COOPER INDUSTRIES LTD - 10-Q Quarterly Report

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10-Q

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarter ended June 30, 2002

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
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Cooper Industries, Ltd.
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(Exact name of registrant as specified in its charter)

Bermuda 98-0355628
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

600 Travis, Suite 5800 Houston, Texas 77002
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(Address of principal executive offices) (Zip Code)

(713) 209-8400
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(Registrant's telephone number, including area code)

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(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
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Number of shares outstanding of issuer's common stock as of July 31, 2002 was
93,225,277 publicly traded Class A common shares and 56,889,099 Class B common
shares that are held by the issuer's subsidiary, Cooper Industries, Inc.

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

COOPER INDUSTRIES, LTD.
CONSOLIDATED INCOME STATEMENTS

The accompanying notes are an integral part of these statements.

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COOPER INDUSTRIES, LTD.
CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these statements.

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COOPER INDUSTRIES, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS

(1) Net of the effects of acquisitions and translation.

The accompanying notes are an integral part of these statements.

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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. Cooper is
the successor to Cooper Industries, Inc., an Ohio corporation ("Cooper Ohio"),
following a corporate reorganization ("the reorganization") that became
effective on May 22, 2002. The reorganization was effected through the merger of
Cooper Mergerco, Inc., an Ohio corporation, into Cooper Ohio. Cooper Ohio was
the surviving company in the merger and became an indirect, wholly-owned
subsidiary of Cooper. All outstanding shares of Cooper Ohio common stock were
automatically converted to Cooper Class A common shares. Cooper and its
subsidiaries continue to conduct the business previously conducted by Cooper
Ohio and its subsidiaries. The reorganization has been accounted for as a
reorganization of entities under common control and accordingly, did not result
in changes in the historical consolidated carrying amounts of assets,
liabilities and shareholders' equity.

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 Ohio'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, 2001 included in Part IV of Cooper Ohio's 2001 Annual Report on
Form 10-K.

NOTE 2. ADOPTION OF NEW ACCOUNTING STANDARD

On January 1, 2002, Cooper adopted Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets ("SFAS No. 142") and is
therefore no longer amortizing goodwill. Under SFAS No. 142, goodwill is subject
to an annual impairment test. The first step of the goodwill impairment test
compares the fair value of a reporting unit with its carrying value. Cooper has
designated eight reporting units, consisting of the seven individual businesses
of the Electrical Products reportable operating segment plus the Tools &
Hardware reportable operating segment. If the carrying amount of a reporting
unit exceeds its fair value, the second step of the goodwill impairment test
shall be performed. The second step compares the implied fair value of reporting
unit goodwill to the carrying amount of the goodwill to measure the amount of
impairment loss. Cooper completed transitional step one of the goodwill
impairment test during the second quarter of 2002. The fair value of each
reporting unit was determined by estimating the present value of future cash
flows. The results of step one did not require the completion of step two of the
transitional test for any reporting units. The Company has designated January 1
as the date of its annual goodwill impairment test.

The following table reconciles reported net income and earnings per
share to that which would have resulted for the three and six month periods
ended June 30, 2001 if SFAS No. 142 had been adopted effective January 1, 2001
(in millions, except per share amounts):

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Changes in the carrying amount of goodwill for the six months ended
June 30, 2002, by segment, were as follows:

On January 1, 2002, Cooper adopted Statement of Financial Accounting
Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets. Adoption of this statement did not have an effect on Cooper's
consolidated results of operations or financial position.

NOTE 3. ACQUISITIONS

During the first six months of 2002, Cooper paid $1.1 million related
to previously acquired businesses. The terms of a previous acquisition agreement
provided for additional consideration to be paid if earnings of the acquired
businesses exceeded certain targeted levels. During the first six months of
2001, Cooper received purchase price adjustments of $11.8 million, net related
to previously acquired businesses.

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NOTE 4. INVENTORIES

NOTE 5. LONG-TERM DEBT

During June 2002, Cooper Ohio issued $300 million senior unsecured
notes due July 1, 2007 with a 5.25% interest rate. Proceeds from the notes were
used to repay commercial paper obligations. The notes are fully and
unconditionally guaranteed by Cooper. During 1999, Cooper Ohio completed a shelf
registration statement to issue up to $500 million of debt securities. At June
30, 2002, $500 million of the shelf registration was available to be issued.

