United States
Securities and Exchange Commision
Washington, D.C. 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (Fee required)
For the year ended December 31, 1995
Commission file number 1-1396
Eaton Corporation
- ----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 34-0196300
- ----------------------------------------------------------------
(State of incorporation) (I.R.S. Employer Identification No.)
Eaton Center, Cleveland, Ohio 44114-2584
- ----------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(216) 523-5000
- ----------------------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
- ------------------------------ ---------------------------
Common Shares ($.50 par value) The New York Stock Exchange
The Chicago Stock Exchange
The Pacific Stock Exchange
The London Stock Exchange
7% Debentures, due 2011 The New York Stock Exchange
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 twelve
months and (2) has been subject to such filing requirements for
the past ninety days. Yes X
---
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
---
The aggregate market value of voting stock held by
non-affiliates of the registrant as of January 31, 1996 was $4.5
billion. As of January 31, 1996, there were 77,618,778 Common
Shares outstanding.
<PAGE>
Page 2
Documents Incorporated By Reference
Portions of the Proxy Statement for the 1996 annual shareholders'
meeting are incorporated by reference into Part III.
Part I
Item 1. Business
Eaton Corporation (Eaton or Company), incorporated in 1916, is a
global manufacturer of highly engineered products which serve
vehicle, industrial, construction, commercial and aerospace
markets. Principal products include truck transmissions and
axles, engine components, hydraulic products, electrical power
distribution and control equipment, ion implanters and a wide
variety of controls. The Company had 1995 net sales of $6.8
billion and 52,000 employees.
Effective May 1, 1995, in two separate transactions, the Company
acquired the IKU Group of The Netherlands and the Emwest
electrical switchgear and controls business from Email Ltd. of
Australia for a combined purchase price of $120 million. The
IKU Group is a leading supplier of electric mirror actuators for
automotive manufacturers in the United States, Europe and Korea.
Emwest manufactures and distributes a wide range of electrical
equipment including circuit breakers, panelboards, contactors and
switchgear in the Pacific Region. These two acquisitions had
combined sales of $110 million in 1994. These acquisitions have
been accounted for as purchases and, accordingly, the statements
of consolidated income include the results of their operations
since the effective date of acquisition.
Information regarding principal products, net sales, operating
profit and identifiable assets by business segment and geographic
region is presented under "Business Segment and Geographic Region
Information" on pages 36 to 40 of this report. Additional
information regarding Eaton's business segments and business in
general is presented below.
Vehicle Components
Patents and Trademarks - Eaton owns, controls or is licensed
under many patents related to this business segment. Although
the Company emphasizes the EATON and EATON (logomark) trademark
in marketing many products within this business segment, it also
markets under a number of other trademarks, including CHAR-LYNN,
DILL, FULLER, ROADRANGER and TOP SPEC.
Seasonal Fluctuations - Sales of truck, passenger car and
off-highway vehicle components are generally reduced in the third
quarter of each year as a result of preparations by vehicle
manufacturers for the upcoming model year and temporary shut-
downs for taking physical inventories.
Competition - Principal methods of competition in this business
segment are price, service and product performance. Eaton
<PAGE>
Page 3
occupies a strong competitive position in relation to many
competitors in this business segment and, with respect to many
products, is considered among the market leaders.
Major Customers - Approximately 17% of net sales in 1995 of the
Vehicle Components segment were made to divisions and
subsidiaries of Ford Motor Company. Approximately 43% of net
sales in 1995 of the Vehicle Components segment were made to
divisions and subsidiaries of six other large original equipment
manufacturers of trucks, passenger cars and off-highway vehicles
generally concentrated in North America. Eaton has been
conducting business with each of these companies for many years.
Sales to these companies include a number of different products
and different models or types of the same product, sales of
which are not dependent upon one another. With respect to many
of the products sold, various divisions and subsidiaries of each
of the companies are in the nature of separate customers, and
sales to one division or subsidiary are not dependent upon sales
to other divisions or subsidiaries.
Electrical and Electronic Controls
Patents and Trademarks - Eaton owns, controls or is licensed
under many patents related to this business segment. The EATON,
EATON (logomark), C-H CONTROL, CHALLENGER, COMMANDER, CUTLER-
HAMMER, DOLE, DURANT, HEINEMANN, IKU (and design), LECTRON, L/P
(and design) and PANELMATE trademarks are used in connection
with marketing products included in this business segment. In
addition, the Company has the right to use the WESTINGHOUSE
trademark in marketing certain products until 2004.
