SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 14, 2003
EATON CORPORATION
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(Exact name of registrant as specified in its charter)
Ohio 1-1396 34-0196300
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(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
Eaton Center
Cleveland, Ohio 44114
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(Address of principal executive offices) (Zip Code)
(216) 523-5000
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Registrant's telephone number,
including area code
Item 9. REGULATION FD DISCLOSURE INFORMATION PROVIDED UNDER ITEM 12
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Information required by Item 12 is being provided under this Item 9 pursuant
to SEC interim filing guidance.
On April 14, 2003, Eaton Corporation issued a press release announcing
financial results for the quarter ended March 31, 2003. A copy of this press
release is attached hereto as Exhibit 99.
Signature
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 hereunto duly authorized.
Eaton Corporation
/s/ R. H. Fearon
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R. H. Fearon
Executive Vice President -
Chief Financial and Planning Officer
Date: April 14, 2003
EXHIBIT INDEX
Exhibit No. Description
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99 Press Release of Eaton Corporation dated April 14, 2003
EATON REPORTS FIRST QUARTER NET INCOME OF $1.00
PER SHARE, MORE THAN DOUBLE FIRST QUARTER LAST YEAR
CLEVELAND...Diversified industrial manufacturer Eaton Corporation (NYSE:ETN)
today announced net income per share of $1.00 for the first quarter of 2003, an
increase of 113 percent over net income per share of $.47 in the first quarter
of 2002. Sales in the quarter were $1.92 billion, 12 percent above last year.
Net income was $72 million compared to $33 million in 2002.
Net income in both periods included charges related to restructuring activities.
Before these charges, 2003 first quarter operating earnings per share were 14
percent above 2002, with 2003 operating earnings per share of $1.06 versus $.93
per share in 2002. Operating earnings for the first quarter of 2003 were $77
million versus $66 million in 2002.
Alexander M. Cutler, Eaton chairman and chief executive officer, said, "We are
very pleased with our first quarter results, which were ahead of our
expectations despite flat markets and considerable economic uncertainty. For
the past four quarters, we have experienced growth in revenue and improved
operating margins compared to the same period a year ago.
"Our sales growth in the first quarter of 12 percent compared to last year has
been due to continued growth in excess of our end markets, revenue from the four
acquisitions we completed from November through January, and higher exchange
rates. Approximately 5 percent of the growth came from outgrowing end markets,
another 5 percent from the acquisitions, and 2 percent from higher exchange
rates.
"We concentrated during the first quarter on integrating our recent
acquisitions. Progress has been made in reducing their working capital and
improving their performance, but we are still in the early stages of our
integration process. We anticipate that working capital levels in the acquired
businesses will be reduced significantly by the end of the year.
"During the first quarter, we paid down $9 million of debt, while paying cash of
$221 million to fund the acquisitions of the electrical business of Delta plc
and the power systems business of Commonwealth Sprague Capacitor.
"We now expect our end markets in the first half of 2003 to be slightly weaker
than a year ago. In the second half, assuming current uncertainties related to
the economy are resolved, we expect growth to resume towards year end. As a
result, for the year as a whole, we anticipate little overall growth in our end
markets.
"We anticipate full-year net income per share of $4.50 to $4.75 and second
quarter net income per share of $1.15 to $1.25," said Cutler. "Excluding the
restructuring charges to integrate our four recent acquisitions, we are
maintaining our full-year operating earnings guidance of $5.00 to $5.25 per
share. We anticipate second quarter operating earnings per share will be in the
$1.30 to $1.40 range.
"In late March, Institutional Shareholder Services ranked our corporate
governance practices in the top 2 percent of all United States capital goods
companies. We are pleased that our focus on good corporate governance is being
recognized."
Business Segment Results
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First quarter sales of Eaton's largest business segment, Fluid Power, were $697
million, 17 percent above one year earlier, and excluding the impact of the
Boston Weatherhead and Mechanical Products acquisitions, up 9 percent over the
first quarter of 2002. This compares to a decline of 3 percent in Fluid Power's
markets, with North American fluid power industry shipments down about 2
percent, commercial aerospace markets off 20 percent, and defense aerospace
markets up by 11 percent. Operating profits in the first quarter were $58
million. Operating profits before restructuring charges were $63 million, up
5 percent compared to a year earlier.
"We do not anticipate a recovery in the traditional mobile and industrial
hydraulics markets until late in the year. The construction and agricultural
equipment markets have shown little growth thus far, and are likely to be
restrained until economic uncertainties are resolved," said Cutler. "The
decline in the commercial aerospace market has occurred as we expected.
Military aerospace markets have been strong, largely offsetting the decline in
the commercial markets."
