine Months Ended September 30, 2003
(in millions) Cooper
    
    Other
    
    ConsolidatingCooper
    
    Ohio
    
    Subsidiaries
    
    Adjustments
    
    TotalRevenues
    
    $
    
    
    
    $
    210.3
    
    
    $
    2,822.1
    
    
    $
    (15.0
    )
    
    $
    3,017.4Cost of sales
    
    
    
    
    
    
    138.8
    
    
    
    2,012.4
    
    
    
    (15.0
    )
    
    
    2,136.2Selling and administrative expenses
    
    
    5.6
    
    
    
    76.0
    
    
    
    502.9
    
    
    
    
    
    
    
    584.5Restructuring
    
    
    
    
    
    
    (14.3
    )
    
    
    
    
    
    
    
    
    
    
    (14.3
    )Interest expense, net
    
    
    (0.2
    )
    
    
    42.0
    
    
    
    16.1
    
    
    
    
    
    
    
    57.9Equity in earnings of subsidiaries,
net of tax
    
    
    212.0
    
    
    
    274.3
    
    
    
    75.5
    
    
    
    (561.8
    )
    
    
    Intercompany income (expense)
    
    
    0.5
    
    
    
    (262.4
    )
    
    
    269.4
    
    
    
    (7.5
    )
    
    
    Income (loss) before income taxes
    
    
    207.1
    
    
    
    (20.3
    )
    
    
    635.6
    
    
    
    (569.3
    )
    
    
    253.1Income tax expense (benefit)
    
    
    
    
    
    
    (95.8
    )
    
    
    149.3
    
    
    
    
    
    
    
    53.5Net income
    
    $
    207.1
    
    
    $
    75.5
    
    
    $
    486.3
    
    
    $
    (569.3
    )
    
    $
    199.6
 -14-




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##### Table of Contents



Consolidating Balance Sheets
September 30, 2004
(in millions) Cooper
    
    Other
    
    ConsolidatingCooper
    
    Ohio
    
    Subsidiaries
    
    Adjustments
    
    TotalCash and cash equivalents
    
    $
    70.8
    
    
    $
    226.6
    
    
    $
    198.2
    
    
    $
    
    
    
    $
    495.6Receivables
    
    
    0.1
    
    
    
    22.4
    
    
    
    814.4
    
    
    
    
    
    
    
    836.9Intercompany receivables
    
    
    479.5
    
    
    
    
    
    
    
    1,206.1
    
    
    
    (1,685.6
    )
    
    
    Inventories
    
    
    
    
    
    
    
    
    
    
    543.4
    
    
    
    
    
    
    
    543.4Deferred income taxes and
other current assets
    
    
    1.7
    
    
    
    130.1
    
    
    
    (1.4
    )
    
    
    
    
    
    
    130.4Total current assets
    
    
    552.1
    
    
    
    379.1
    
    
    
    2,760.7
    
    
    
    (1,685.6
    )
    
    
    2,006.3Property, plant and equipment, less
accumulated depreciation
    
    
    
    
    
    
    30.1
    
    
    
    644.5
    
    
    
    
    
    
    
    674.6Goodwill
    
    
    
    
    
    
    
    
    
    
    2,069.1
    
    
    
    
    
    
    
    2,069.1Investment in subsidiaries
    
    
    2,624.3
    
    
    
    6,735.1
    
    
    
    84.5
    
    
    
    (9,443.9
    )
    
    
    Investment in parent
    
    
    
    
    
    
    2,255.3
    
    
    
    202.2
    
    
    
    (2,457.5
    )
    
    
    Intercompany notes receivable
    
    
    5.4
    
    
    
    102.2
    
    
    
    4,856.1
    
    
    
    (4,963.7
    )
    
    
    Deferred income taxes and other
noncurrent assets
    
    
    
    
    
    
    139.6
    
    
    
    87.4
    
    
    
    
    
    
    
    227.0Total assets
    
    $
    3,181.8
    
    
    $
    9,641.4
    
    
    $
    10,704.5
    
    
    $
    (18,550.7
    )
    
    $
    4,977.0Short-term debt
    
    $
    
    
    
    $
    
    
    
    $
    7.6
    
    
    $
    
    
    
    $
    7.6Accounts payable
    
    
    32.0
    
    
    
    13.1
    
    
    
    294.6
    
    
    
    
    
    
    