Competition - Principal methods of competition in this business
segment are price, geographic coverage, service and product
performance. The number of competitors varies with respect to
the different products. Eaton occupies a strong competitive
position in this business segment and, with respect to many
products, is considered among the market leaders.
Major Customers - Approximately 4% of net sales in 1995 of the
Electrical and Electronic Controls segment were made to divisions
and subsidiaries of Ford Motor Company which is a major customer
of the Vehicle Components segment.
Defense Systems
Patents and Trademarks - Eaton owns, controls or is licensed
under many patents related to this business segment. The AIL
and HYPERMANUAL trademarks are used in connection with marketing
products included in this business segment.
Competition - Principal methods of competition in this business
segment are price, technological capability and product
performance. The number of competitors is limited and varies
with respect to the different technologies.
<PAGE>
Page 4
Major Customers - Substantially all net sales in 1995 of the
Defense Systems segment were made to the United States
Government. All contracts with the United States Government are
subject to termination at the election of the Government.
Information Concerning Eaton's Business in General
Raw Materials - Principal raw materials used are iron, steel,
copper, aluminum, brass, insulating materials, silver, rubber
and plastic. Materials are purchased in various forms, such as
pig iron, metal sheets and strips, forging billets, bar stock
and plastic pellets. Raw materials, as well as parts and other
components, are purchased from many suppliers and under normal
circumstances, the Company has no difficulty obtaining them.
Order Backlog - Since a significant portion of open orders placed
with Eaton by original equipment manufacturers of trucks,
passenger cars and off-highway vehicles are historically subject
to month-to-month releases by customers during each model year,
such orders are not considered technically firm. In measuring
backlog of orders, the Company includes only the amount of such
orders released by such customers as of dates listed. Using this
criterion, total backlog at December 31, 1995 and 1994 (in
billions) was approximately $1.1 and $1.5, respectively. Backlog
should not be relied upon as being indicative of results of
operations for future periods.
Research and Development - Research and development expenses for
new products and improvement of existing products in 1995, 1994
and 1993 (in millions) were $227, $213 and $154, respectively.
Protection of the Environment - Operations of the Company involve
the use and disposal of certain substances regulated under
environmental protection laws. The Company continues to modify,
on an ongoing, regular basis, certain processes in order to
reduce the impact on the environment, including the reduction or
elimination of certain chemicals used in and wastes generated
from operations. Compliance with Federal, State and local
provisions which have been enacted or adopted regulating the
discharge of materials into the environment, or otherwise
relating to the protection of the environment, is not expected to
have a material adverse effect upon earnings or competitive
position of the Company. Eaton's estimated capital expenditures
for environmental control facilities are not expected to be
material for 1996 and 1997. Information regarding the Company's
liabilities related to environmental matters is presented under
"Protection of the Environment" on pages 29 and 30 of this
report.
Item 2. Properties
Eaton's world headquarters is located in Cleveland, Ohio. The
Company maintains manufacturing facilities at 150 locations in 23
countries. The Company is a lessee under a number of operating
leases for certain real properties and equipment. Information
regarding commitments for operating leases is presented under
"Lease Commitments" on page 32 of this report.
<PAGE>
Page 5
Eaton's principal research facilities are located in Southfield,
Michigan, in Milwaukee, Wisconsin, and near Cleveland, Ohio. In
addition, certain divisions conduct research in their own
facilities.
Management believes that the manufacturing facilities are
adequate for operations, and such facilities are maintained in
good condition.
Item 3. Legal Proceedings
None required to be reported.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Part II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
The Company's Common Shares are listed for trading on the New
York, Chicago, Pacific and London stock exchanges. Information
regarding cash dividends paid and high and low market price per
Common Share for each quarter in 1995 and 1994 is presented under
"Quarterly Data" on page 35 of this report. At December 31,
1995, there were 14,102 holders of record of the Company's Common
Shares. Additionally, 21,237 employees were shareholders through
participation in the Company's Share Purchase and Investment
Plan.