In the Industrial & Commercial Controls segment, first quarter sales were $514
million, up 6 percent from last year. Excluding the impact of the Delta and
Commonwealth Sprague Capacitor acquisitions in 2003 and the divestiture of the
Navy Controls business last year, first quarter sales were flat compared to
2002. Operating profits in the first quarter were $32 million. Operating
profits before restructuring charges were $33 million, up 6 percent from results
one year ago.
"End markets for our electrical business weakened slightly during the first
quarter, with an estimated 1 percent decline in the markets for this business
compared to last year," said Cutler. "We expect that the electrical
distribution equipment market will not begin to recover until the end of 2003.
The residential market in North America has remained strong thus far in 2003.
"We completed the purchase of the electrical division of Delta plc on January
31st, for $215 million," said Cutler. "The Delta business represents a
significant addition to the capabilities and geographic footprint of our
Industrial & Commercial Controls business."
The Automotive segment posted sales of $440 million in the first quarter, 14
percent above the comparable quarter last year. This is a new record for
Eaton's quarterly Automotive segment revenues. NAFTA automotive production
increased 2 percent, while European production was flat, compared to the same
period last year. Operating profits were $62 million, up 9 percent from a year
ago.
"Our Automotive segment continued its strong performance with sales that
considerably outpaced its end markets," said Cutler. "The heavy investments we
have made in new product development over the last several years are continuing
to deliver tangible results as we have been able to maintain the accelerated
pace of new product introductions and gain market share."
The Truck segment posted sales of $274 million in the first quarter, a 7 percent
increase over the comparable period last year, and recorded operating profits of
$22 million, compared to a loss in 2002 of $10 million. The first quarter of
2002 included restructuring charges of $14 million. NAFTA heavy-duty truck
production was up 4 percent and NAFTA medium-duty truck production was up 1
percent. European truck production was up 1 percent and South American
production was up 11 percent versus a year ago.
"First quarter production of NAFTA heavy-duty trucks totaled about 36,000 units.
For the full year, we continue to expect production of heavy-duty trucks in
NAFTA to total approximately 190,000 units," said Cutler. "The positive impact
of our extensive restructuring actions over the last two years can be seen in
the improved profitability over 2002, with profits before restructuring charges
up $18 million on a sales increase of $19 million."
Eaton is a global diversified industrial manufacturer with 2002 sales of $7.2
billion that is a leader in fluid power systems; electrical power quality,
distribution and control; automotive engine air management and fuel economy; and
intelligent truck systems for fuel economy and safety. Eaton has 51,000
employees and sells products in more than 50 countries. For more information,
visit www.eaton.com.
Notice of Conference Call: Eaton's conference call to discuss its first quarter
results is available to all interested parties via live audio webcast today at
10 a.m. EDT on www.eaton.com. This news release can be accessed through the
homepage of www.eaton.com
This news release contains forward-looking statements concerning the second
quarter 2003 and the full year 2003 net income per share and operating earnings
per share, our worldwide markets, expenses of our restructuring programs, and
working capital. These statements are subject to various risks and
uncertainties, many of which are outside the company's control. The following
factors could cause actual results to differ materially from those in the
forward-looking statements: unanticipated changes in the markets for the
company's business segments; failure to implement restructuring plans;
unanticipated downturns in business relationships with customers or their
purchases from us; competitive pressures on sales and pricing; increases in
the cost of material and other production costs, or unexpected costs that cannot
be recouped in product pricing; the introduction of competing technologies;
unexpected technical or marketing difficulties; unexpected claims, charges or
dispute resolutions; and unanticipated further deterioration of economic and
financial conditions in the United States and around the world. We do not
assume any obligation to update these forward-looking statements.
Financial Results
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The company's comparative financial results for the three months ended March 31,
2003 and 2002 follow:
Eaton Corporation
Comparative Financial Summary
Three months ended
March 31
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(Millions except for per share data) 2003 2002
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Net sales $1,925 $1,723
Income before income taxes 99 48
Net income 72 33
Net income per Common Share assuming dilution $ 1.00 $ 0.47
Average number of Common Shares outstanding 72.1 71.2
Net income per Common Share basic $ 1.01 $ 0.48
Average number of Common Shares outstanding 71.1 70.1
Cash dividends paid per Common Share $ 0.44 $ 0.44
Reconciliation of net income to operating earnings
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Net income $ 72 $ 33
Excluding restructuring charges (after-tax) 5 33
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Operating earnings $ 77 $ 66
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Net income per Common Share assuming dilution $ 1.00 $ 0.47
Per share impact of restructuring charges 0.06 0.46
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Operating earnings per Common Share $ 1.06 $ 0.93
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See accompanying notes.
