Cooper Industries Ltd. (CBE, Financial) filed Quarterly Report for the period ended 2009-09-30.
Cooper Industries Plc formerly Cooper Industries Ltd. operates in two business segments: Electrical Products and Tools. The Company manufactures markets and sells its products and provides services throughout the world. Operations in the United States are conducted by wholly owned subsidiaries of Cooper organized by the two business segments. Cooper serves four major markets: the industrial commercial utility and residential markets. Cooper also serves the electronics and telecommunications markets. Markets for Cooper's products and services are worldwide with United States being the key market. The Electrical Products segment manufactures markets and sells electrical and circuit protection products. The Tools segment manufactures markets and sells hand tools for industrial construction electronics and consumer markets. Cooper Industries Ltd. has a market cap of $6.76 billion; its shares were traded at around $40.55 with a P/E ratio of 15.7 and P/S ratio of 1. The dividend yield of Cooper Industries Ltd. stocks is 2.5%. Cooper Industries Ltd. had an annual average earning growth of 1.3% over the past 10 years.
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.
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, Coopers 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 Coopers 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.
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. Coopers debt-to-total capitalization ratio was 29.6% at September 30, 2009, 32.1% at December 31, 2008 and 29.6% at September 30, 2008.
In determining the fair value of our reporting units at January 1, 2009, we were required to make significant judgments and estimates regarding the expected severity and duration of the current economic slowdown. We forecasted revenues for Electrical Products reporting units to decline in 2009 in the range of 1% to 16% with an average reduction of 11%. We forecasted Tools revenues to decline in 2009 by 24%. The forecast assumptions for 2010 anticipate a recovery to begin in certain markets and realization of certain benefits from cost reduction actions taken in late 2008 and early 2009 to reduce our overall cost structure. Our forecasted revenue amounts in 2011 are approximately 7% above the actual 2008 revenue levels for Electrical Products and approximately 4% lower than 2008 for Tools. In developing our forecast, we considered the historical operating results achieved in each of our businesses. Over the three year period through 2008, Electrical Products revenues increased annually in the range of 11% to 15%. Tools revenues increased approximately 4% in 2006 and 5% in 2007 and declined approximately 4% in 2008. During the three year period through 2008, Cooper achieved compounded annual growth in earnings from continuing operations of over 15% (2006 24%; 2007 20%; 2008 8%) and free cash flow in excess of earnings from continuing operations.
We estimate a 3% annual growth rate beyond 2011 to arrive at a normalized residual year representing the perpetual cash flows of each reporting unit. The forecasted 3% annual growth rate is less than Coopers historical annual growth rate achieved in the prior three and five year periods through 2008. The residual year cash flow was capitalized to arrive at the terminal value of the reporting units. Utilizing a discount rate of 11% for each reporting unit, the present value of the cash flows during the projection period and terminal value were aggregated to estimate the fair value of the reporting units. We assumed a discount rate of 11% in our discounted cash flow analysis at January 1, 2009 compared to a 10% discount rate used at January 1, 2008. In determining the appropriate discount rate, we considered the weighted average cost of capital for comparable companies.
Read the The complete ReportCBE is in the portfolios of Richard Aster Jr of Meridian Fund, John Hussman of Hussman Economtrics Advisors, Inc., Brian Rogers of T Rowe Price Equity Income Fund, David Dreman of Dreman Value Management.
Cooper Industries Plc formerly Cooper Industries Ltd. operates in two business segments: Electrical Products and Tools. The Company manufactures markets and sells its products and provides services throughout the world. Operations in the United States are conducted by wholly owned subsidiaries of Cooper organized by the two business segments. Cooper serves four major markets: the industrial commercial utility and residential markets. Cooper also serves the electronics and telecommunications markets. Markets for Cooper's products and services are worldwide with United States being the key market. The Electrical Products segment manufactures markets and sells electrical and circuit protection products. The Tools segment manufactures markets and sells hand tools for industrial construction electronics and consumer markets. Cooper Industries Ltd. has a market cap of $6.76 billion; its shares were traded at around $40.55 with a P/E ratio of 15.7 and P/S ratio of 1. The dividend yield of Cooper Industries Ltd. stocks is 2.5%. Cooper Industries Ltd. had an annual average earning growth of 1.3% over the past 10 years.
Highlight of Business Operations:
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.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.
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, Coopers 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 Coopers 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.
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. Coopers debt-to-total capitalization ratio was 29.6% at September 30, 2009, 32.1% at December 31, 2008 and 29.6% at September 30, 2008.
In determining the fair value of our reporting units at January 1, 2009, we were required to make significant judgments and estimates regarding the expected severity and duration of the current economic slowdown. We forecasted revenues for Electrical Products reporting units to decline in 2009 in the range of 1% to 16% with an average reduction of 11%. We forecasted Tools revenues to decline in 2009 by 24%. The forecast assumptions for 2010 anticipate a recovery to begin in certain markets and realization of certain benefits from cost reduction actions taken in late 2008 and early 2009 to reduce our overall cost structure. Our forecasted revenue amounts in 2011 are approximately 7% above the actual 2008 revenue levels for Electrical Products and approximately 4% lower than 2008 for Tools. In developing our forecast, we considered the historical operating results achieved in each of our businesses. Over the three year period through 2008, Electrical Products revenues increased annually in the range of 11% to 15%. Tools revenues increased approximately 4% in 2006 and 5% in 2007 and declined approximately 4% in 2008. During the three year period through 2008, Cooper achieved compounded annual growth in earnings from continuing operations of over 15% (2006 24%; 2007 20%; 2008 8%) and free cash flow in excess of earnings from continuing operations.
We estimate a 3% annual growth rate beyond 2011 to arrive at a normalized residual year representing the perpetual cash flows of each reporting unit. The forecasted 3% annual growth rate is less than Coopers historical annual growth rate achieved in the prior three and five year periods through 2008. The residual year cash flow was capitalized to arrive at the terminal value of the reporting units. Utilizing a discount rate of 11% for each reporting unit, the present value of the cash flows during the projection period and terminal value were aggregated to estimate the fair value of the reporting units. We assumed a discount rate of 11% in our discounted cash flow analysis at January 1, 2009 compared to a 10% discount rate used at January 1, 2008. In determining the appropriate discount rate, we considered the weighted average cost of capital for comparable companies.
Read the The complete ReportCBE is in the portfolios of Richard Aster Jr of Meridian Fund, John Hussman of Hussman Economtrics Advisors, Inc., Brian Rogers of T Rowe Price Equity Income Fund, David Dreman of Dreman Value Management.
