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): July 15, 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
Information required by Item 12 is being provided under this Item 9 pursuant to
SEC interim filing guidance.
On July 15, 2003, Eaton Corporation issued a press release announcing financial
results for the quarter ended June 30, 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 top be signed on its behalf by the
undersigned hereunto duly authorized.
Eaton Corporation
/s/ R.H. Fearon
------------------------------------
Executive Vice President -
Chief Financial and Planning Officer
July 15, 2003
EXHIBIT INDEX
Exhibit No. Description
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99 Press Release of Eaton Corporation dated July 15, 2003
EATON REPORTS SECOND QUARTER NET INCOME OF $1.27 PER SHARE AND RAISES DIVIDEND
BY 9 PERCENT
CLEVELAND...Diversified industrial manufacturer Eaton Corporation (NYSE:ETN)
Today announced net income per share of $1.27 for the second quarter of 2003, an
increase of 5 percent over net income per share of $1.21 in the second quarter
of 2002. Sales in the quarter were $2.03 billion, 8 percent above last year. Net
income was $93 million compared to $88 million in 2002.
Net income in both periods included charges related to restructuring activities.
Before these charges, 2003 second quarter operating earnings per share were 10
percent above 2002, with 2003 operating earnings per share of $1.36 versus $1.24
per share in 2002. Operating earnings for the second quarter of 2003 were $99
million compared to $90 million in 2002.
For the first half of 2003, sales were $3.95 billion, 10 percent higher than in
2002. Net income of $165 million increased 36 percent over last year, and net
income per share of $2.27 rose 35 percent above 2002. Excluding restructuring
charges in both periods, operating earnings in the first half of 2003 increased
to $176 million, 13 percent more than in 2002, and operating earnings per share
of $2.42 rose 12 percent compared to last year.
Alexander M. Cutler, Eaton chairman and chief executive officer, said, "We are
very pleased with our second quarter results. Our sales revenue of $2.03 billion
was the highest quarterly sales revenue since the second quarter of 2000.
"The sales growth in the second quarter of 8 percent above last year consisted
of 6 percent from our four recent acquisitions and 2 percent from higher
exchange rates. We continued to outperform our end markets, as we estimate that
our overall end markets declined 5 percent compared to the second quarter last
year.
"We made good progress during the second quarter on integrating our four recent
acquisitions. The profits of the acquired businesses have thus far been modest,
as the real benefits from the restructuring activities will not be seen until
the second half. We continue to make progress in reducing their working capital
and improving their performance, and anticipate that working capital levels in
the acquired businesses will be reduced significantly by the end of the year.
"During the quarter, we issued 3.7 million shares, generating net proceeds of
$296 million. The proceeds have strengthened our balance sheet and will provide
us with the flexibility to pursue growth opportunities that may arise in the
near term.
"For the second half, we do not anticipate any significant growth in our end
markets. As a result, for the year as a whole, we expect our end markets to be
flat to slightly down.
"We anticipate full-year net income per share of $4.50 to $4.75 and third
quarter net income per share of $1.15 to $1.25," said Cutler. "Excluding the
restructuring charges to integrate our recent acquisitions, we are maintaining
our full-year operating earnings guidance of $5.00 to $5.25 per share. We
anticipate third quarter operating earnings per share will be in the $1.30 to
$1.40 range. We are pleased that in spite of end markets which are weaker than
our expectations at the beginning of the year, and the issuance of an additional
3.7 million shares, we are able to maintain our full-year earnings guidance.
"As a result of our continued strong operating performance, we have decided to
increase our quarterly dividend to 48 cents per share, a 9 percent increase over
our current dividend," said Cutler.
Business Segment Results
------------------------
Second quarter sales of Fluid Power, Eaton's largest business segment, posted an
all-time quarterly record of $703 million, 12 percent above one year earlier,
and excluding the impact of the Boston Weatherhead and Mechanical Products
acquisitions, up 4 percent over the second quarter of 2002. This compares to a
decline of 5 percent in Fluid Power's markets, with North American fluid power
industry shipments down about 8 percent, commercial aerospace markets off 18
percent, and defense aerospace markets up by 16 percent. Operating profits in
the second quarter were $63 million. Operating profits before restructuring
charges were $67 million, up 14 percent compared to a year earlier.
