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| CBE > SEC Filings for CBE > Form 10-Q on 6-Aug-2009 | All Recent SEC Filings |
6-Aug-2009
Quarterly Report
Tools segment selling and administrative expenses, as a percentage of
revenues for the second quarter of 2009, was 22.9% compared to 19.0% for the
second quarter of 2008. The increase in selling and administrative expenses, as
a percentage of revenues, was driven by the 35% reduction in comparable second
quarter 2009 revenues partially offset by cost reduction actions implemented for
the segment.
Net interest expense in the second quarter of 2009 decreased $2.0 million
from the 2008 second quarter, primarily as a result of lower average debt
balances. Average debt balances were $1.22 billion and $1.43 billion and average
interest rates were 5.33% and 5.51% for the second quarter of 2009 and 2008,
respectively.
Operating Earnings:
Electrical Products segment second quarter 2009 operating earnings decreased
41% to $153.5 million from $259.0 million for the same quarter of last year. The
decrease resulted from the reduced global market demand and adjustments to
production volumes to align with the current market demand. The Electrical
Products segment continues its investment in productivity initiatives which
include manufacturing productivity improvements, product redesign and selling
and administrative expense reductions to improve operating earnings in addition
to continuing review of additional restructuring actions.
Tools segment second quarter 2009 operating earnings was $2.9 million
compared to operating earnings of $22.3 million in the second quarter of 2008.
The decrease resulted from the impact of lower unit volumes and further
curtailment of production volumes to adjust inventory levels to current and
forecasted market demand. The Tools segment continues its investment in
productivity initiatives to improve operating earnings in addition to continuing
review of additional restructuring actions.
General Corporate expense decreased $6.3 million to $21.0 million during the
second quarter of 2009 compared to $27.3 million during the same period of 2008.
General Corporate expense included currency related losses of $5.4 million in
2008. The remaining decrease primarily related to actions taken to reduce
General Corporate expense in response to the reduced global market demand for
Cooper products.
Restructuring:
In the second quarter of 2009, Cooper recorded a pre-tax restructuring charge
of $10.4 million primarily for severance costs as a result of management's
on-going assessment of its operational cost structure in consideration of the
continued challenging market conditions and anticipated future market levels. An
incremental total of 219 hourly and 259 salary positions are being eliminated as
a result of the second quarter 2009 restructuring actions to reduce Cooper's
workforce. See Note 2 of the Notes to the Consolidated Financial Statements.
Income Taxes:
The effective tax rate was 17.8% for the three months ended June 30, 2009 and
29.0% for the three months ended June 30, 2008. This decrease is primarily
related to lower earnings in 2009 without a corresponding decrease in projected
tax benefits.
Six Months Ended June 30, 2009 Compared With Six Months Ended June 30, 2008
Income from continuing operations for the first six months of 2009 was
$170.5 million on revenues of $2,526.6 million compared with 2008 first half net
income of $315.3 million on revenues of $3,270.4 million. First half diluted
earnings per share from continuing operations was $1.01 in 2009, compared to
$1.77 in 2008. During the first half of 2009, income from continuing operations
was reduced by restructuring charges of $19.2 million or $.09 per share. Income
from continuing operations for the first half of 2009 was favorably impacted by
discrete tax items related to foreign taxes which improved earnings by $.05 per
share. During the first half of 2008, net income was reduced by restructuring
charges of $7.6 million or $.03 per share. Discrete tax items for the first six
months of 2008 favorably impacted earnings by $.02 per share.
Revenues:
Revenues for the first six months of 2009 decreased 22.7% compared to the
first six months of 2008. The impact of acquisitions increased comparable
revenues for the first six months of 2009 by 0.9% with currency translation
decreasing revenues by 4.0% for the six month period.
Electrical Products segment revenues for the first six months of 2009
decreased 21.2% compared to the first half of 2008. The impact of acquisitions
increased revenue by 1.1% and currency translation had a 3.6% unfavorable effect
on revenues in the first half of the year. Revenue declines were a result of the
global recession in all markets for the Electrical Products segment, especially
for distribution channels impacted by the overall reduced demand and actions
taken by the distributors to reduce the inventory levels in the channel.
Tools segment revenues for the first six months of 2009 decreased 33.6%
compared to the first half of 2008. Unfavorable currency translation impact on
revenues for the first six months of 2009 was 6.5%. Revenues declined as the
segment continued to see weak global demand in all markets.
Costs and Expenses:
Cost of sales, as a percentage of revenues, was 70.0% for the first six
months of 2009 compared to 66.6% for the comparable 2008 period. The increase in
the cost of sales percentage primarily resulted from negative leverage on fixed
costs due to lower demand for products and additional production curtailments to
reduce overall inventory levels to align with slowing market demands.