    339.7Accrued liabilities
    
    
    2.4
    
    
    
    111.2
    
    
    
    334.1
    
    
    
    
    
    
    
    447.7Accrual for discontinued operations
    
    
    
    
    
    
    199.3
    
    
    
    
    
    
    
    
    
    
    
    199.3Intercompany payables
    
    
    
    
    
    
    1,685.6
    
    
    
    
    
    
    
    (1,685.6
    )
    
    
    Current maturities of long-term debt
    
    
    
    
    
    
    152.0
    
    
    
    30.1
    
    
    
    
    
    
    
    182.1Total current liabilities
    
    
    34.4
    
    
    
    2,161.2
    
    
    
    666.4
    
    
    
    (1,685.6
    )
    
    
    1,176.4Long-term debt
    
    
    
    
    
    
    767.2
    
    
    
    379.7
    
    
    
    
    
    
    
    1,146.9Intercompany notes payable
    
    
    43.0
    
    
    
    4,813.2
    
    
    
    107.5
    
    
    
    (4,963.7
    )
    
    
    Other long-term liabilities
    
    
    
    
    
    
    313.0
    
    
    
    191.5
    
    
    
    
    
    
    
    504.5Total liabilities
    
    
    77.4
    
    
    
    8,054.6
    
    
    
    1,345.1
    
    
    
    (6,649.3
    )
    
    
    2,827.8Class 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
    
    
    2,835.7
    
    
    
    7.8
    
    
    
    7,638.6
    
    
    
    (10,092.2
    )
    
    
    389.9Retained earnings
    
    
    294.2
    
    
    
    1,736.4
    
    
    
    1,729.3
    
    
    
    (1,844.1
    )
    
    
    1,915.8Accumulated other nonowner changes
in equity
    
    
    (27.0
    )
    
    
    (157.4
    )
    
    
    (154.0
    )
    
    
    181.0
    
    
    
    (157.4
    )Total shareholders equity
    
    
    3,104.4
    
    
    
    1,586.8
    
    
    
    9,359.4
    
    
    
    (11,901.4
    )
    
    
    2,149.2Total liabilities and shareholders
equity
    
    $
    3,181.8
    
    
    $
    9,641.4
    
    
    $
    10,704.5
    
    
    $
    (18,550.7
    )
    
    $
    4,977.0
 -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
Nine Months Ended September 30, 2004
(in millions) Cooper
    
    Other
    
    ConsolidatingCooper
    
    Ohio
    
    Subsidiaries
    
    Adjustments
    
    TotalNet cash provided by (used in)
operating activities
    
    $
    (6.2
    )
    
    $
    (72.7
    )
    
    $
    439.4
    
    
    $
    
    
    
    $
    360.5Cash flows from investing activities:Capital expenditures
    
    
    
    
    
    
    (13.3
    )
    
    
    (50.8
    )
    
    
    
    
    
    
    (64.1
    )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
    
    
    (4.8
    )
    
    
    
    
    
    
    
    
    
    
    4.8
    
    
    
    Loans to affiliates
    
    
    (39.4
    )
    
    
    (23.7
    )
    
    
    (82.5
    )
    
    
    145.6
    
    
    
    Repayments of loans from affiliates
    
    
    34.1
    
    
    
    3.0
    
    
    
    84.5
    
    
    
    (121.6
    )
    
    
    Dividends from subsidiaries
    
    
    134.0
    
    
    
    19.8
    
    
    
    
    
    
    
    (153.8
    )
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    8.5
    
    
    
    
    
    
    
    8.5Net cash provided by (used in)
investing activities
    
    
    123.9
    
    
    
    (86.8
    )
    
    
    22.2
    
    
    
    (125.0
    )
    
    
    (65.7
    )Cash flows from financing activities:Proceeds from issuances of debt
    
    
    
    
    
    
    
    
    
    
    2.2
    
    
    
    
    
    
    
    2.2Repayments of debt
    
    
    
    
    
    
    
    
    
    
    (1.7
    )
    
    
    
    
    
    
    (1.7
    )Borrowings from affiliates
    
    
    83.5
    
    
    
    
    
    
    
    62.1
    
    
    
    (145.6
    )
    
    
    Repayments of loans to affiliates
    
    
    (132.1
    )
    
    
    
    
    
    
    10.5
    
    
    
    121.6
    
    
    
