Summary of COOPER INDUSTRIES PLC

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward-Looking Statements We often discuss expectations regarding our future markets, demand for our products and services, and our performance in our annual and quarterly reports, press releases, and other written and oral statements. Statements that relate to matters that are not historical facts are "forward-looking statements" within the meaning of the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act. These "forward-looking statements" are based on an analysis of currently available competitive, financial and economic data and our operating plans. They are inherently uncertain and investors should recognize that events and actual results could turn out to be significantly different from our expectations. By way of illustration, when used in this document, words such as "anticipate," "believe," "expect," "plan," "intend," "estimate," "project," "will," "should," "could," "may," "predict" and similar expressions are intended to identify forward-looking statements.
This Quarterly Report on Form 10-Q, including Management's Discussion and Analysis of Financial Condition and Results of Operations, includes forward-looking statements. These statements are not historical facts but instead represent only our beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside of our control. It is possible that our actual results and financial condition may differ, possibly materially, from the anticipated results and the financial condition indicated in these forward-looking statements. For us, particular uncertainties that could cause our actual results to be materially different than those expressed in our forward-looking statements include: market and economic conditions, competitive pressures, volatility of raw material prices, our ability to develop and introduce new products, our ability to implement revenue growth plans and cost-reduction programs, mergers and acquisitions and their implementations, implementation of manufacturing rationalization programs, changes in legislation and regulations (including changes in tax laws, tax treaties or tax regulations), changes in financial markets including currency exchange rate fluctuations, and our ability to resolve potential liabilities and insurance recoveries resulting from Pneumo-Abex related asbestos claims.
The above description of risks and uncertainties is by no means all-inclusive, but is designed to highlight what we believe are important factors to consider. For a more detailed description of risk factors, please see Part II - Item 1A. - Risk Factors. Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to "we," "us," "our," "the Company," or "Cooper" means Cooper Industries plc and, where the context requires, includes our subsidiaries.
Recent Developments In June 2009, our Board of Directors approved moving Cooper's place of incorporation from Bermuda to Ireland. This move is part of a reorganization that created a newly formed Irish company, Cooper Industries plc. We completed the first step in this reorganization by establishing our tax residency in Ireland in December 2008. At a Special Shareholders Meeting on August 31, 2009, shareholders voted in favor of completing the reorganization pursuant to which all Cooper Industries, Ltd. Class A common shares held by public shareholders would be cancelled and all holders of such shares would receive ordinary shares of Cooper Industries plc on a one-for-one basis. The reorganization transaction was completed on September 8, 2009, following approval from the Supreme Court of Bermuda, at which time Cooper Industries plc replaced Cooper Industries, Ltd. as the ultimate parent company. On October 19, 2009, the Irish High Court approved the reduction of share premium (similar to additional paid-in-capital) to establish distributable reserves on the unconsolidated balance sheet of Cooper Industries plc. The establishment of distributable reserves was required to enable the Company to pay dividends and repurchase shares in the future.
We believe incorporating in Ireland offers increased strategic flexibility and operational benefits as we continue to expand the growing international portion of our business. We do not expect the reorganization will have any material impact on our financial results. Shares of the Irish company, Cooper Industries plc,

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began trading on the New York Stock Exchange on September 9, 2009 under the symbol "CBE", the same symbol under which Cooper Industries, Ltd. shares were previously traded. Cooper Industries plc will remain subject to the U.S. Securities and Exchange Commission reporting requirements, the mandates of the Sarbanes-Oxley Act and applicable corporate governance rules of the New York Stock Exchange.