Electrical Products segment cost of sales, as a percentage of revenues, was
69.4% for the first six months of 2009 compared to 66.1% for the first half of
2008. The increase in cost of sales as a percentage of revenues in comparison to
the prior year six month period was primarily due to negative leverage of fixed
costs from the 21% decline in revenues due to the global market slowdown and
additional actions taken to adjust inventory levels to current lower market
conditions.
Tools segment cost of sales, as a percentage of revenues, was 76.4% for the
first half of 2009 compared to 69.8% for the same period of 2008. The increase
in the cost of sales percentage was driven by unfavorable leverage of fixed
costs due to lower production volumes and further actions taken to adjust
inventory levels to market conditions.
Selling and administrative expenses, as a percentage of revenues, for the
first six months of 2009 was 20.0% compared to 18.8% for the first half of 2008.
The increase in percentage is reflective of the reduced revenue levels offset
partially by cost reduction actions taken to align the overall selling and
administrative expenses with current and projected market demand.
Electrical Products segment selling and administrative expenses, as a
percentage of revenues, for the first six months of 2009 was 17.6% compared to
17.1% for the first half of 2008. The increase in percentage reflects the impact
of 21% lower comparable revenue levels for the six month period in 2009 which
impact
was nearly offset by cost reduction actions taken to adjust segment selling and
administrative expenses to global market conditions.
Tools segment selling and administrative expenses, as a percentage of
revenues, for the first six months of 2009 was 24.0% compared to 20.3% for the
first six months of 2008. The increase in selling and administrative expenses,
as a percentage of revenues, was driven by the 34% reduction in comparable six
months 2009 revenues partially offset by cost reduction actions implemented for
the segment.
Net interest expense for the first six months of 2009 decreased $1.7 million
from the 2008 first six months primarily as a result of lower average debt
balances partially offset by lower interest earned on cash invested. Average
debt balances were $1.22 billion and $1.41 billion and average interest rates
were 5.34% and 5.27% for the first six months of 2009 and 2008, respectively.
Operating Earnings:
Electrical Products segment first half 2009 operating earnings decreased 39%
to $293.5 million from $482.5 million for the same period of last year. The
decrease primarily resulted from the reduced global market demand and
adjustments to production volumes to align with the lower market demand.
Tools segment first half 2009 operating loss was $1.0 million compared to
operating earnings of $39.5 million in the same period of 2008. The decrease
resulted from the impact of lower unit volumes and further curtailment of
production volumes to adjust inventory levels to current and forecasted market
demand.
General Corporate expense decreased $3.6 million to $42.0 million during the
first six months of 2009 compared to $45.6 million during the same period of
2008. The decrease primarily related to lower stock and incentive compensation
expense and actions taken to reduce General Corporate expense in response to the
reduced global market demand for Cooper products.
Restructuring:
At December 31, 2008, Cooper had an accrual of $29.7 million for future cash
expenditures related to its fourth quarter 2008 restructuring actions. The
fourth quarter 2008 restructuring actions included the elimination of 1,314
hourly and 930 salaried positions.
In the first six months of 2009, Cooper recorded pre-tax restructuring
charges of $19.2 million related to additional employment reductions and certain
facility closures as a result of management's ongoing assessment of its hourly
and salary workforce and its required production capacity in consideration of
current and anticipated market conditions and demand levels. An incremental
total of 559 hourly and 568 salary positions are being eliminated as a result of
the 2009 restructuring actions to reduce Cooper's workforce.
During the first six months of 2009, Cooper expended $24.0 million in cash
related to its fourth quarter 2008 restructuring actions and an additional
$11.7 million for the first half 2009 restructuring actions. At June 30, 2009,
Cooper has an accrual for future cash expenditures related to the restructuring
actions of $13.2 million. The related cash payments will be substantially
completed in 2009.
As part of the restructuring actions, Cooper has approved the closure of nine
factories and warehouses, five of which have been completed at the end of the
second quarter 2009. Of the remaining facility closures, two are expected to be
completed by the end of 2009 with the remaining two factory closures expected to
be substantially completed in the first half of 2010. Cooper expects to incur
incremental restructuring charges in the range of approximately $15 to
$21 million associated with the completion of planned restructuring activities
as the actions are implemented over the next year. See Note 2 of the Notes to
the Consolidated Financial Statements.
Cooper estimates the restructuring actions taken in the fourth quarter of
2008 and the first half of 2009 have reduced operating costs by approximately
$33 million during the first six months of 2009 and anticipates these actions
will reduce operating costs by approximately $50 million in the remainder of
2009. Cooper expects to realize approximately $10 million of sequential benefits
in 2010 from the restructuring actions taken to date.
Income Taxes:
The effective tax rate was 14.7% for the six months ended June 30, 2009 and
27.6% for the six months ended June 30, 2008. Cooper reduced income taxes
expense by $8.4 million and $4.6 million in the first six months of 2009 and
2008, respectively, for discrete tax items primarily related to foreign taxes.