    Other intercompany financing
activities
    
    
    3.2
    
    
    
    202.0
    
    
    
    (205.2
    )
    
    
    
    
    
    
    Dividends
    
    
    (97.9
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (97.9
    )Dividends paid to affiliates
    
    
    
    
    
    
    
    
    
    
    (153.8
    )
    
    
    153.8
    
    
    
    Subsidiary purchase of parent shares
    
    
    
    
    
    
    (110.3
    )
    
    
    (92.6
    )
    
    
    
    
    
    
    (202.9
    )Employee stock plan activity and
other
    
    
    
    
    
    
    37.2
    
    
    
    4.8
    
    
    
    (4.8
    )
    
    
    37.2Net cash provided by (used in)
financing activities
    
    
    (143.3
    )
    
    
    128.9
    
    
    
    (373.7
    )
    
    
    125.0
    
    
    
    (263.1
    )Effect of exchange rate changes on
cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    0.2
    
    
    
    
    
    
    
    0.2Increase (decrease) in cash and cash
equivalents
    
    
    (25.6
    )
    
    
    (30.6
    )
    
    
    88.1
    
    
    
    
    
    
    
    31.9Cash and cash equivalents, beginning
of period
    
    
    96.4
    
    
    
    257.2
    
    
    
    110.1
    
    
    
    
    
    
    
    463.7Cash and cash equivalents, end of
period
    
    $
    70.8
    
    
    $
    226.6
    
    
    $
    198.2
    
    
    $
    
    
    
    $
    495.6
 -17-




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##### Table of Contents



Consolidating Statements of Cash Flows
Nine Months Ended September 30, 2003
(in millions) Cooper
    
    Other
    
    ConsolidatingCooper
    
    Ohio
    
    Subsidiaries
    
    Adjustments
    
    TotalNet cash provided by (used in)
operating activities
    
    $
    (5.4
    )
    
    $
    (195.6
    )
    
    $
    456.6
    
    
    $
    
    
    
    $
    255.6Cash flows from investing activities:Capital expenditures
    
    
    
    
    
    
    (9.4
    )
    
    
    (44.5
    )
    
    
    
    
    
    
    (53.9
    )Loans to affiliates
    
    
    (15.5
    )
    
    
    (26.2
    )
    
    
    (15.0
    )
    
    
    56.7
    
    
    
    Repayments of loans from affiliates
    
    
    15.1
    
    
    
    21.9
    
    
    
    15.0
    
    
    
    (52.0
    )
    
    
    Dividends from subsidiaries
    
    
    101.0
    
    
    
    2.0
    
    
    
    
    
    
    
    (103.0
    )
    
    
    Other
    
    
    
    
    
    
    2.5
    
    
    
    6.4
    
    
    
    1.0
    
    
    
    9.9Net cash provided by (used in)
investing activities
    
    
    100.6
    
    
    
    (9.2
    )
    
    
    (38.1
    )
    
    
    (97.3
    )
    
    
    (44.0
    )Cash flows from financing activities:Proceeds from issuances of debt
    
    
    
    
    
    
    
    
    
    
    4.3
    
    
    
    
    
    
    
    4.3Repayments of debt
    
    
    
    
    
    
    (169.7
    )
    
    
    (1.1
    )
    
    
    
    
    
    
    (170.8
    )Borrowings from affiliates
    
    
    
    
    
    
    15.0
    
    
    
    41.7
    
    
    
    (56.7
    )
    
    
    Repayments of loans to affiliates
    
    
    
    
    
    
    (15.0
    )
    
    
    (37.0
    )
    
    
    52.0
    
    
    
    Other intercompany financing
activities
    
    
    3.8
    
    
    
    277.5
    
    
    
    (281.3
    )
    
    
    
    
    
    
    Dividends
    
    
    (97.1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (97.1
    )Dividends paid to parent
    
    
    
    
    
    
    
    
    
    
    (103.0
    )
    
    
    103.0
    
    
    
    Subsidiary purchase of parent shares
    
    
    
    
    
    
    (5.4
    )
    
    
    
    
    
    
    
    
    
    
    (5.4
    )Employee stock plan activity and
other
    
    
    1.1
    
    
    
    40.3
    
    
    
    1.0
    
    
    
    (1.0
    )
    
    
    41.4Net cash provided by (used in)
financing activities
    
    
    (92.2
    )
    