Item 6. Selected Financial Data
Information regarding selected financial data is presented under
"Five-Year Consolidated Financial Summary" on page 52 of this
report.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" is included on pages 42 through 51 of this
report.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements, financial review and the
report of independent auditors are presented on pages 14 through
40 of this report.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
<PAGE>
Page 6
Part III
Item 10. Directors and Executive Officers of the Registrant
Information contained on pages 5 through 7 in the definitive
Proxy Statement dated March 18, 1996, with respect to directors,
is incorporated by reference.
A listing of Eaton's officers, their ages and their current
positions and offices, as of January 31, 1996 follows:
Name Age Position (Date elected to position)
- -------------------- --- -------------------------------------
Stephen R. Hardis 60 Chairman and Chief Executive Officer
(January 1, 1996 and September 1,
1995, respectively); Director
Alexander M. Cutler 44 President and Chief Operating Officer
(September 1, 1995); Director
Gerald L. Gherlein 57 Executive Vice President and General
Counsel (September 4, 1991)
Adrian T. Dillon 42 Vice President - Chief Financial and
Planning Officer (September 1, 1995)
Brian R. Bachman 50 Senior Vice President - Semiconductor
and Specialty Systems (January 1,
1996)
Joseph L. Becherer 53 Senior Vice President - Cutler-Hammer
(September 1, 1995)
Robert J. McCloskey 56 Senior Vice President - Controls and
Hydraulics (September 1, 1995)
Thomas W. O'Boyle 53 Senior Vice President - Truck
Components (September 1, 1995)
Larry M. Oman 54 Senior Vice President - Automotive
Components (September 1, 1995)
John M. Carmont 57 Vice President and Treasurer
(December 1, 1981)
Susan J. Cook 48 Vice President - Human Resources
(January 16, 1995)
Patrick X. Donovan 60 Vice President - International (April
27, 1988)
Earl R. Franklin 52 Secretary and Associate General
Counsel (September 1, 1991)
John W. Hushen 60 Vice President - Corporate Affairs
(August 1, 1991)
Stanley V. Jaskolski 57 Vice President - Technical Management
(October 1, 1990)
Ronald L. Leach 61 Vice President - Accounting (December
1, 1981)
William T. Muir 53 Vice President - Manufacturing
Technologies (April 1, 1989)
Derek R. Mumford 54 Vice President - Information
Technologies (April 1, 1992)
Billie K. Rawot 44 Vice President and Controller (March
1, 1991)
All of the officers listed above have served in various
capacities with Eaton over the past five years, except for Susan
J. Cook and Brian R. Bachman. For the four years prior to
joining Eaton, Ms. Cook was Vice President-Human Resources at
<PAGE>
Page 7
Tandem Computers, Inc. Prior to joining Tandem Computers, Inc.
in 1988, Ms. Cook had a seventeen-year career in human resources
at IBM Corporation. Prior to joining Eaton, Mr. Bachman was Vice
President and General Manager for the Standard Products Business
Group of Philips Semiconductor. Early in his career, he was
President of the General Semiconductor Industry Unit of Square D
Corporation.
There are no family relationships among the officers listed, and
there are no arrangements or understandings pursuant to which any
of them were elected as officers. All officers hold office for
one year and until their successors are elected and qualified,
unless otherwise specified by the Board of Directors; provided,
however, that any officer is subject to removal with or without
cause, at any time, by a vote of a majority of the Board of
Directors.
Item 11. Executive Compensation
Information contained on pages 10 through 23 in the definitive
Proxy Statement dated March 18, 1996, with respect to executive
compensation, is incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Information contained on pages 23 to 24 of the definitive Proxy
Statement dated March 18, 1996, with respect to security owner-
ship of certain beneficial owners and management, is incorporated
by reference.
Item 13. Certain Relationships and Related Transactions
Information contained on page 9 of the definitive Proxy Statement
dated March 18, 1996, with respect to certain relationships and
related transactions, is incorporated by reference.
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a) (1) The following consolidated financial statements and
financial review are filed as a separate section of
this report:
Consolidated Balance Sheets - December 31, 1995 and
1994 - Pages 15 and 16
Statements of Consolidated Income - Years ended
December 31, 1995, 1994 and 1993 - Page 17
Statements of Consolidated Cash Flows - Years ended
December 31, 1995, 1994 and 1993 - Page 18
<PAGE>
Page 8
Statements of Consolidated Shareholders' Equity - Years
ended December 31, 1995, 1994 and 1993 - Page 19
Financial Review - Pages 20 through 40
(2a) Summarized financial information for Eaton ETN Offshore
Ltd. on page 41 is filed as a separate section of this
report.