At June 30, 2002, commercial paper of $104 million was classified as
long-term debt, reflecting Cooper's intention to refinance this amount during
the 12-month period following the balance sheet date through either continued
short-term borrowing or utilization of available bank credit facilities.

NOTE 6. SHAREHOLDERS' EQUITY

Effective May 22, 2002, Cooper became the successor to Cooper Ohio
following a reorganization. The reorganization was effected through the merger
of Cooper Mergerco, Inc. into Cooper Ohio (see Note 1). Upon consummation of the
merger, Cooper Ohio common shares automatically became Cooper Class A common
shares. As part of the reorganization, Cooper Ohio transferred the shares of
certain subsidiaries to Cooper in exchange for Cooper Class B common shares. The
Cooper Class B common shares are not entitled to vote, except as to matters for
which Bermuda law specifically requires voting rights for otherwise nonvoting
shares. Cooper and Cooper Ohio entered into a voting agreement which provides
that in those limited circumstances where the Class B common shares have the
right to vote, Cooper Ohio shall vote the shares in the same proportion as the
holders of Cooper Class A common shares. If at any time a dividend is declared
or paid on the Cooper Class A common shares, a like dividend shall be declared
and paid on Cooper Class B shares in an equal amount per share.

Cooper's authorized share capital is U.S. $4,100,000 consisting of
250,000,000 Class A common shares, par value of $.01 per share, 150,000,000
Class B common shares, par value $.01 per share and 10,000,000 preferred shares,
par value $.01 per share, which preferred shares may be designated and created
as shares of any other classes or series of shares with the respective rights
and restrictions determined by action of the Board of Directors. No preferred
shares were outstanding at June 30, 2002.

At June 30, 2002, 93,145,724 Class A common shares, $.01 par value were
issued and outstanding compared to 93,761,587 common shares, $5 par value at
December 31, 2001. In 2002, prior to the reorganization, Cooper Ohio repurchased
one million shares of its common stock at a cost of $37.9 million and issued
337,570 common shares primarily in connection with employee benefit plans. On
May 22, 2002, 93,099,157 Cooper Ohio common shares, $5 par value were
automatically converted to 93,099,157 Cooper Class A common shares, $.01 par
value. The decrease in the par value of the common shares of $464.5

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million was recorded as a decrease to common stock and an increase to capital in
excess of par value on the consolidated balance sheet.

On May 22, 2002, 29,893,919 Cooper Ohio treasury shares were retired
due to the reorganization. The treasury stock retirement was recorded by
eliminating the $1,449.9 million treasury stock balance and reducing common
stock, $5 par value $149.6 million, capital in excess of par $635.5 million and
retained earnings $664.8 million on the consolidated balance sheet.

During May 2002, Cooper adopted a Shareholder Rights Plan to replace
the rights attached to the common stock of Cooper Ohio. The Board of Directors
authorized the issuance of one right for each common share outstanding on May
22, 2002. Each Right entitles the holder to buy one one-hundredth of a share of
Series A Participating Preferred Stock at a purchase price of $225 per one
one-hundredth of a share or, in certain circumstances Common stock having a
value of twice the purchase price. Each Right becomes exercisable only in
certain circumstances constituting a potential change of control on a basis
considered inadequate by the Board of Directors. The Rights expire August 5,
2007 and, at Cooper's option, may be redeemed prior to expiration for $.01 per
Right.

NOTE 7. SEGMENT INFORMATION

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NOTE 8. INCOME TAXES

Cooper's effective tax rate was 23.7% for the six months ended June 30,
2002 and 35.0% for the six months ended June 30, 2001. As a result of the
reorganization, Cooper currently expects a 2002 annualized effective tax rate of
approximately 24%. The effective tax rate for the three months ended June 30,
2002 was 17.3% in consideration of this expected annualized rate. The
reconciliation between the income tax rate computed by applying the U.S. Federal
statutory rate and the worldwide tax rate is presented below.

NOTE 9. NET INCOME PER COMMON SHARE

Options and employee awards are not considered in the calculations if the effect
would be antidilutive.