Results of Operations Three Months Ended September 30, 2009 Compared With Three Months Ended September 30, 2008
Income from continuing operations for the third quarter of 2009 was $114.3 million on revenues of $1,286.4 million compared with 2008 third quarter income from continuing operations of $189.2 million on revenues of $1,727.7 million. Third quarter 2009 diluted earnings per share decreased 37% to $.68 from $1.08 in 2008. During the third quarter of 2009, reported income from continuing operations was reduced by restructuring charges of $6.5 million or $.03 per share. The third quarter 2009 results included discrete tax adjustments that increased earnings per share from continuing operations by $.01 per share. During the third quarter of 2008, tax benefits from settlements and other discrete tax adjustments increased earnings per share from continuing operations by $.11 per share.
Revenues:
Revenues for the third quarter of 2009 decreased 25.5% compared to the third quarter of 2008. The impact of currency translation decreased reported revenues by 2.0% for the quarter.
Electrical Products segment revenues decreased 24.8% compared to the third quarter of 2008. The impact of unfavorable currency translation decreased reported revenues by 1.8% and acquisitions increased reported revenues 0.1% for the quarter. The global recession resulted in weakness in all markets for the Electrical Products segment, especially the North American and Western European markets when comparing results to the prior year.
Tools segment revenues for the third quarter of 2009 decreased 31.0% from the third quarter of 2008. Unfavorable currency translation decreased revenues by 3.2% over the third quarter of 2008. Lower revenues from declining retail market activity, weaker demand in the North American and Western European industrial markets and lower requirements for assembly systems for the light passenger vehicle markets drove the reduction in revenue compared to prior year results. Costs and Expenses:
Cost of sales, as a percentage of revenues, was 68.1% for the third quarter of 2009 compared to 67.7% for the comparable 2008 quarter. The increase in the cost of sales percentage primarily resulted from negative leverage on fixed costs due to lower demand for products.
Electrical Products segment cost of sales, as a percentage of revenues, was 67.7% for the third quarter of 2009 compared to 67.5% for the third quarter of 2008. The increase in cost of sales as a percentage of revenues in comparison to the prior year third quarter was primarily due to negative leverage of fixed costs from reduced demand due to the global market slowdown. Tools segment cost of sales, as a percentage of revenues, was 72.9% for the third quarter of 2009 compared to 69.0% for the third quarter of 2008. The increase in the cost of sales percentage was primarily driven by unfavorable leverage of fixed costs due to lower production volumes.
Selling and administrative expenses, as a percentage of revenues, for the third quarter of 2009 was 19.5% compared to 17.8% for the third quarter of 2008. Selling and administrative expenses were reduced by $56.7 million in the third quarter 2009 when compared to the same prior year period. The increase in percentage is reflective of the reduced revenue levels offset by cost reduction actions taken to align the overall selling and administrative expenses with current and projected market demand.

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Electrical Products segment selling and administrative expenses, as a percentage of revenues for the third quarter of 2009, was 17.2% compared to 16.1% for the third quarter of 2008. The increase in the percentage reflects the impact of 25% lower comparable revenue levels for the third quarter 2009 which was partially 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 third quarter of 2009, was 22.3% compared to 19.1% for the third quarter of 2008. The increase in selling and administrative expenses, as a percentage of revenues, was driven by the 31% reduction in comparable third quarter 2009 revenues partially offset by cost reduction actions implemented for the segment.
Net interest expense in the third quarter of 2009 decreased $1.4 million from the 2008 third quarter, primarily as a result of lower average debt balances. Average debt balances were $1.21 billion and $1.33 billion and average interest rates were 5.37% and 5.18% for the third quarter of 2009 and 2008, respectively. Operating Earnings:
Electrical Products segment third quarter 2009 operating earnings decreased 31% to $173.5 million from $249.7 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 third quarter 2009 operating earnings was $6.8 million compared to operating earnings of $24.1 million in the third quarter of 2008. The decrease resulted from the impact of lower unit volumes and curtailment of production volumes to 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 $2.4 million to $21.5 million during the third quarter of 2009 compared to $23.9 million during the same period of 2008. The decrease primarily relates to lower stock compensation expense and actions taken to reduce General Corporate expense in response to the reduced global market demand for Cooper products. General Corporate expense for the third quarter 2009 included $2.8 million in costs associated with the reincorporation of the Company to Ireland.
Restructuring and Asset Impairment Charges:
In the third quarter of 2009, Cooper recorded a pre-tax restructuring charge of $5.7 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 440 hourly and 126 salary positions are being eliminated as a result of the third quarter 2009 restructuring actions to reduce Cooper's workforce. The third quarter 2009 also includes a non-cash impairment charge of $0.8 million related to certain facility closures. See Note 2 of the Notes to the Consolidated Financial Statements.
Income Taxes:
The effective tax rate was 16.2% for the three months ended September 30, 2009 and 18.7% for the three months ended September 30, 2008. Cooper reduced income taxes expense by $1.2 million and $18.3 million in the three months ended September 30, 2009 and 2008, respectively, for discrete tax items primarily related to statute expirations, state tax settlements, and foreign taxes. Excluding the discrete tax items, Cooper's effective tax rate for the three months ended September 30, 2009 and 2008 was 17.1% and