(2b) All schedules for which provision is made in Regulation
S-X of the Securities and Exchange Commission, are not
required under the related instructions or are
inapplicable and, therefore, have been omitted.
(3) Exhibits
3(a) Amended Articles of Incorporation (as amended and
restated May 19, 1994) - Incorporated by
reference to the Form 8-K Report dated May 19,
1994
3(b) Amended Regulations (as amended and restated as
of April 27, 1988) - Incorporated by reference to
the Annual Report on Form 10-K for the year ended
December 31, 1994
4(a) Instruments defining rights of security holders,
including indentures (Pursuant to Regulation S-K
Item 601(b)(4), the Company agrees to furnish to
the Commission, upon request, a copy of the
instruments defining the rights of holders of
long-term debt)
4(b) Eaton Corporation Rights Agreement dated June 28,
1995 - Incorporated by reference to the Form 8-K
Report dated June 28, 1995
10 Material contracts
The following are either a management contract
or a compensatory plan or arrangement:
(a) Deferred Incentive Compensation Plan (as
amended and restated May 1, 1990) -
Incorporated by reference to the Annual
Report on Form 10-K for the year ended
December 31, 1993
(b) Executive Strategic Incentive Plan,
effective as of January 1, 1991 -
Incorporated by reference to the
Annual Report on Form 10-K for the year
ended December 31, 1992
(c) Group Replacement Insurance Plan (GRIP),
effective as of June 1, 1992 - Incorporated
by reference to the Annual Report on Form
10-K for the year ended December 31, 1992
<PAGE>
Page 9
(d) 1991 Stock Option Plan - Incorporated by
reference to the definitive Proxy State-
ment dated March 18, 1991
(e) The following are incorporated by
reference to the definitive Proxy State-
ment dated March 17, 1995:
(i) 1995 Stock Option Plan
(ii) Incentive Compensation Deferral
Plan
(f) The following are incorporated by
reference to the Quarterly Report on
Form 10-Q for the quarter ended June 30,
1990:
(i) Strategic Incentive and Option
Plan (as amended and restated as
of January 1, 1989)
(ii) Limited Eaton Service
Supplemental Retirement Income
Plan (as amended and restated as
of January 1, 1989)
(iii) Amendments to the 1980 and 1986
Stock Option Plans
(iv) Form of "Change in Control"
Agreement entered into with all
officers of Eaton Corporation
(v) Eaton Corporation Supplemental
Benefits Plan (as amended and
restated as of January 1, 1989)
(which provides supplemental
retirement benefits)
(vi) Eaton Corporation Excess Benefits
Plan (as amended and restated as
of January 1, 1989) (with respect
to Section 415 limitations of the
Internal Revenue Code)
(g) The following are incorporated by
reference to the Annual Report on Form
10-K for the year ended December 31,
1990:
(i) Executive Incentive Compensation
Plan
(ii) Plan for the Deferred Payment of
Directors' Fees (as amended and
restated as of January 1, 1989)
(iii) Plan for the Deferred Payment of
Directors' Fees (originally
adopted in 1980 and amended and
restated in 1989)
<PAGE>
Page 10
(iv) Eaton Corporation Retirement Plan
for Non-Employee Directors (as
amended and restated as of January
1, 1989)
11 Statement regarding computations of net income
per Common Share (filed as a separate section
of this report)
21 Subsidiaries of Eaton Corporation (filed as a
separate section of this report)
23 Consent of Independent Auditors (filed as a
separate section of this report)
24 Power of Attorney (filed as a separate section
of this report)
27 Financial Data Schedule (filed as a separate
section of this report)
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the
fourth quarter of 1995.
(c) & (d) Exhibits and Financial Statement Schedules
Certain exhibits required by this portion of Item 14
are filed as a separate section of this report.
<PAGE>
Page 11
Signatures
Pursuant to the requirements of Section 13 or 15(d) 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.
Eaton Corporation
----------------------------
Registrant
Date: March 20, 1996 /s/ Adrian T. Dillon
----------------------------
Adrian T. Dillon
Vice President and Chief
Financial and Planning
Officer; Principal Financial
Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
date indicated.