"We do not anticipate a recovery in the traditional mobile and industrial
hydraulics markets until next year. The construction and agricultural equipment
markets have shown little growth, despite earlier expectations that they would
post moderate growth in 2003," 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."
During the second quarter, Eaton unveiled the world's first 5000-psi commercial
aircraft hydraulic pump, designed specifically for use on the new Airbus A380.
This new higher pressure technology will provide commercial aircraft with more
powerful hydraulic systems at lower weight.
In the Industrial & Commercial Controls segment, second quarter sales were $575
million, up 11 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, second quarter sales were down 2 percent
compared to 2002. Operating profits in the second quarter were $33 million.
Operating profits before restructuring charges were $39 million, down 11 percent
from results one year ago.
"End markets for our electrical business remained weak during the second
quarter, with an estimated 4 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 2004. The residential market in
North America has remained strong thus far in 2003, but the commercial markets -
particularly the office construction markets - have weakened further.
"The integration of the electrical division of Delta, which we purchased at the
end of January, is proceeding slightly ahead of plan," said Cutler. "The Delta
acquisition reduced the margins for the Industrial and Commercial Controls
segment compared to last year, but we expect stronger profitability from the
Delta business in the second half of this year as our restructuring programs
gain additional traction."
The Automotive segment posted record second quarter sales of $432 million, which
was 3 percent above the comparable quarter last year. NAFTA automotive
production declined 10 percent, while European production was down 6 percent,
compared to the same period last year. Operating profits were $58 million, down
9 percent from a year ago.
"Our Automotive segment continued its strong revenue performance, with sales
that significantly outpaced its end markets," said Cutler. "We also benefited
during the quarter from the strong euro, which added 5 percent to our revenues
for the quarter. Our margins during the quarter were lower than last year,
principally as a result of new programs which have not yet ramped up to their
mature production economics."
Last week, Eaton announced a new licensing arrangement with Lotus Engineering to
commercialize Lotus' Active Valve Train technology. Active Valve Train
technology can be used to substantially reduce emissions and improve fuel
economy.
The Truck segment posted sales of $317 million in the second quarter, up 1
percent compared to last year, and recorded operating profits of $40 million, a
33 percent increase over 2002 operating profits. NAFTA heavy-duty truck
production was down 5 percent and NAFTA medium-duty truck production was up 4
percent. European truck production was down 5 percent and South American
production was flat versus a year ago.
"Second quarter production of NAFTA heavy-duty trucks totaled about 45,000
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 new operating
model we have put in place in our Truck business over the last two years is
working well. The model has enabled the business to adjust to the ramping up
and down of volumes last year, and to this year's ramping up of volumes, without
incurring the inefficiencies and expediting costs we incurred in previous
periods of substantial volume change."
Eaton announced during the second quarter a contract to supply Federal Express
with 20 hybrid electric powertrains for delivery trucks. Compared to the medium-
duty trucks now in use, these vehicles offer significantly lower emissions and
also significantly increased fuel economy. FedEx plans to verify the performance
from the hybrid electric trucks prior to introducing this technology more
broadly into its pick up and delivery fleet, the timing of which could be as
early as the fall of 2004.
Eaton also announced during the quarter that it has been awarded a grant by the
U.S. Department of Energy to develop hybrid propulsion systems for trucks and
other heavy-duty vehicles. The grant will be used to fund additional development
of hybrid technologies over the next three years.
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 systems for fuel economy and safety in trucks. 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 second quarter
results is available to all interested parties via live audio webcast today at
10 a.m. EDT through the Investor Relations tab on Eaton's home page at
www.eaton.com. This news release can be accessed under the Corporate News
heading on the Eaton home page by clicking on the news release.