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NOTE 10. NET INCOME AND OTHER NON-OWNER CHANGES IN EQUITY

The components of net income and other non-owner changes in equity, net
of related taxes, were as follows:

NOTE 11. ASBESTOS LIABILITIES

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 made a decision
whether to reject the 1998 Agreement, which includes the indemnification to
Cooper. If Federal-Mogul rejects the 1998 Agreement, Cooper will be relieved of
its future obligations under the 1998 Agreement, including specific indemnities
relating to payment of taxes and certain obligations regarding insurance for its
former Automotive Products businesses. To the extent Cooper is obligated to
Pneumo for any asbestos-related claims arising from the Abex product line ("Abex
Claims"), Cooper has rights, confirmed by Pneumo, to significant insurance for
such claims. Based on information provided by representatives of Federal-Mogul
and recent claims experience, from August 28, 1998 through June 30, 2002, a
total of 81,099 Abex Claims were filed, of which 17,782 claims have been
resolved leaving 63,317 Abex Claims pending at June 30, 2002, that are the
responsibility of Federal-Mogul. During the six months ended June 30, 2002,
5,947 claims were filed and 808 claims were resolved. Since August 28, 1998, the
average indemnity payment for resolved Abex Claims was $912 before insurance. A
total of $32.2 million was spent on defense costs for the period August 28, 1998
through June 30, 2002. Historically, existing insurance coverage has provided
50% to 80% of the total defense and indemnity payments for Abex Claims.

Cooper completed a thorough analysis of its potential exposure for
asbestos liabilities in the event Federal-Mogul rejects the 1998 Agreement. The
analysis included a review of the Abex Claims history, existing insurance
coverage, the contractual indemnities and other facts determined to date. At
this time, the manner in which this issue ultimately will be resolved is not
known. 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. At June 30, 2002, Cooper
had a $92 million accrual for potential liabilities related to the Federal-Mogul
bankruptcy.

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NOTE 12. CONSOLIDATING FINANCIAL INFORMATION

Cooper fully and unconditionally guarantees the registered debt
securities of Cooper Ohio, a wholly owned 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 B common shares are accounted for using the cost method.

CONSOLIDATING INCOME STATEMENTS
THREE MONTHS ENDED JUNE 30, 2002
(in millions)

THREE MONTHS ENDED JUNE 30, 2001
(in millions)

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CONSOLIDATING INCOME STATEMENTS
SIX MONTHS ENDED JUNE 30, 2002
(in millions)

SIX MONTHS ENDED JUNE 30, 2001
(in millions)

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CONSOLIDATING BALANCE SHEETS
JUNE 30, 2002
(in millions)

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CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 2001
(in millions)

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CONSOLIDATING STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2002
(in millions)

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CONSOLIDATING STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2001
(in millions)

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2002 COMPARED WITH THREE MONTHS ENDED JUNE 30, 2001

Net income for the second quarter of 2002 was $73.9 million on revenues of
$1,001.2 million compared with 2001 second quarter net income of $68.0 million
on revenues of $1,073.0 million. Second quarter 2002 diluted earnings per share
were $.78 compared to $.72 in 2001. On January 1, 2002, Cooper adopted Statement
of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets
("SFAS No. 142"), and no longer amortizes goodwill. See Note 2 of the Notes to
the Consolidated Financial Statements for additional information on the adoption
of SFAS No. 142. Excluding goodwill amortization, second quarter 2001 net income
would have been $80.7 million and diluted earnings per share would have been
$.85.

REVENUES:

Revenues for the second quarter of 2002 were 7% lower than the second
quarter of 2001. Foreign currency translation had only a minor impact on
reported revenues for the quarter.

Second quarter 2002 Electrical Products segment revenues were 4% below
the second quarter of last year. A slightly weaker U.S. dollar had only a minor
impact in reported revenues for the period. Demand increased for hazardous duty
electrical equipment and circuit protection products. However, weakness in the
overall North American economy, driven by continued declines in non-residential
construction and a lack of industrial capital spending resulted in lower sales
of lighting fixtures, wiring devices and support systems compared with the
second quarter of 2001. Demand from utilities was also lower than last year as
lingering economic uncertainty pressured capital spending programs. Demand for
telecommunication products was also weak, but showed continued signs of
stabilizing.

Tools & Hardware segment revenues for the quarter decreased 18% from
the second quarter of 2001. Hand tools and power tools sales were impacted by
weak worldwide demand from general industrial and electronics markets. In
addition, shipments of automotive assembly equipment were lower than last year,
reflecting continuing efforts by automotive companies to control capital
spending. A weakening U.S. dollar increased total Tools & Hardware segment
revenues during the quarter by approximately 1%.