Date: March 20, 1996
Signature Title
- ----------------------- --------------------------------------
*
- -----------------------
Stephen R. Hardis Chairman and Chief Executive Officer;
Principal Executive Officer; Director
*
- -----------------------
Alexander M. Cutler President and Chief Operating Officer;
Director
/s/ Ronald L. Leach
- -----------------------
Ronald L. Leach Vice President - Accounting; Principal
Accounting Officer
*
- -----------------------
Billie K. Rawot Vice President and Controller
*
- -----------------------
Neil A. Armstrong Director
<PAGE>
Page 12
*
- -----------------------
Phyllis B. Davis Director
*
- -----------------------
Ernie Green Director
*
- -----------------------
Charles E. Hugel Director
*
- -----------------------
John R. Miller Director
*
- -----------------------
Furman C. Moseley Director
*
- -----------------------
Victor A. Pelson Director
*
- -----------------------
A. William Reynolds Director
*
- -----------------------
Gary L. Tooker Director
*By /s/ Adrian T. Dillon
--------------------------------------
Adrian T. Dillon, Attorney-in-Fact
for the officers and directors signing
in the capacities indicated
<PAGE>
Page 13
Eaton Corporation
1995 Annual Report on Form 10-K
Items 6, 7, 8 & Item 14 (c) and (d)
Report of Independent Auditors
Consolidated Financial Statements and Financial Review
Summary Financial Information for Eaton ETN Offshore Ltd.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Five-Year Consolidated Financial Summary
Exhibits
<PAGE>
Page 14
REPORT OF INDEPENDENT AUDITORS
- ------------------------------
To the Shareholders
Eaton Corporation
We have audited the accompanying consolidated balance sheets of
Eaton Corporation and the related consolidated statements of
income, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1995. Our audits
also included the summary financial information of Eaton ETN
Offshore Ltd. listed in Item 14 (a). These financial statements
and summary financial information are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements and summary financial
information based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of Eaton Corporation at December
31, 1995 and 1994, and the consolidated results of its
operations and cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally
accepted accounting principles. Also, in our opinion, the
related summary financial information, when considered in
relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set
forth therein.
Ernst & Young LLP
Cleveland, Ohio
January 22, 1996
<PAGE>
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<TABLE>
Eaton Corporation
<CAPTION>
Consolidated Balance Sheets December 31
------------------
(Millions) 1995 1994
---- ----
<S> <C> <C>
ASSETS
Current assets
Cash $ 56 $ 18
Short-term investments 28 23
Accounts receivable 932 889
Inventories 735 698
Deferred income taxes 150 151
Other current assets 66 67
------ ------
1,967 1,846
Property, plant and equipment
Land 52 50
Buildings 578 539
Machinery and equipment 2,584 2,321
------ ------
3,214 2,910
Accumulated depreciation (1,561) (1,441)
------ ------
1,653 1,469
Excess of cost over net assets of businesses
acquired 895 850
Other assets 538 517
------ ------
$5,053 $4,682
====== ======
The Financial Review on pages 20 to 40 is an integral part of the
consolidated financial statements.
</TABLE>
<PAGE>
Page 16
<TABLE>
Eaton Corporation
<CAPTION>
Consolidated Balance Sheets December 31
------------------
(Millions) 1995 1994
---- ----
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt $ 30 $ 14
Current portion of long-term debt 20 22
Accounts payable 486 449
Accrued compensation 168 163
Accrued income and other taxes 62 60
Other current liabilities 379 394
------ ------
1,145 1,102
Long-term debt 1,084 1,053
Postretirement benefits other than pensions 579 573
Other liabilities 270 274
Shareholders' equity
Common Shares (77.6 in 1995 and 78.0 in 1994) 39 39
Capital in excess of par value 812 806
Retained earnings 1,232 988
Foreign currency translation adjustments (55) (71)
Unallocated Employee Stock Ownership Plan
shares (53) (82)
------ ------
1,975 1,680
------ ------
$5,053 $4,682
====== ======
The Financial Review on pages 20 to 40 is an integral part of the
consolidated financial statements.