    
    142.7
    
    
    
    (375.4
    )
    
    
    97.3
    
    
    
    (227.6
    )Effect of exchange rate changes on
cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    7.9
    
    
    
    
    
    
    
    7.9Increase (decrease) in cash and cash
equivalents
    
    
    3.0
    
    
    
    (62.1
    )
    
    
    51.0
    
    
    
    
    
    
    
    (8.1
    )Cash and cash equivalents, beginning
of period
    
    
    33.9
    
    
    
    244.3
    
    
    
    23.8
    
    
    
    
    
    
    
    302.0Cash and cash equivalents, end of
period
    
    $
    36.9
    
    
    $
    182.2
    
    
    $
    74.8
    
    
    $
    
    
    
    $
    293.9
 -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 September 30, 2004 Compared With Three Months Ended September 30, 2003 Net income for the third quarter of 2004 was $89.3 million on revenues of
$1,140.2 million compared with 2003 third quarter net income of $70.6 million
on revenues of $1,048.7 million. Third quarter diluted earnings per share
increased 26.7% to $.95 from $.75 in 2003. Revenues: Revenues for the third quarter of 2004 increased 8.7% compared to the
third quarter of 2003. The impact of foreign currency translation increased
reported revenues by approximately 2% for the quarter. Electrical Products segment revenues for the third quarter of 2004
increased 10.6% compared to the third quarter of 2003. Foreign currency
translation increased revenues by approximately 2% for the quarter. All of
Coopers Electrical Products businesses experienced revenue growth during the
quarter. The Companys wiring devices, support systems and power transmission
and distribution equipment businesses all reported double-digit revenue
increases for the period. Continued strong demand from electronics markets
also positively impacted sales of Coopers circuit protection products.
Coopers lighting business achieved solid growth as demand from major retailers
returned to more normalized levels following second-quarter inventory
reductions, and sales to commercial and industrial markets showed signs of
improvement during the quarter. Coopers hazardous-duty equipment business
grew modestly due to continued sluggish U.S. project business. Revenues in
Coopers European lighting and security business registered double-digit
increases compared to the prior-year period, reflecting foreign-exchange gains
and modest underlying growth in European commercial markets. Tools & Hardware segment revenues for the third quarter of 2004 increased
slightly from the third quarter of 2003. Foreign currency translation
increased revenues by approximately 2% for the quarter. Tools & Hardware
segment revenues were impacted by reduced shipments of large-scale automated
assembly systems to the automotive industry. These reductions were offset by
increased revenue from hand tools and power tools, which were driven primarily
from improved industrial markets and sales of new products. Costs and Expenses: Cost of sales, as a percentage of revenues, was 70.0% for the third
quarter of 2004 compared to 71.0% for the comparable 2003 quarter. The
decrease in the cost of sales percentage reflects leverage on higher revenues
and a reduction in costs from productivity and restructuring initiatives,
partially offset by higher material costs. Electrical Products segment cost of sales, as a percentage of revenues,
was 69.5% for the third quarter of 2004 compared to 69.7% for the third quarter
of 2003. The decrease in cost of sales percentage was the result of improved
leverage and productivity gains, which was partially offset by significant cost
increases in several key materials and components used in Coopers products and
the impact of the highest revenue growth occurring in lower margin products.
Tools & Hardware segment cost of sales, as a percentage of revenues, was 72.5%
for the third quarter of 2004 compared to 76.9% for the third quarter of 2003.
The decrease in cost of sales percentage reflects improvements in the segments
cost structure, productivity gains and lower shipments of low margin automated
assembly systems in the current period. Selling and administrative expenses, as a percentage of revenues, for the
third quarter of 2004 were 18.6% compared to 18.8% for the third quarter of
2003. The decrease in the selling and administrative -19-