COSTS AND EXPENSES:

Cost of sales, as a percentage of revenues, was 71.6% for the second
quarter of 2002 compared to 69.4% for the comparable 2001 quarter. The increase
in the cost of sales percentage was primarily due to lower absorption of
production costs and inefficiencies resulting from adjusting manufacturing
levels in response to lower demand and efforts to reduce inventories.

Selling and administrative expenses, as a percentage of revenues, for
the second quarter of 2002 were 17.8% compared to 17.3% for the second quarter
of 2001. The increase in the selling and administrative expenses percentage
reflects the impact of lower revenues, partially offset by reduced spending.
Selling and administrative expenses for the current quarter were $8.2 million
lower than the comparable prior year quarter as a result of cost control
programs in 2001 and 2002.

Interest expense, net for the second quarter of 2002 decreased $5.0
million from the 2001 second quarter as a result of both lower average debt
levels and average interest rates.

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SEGMENT OPERATING EARNINGS:

Electrical Products segment second quarter 2002 operating earnings
decreased 4% to $107.9 million from $112.9 million for the same quarter of last
year. Excluding goodwill amortization, Electrical Products segment second
quarter 2001 operating earnings were $125.9 million. The Electrical Products
businesses were impacted by lower overall revenues, competitive pricing
pressures, and lower absorption of production costs as a result of reduced
demand and efforts to decrease inventory.

Tools & Hardware segment operating earnings were $4.0 million for the
2002 second quarter, compared to $21.5 million in the second quarter of 2001.
Excluding goodwill amortization, Tools & Hardware segment second quarter 2001
operating earnings were $23.8 million. The decline in operating earnings
primarily reflect lower revenues from the prior year, and production
inefficiencies related to lower manufacturing levels in response to decreased
demand and efforts to reduce inventory.

INCOME TAXES:

Income taxes decreased as a result of lower taxable income and the
reorganization as discussed in Note 1 of the Notes to the Consolidated Financial
Statements. The effective tax rate was 17.3% for the three months ended June 30,
2002 and 32.7% for the three months ended June 30, 2001, excluding goodwill
amortization. The effective tax rate for the second quarter of 2002 reflects a
required year-to-date adjustment based on an expected annualized effective tax
rate of approximately 24%. See Note 8 of the Notes to the Consolidated Financial
Statements for additional information regarding the effective tax rate.

SIX MONTHS ENDED JUNE 30, 2002 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2001

Net income for the first six months of 2002 was $122.7 million on revenues of
$1,976.2 million compared with 2001 first six months net income of $124.4
million on revenues of $2,168.1 million. Diluted earnings per share for the 2002
six month period were $1.30 compared to $1.32 in 2001. Excluding goodwill
amortization, net income for the first six months of 2001 would have been $149.4
million and diluted earnings per share would have been $1.58.

REVENUES:

Revenues for the first six months of 2002 were 9% below the first six
months of 2001. Foreign currency translation had a negligible impact on reported
revenues for the six month period.

Year-to-date 2002 Electrical Products segment revenues were 7% less
than last year. Weakness in the North American economy affected the markets
served by the Electrical Products segment. A contraction in domestic, industrial
activity, and commercial construction impacted demand across all of the
businesses. Despite some signs of stabilization, the electronics and
telecommunication markets remained weak. An uncertain economic environment for
utility customers reduced sales of electrical distribution equipment.

Tools & Hardware segment revenues for the first six months of 2002 were
17% below the first half of 2001. Worldwide demand was very weak for both hand
tools and power tools used in general industrial and electronics markets.
Shipments of automotive assembly equipment were lower than last year as a result
of reduced capital spending by automotive companies.

COSTS AND EXPENSES:

Cost of sales, as a percentage of revenues, was 71.8% for the first six
months of 2002 compared to 69.8% for the comparable 2001 period. The increase in
the cost of sales percentage was due to lower production levels and the
resulting inefficiencies from adjusting manufacturing capacity and efforts to
reduce inventories.

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Selling and administrative expenses, as a percentage of revenues, for
the first half of 2002 were 18.4% compared to 17.8% for the first half of 2001.
The increase in the selling and administrative expenses percentage reflects the
impact of lower revenues, partially offset by $22.5 million in reduced spending.