</TABLE>
<PAGE>
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<TABLE>
Eaton Corporation
<CAPTION>
Statements of Consolidated Income Year ended December 31
-------------------------------
(Millions except for per share data) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net sales $6,822 $6,052 $4,401
Costs and expenses
Cost of products sold 5,028 4,397 3,284
Selling and administrative 927 890 601
Research and development 227 213 154
Acquisition integration charge 55
------ ------ ------
6,182 5,500 4,094
------ ------ ------
Income from operations 640 552 307
Other income (expense)
Interest expense (86) (83) (65)
Interest income 6 7 8
Other income--net 32 12 12
------ ------ ------
(48) (64) (45)
------ ------ ------
Income before income taxes 592 488 262
Income taxes 193 155 82
------ ------ ------
Income before extraordinary item 399 333 180
Extraordinary item (7)
------ ------ ------
Net income $ 399 $ 333 $ 173
====== ====== ======
Per Common Share
Income before extraordinary item $ 5.13 $ 4.40 $ 2.57
Extraordinary item (.10)
------ ------ ------
Net income $ 5.13 $ 4.40 $ 2.47
====== ====== ======
Cash dividends paid $ 1.50 $ 1.20 $ 1.15
Average number of Common Shares outstanding 77.8 75.6 69.8
The Financial Review on pages 20 to 40 is an integral part of the
consolidated financial statements.
</TABLE>
<PAGE>
Page 18
<TABLE>
Eaton Corporation
<CAPTION>
Statements of Consolidated Cash Flows Year ended December 31
---------------------------
(Millions) 1995 1994 1993
<S> ---- ---- ----
Operating activities <C> <C> <C>
Income before extraordinary item $ 399 $ 333 $ 180
Adjustments to reconcile to net cash provided by
operating activities
Depreciation 238 216 182
Amortization 43 35 14
Acquisition integration charge 55
Deferred income taxes 1 35 (65)
Long-term liabilities 19 40 (6)
Other non-cash items in income 22 37
Changes in operating assets and liabilities,
excluding acquisitions and divestitures of
businesses
Accounts receivable (20) (190) 40
Inventories (30) (115) 12
Other current assets (11) (12) 6
Accounts payable and other accruals (10) 129 29
Accrued income and other taxes (1) 10 (15)
Other--net (3) 4 3
------ ------ ------
Net cash provided by operating activities 647 522 435
Investing activities
Acquisitions of businesses, less cash acquired (143) (1,058) (14)
Divestitures of businesses 11 61
Expenditures for property, plant and equipment (399) (267) (227)
Purchases of short-term investments (10) (7) (108)
Maturities and sales of short-term investments 6 252 22
Other--net 28 9 8
------ ------ ------
Net cash used in investing activities (507) (1,010) (319)
Financing activities
Borrowings with original maturities of more than
three months
Proceeds 368 731
Payments (251) (609) (98)
Borrowings with original maturities of less than
three months--net (73) 173 (14)
Proceeds from sale of Common Shares 252 62
Proceeds from exercise of stock options 11 18 19
Cash dividends paid (117) (91) (83)
Purchase of Common Shares (40)
------ ------ ------
Net cash provided by (used in) financing activities (102) 474 (114)
------ ------ ------
Total increase (decrease) in cash 38 (14) 2
Cash at beginning of year 18 32 30
------ ------ ------
Cash at end of year $ 56 $ 18 $ 32
====== ====== ======
The Financial Review on pages 20 to 40 is an integral part of the
consolidated financial statements.