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26.5%. This decrease is primarily related to lower earnings in 2009 without a corresponding decrease in projected tax benefits.
Nine Months Ended September 30, 2009 Compared With Nine Months Ended September 30, 2008
Income from continuing operations for the nine months ended September 30, 2009 was $284.8 million on revenues of $3,813.0 million compared with income from continuing operations of $504.5 million on revenues of $4,998.1 million during the comparable 2008 period. Diluted earnings per share from continuing operations were $1.69 in 2009 compared to $2.85 in 2008. During the nine months ended September 30, 2009, income from continuing operations was reduced by restructuring charges of $25.7 million or $.13 per share. Income from continuing operations for the nine months ended September 30, 2009 was favorably impacted by discrete tax items primarily related to foreign taxes which improved earnings by $.06 per share. During the nine months ended September 30, 2008, income from continuing operations was reduced by restructuring charges of $7.6 million or $.03 per share. Discrete tax items for the nine months ended September 30, 2008 favorably impacted earnings by $.13 per share. Revenues:
Revenues for the nine months ended September 30, 2009 decreased 23.7% compared to the same period in 2008. The impact of acquisitions increased comparable revenues in 2009 by 0.7% with currency translation decreasing 2009 revenues by 3.3%.
Electrical Products segment revenues for the nine months ended September 30, 2009 decreased 22.5% compared to the same period in 2008. The impact of acquisitions increased revenue by 0.7% and currency translation had a 3.0% unfavorable effect on revenues in the nine months ended September 30, 2009. 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 distributors to reduce the inventory levels in the channel.
Tools segment revenues for the nine months ended September 30, 2009 decreased 32.7% compared to the same period in 2008. Unfavorable currency translation impact was 5.4% on revenues in 2009. 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 69.4% for the nine months ended September 30, 2009 compared to 67.0% 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 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 68.8% for the nine months ended September 30, 2009 compared to 66.6% for the comparable period in 2008. The increase in cost of sales as a percentage of revenues in comparison to the prior year period was primarily due to negative leverage of fixed costs from the 23% decline in revenues due to the global market slowdown and actions taken to adjust production inventory levels to current lower market conditions.
Tools segment cost of sales, as a percentage of revenues, was 75.2% for the nine months ended September 30, 2009 compared to 69.6% 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 nine months ended September 30, 2009 was 19.9% compared to 18.5% for the same 2008 period. Selling and administrative expenses were reduced by $166.3 million in the first nine months of 2009 when compared to the same prior year period. The increase in the percentage is reflective of the reduced revenue levels offset partially by cost

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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 nine months ended September 30, 2009 was 17.5% compared to 16.8% for the same period in 2008. The increase in the percentage reflects the impact of 23% lower comparable revenue levels in 2009 which was partially 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 nine months ended September 30, 2009 was 23.4% compared to 19.8% for the same 2008 period. The increase in selling and administrative expenses, as a percentage of revenues, was driven by the 33% reduction in comparable revenues partially offset by cost reduction actions implemented for the segment.
Net interest expense for the nine months ended September 30, 2009 decreased $3.1 million from the comparable 2008 period primarily as a result of lower average debt balances partially offset by higher average borrowing rates and lower interest earned on cash invested. Average debt balances were $1.22 billion and $1.39 billion and average interest rates were 5.35% and 5.16% for the nine months ended September 30, 2009 and 2008, respectively. Operating Earnings:
Electrical Products segment operating earnings of $467.0 million for the nine months ended September 30, 2009 decreased 36% from the operating earnings of $732.2 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 operating earnings was $5.8 million in the nine months ended September 30, 2009 compared to operating earnings of $63.6 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 $6.0 million to $63.5 million during the nine months ended September 30, 2009 compared to $69.5 million during the same period of 2008. The decrease primarily relates 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. General Corporate expense for the nine months ended September 30, 2009 includes $3.0 million in costs associated with the reincorporation of the Company to Ireland.
Restructuring and Asset Impairment Charges:
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.
During the nine months ended September 30, 2009, Cooper recorded pre-tax restructuring and asset impairment charges of $25.7 million related to additional employment reductions and certain facility closures as a result of management's on-going 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 999 hourly and 694 salary positions are being eliminated as a result of the 2009 restructuring actions to reduce Cooper's workforce.
During the nine months ended September 30, 2009, Cooper expended $26.9 million in cash related to its fourth quarter 2008 restructuring actions and an additional $19.1 million for the actions taken in 2009.