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##### Table of Contents



expenses percentage reflects leverage from increased revenues, partially
offset by higher stock-based compensation and other incentive program expenses. Electrical Products segment selling and administrative expenses, as a
percentage of revenues, for the third quarter of 2004 were 16.7% compared to
16.9% for the third quarter of 2003. The decrease in selling and
administrative expenses percentage reflects leverage from higher sales volumes. Tools & Hardware segment selling and administrative expenses, as a
percentage of revenues, for the third quarter of 2004 were 17.8% compared to
18.3% for the third quarter of 2003. The decrease in the selling and
administrative expenses percentage is primarily due to continuing efforts to
reduce the cost structure of these businesses. Interest expense, net for the third quarter of 2004 decreased $1.3 million
from the 2003 third quarter primarily as a result of higher average cash and
cash equivalents balances. Average debt balances were $1.33 billion and $1.31
billion and average interest rates were approximately 5.7% for both the third
quarter of 2004 and 2003, respectively. Operating Earnings: Electrical Products segment third quarter 2004 operating earnings
increased 13.9% to $131.2 million from $115.2 million for the same quarter of
last year. The increase was primarily due to leverage from revenue increases,
cost reduction actions and productivity improvement initiatives, partially
offset by increased material costs. Tools & Hardware segment third quarter 2004 operating earnings increased
103.3% to $18.3 million compared to $9.0 million in the third quarter of 2003.
The increase primarily reflects the favorable impact of manufacturing
rationalization efforts, favorable sales mix and productivity improvements. General Corporate expense increased $1.7 million to $19.3 million during
the third quarter of 2004 compared to $17.6 million during the third quarter of
2003. This increase primarily resulted from the impact of stock-based
compensation expense. Income Taxes: During the third quarter of 2004, the effective tax rate for calendar year
2004 was increased to 20.4% from the 20% effective rate in the first six months
of 2004, resulting in an effective tax rate of 21.1% for the three months ended
September 30, 2004. The effective tax rate was 20.0% for the three months
ended September 30, 2003. The increase in the effective tax rate is primarily
due to higher projected annual earnings for 2004 taxed at a 36% incremental tax
rate. -20-




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##### Table of Contents



Nine Months Ended September 30, 2004 Compared With Nine Months Ended September
30, 2003 Net income for the first nine months of 2004 was $250.9 million on
revenues of $3,314.1 million compared with 2003 first nine months net income of
$199.6 million on revenues of $3,017.4 million. Diluted earnings per share for
the first nine months of 2004 increased 23.8% to $2.65 from $2.14 during the
same period of 2003. Net income for the first nine months of 2003 included
$8.6 million, or $.09 per diluted share, from the reversal of a restructuring
accrual. Revenues: Revenues for the first nine months of 2004 increased 9.8% compared to the
first nine months of 2003. The impact of foreign currency translation
increased revenues during the period by approximately 2%. Electrical Products segment revenues for the first nine months of 2004
increased 10.7% compared to the comparable prior year period. Foreign currency
translation contributed approximately 2% to the revenue increase during the
first nine months of 2004. Each of Coopers Electrical Products businesses
experienced growth reflecting improved demand from core industrial, commercial,
utility and electronics markets. Growth also resulted from Coopers strategic
market penetration programs and new product introductions, as well as increased
pricing to customers to offset higher material costs. Volume growth was
strongest in the circuit protection, power transmission and distribution and
wiring devices businesses. Tools & Hardware segment revenues for the first nine months of 2004
increased 5.7% from the same period of 2003. Foreign currency translation
increased revenues by approximately 3% in the first nine months of 2004. Tools
& Hardware segment revenues were driven by strong retail channel sales and
improved industrial demand for hand tools and power tools and accessories, as
well as market penetration primarily driven by new product introductions.
Increases were partially offset by lower volumes of large automated assembly
system equipment to the worldwide automotive industry. Costs and Expenses: Cost of sales, as a percentage of revenues, was 69.9% for the first nine
months of 2004 compared to 70.8% for the comparable 2003 period. The decrease
in the cost of sales percentage was primarily the result of benefits from
restructuring and productivity initiatives along with increased leverage of the
fixed cost structure. 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 69.2% for the first nine months of 2004 compared to 69.9% for the first
nine months of 2003. The decrease in the cost of sales percentage was
primarily a result of productivity improvement initiatives 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 72.9% for the first nine months of 2004 compared to 75.4% for the
same period of 2003. The decrease in cost of sales percentage primarily
reflects cost efficiencies from restructuring activities, leverage from
increased revenues and lower sales of low margin assembly equipment systems,
partially offset by increased product component and material costs. Selling and administrative expenses, as a percentage of revenues, for the
first nine months of 2004 were 19.1% compared to 19.4% for the first nine
months of 2003. The decrease in the selling and administrative expenses
percentage is due to leverage from 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 nine months of 2004 were 17.0% compared
to 17.1% for the first nine months of 2003. The decrease in selling and
administrative expenses percentage reflects leverage from increased sales
partially offset by higher incentive based compensation costs. -21-




