Cooper Product Index (CPI) Price Adjustment

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Cooper Power Systems’ business model is based upon long-term commitments to its customers. The Cooper Product Index (CPI) is a price adjustment mechanism Cooper Power Systems (CPS) utilizes on term/blanket contracts to equitably share the risks of commodity volatility. CPS is developing CPI models representing different products and therefore, unique component pricing, component weights and base period effectivity dates. All models share the common goal of reducing the risk to customers during periods of accelerating costs. Due to the nature of the indices they are not intended to cover all market and cost volatility, but rather smooth pricing impact and cost impact for both our customers and Cooper.

All CPI models have the following in common:

  • Cost Savings - CPI models enable CPS to offer our customers competitive price levels on longer contracts sharing both the cost savings with our customers if key components in the index do not increase in cost and also sharing the increased cost over time if the component costs do increase. This method ensures customers do not pay inflated prices as manufacturers attempt to project future cost and build it into the base pricing on long term contracts.
  • Offsetting Price Pressures - CPI models enable components within the respective index or sub-index to offset each other. If some of the components are increasing in cost while others are decreasing the net impact is calculated and applied as the index for the period. CPS retains considerable price risk because the index is calculated with fixed periodicity, is backward looking, and only addresses changes in specific cost components, a fraction of the overall content of our product. Due to these factors, the CPI index, or sub-index, cannot decline below zero.
  • Control Price Volatility - CPI models reduce price volatility through the periodic adjustments. The CPI index is currently updated quarterly. This update includes refreshing the index price values as identified in the “Third Party Indices” section and it includes the potential update for the weight values. CPS reserves the right, at their discretion, to alter the update frequency to accommodate market conditions. In addition, the CPI models do not cover 100% of the market and cost volatility, so an annual base price adjustment may be required to ensure market levels are maintained.
  • Third Party Indices – CPI component values are easily calculated by our customers using the same third party indices CPS utilizes to calculate the updates. The exception to this is the core steel data because there is no traded index for this material. CPS uses core steel data from their Supply Chain department. Due to the confidential nature of this information we are not able to disclose it.
  • Set Publication Dates – Cooper Power Systems publishes the periodic* CPI price adjustment one month prior to the start of a calendar quarter in accordance with the following schedule:
Publication Date Periods Used in Calculation Applied to Shipment;
Start/Stop Date

Mid-March

Base Period - Feb.

April 1 - June 30

Mid-June

Base Period - May

July 1 - Sept. 30

Mid-September

Base Period - Aug.

Oct. 1 - Dec. 31

Mid-December

Base Period - Nov.

Jan. 1 - March 31

Cooper Power Systems reserves the right, at their discretion,
to alter the update frequency to accommodate market conditions.

Cooper Power Systems is committed to ensuring our customers receive complete, accurate and timely responses, this includes information surrounding our pricing indices.  To improve this process and ensure you receive the latest price index data, we are removing the reference to a single price index on our website and replacing this with quarterly direct correspondence to each of you.

Your Cooper Power Systems Inside Sales Rep (ISR) at our Customer Service Center will e-mail you the index charts and tables similar to what we have previously displayed on the website. You will receive this quarterly per the index schedule.

Ensure Cooper Power Systems has your correct contact information for the quarterly updates by contacting your ISR at Cooper Power Systems.

Base Period

The Base Period for the material components and the Energy Index in the CPI–3 model is year-end 2008.

Component Weights

The price adjustment calculation is based upon the percentage content of price for each of the key components. The weighting factors for each product are defined below.

The CPI Calculation: Customer Base Net Price multiplied by (1+CPI Value) = Adjusted Net Price

Example: If customer Base price is $1,000 and the current CPI value is 6.5% the Adjusted Net Price equals $1,065. ($1,000 X 1.065 = $1,065). The incremental price change from the price index is $65.

Weighting Factors (% of Price Content)

Cost Component Distribution Transformers Step Voltage Regulators
Aluminum 5.00% 3.60%
Carbon Steel 4.90% 1.30%
Copper 2.50% 2.30%
Core Steel 23.80% 12.20%
Dielectric Fluid 8.40% 4.90%
Energy Index 7.29% 7.29%
Other Costs 48.11% 68.41%
  100% 100%

Cooper Power Systems is committed to ensuring our customers receive complete, accurate and timely responses, this includes information surrounding our pricing indices.  To improve this process and ensure you receive the latest price index data, we are removing the reference to a single price index on our website and replacing this with quarterly direct correspondence to each of you.

Your Cooper Power Systems Inside Sales Rep (ISR) at our Customer Service Center will e-mail you the index charts and tables similar to what we have previously displayed on the website. You will receive this quarterly per the index schedule.

Ensure Cooper Power Systems has your correct contact information for the quarterly updates by contacting your ISR at Cooper Power Systems.

Base Period

The Base Period for the material components and the Energy Index in the CPI–WE model is year-end 2006.

Component Weights

The price adjustment calculation is based upon the percentage content of price for each of the key components. The weighting factors for each product are defined below.

The CPI Calculation: Customer Base Net Price multiplied by (1+CPI Value) = Adjusted Net Price

Example: If customer Base price is $1,000 and the current CPI value is 6.5% the Adjusted Net Price equals $1,065. ($1,000 X 1.065 = $1,065). The incremental price change from the price index is $65.

Weighting Factors (% of Price Content)

Cost Component Distribution Transformers Step Voltage Regulators
Aluminum 5.00% 3.60%
Carbon Steel 4.90% 1.30%
Copper 2.50% 2.30%
Core Steel 23.80% 12.20%
Dielectric Fluid 8.40% 4.90%
Energy Index 7.29% 7.29%
Other Costs 48.11% 68.41%
  100% 100%

Cooper Power Systems recognizes the need for our customers to feel comfortable the basis for price adjustment is relevant and verifiable to a reasonable extent. Cooper Power Systems has selected primarily third-party sources recognized in this industry as providing reliable information when representing the market prices of material used in Cooper Power Systems’ products.

  • LME Copper: The source data is at http://www.lme.co.uk/dataprices_monthlyaverages.asp. Index is the average "Copper" price per tonne for a "Cash buyer."
  • LME Aluminum: The source data is at http://www.lme.co.uk/dataprices_monthlyaverages.asp. Index is the average "Aluminum" price per tonne for a "Cash buyer."
  • Dielectric Fluid:
    • The source data for mineral oil valuation changed in January 2010.  The former source ceased publication.  Cooper Power Systems Supply Chain department supplied the following industry formula: (West Texas Intermediate Crude (WTI), BBL Price / 42 gallons) + $1.17 = Mineral Oil index value.  The WTI value is the posted monthly value from the Energy Information Administration; http://tonto.eia.doe.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=rwtc&f=M. The percent change value for mineral oil has been restated using this new formula.
    • The source data for Envirotemp™ FR3™ fluid valuation is the Chicago Board of Trade Soybean Oil index. The monthly chart data can be viewed at http://tfc-charts.w2d.com/chart/SO/M
  • AMM Steel: The source data is published by American Metals Market (AMM) on Fridays. The index used within the AMM report is the steel base price for Midwest Hot-Rolled Sheet. The issue dated closest to the end of a month is used to determine the index.
  • Core Steel Index: Due to its uniqueness, Cooper Power Systems uses core steel market price indicators supplied by its supply chain department to create the index data
     
  • Energy Index components

CPS may need to revise, or change, sources or frequency of published indexes based on availability.
CPS reserves the right, at its discretion, to make these changes.

Envirotemp™ and FR3™ are licensed trademarks of Cargill, Incorporated.