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At September 30, 2009, Cooper has an accrual for future cash expenditures related to the restructuring actions of $8.6 million. The related cash payments will be substantially completed in the first half of 2010.
As part of the restructuring actions, Cooper has approved the closure of ten factories and warehouses, six of which have been completed as of September 30, 2009. Cooper has recorded non-cash impairment charges of $0.8 million related to these actions. 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 $8 to $15 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 during the nine months ended September 30, 2009 have reduced operating costs by approximately $59 million in 2009 and anticipates these actions will reduce operating costs by approximately $24 million during the remainder of 2009. Cooper expects to realize approximately $13 million of sequential benefits in 2010 from the restructuring actions taken to date. Income Taxes:
The effective tax rate was 15.3% for the nine months ended September 30, 2009 and 24.5% for the nine months ended September 30, 2008. Cooper reduced income taxes expense by $9.6 million and $22.9 million in the nine months ended September 30, 2009 and 2008, respectively, for discrete tax items primarily related to statute expirations, state tax settlements and foreign taxes. Excluding the impacts of the discrete items, Cooper's effective tax rate would have been 18.2% and 28.0% for the nine months ended September 30, 2009 and 2008, respectively. 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 2009 earnings without a corresponding decrease in projected tax benefits.
Income Related to Discontinued Operations:
During the nine months ended September 30, 2009, Cooper recognized an after tax gain from discontinued operations of $25.5 million, which is net of a $16.2 million income tax expense (or $.15 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 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.

Liquidity and Capital Resources Liquidity:
Cooper's operating working capital (defined as receivables and inventories less accounts payable) decreased $210.2 million during the nine months ended September 30, 2009. A $135.6 million decrease in receivables and a $139.1 million decrease in inventories, partially offset by a $64.5 million decrease in accounts payable, were driven primarily by a 24% decrease in sales and aggressive actions to right size Cooper's businesses for current market conditions. Cooper's operating working capital at September 30, 2009 was approximately 28% lower than at September 30, 2008 as operating working capital levels have been adjusted to the current lower operating levels. Operating working capital turnover (defined as annualized revenues divided by average quarterly operating working capital) for the third quarter of 2009 was 5.2 turns as compared to 5.1 turns for the same period of 2008.

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Cash provided by operating activities was $638.4 million during the nine months ended September 30, 2009. This cash, plus $19.1 million from redemption of short-term investments and $4.5 million of cash received from stock option exercises significantly exceeded the funds utilized to fund capital expenditures of $70.8 million, acquisitions of $21.8 million, dividends of $125.7 million, debt repayments of $24.6 million and share purchases of $26.0 million. Cash provided by operating activities in 2009 is net of a $25 million voluntary contribution to the U.S. defined benefit pension plan.
Cash provided by operating activities was $569.8 million during the nine months ended September 30, 2008. This cash, plus $297.5 million of net proceeds from issuances of debt, $290.1 million of proceeds from cash previously restricted, $56.4 million from redemption of short-term investments and $17.0 million of cash received from stock option exercises was primarily used to fund capital expenditures of $95.5 million, acquisitions of $270.8 million, dividends of $126.9 million, debt repayments of $380.0 million and share purchases of $325.2 million.
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.
Cooper's financial position and liquidity has remained strong during the global economic recession. 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. During the nine months ended September 30, 2009, Cooper further reduced its workforce by approximately 1,700 additional employees and recognized restructuring charges of $24.9 million. Cash flows from operating activities for the nine months ended September 30, 2009 have been reduced by the $46.0 million expended in connection with the restructuring actions. At September 30, 2009, Cooper had an $8.6 million accrual related to these activities for which the related cash payments will be substantially completed in the first half of 2010. As part of the restructuring actions, Cooper has approved the closure of ten factories and warehouses, six of which have been completed at the end of the third 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 $8 to $15 million associated with the completion of planned restructuring activities as the actions are implemented over the next . . .