Sound Economic Foundation

Cooper Industries – An Industry Leader
Economic health and stability is the bedrock of corporate sustainability. A company cannot support its communities, maintain safe and environmentally sound facilities or offer high quality products if it does not have a solid financial base. Cooper has such a foundation.

Business description and growth initiatives
Cooper is a leading global industrial company participating in two large markets: Electrical Products and Tools & Hardware. We supply a broad range of brand-name products and offer services and solutions to customers in more than 50 countries around the world.

At the beginning of 2003, Cooper launched its Get Connected program, focusing on five key audiences – shareholders, customers, employees, suppliers and the communities where we do business. By leveraging the human capital, unique strengths and commercial leadership inherent in each of our businesses, we increased the value of our corporate franchise for the benefit of each of these constituencies.

Three major goals were established for the year:

• Grow sales
• Improve operating margins
• Generate excess cash.

The Company achieved each of these objectives in 2003.

In addition, during the year, Cooper made significant progress implementing several other key initiatives aimed at producing sustained long-term growth. These included increasing the global reach of our businesses, our Cooper Connection sales and marketing program, our Strategic Sourcing and Manufacturing Variance Improvement Programs, and the implementation of a new Enterprise Business System tying together all of our operations. All of these programs are evolving nicely and are contributing to the Company’s results.

In 2003, Cooper had manufacturing operations in 21 countries, and sales and distribution activities in nearly 100 countries around the world. Of these, the Company had 21 manufacturing sites in China, India, Malaysia and Mexico. Cooper has 27,000 employees worldwide. Revenues generated in 2003 were $4.0 billion; 83 percent came from the Company’s Electrical Products businesses and 17 percent from Cooper’s Tools & Hardware businesses. Sales outside the U.S. accounted for 27 percent of Cooper’s 2003 revenues. Cooper has traditionally pursued growth through a combination of internal growth initiatives, new product development and an active strategy of acquisitions.

Cooper regularly reports on the Company’s financial reporting structure in its Annual Report to Shareholders. Reprinted here is the text of the disclosure contained in Cooper’s 2003 Annual Report:

The Sarbanes-Oxley Act of 2002, the new rules of the U.S. Securities and Exchange Commission (SEC) and related SEC-approved corporate governance listing requirements of the New York Stock Exchange have had a significant impact on the corporate governance, recordkeeping and public disclosure obligations of Cooper and other publicly traded companies. Cooper complies with all sections of the Sarbanes-Oxley Act and the related SEC rules and Stock Exchange requirements that have become effective. The Company also is taking all the necessary steps to comply with those requirements that will become effective later in 2004.

The Sarbanes-Oxley Act requires the Chief Executive Officer and Chief Financial Officer at Cooper and other publicly traded companies to certify the integrity and accuracy of their company’s financial statements. Cooper fully complies with this new rule.

The law also requires Cooper to maintain procedures to provide reasonable assurance that the Company is able to collect, process and disclose the information required in the Company’s quarterly and annual reports, as well as current reports on Form 8-K. The law also requires periodic review and evaluation of these reporting procedures. Here, too, Cooper fully complies with these new regulations.

Cooper’s management continues to hold primary responsibility for the Consolidated Financial Statements and other information included herein and in the Annual Report on Form 10-K and for ascertaining that the data fairly reflects the Company’s financial position, results of operations and cash flows. The Company prepared the Consolidated Financial Statements in accordance with generally accepted accounting principles, and such statements necessarily include amounts that are based on best estimates and judgments, with appropriate consideration given to materiality.

The Company’s system of internal control is designed to provide reasonable assurance that Company assets are safeguarded from loss or unauthorized use or disposition and that transactions are executed in accordance with management’s authorization and are properly recorded to permit the preparation of financial statements in accordance with generally accepted accounting principles. This system is augmented by a careful selection and training of qualified personnel, a proper division of responsibilities and the dissemination of written policies and procedures.

An internal audit program monitors the effectiveness of this control system. The Audit Committee of the Board of Directors, which is comprised solely of independent directors, is responsible for overseeing the Company’s financial reporting process. The Audit Committee meets periodically with management and Cooper’s internal auditors to review the work of each and to monitor the discharge by each of its responsibilities. In 2003, the Vice President, Internal Audit, began reporting directly to the Audit Committee. The Audit Committee also hires independent auditors to help discharge its responsibilities and meets periodically with these independent auditors, who have free access to the Audit Committee and the Board of Directors to discuss the quality and acceptability of the Company’s financial reporting and internal controls. In addition, the Company, acting through the Audit Committee, has implemented a procedure providing for the confidential submission by employees to the Corporate Ethics Committee, with notice to the Audit Committee, of concerns regarding any questionable accounting or auditing matters.

Ernst & Young, LLP, Cooper’s independent auditors, are engaged to express an opinion on the Company’s Consolidated Financial Statements. Their opinion is based on procedures which they believe to be sufficient 20 to provide reasonable assurance that the financial statements contain no material errors.

Cooper’s commitment to transparency in the Company’s financial reporting is only one aspect of the Company’s 171–year tradition of operating in accordance with the highest ethical standards. Cooper strives in all its dealings with investors, customers, suppliers, employees and the communities in which the Company operates to be honest and fair and to comply with all applicable laws. These principles are embodied in the Company’s Code of Ethics and Business Conduct, which is supplemented by specific corporate policies and procedures that provide employees clear guidance on what constitutes proper behavior when acting on behalf of the Company. The Code is distributed to all Cooper employees and is available on Cooper’s Internet site. Certain employees, including all executive employees and employees in key functions such as purchasing, sales, engineering, human resources, finance and accounting, are required to certify periodically that they have not committed violations of the Code and have no conflicts of interest, as defined in the Code.

The Company’s compliance program is managed by the Corporate Ethics Committee, composed of three senior officers of the Company. The Committee interprets the Code, resolves compliance questions and potential conflicts of interest, develops policies and oversees the activities of Corporate Compliance Officers. These officers are appointed for specific compliance areas within the Company. They keep informed of changes in the law and educate employees within their respective areas. During 2003, as in prior years, numerous training sessions were conducted for employees on ethics and legal topics such as antitrust law, environmental compliance, workplace safety, anti-bribery laws, product safety and others.

The Company maintains an Ethics Hotline so that employees who believe that a violation of the Code has been committed can report the suspected violation to the Corporate Ethics Committee. Employees also may report suspected violations in writing to the Company’s Senior Vice President, General Counsel and Chief Compliance Officer. All such reports are confidential. All reported suspected violations are investigated, and appropriate action, including disciplinary action, is taken by the Corporate Ethics Committee. At least annually, the Corporate Ethics Committee provides a written report of all compliance matters to the Audit Committee of the Board of Directors.

We believe Cooper has a comprehensive and effective corporate compliance program.

Terry A. Klebe
Senior Vice President and Chief Financial Officer

Diane K. Schumacher
Senior Vice President, General Counsel and
Chief Compliance Officer

H. John Riley, Jr.
Chairman, President, and Chief Executive Officer