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##### Table of Contents



Tools & Hardware segment selling and administrative expenses, as a
percentage of revenues, for the first nine months of 2004 were 19.3% compared
to 20.2% for the first nine months of 2003. The decrease in the selling and
administrative expenses percentage is primarily due to actions to control costs
and leverage from increased revenues. Interest expense, net for the first nine months of 2004 decreased $6.6
million from the 2003 first nine 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 $1.34 billion and average interest rates were approximately 5.6%
and 5.9% for the first nine months of 2004 and 2003, respectively. The
decrease in average interest rates primarily resulted from the benefit of
interest-rate swaps entered into during August 2003 that effectively converted
$300 million of 5.25% fixed-rate debt to variable-rate debt at the six month
LIBOR rate plus 1.91%. Operating Earnings: Electrical Products segment year-to-date 2004 operating earnings increased
17.5% to $381.4 million from $324.7 million for the same period of last year.
The increase reflects leverage from revenue increases, aided by cost reduction
initiatives, partially offset by increased material costs. Tools & Hardware segment year-to-date 2004 operating earnings increased
89.8% to $42.7 million compared to $22.5 million in the same period of 2003.
The increase primarily reflects benefits of restructuring efforts and the
impact of favorable product mix from reduced shipments of lower margin assembly
equipment systems, partially offset by higher material costs. General Corporate expense increased $7.1 million to $57.6 million during
the first nine months of 2004 compared to $50.5 million during the same period
of 2003. This increase primarily resulted from the incremental impact of
stock-based and other incentive compensation expense. 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 September 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 through the first half of 2005. 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 was 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, -22-




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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.
Of the $24.1 million of charges resulting in cash expenditures, $0.6 million
remained to be expended at September 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
    )
    
    
    (1.7
    )Balance at September 30, 2004
    
    
    
    
    
    $
    
    
    
    $
    0.6
 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. 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. -23-




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Income Taxes: The effective tax rate was 20.4% for the nine months ended September 30,
2004 and 21.1% for the nine months ended September 30, 2003. The reversal of a
restructuring accrual increased the effective tax rate for the nine months
ended September 30, 2003 by 1.1 percentage points. Liquidity and Capital Resources Liquidity: Coopers operating working capital (defined as receivables and inventories
less accounts payable) increased $79.1 million during the first nine months of
2004. The increase included a $98 million increase in receivables partially
offset by an $8 million decrease in inventories and an $11 million increase in
accounts payable. The increases in receivables and payables were driven by
increased sales volume. The decrease in inventories was driven by Coopers
ongoing efforts to improve inventory turns. Operating working capital turnover
(defined as annualized revenues divided by average quarterly operating working
capital) for the first nine months of 2004 of 4.4 turns increased from 4.0
turns in the same period of 2003. This increase was the result of the higher
revenue level and a slightly lower average operating working capital balance
during the 2004 period driven by Cooper productivity initiatives. Cash provided by operating activities was $361 million during the first
nine months of 2004. This cash, plus an additional $37 million of cash
received from employee stock activity were primarily used to fund capital
expenditures of $64 million, an acquisition of $10 million, dividends of $98
million and share purchases of $203 million. Cash provided by operating activities was $256 million for the first nine
months of 2003. Cash provided by operating activities plus an additional $41
million of cash received from employee stock activity, as well as cash and cash
equivalents were used to fund capital expenditures of $54 million, dividends of
$97 million, net debt repayments of $167 million and share purchases of $5
million during the first nine months 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 in excess of $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 $4.5 million and $8.1 million during the nine months ended
September 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 38.3% at September 30, 2004, 38.8% at December 31, 2003 and 37.7% at
September 30, 2003. At September 30, 2004 and December 31, 2003, Cooper had no commercial
paper outstanding and cash and cash equivalents of $495.6 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 September
30, 2004, committed bank credit facilities totalled -24-




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$450 million and mature on November 17, 2004. Cooper intends to enter into a
new committed bank credit facility during the fourth quarter of 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. Cooper terminated the shelf registration with respect to the $225 million
of debt securities that was still available for issuance effective August 6,
2004. Off-Balance Sheet Arrangements and Aggregate Contractual Obligations As of September 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: September 30,2004
    