Excluding the impacts of the discrete items, Cooper's effective tax rate would
have been 18.9% for the six months ended June 30, 2009 and 28.7% for the first
six months of 2008. The decrease in Cooper's 2009 effective tax rate compared to
2008, adjusted for the aforementioned discrete items, is primarily related to a
decrease in taxable earnings in 2009 without a corresponding decrease in
projected tax benefits.
Income Related to Discontinued Operations:
During the first quarter of 2009, Cooper recognized a gain from discontinued
operations of $18.9 million, net of a $12.0 million income tax expense (or $.11
per diluted share) related to its asbestos liability regarding the Automotive
Products segment, which was sold in 1998. The income resulted from negotiated
insurance settlements consummated in the first quarter of 2009 that were not
previously recognized. Cooper believes that it is likely that additional
insurance recoveries will be recorded in the future as new insurance-in-place
agreements are consummated or settlements with insurance carriers are completed.
The timing and value of these agreements and settlements cannot be currently
estimated as they may be subject to extensive additional negotiation and
litigation. See Note 16 of the Notes to the Consolidated Financial Statements.
As discussed in Note 16 of Notes to the Consolidated Financial Statements,
Cooper's contingent liabilities related to the Automotive Products sale to
Federal-Mogul in 1998 will continue to be resolved through the tort system.
Cooper anticipates that the annual cash outlay for its potential asbestos
liability, net of insurance recoveries, will average in the range of $20 to
$30 million, although the amounts will vary as the amount of the actual net cash
outlay is not reasonably predictable. In 2009, insurance recoveries will likely
exceed cash outlays.
Historically, Cooper has relied on the commercial paper markets to fund its
operations. Although recent distress in the financial markets has not had a
significant impact on Cooper's financial position or liquidity as of the date of
this filing in 2009, management continues to monitor the financial markets and
general global economic conditions. If changes in financial markets or other
areas of the economy adversely affect Cooper's access to the commercial paper
markets, Cooper would expect to rely on available cash to provide short-term
funding.
Cooper's financial position and liquidity remains strong as the global
economic recession continues. It is likely that most markets that Cooper
services will continue to have weak demand in the near term. While the length
and depth of the recession and a recovery are not predictable, Cooper is
proactively adjusting our cost structure. In this regard, in the fourth quarter
of 2008, Cooper implemented contingency plans to reduce our cost structure and
recognized a restructuring charge of $35.7 million primarily related to
reductions in our workforce in excess of 2,200 employees. In the first six
months of 2009, Cooper further reduced its workforce by over 1,100 additional
employees and recognized restructuring charges of $19.2 million. Cash flows from
operating activities for the first six months of 2009 are reduced by the
$35.7 million expended in connection with the restructuring actions. At June 30,
2009, Cooper had a $13.2 million accrual related to these activities for which
the related cash payments will be substantially completed in 2009. As part of
the restructuring actions, Cooper has approved the closure of nine factories and
warehouses, five of which have been completed at the end of the second quarter
2009. Of the remaining facility closures, two are expected to be completed by
the end of 2009 with the remaining two factory closures expected to be
substantially completed in the first half of 2010. Cooper expects to incur
incremental restructuring charges in the range of approximately $15 to
$21 million associated with the completion of planned restructuring activities
as the actions are implemented over the next year, with approximately
$10 million expected during the third quarter of 2009. See Note 2 of the Notes
to the Consolidated Financial Statements for further information.
Cooper has $275 million of long-term debt that matures in November 2009.
Cooper currently anticipates that it will annually generate in excess of
$500 million in cash flow available for acquisitions, debt repayments, dividends
and common stock repurchases during 2009 and currently has adequate cash to
repay the long-term debt maturing in November 2009.
Capital Resources:
Cooper targets a 30% to 40% debt-to-total capitalization ratio. Excess cash
flows are utilized to fund acquisitions or to purchase shares of Cooper common
stock. Cooper's debt-to-total capitalization ratio was 30.4% at June 30, 2009,
32.1% at December 31, 2008 and 31.6% at June 30, 2008.
At June 30, 2009 and December 31, 2008, Cooper had cash and cash equivalents
of $450.2 million and $258.8 million, respectively and short-term investments of
$12.6 million and $21.9 million, respectively. At June 30, 2009 and December 31,
2008, Cooper had short-term debt of $11.8 million and $25.6 million,
respectively.
Cooper's practice is to back up its short-term debt balance with a
combination of cash, cash equivalents, and committed credit facilities. At
June 30, 2009, Cooper has $513 million of committed credit facilities, of which
$13 million matures in September 2009 and $500 million matures in November 2009.
Short-term debt, to the extent not backed up by cash or short-term investments,
reduces the amount of additional liquidity provided by the committed credit
facilities.
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