Interest expense, net for the first half of 2002 decreased $13.2
million from the 2001 first half primarily as a result of lower average interest
rates, as well as lower average debt balances.

SEGMENT OPERATING EARNINGS:

Electrical Products segment first half 2002 operating earnings were
$199.7 million compared to $215.5 million for the same period of last year.
Excluding goodwill amortization, Electrical Products segment first half 2001
operating earnings were $241.0 million. The reduction from prior year was due to
lower revenues reflective of the overall weakness of the U.S. economy,
competitive market conditions, and lower absorption of production costs as a
result of reduced manufacturing levels, partially offset by decreased selling
and administrative expenses.

Tools & Hardware segment operating earnings were $9.3 million for the
2002 first half, compared to $38.4 million in the first half of 2001. Excluding
goodwill amortization, Tools & Hardware segment first half 2001 operating
earnings were $43.0 million. The lower operating earnings primarily reflect the
impact of reduced revenues from the prior year, an unfavorable mix from less
sales to relatively higher margin industrial and electronic markets and lower
absorption of production costs due to reduced levels of manufacturing, partially
offset by decreased selling and administrative expenses.

INCOME TAXES:

Income taxes decreased primarily as a result of lower taxable income
and the reorganization as discussed in Note 1 of the Notes to the Consolidated
Financial Statements. The effective tax rate was 23.7% for the six months ended
June 30, 2002 and 32.6% for the six months ended June 30, 2001, excluding
goodwill amortization. See Note 8 of the Notes to the Consolidated Financial
Statements for additional information regarding the effective tax rate.

LIQUIDITY AND CAPITAL RESOURCES

Cooper's operating working capital (defined as receivables and
inventories less accounts payable) decreased $10 million during the first half
of 2002. This decrease was primarily related to a reduction in inventories.
Operating working capital turnover for the first half of 2002 was 3.8 turns
compared to 3.9 turns in the same period of 2001, reflecting the impact of lower
shipments.

Cash provided from operating activities was $187 million in the first
half of 2002. These funds were used to fund capital expenditures of $28 million,
dividends of $65 million and shares repurchases of $38 million. During the first
half of 2001, cash provided by operating activities totaled $140 million. These
funds plus cash received of $12 million related to previous acquisitions, were
used to fund capital expenditures of $69 million, dividends of $66 million and
net debt repayments of $33 million.

Cooper is continuing to focus on initiatives to maximize cash flows.
These actions include reduced capital spending, elimination of discretionary
spending and workforce reductions. As a result, Cooper currently anticipates a
continuation of its long-term ability to annually generate approximately $200
million in cash flow available for acquisitions, debt repayment 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

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against these accruals was $3.7 million and $3.7 million during the six months
ended June 30, 2002 and 2001, respectively.

During the fourth quarter of 2001, Cooper recorded a $7.1 million
accrual for severance and other costs associated with the consolidation or
closure of certain Electrical Products segment facilities, of which $5.2 million
would result in future cash expenditures. A total of 77 salaried and 196 hourly
positions will be eliminated in 2002 as a result of these planned consolidation
actions. During the first half of 2002, 213 positions were eliminated and $3.8
million in cash expenditures were incurred. Also during the fourth quarter of
2001 Cooper recorded a provision of $36.0 million for costs associated with the
Company's review of strategic alternatives. Of the $30.0 million remaining to be
expended in 2002, a total of $15.7 million was paid during the first six months.

As of June 30, 2002, Cooper anticipates incurring $2.4 million related
to facility exit costs and disruptions to operations under the 2001 facility
consolidation plan that could not be accrued. A majority of the $2.4 million
relates to operating inefficiencies and training, personnel and inventory
relocation costs which will be required to be expensed as incurred during 2002.

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 39.2% at June 30, 2002, 42.6% at June 30, 2001, and 39.1% at December
31, 2001.

Cooper relies on commercial paper markets as its principal source of
short-term financing. As of June 30, 2002 and December 31, 2001, Cooper's
outstanding commercial paper balance was $104 million and $342 million,
respectively. The weighted average interest rate on these borrowings was 2.33%
and 2.54% at June 30, 2002 and December 31, 2001, respectively.