Statements of Consolidated Income
Three months ended
March 31
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(Millions except for per share data) 2003 2002
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Net sales $1,925 $1,723
Costs & expenses
Costs of products sold 1,415 1,286
Selling & administrative 329 310
Research & development 55 55
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1,799 1,651
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Income from operations 126 72
Other income (expense)
Interest expense-net (24) (27)
Other-net (3) 3
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(27) (24)
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Income before income taxes 99 48
Income taxes 27 15
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Net income $ 72 $ 33
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Net income per Common Share assuming dilution $ 1.00 $ 0.47
Average number of Common Shares outstanding 72.1 71.2
Net income per Common Share basic $ 1.01 $ 0.48
Average number of Common Shares outstanding 71.1 70.1
Cash dividends paid per Common Share $ 0.44 $ 0.44
See accompanying notes.
Business Segment Information
Three months ended
March 31
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(Millions) 2003 2002
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Net sales
Fluid Power $ 697 $ 597
Industrial & Commercial Controls 514 486
Automotive 440 385
Truck 274 255
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Total net sales $1,925 $1,723
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Operating profit (loss)
Fluid Power $ 58 $ 43
Industrial & Commercial Controls 32 18
Automotive 62 56
Truck 22 (10)
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174 107
Corporate
Amortization of intangible assets (6) (6)
Interest expense-net (24) (27)
Corporate & other-net (45) (26)
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Income before income taxes 99 48
Income taxes 27 15
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Net income $ 72 $ 33
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See accompanying notes.
Condensed Consolidated Balance Sheets
March 31, Dec.31
(Millions) 2003 2002
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Assets
Current assets
Cash & short-term investments $ 102 $ 428
Accounts receivable 1,231 1,032
Inventories 777 698
Deferred income taxes & other current assets 299 299
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2,409 2,457
Property, plant & equipment-net 2,047 1,955
Goodwill 1,935 1,910
Other intangible assets 505 510
Other assets 366 306
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$7,262 $7,138
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Liabilities & Shareholders' Equity
Current liabilities
Short-term debt & current portion
of long-term debt $ 205 $ 201
Accounts payable 473 488
Accrued compensation 164 199
Accrued income & other taxes 239 225
Other current liabilities 711 621
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1,792 1,734
Long-term debt 1,874 1,887
Postretirement benefits other than pensions 651 652
Deferred income taxes & other liabilities 565 563
Shareholders' equity 2,380 2,302
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$7,262 $7,138
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See accompanying notes.
Eaton Corporation
Notes to the First Quarter 2003 Earnings Release
Dollars in millions, except per share data (per share data assume dilution)
Acquisition of Business
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On January 31, 2003, Eaton acquired the electrical business of Delta plc for
approximately $215. The Delta business has 3,400 employees and is
headquartered in the United Kingdom. The business' major electrical brands
include MEM(R), Holec(TM), Bill(TM), Home Automation(TM), Elek(TM) and
Tabula(TM). The Delta business will be integrated into the Industrial &
Commercial Controls segment.
Restructuring Charges
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In 2003, Eaton incurred restructuring charges related primarily to the
integration of the Boston Weatherhead fluid power business acquired in
November 2002 and the electrical business of Delta plc acquired in January
2003. In 2002, the Company incurred charges to reduce operating costs across
its business segments and certain corporate functions. The charges in 2002
were primarily a continuation of restructuring programs initiated in 2001. A
summary of these charges, and a reconciliation of business segment operating
profit as reported and before restructuring charges, follows:
Three months ended March 31
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Operating profit
before
Restructuring Operating profit restructuring
charges as reported charges
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2003 2002 2003 2002 2003 2002
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Business segment
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Fluid Power $ 5 $ 17 $ 58 $ 43 $ 63 $ 60
Industrial & Commercial Controls 1 13 32 18 33 31
Automotive 1 62 56 62 57
Truck 14 22 (10) 22 4
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6 45 $174 $107 $180 $152
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Corporate 1 4
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Total $ 7 $ 49
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After-tax $ 5 $ 33
Per Common Share .06 .46
The restructuring charges were included in the Statements of Consolidated
Income in Income from Operations. In business segment information, the
operational restructuring charges reduced operating profit of the related
business segment, while the corporate restructuring charges were included in
Corporate & Other-Net.
Reconciliation of Operating Earnings
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This earnings release discloses operating earnings, operating earnings per
Common Share and operating profits before restructuring charges for each
business segment, each of which excludes amounts that make it different from
the most directly comparable measure calculated in accordance with generally
accepted accounting principles (GAAP). A reconciliation of each of these
financial measures to the most directly comparable GAAP measure is included
in this earnings release in the Comparative Financial Summary or in the notes
to the earnings release. Management believes that each of these financial
measures is useful to investors because it excludes transactions that are
unusual due to their nature, size or infrequency, and therefore allows
investors to more easily compare the Company's financial performance period
to period. Management uses this information in monitoring and evaluating the
on-going performance of the Company and each business segment.