This news release contains forward-looking statements concerning the third
quarter 2003 and the full year 2003 net income per share and operating earnings
per share, our worldwide markets, expenses of our restructuring programs,
working capital, and the flexibility to pursue growth opportunities. These
statements should be used with caution. They 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; material acquisitions or divestitures; significant costs
from new laws and governmental regulations; 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
The company's comparative financial results for the three months
and six months ended June 30, 2003 and 2002 follow:
Eaton Corporation
Comparative Financial Summary
Three months ended Six months ended
June 30 June 30
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(Millions except for
per share data) 2003 2002 2003 2002
---- ---- ---- ----
Net sales $2,027 $1,881 $3,952 $3,604
Income before income taxes 122 127 221 175
Net income 93 88 165 121
Net income per Common Share
assuming dilution $ 1.27 $ 1.21 $ 2.27 $ 1.68
Average number of Common Shares
outstanding 73.5 72.1 72.9 71.6
Net income per Common Share basic $ 1.29 $ 1.24 $ 2.30 $ 1.71
Average number of Common Shares
outstanding 72.5 70.7 71.9 70.4
Cash dividends paid per Common
Share $ 0.44 $ 0.44 $ 0.88 $ 0.88
Reconciliation of net income to
operating earnings
---------------------------------
Net income $ 93 $ 88 $ 165 $ 121
Excluding restructuring charges
(after-tax) 6 2 11 35
------ ------ ------ ------
Operating earnings $ 99 $ 90 $ 176 $ 156
====== ====== ====== ======
Net income per Common Share
assuming dilution $ 1.27 $ 1.21 $ 2.27 $ 1.68
Per share impact of
restructuring charges 0.09 0.03 0.15 0.49
------ ------ ------ ------
Operating earnings
per Common Share $ 1.36 $ 1.24 $ 2.42 $ 2.17
====== ====== ====== ======
See accompanying notes.
Eaton Corporation
Statements of Consolidated Income
Three months ended Six months ended
June 30 June 30
------------------ ----------------
(Millions except for
per share data) 2003 2002 2003 2002
---- ---- ---- ----
Net sales $2,027 $1,881 $3,952 $3,604
Costs & expenses
Costs of products sold 1,498 1,364 2,913 2,650
Selling & administrative 339 305 668 615
Research & development 56 50 111 105
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1,893 1,719 3,692 3,370
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Income from operations 134 162 260 234
Other income (expense)
Interest expense-net (24) (27) (48) (54)
Other-net 12 (8) 9 (5)
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(12) (35) (39) (59)
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Income before income taxes 122 127 221 175
Income taxes 29 39 56 54
------ ------ ------ ------
Net income $ 93 $ 88 $ 165 $ 121
====== ====== ====== ======
Net income per Common Share
assuming dilution $ 1.27 $ 1.21 $ 2.27 $ 1.68
Average number of Common Shares
outstanding 73.5 72.1 72.9 71.6
Net income per Common Share basic $ 1.29 $ 1.24 $ 2.30 $ 1.71
Average number of Common Shares
outstanding 72.5 70.7 71.9 70.4
Cash dividends paid
per Common Share $ 0.44 $ 0.44 $ 0.88 $ 0.88
See accompanying notes.
Eaton Corporation
Business Segment Information
Three months ended Six months ended
June 30 June 30
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(Millions) 2003 2002 2003 2002
---- ---- ---- ----
Net sales
Fluid Power $ 703 $ 628 $1,400 $1,225
Industrial & Commercial Controls 575 519 1,089 1,005
Automotive 432 419 872 804
Truck 317 315 591 570
------ ------ ------ ------
Total net sales $2,027 $1,881 $3,952 $3,604
====== ====== ====== ======
Operating profit
Fluid Power $ 63 $ 58 $ 121 $ 101
Industrial & Commercial Controls 33 42 65 60
Automotive 58 64 120 120
Truck 40 30 62 20
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194 194 368 301
Corporate
Amortization of intangible assets (7) (5) (13) (11)
Interest expense-net (24) (27) (48) (54)
Corporate expense-net (41) (35) (86) (61)
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Income before income taxes 122 127 221 175
Income taxes 29 39 56 54
------ ------ ------ ------
Net income $ 93 $ 88 $ 165 $ 121
====== ====== ====== ======
See accompanying notes.