</TABLE>
<PAGE>
Page 19
<TABLE>
Eaton Corporation
<CAPTION>
Statements of Consolidated Shareholders' Equity
Foreign Total
Common Shares Capital in currency Unallocated share-
---------------- excess of Retained translation ESOP holders'
(Shares in thousands, dollars in millions) Shares Amount par value earnings adjustments shares equity
------ ------ --------- -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1993 34,667 $17 $452 $ 636 $(47) $(110) $ 948
Net income 173 173
Cash dividends paid, net of Employee
Stock Ownership Plan (ESOP) tax benefit (83) (83)
Issuance of shares under employee
benefit plans, including tax benefit 483 22 22
Two-for-one stock split 34,867 18 (18)
Sale of shares 1,287 1 61 62
Reduction of unallocated ESOP shares 14 14
Net foreign currency translation adjustments (31) (31)
------ --- ---- ------ ---- ----- ------
Balance at December 31, 1993 71,304 36 535 708 (78) (96) 1,105
Net income 333 333
Cash dividends paid, net of ESOP tax
benefit (89) (89)
Issuance of shares under employee
benefit plans, including tax benefit 503 21 21
Sale of shares 4,560 2 250 252
Pooling-of-interests with Lectron
Products, Inc. 1,600 1 25 26
Net unrealized gain on available-for-sale
securities 11 11
Reduction of unallocated ESOP shares 14 14
Net foreign currency translation adjustments 7 7
------ --- ---- ------ ---- ----- ------
Balance at December 31, 1994 77,967 39 806 988 (71) (82) 1,680
Net income 399 399
Cash dividends paid, net of ESOP tax
benefit (116) (116)
Issuance of shares under employee
benefit plans, including tax benefit 401 14 (1) 13
Net unrealized loss on available-for-sale
securities (6) (6)
Purchase of shares (766) (8) (32) (40)
Reduction of unallocated ESOP shares 29 29
Net foreign currency translation adjustments 16 16
------ --- ---- ------ ---- ----- ------
77,602 $39 $812 $1,232 $(55) $ (53) $1,975
Balance at December 31, 1995 ====== === ==== ====== ==== ===== ======
The Financial Review on pages 20 to 40 is an integral part of the
consolidated financial statements.
</TABLE>
<PAGE>
Page 20
FINANCIAL REVIEW
- ----------------
ACCOUNTING POLICIES
- -------------------
Consolidation
- -------------
The consolidated financial statements include accounts of the
Company and all majority-owned subsidiaries. The equity method
of accounting is used for investments where the Company has a
20% to 50% ownership interest.
Foreign Currency Translation
- ----------------------------
The functional currency for principally all subsidiaries outside
the United States is the local currency. Financial statements
for these subsidiaries are translated into United States dollars
at year-end exchange rates as to assets and liabilities and
weighted average exchange rates as to revenues and expenses.
The resulting translation adjustments are recorded in
shareholders' equity.
Short-Term Investments
- ----------------------
Short-term investments are not considered to be cash equivalents
for purposes of classification in the statements of consolidated
cash flows.
Inventories
- -----------
Inventories are carried at lower of cost or market. Inventories
in the United States are generally accounted for using the
last-in, first-out (LIFO) method. The remaining United States
and all other inventories are accounted for using the first-in,
first-out (FIFO) method.
Depreciation and Amortization
- -----------------------------
Depreciation and amortization are computed by the straight-line
method for financial statement purposes. The cost of buildings
is depreciated over forty years and machinery and equipment
principally over three to ten years. Identified intangible
assets primarily consist of patents, trademarks and tradenames,
which are amortized over an average life of sixteen years.
Excess of cost over net assets of businesses acquired is
amortized principally over forty years (accumulated amortization
in millions was $129 and $102 at the end of 1995 and 1994,
respectively).
Excess of cost over net assets of businesses acquired and
certain other long-lived assets are assessed for impairment when
operating profit from the related business indicates the
carrying amount may not be recoverable. In March 1995,
Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," was issued. SFAS No. 121
requires long-lived assets to be reviewed for impairment losses
whenever events or changes in circumstances indicate the
<PAGE>
Page 21
carrying amount may not be recovered through future net cash
flows generated by the assets. The Company must adopt SFAS No.
121 in 1996 and believes the effect of adoption will not be
material.
Financial Instruments
- ---------------------
The Company uses straightforward, nonleveraged financial
instruments, including foreign currency forward exchange
contracts and options and interest rate swaps and caps, as part
of foreign exchange and interest rate risk management programs.
The Company does not buy and sell financial instruments solely
for the purpose of earning a profit due to changes in the market
price of the instruments, except for nominal amounts authorized
under limited, controlled circumstances. Counterparties to
various financial instruments are major international financial
institutions. While the Company may be exposed to credit losses
in the event of nonperformance by these counterparties, no
losses are anticipated due to control over the limit of
positions entered into with any one party and the strong credit
ratings of these institutions. The effect of financial
instruments on the Company's financial condition and results of
operations is not material.
The Company and its subsidiaries, operating in Canada, Europe,
Latin America and the Pacific Region, are exposed to
fluctuations in foreign currencies in the normal course of
business. The Company seeks to reduce exposure to foreign
currency fluctuations, primarily the European and Canadian
currencies, through the use of foreign currency forward exchange
contracts and options. Gains or losses on those financial
instruments which hedge net investments in subsidiaries outside
the United States are recorded in shareholders' equity. Gains
or losses on those financial instruments which hedge specific
transactions are recognized in net income, offsetting the
underlying foreign currency transaction gains or losses.