Cooper's practice is to back up its outstanding commercial paper with a
combination of cash and committed bank credit facilities. As of June 30, 2002,
the balance of these committed bank credit facilities was $825 million, $375
million of which mature on April 30, 2003 and $450 million of which mature on
November 17, 2004. 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 require that Cooper
maintain certain financial ratios, including a prescribed limit on debt as a
percentage of total capitalization and minimum interest coverage. 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.

During 1999, Cooper Ohio completed a shelf registration to issue up to
$500 million of debt securities. At June 30, 2002, $500 million of the shelf
registration was available to be issued.

During June 2002, Cooper Ohio issued $300 million senior unsecured
notes due July 1, 2007 with a 5.25% interest rate. Proceeds from the notes were
used to reduce outstanding commercial paper balances. The notes are fully and
unconditionally guaranteed by Cooper. As of June 30, 2002, there have been no
other significant changes to Cooper's contractual obligations or other
commitments as described in Cooper Ohio's Annual Report on Form 10-K for the
year ended December 31, 2001.

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During 2001, Cooper sold at a premium U.S. Treasury securities due
November 2002. Cooper obtained these securities pursuant to a repurchase
agreement containing provisions that limit Cooper's interest rate exposure under
this agreement to a maximum cost of $7.0 million. During the second quarter of
2002, Cooper realized a $6.0 million cost in connection with this transaction.
The repurchase agreement will be settled immediately prior to the maturity of
the securities. Settlement of this transaction will not require any financing by
Cooper and this transaction does not create an asset or liability, other than as
described above. The face amount of the securities was $1.0 billion.

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:

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 facility
consolidations and cost-reduction programs, the anticipated effective tax rate,
the anticipated debt-to-capitalization ratio, the potential liability exposure
resulting from Federal-Mogul Corporation's bankruptcy filing and any statements
regarding future revenues, earnings, 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
net effects of Cooper's cost reduction programs, the timing of facility
consolidations and the magnitude of any disruption from such consolidations, the
resolution of Federal-Mogul's bankruptcy proceedings, market and economic
conditions, changes in raw material and energy costs, industry competition,
changes in financial markets including foreign currency rate fluctuations and
changing legislation and regulations including changes in tax laws, tax treaties
or tax regulations. The statements also assume, without limitation, no
significant change in competitive conditions and such other risk factors as are
discussed from time to time in Cooper's periodic filings with the Securities and
Exchange Commission. 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.

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.

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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 made a decision
whether to reject the 1998 Agreement, which includes the indemnification to
Cooper. If Federal-Mogul rejects the 1998 Agreement, Cooper will be relieved of
its future obligations under the 1998 Agreement, including specific indemnities
relating to payment of taxes and certain obligations regarding insurance for its
former Automotive Products businesses. To the extent Cooper is obligated to
Pneumo for any asbestos-related claims arising from the Abex product line ("Abex
Claims"), Cooper has rights, confirmed by Pneumo, to significant insurance for
such claims. Based on information provided by representatives of Federal-Mogul
and recent claims experience, from August 28, 1998 through June 30, 2002, a
total of 81,099 Abex Claims were filed, of which 17,782 claims have been
resolved leaving 63,317 Abex Claims pending at June 30, 2002, that are the
responsibility of Federal-Mogul. Since August 28, 1998, the average indemnity
payment for resolved Abex Claims was $912 before insurance. A total of $32.2
million was spent on defense costs for the period August 28, 1998 through June
30, 2002. Historically, existing insurance coverage has provided 50% to 80% of
the total defense and indemnity payments for Abex Claims. 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.

Item 2. Changes in Securities and Use of Proceeds

In connection with the May 22, 2002 reorganization whereby Cooper Ohio
became an indirect subsidiary of Cooper, the Indenture, dated as of January 15,
1990, between Cooper Ohio and The Chase Manhattan Bank (National Association)
(now JPMorgan Chase Bank), as trustee, was amended by the First Supplemental
Indenture, dated as of May 15, 2002, whereby Cooper guaranteed the obligations
of Cooper Ohio under the Indenture, including the Cooper Ohio Second Series
Medium-Term Notes and Third Series Medium-Terms Notes.

Item 4. Submission of Matters to a Vote of Security Holders

The annual meeting of shareholders was held on April 5, 2002 in
Houston, Texas. Two proposals, as described in Cooper's Proxy statement dated
March 5, 2002, were voted upon at the meeting. Following is a brief description
of the matters voted upon and the results of voting.