Eaton Corporation
Condensed Consolidated Balance Sheets
June 30, Dec. 31,
(Millions) 2003 2002
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Assets
Current assets
Cash $ 87 $ 75
Short-term investments 342 353
Accounts receivable 1,269 1,032
Inventories 753 698
Deferred income taxes & other current assets 295 299
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2,746 2,457
Property, plant & equipment-net 2,071 1,955
Goodwill 1,964 1,910
Other intangible assets 498 510
Other assets 377 306
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$7,656 $7,138
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Liabilities & Shareholders' Equity
Current liabilities
Short-term debt & current portion of long-term
debt $ 53 $ 201
Accounts payable 473 488
Accrued compensation 180 199
Accrued income & other taxes 246 225
Other current liabilities 731 621
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1,683 1,734
Long-term debt 1,913 1,887
Postretirement benefits other than pensions 647 652
Deferred income taxes & other liabilities 607 563
Shareholders' equity 2,806 2,302
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$7,656 $7,138
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See accompanying notes.
Eaton Corporation
Notes to the Second Quarter 2003 Earnings Release
Dollars in millions, except per share data (per share data assume
dilution)
Acquisition of Business
-----------------------
On January 31, 2003, Eaton acquired the electrical business of Delta
plc for approximately $215. The Delta business, which has operations
in Europe and in the Asia Pacific area, 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 is included in the
Industrial & Commercial Controls segment. The allocation of the
purchase price for this acquisition is preliminary and will be
finalized late in 2003.
Restructuring Charges
---------------------
In 2003, Eaton incurred restructuring charges related almost entirely
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 June 30
---------------------------------------------
Operating
Operating profit before
Restructuring profit as restructuring
charges reported charges
------------- ------------- -------------
2003 2002 2003 2002 2003 2002
----- ----- ----- ----- ----- -----
Operational
-----------
Fluid Power $ 4 $ 1 $ 63 $ 58 $ 67 $ 59
Industrial &
Commercial Controls 6 2 33 42 39 44
Automotive - - 58 64 58 64
Truck - - 40 30 40 30
----- ----- ----- ----- ----- -----
Total $ 10 $ 3 $ 194 $ 194 $ 204 $ 197
===== ===== ===== ===== ===== =====
After-tax $ 6 $ 2
Per Common Share 0.09 0.03
Six months ended June 30
---------------------------------------------
Operating
Operating profit before
Restructuring profit as restructuring
charges reported charges
------------- ------------- -------------
2003 2002 2003 2002 2003 2002
----- ----- ----- ----- ----- -----
Operational
-----------
Fluid Power $ 9 $ 18 $ 121 $ 101 $ 130 $ 119
Industrial &
Commercial Controls 7 15 65 60 72 75
Automotive - 1 120 120 120 121
Truck - 14 62 20 62 34
----- ----- ----- ----- ----- -----
16 48 $ 368 $ 301 $ 384 $ 349
===== ===== ===== =====
Corporate 1 4
----- -----
Total $ 17 $ 52
===== =====
After-tax $ 11 $ 35
Per Common Share 0.15 0.49
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 Expense-Net.
Income Taxes
------------
The effective income tax rate for the second quarter of 2003 was 23.4%
and for the first half of 2003 was 25.0% compared to 31.0% for the
same periods in 2002. The lower rates in 2003 reflect many factors,
including lower estimated worldwide income tax obligations.
Sale of Common Shares
---------------------
In June 2003, the Company sold 3.7 million Common Shares for net
proceeds of $296 which were used to pay down commercial paper and for
general corporate purposes.
Reconciliation of Operating Earnings
------------------------------------
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, infrequency, or limited duration 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.