    2003(in millions)Electrical Products
    
    $
    324.0
    
    
    $
    254.8Tools & Hardware
    
    
    75.1
    
    
    
    87.5$
    399.1
    
    
    $
    342.3
 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 -25-




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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. 
 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 September 30, 2004, a total of 131,844 Abex Claims were filed,
of which 84,776 claims have been resolved leaving 47,068 Abex Claims pending at
September 30, 2004, that are the responsibility of Federal-Mogul. During the
three months ended September 30, 2004, 7,884 claims were filed and 20,415
claims were resolved. Since August 28, 1998, the average indemnity payment for
resolved Abex Claims was $1,778 before insurance. A total of $61.4 million was
spent on defense costs for the period August 28, 1998 through September 30,
2004. Historically, existing insurance coverage has provided 50% to 80% of the
total defense and indemnity payments for Abex Claims. -26-




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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 has continued negotiations with the Representatives, but to date
has been unable to reach a satisfactory conclusion. At this time, the exact
manner in which this issue will be resolved is not known. At September 30,
2004, the accrual for potential liabilities related to the Automotive Products
sale and the Federal-Mogul bankruptcy was $199.3 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
September 30, 2004: Purchases of Equity Securities Total Number ofShares Purchased as
    
    Maximum Number ofPart of Publicly
    
    Shares that May YetTotal Number of
    
    Average Price Paid
    
    Announced Plans or
    
    Be Purchased UnderPeriod
    
    Shares Purchased
    
    per Share
    
    Programs (1)
    
    the Plans or
Programs(1)(2)As of 6/30/04
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    455,2507/01/04  7/31/04
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    455,2508/01/04  8/31/04
    
    
    694,200
    
    
    
    54.76
    
    
    
    694,200
    
    
    
    161,0509/01/04  9/30/04
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    161,050Total
    
    
    694,200
    
    
    $
    54.76
    
    
    
    694,200
  (1)
    
    On February 9, 2000, Cooper publicly announced that its Board of
Directors authorized the repurchase of up to 5 million shares of Cooper
common stock. Cooper has also announced that the Board authorized the
repurchase of shares issued from time to time under its equity
compensation plans and Dividend Reinvestment and Stock Purchase Plan in
order to offset the dilution that results from issuing shares under these
plans. The above table reflects anticipated issuances under these plans of
1.6 million shares in 2004.  (2)
    
    On November 2, 2004, Coopers Board of Directors authorized the
repurchase of up to five million additional shares of the Coopers Class A
common stock. 
 Item 5. Other Information Our independent auditor, Ernst & Young LLP (E&Y) has recently notified
the Securities and Exchange Commission, the Public Company Accounting Oversight
Board and the Audit Committee of Coopers Board of Directors that E&Ys
affiliate in China performed certain non-audit services that raise issues under
the auditor independence rules. Specifically, in fiscal year 2002, E&Ys
affiliate in China performed certain income tax compliance services for an
immaterial subsidiary and certain expatriate employees. Cooper forwarded the
relevant tax payments to E&Ys affiliate in China which then remitted the tax
payments to the applicable tax authority. Custody of assets of an audit client
is not permitted under the auditor independence rules under Regulation S-X of
the Securities Exchange Act of 1934, as amended. Cooper, its Audit Committee
and E&Y have considered the impact that providing these services may have had
on E&Ys independence with respect to Cooper and concluded that there has been
no impairment of E&Ys independence. The associated fees over the 10-month
period that these services were provided aggregated approximately $9,000.
Factors considered in making this determination included the ministerial nature
of the services, the de minimus amount of the fees and the insignificant amount
of the funds involved, and that the subsidiary involved was immaterial to the
consolidated financial statements of Cooper. 
 Item 6. Exhibits 12.
    
    Computation of Ratios of Earnings to Fixed Charges for the
Calendar Years 1999 through 2003 and the Nine Months Ended September
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.
 -28-




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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.
 -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: November 5, 2004/s/ Terry A. KlebeTerry A. KlebeSenior Vice President andChief Financial OfficerDate: November 5, 2004/s/ Jeffrey B. LevosJeffrey B. LevosVice President and Controller andChief Accounting Officer
 -30-




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Exhibit Index Exhibit No. 12.
    
    Computation of Ratios of Earnings to Fixed Charges for the Calendar Years
1999 through 2003
and the nine months ended September 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.