1. Proposal for the election of four directors for terms expiring in 2005:

2. Proposal relating to social and environmental issues related to
sustainability:

Votes For: 13,179,689
Votes Against: 47,123,107
Abstain: 3,473,049
Non-Vote: 16,070,642

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At a special meeting of the stockholders of Cooper Ohio on May 14,
2002, the holders of Common Stock approved the following:

1. The approval of a corporate restructuring that changed Cooper's place
of incorporation from Ohio to Bermuda:

Votes For: 63,527,747
Votes Against: 5,865,212
Abstain: 548,120
Non-Vote: 23,068,206

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

1. Purchase Agreement dated as of June 17, 2002 among Cooper
Industries, Inc., Cooper Industries, Ltd., and J.P. Morgan
Securities Inc. and Banc of America Securities LLC, as the
representatives of several initial purchasers described therein.

2. Agreement and Plan of Merger among Cooper Industries, Inc.,
Cooper Mergerco, Inc. and Cooper Industries, Ltd. (incorporated
herein by reference to Annex I to Cooper's Registration Statement
No. 333-62740).

3.1 Memorandum of Association of Cooper Industries, Ltd.
(incorporated herein by reference to Annex II to Cooper's
Registration Statement No. 333-62740).

3.2 Amended and Restated Bye-Laws of Cooper Industries, Ltd.
(incorporated herein by reference to Annex III to Cooper's
Registration Statement No. 333-62740).

4.1 Form of Rights Agreement between Cooper Industries, Ltd. and
EquiServe Trust Company, N.A., as Rights Agent (incorporated
herein by reference to Exhibit 4.1 to Cooper's Registration
Statement No. 333-62740).

4.2 Form of Voting Agreement between Cooper Industries, Ltd. and
Cooper Industries, Inc. (incorporated herein by reference to
Exhibit 4.2 to Cooper's Registration Statement No. 333-62740).

4.3 First Supplemental Indenture dated as of May 15, 2002 between
Cooper Industries, Inc. and JP Morgan Chase Bank, as successor
Trustee to The Chase Manhattan Bank (National Association).

4.4 Second Supplemental Indenture dated as of June 21, 2002 among
Cooper Industries, Inc., Cooper Industries, Ltd. and JP Morgan
Chase Bank, as Trustee.

4.5 Registration Rights Agreement dated as of June 21, 2002 among
Cooper Industries, Inc., Cooper Industries, Ltd., and J.P. Morgan
Securities Inc. and Banc of America Securities LLC, as the
representatives of several initial purchasers described therein.

12. Computation of Ratios of Earnings to Fixed Charges for the
Calendar Years 2001 through 1997 and the Six Months Ended June
30, 2002 and 2001.

99.1 Certification of Chief Executive Officer.

99.2 Certification of Chief Financial Officer.

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(b) Reports on Form 8-K

Cooper Ohio filed a report on Form 8-K dated April 23, 2002,
which included a copy of a press release containing Cooper Ohio's
results of operations for the first quarter of 2002 and "Sales
Trends" information posted on Cooper Ohio's website.

Cooper Ohio filed a report on Form 8-K dated May 14, 2002, which
included a copy of a press release announcing the approval by
Cooper Ohio's shareholders of the corporate restructuring that
resulted in changing the place of incorporation from Ohio to
Bermuda.

Cooper Ohio filed a report on Form 8-K dated May 22, 2002, which
included a copy of a press release announcing Cooper Ohio
completed its corporate reorganization by which it changed its
domicile to Bermuda under the name Cooper Industries. Ltd. and
also included "Sales Trends" information posted on Cooper Ohio's
website.

Cooper filed a report on Form 8-K dated June 21, 2002, which
included a copy of a press release announcing Cooper Ohio issued
$300 million of senior unsecured notes due 2007 and also included
"Sales Trends" information posted on Cooper's website.

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

Cooper Industries, Ltd.
-----------------------------------
(Registrant)

Date: August 14, 2002 /s/ D. BRADLEY MCWILLIAMS
- ---------------------- -----------------------------------
D. Bradley McWilliams
Senior Vice President and
Chief Financial Officer

Date: August 14, 2002 /s/ JEFFREY B. LEVOS
- ---------------------- -----------------------------------
Jeffrey B. Levos
Vice President and Controller
and Chief Accounting Officer

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EXHIBIT INDEX

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