Premiums and discounts related to these financial instruments
are amortized to other income--net over the lives of the
agreements.
In the normal course of business, the Company's operations are
also exposed to fluctuations in interest rates. The Company
seeks to reduce the cost of and exposure to interest rate
fluctuations through the use of interest rate swaps and caps.
Gains or losses on interest rate swaps are included in interest
expense since they hedge interest on debt. Premiums related to
interest rate caps are amortized to interest expense over the
lives of the agreements.
Options for Common Shares
- -------------------------
The Company applies the intrinsic value based method to account
for options granted to employees and directors to purchase
Common Shares. No compensation expense is recognized on the
grant date since at that date the option price equals the market
price of the underlying Common Shares.
Net Income Per Common Share
- ---------------------------
Net income per Common Share is computed by dividing net income
by the average month-end number of shares outstanding during
each period. The dilutive effect of common stock equivalents,
comprised solely of options for Common Shares, is not material.
<PAGE>
Page 22
Estimates
- ---------
Preparation of financial statements in conformity with generally
accepted accounting principles requires management to make
estimates and assumptions in certain circumstances that affect
amounts reported in the accompanying consolidated financial
statements and notes. Actual results could differ from these
estimates.
Financial Presentation Changes
- ------------------------------
Certain amounts for prior years have been reclassified to
conform to the current year presentation.
ACQUISITIONS AND DIVESTITURES OF BUSINESSES
- -------------------------------------------
On January 31, 1994, the Company acquired the Distribution and
Control Business Unit (DCBU) of Westinghouse Electric
Corporation for $1.050 billion. DCBU, a leading North American
manufacturer of electrical distribution equipment and industrial
controls, had sales of $1.1 billion in 1993. The acquisition
was accounted for as a purchase and, accordingly, the statements
of consolidated income include the results of DCBU beginning
February 1, 1994. The assets acquired and liabilities assumed
in the acquisition follow (in millions):
Fair value of assets acquired including
identified intangible assets of $95 $ 742
Liabilities assumed (298)
Excess of cost over net assets acquired 606
------
Purchase price, net of cash acquired $1,050
======
In December 1993, in conjunction with the acquisition of DCBU,
the Company recorded a $55 million acquisition integration
charge ($34 million after income tax credits, or $.49 per Common
Share). The charge addressed the costs of integrating existing
product lines and manufacturing operations with DCBU, related
workforce reductions and a $9 million write-down of assets,
largely in the United States. To date, expenditures and charges
total $39 million with the remaining $16 million expected to
occur primarily over the next two years.
On November 16, 1994, the Company acquired the common stock of
Lectron Products, Inc. (Lectron) through the issuance of 1.6
million Common Shares. Lectron, a privately-held manufacturer
of electronic and precision electromechanical controls for
automotive manufacturers, had sales of $128 million in 1994.
This acquisition was accounted for as a pooling-of-interests.
Financial statements for periods prior to the acquisition were
not restated for the acquisition since the effect was not
material.
<PAGE>
Page 23
Effective May 1, 1995, in two separate transactions, the Company
acquired the IKU Group of The Netherlands and the Emwest
electrical switchgear and controls business from Email Ltd. of
Australia for a combined purchase price of $120 million. The
IKU Group is a leading supplier of electric mirror actuators for
automotive manufacturers in the United States, Europe and Korea.
Emwest manufactures and distributes a wide range of electrical
equipment including circuit breakers, panelboards, contactors
and switchgear in the Pacific Region. These two acquisitions
had combined sales of $110 million in 1994. These acquisitions
have been accounted for as purchases and, accordingly, the
statements of consolidated income include the results of their
operations since the effective date of acquisition.
During 1994, in conjunction with the acquisition of DCBU, the
Company sold certain DCBU operations to Thomas & Betts
Corporation (T&B) in exchange for cash aggregating $61 million
and $14 million of T&B common stock. These divestitures
resulted in no gain or loss.
During 1995, 1994 and 1993, the Company also acquired and
divested other smaller operations.
EXTRAORDINARY ITEM
- ------------------
During 1993, the Company called for redemption $74 million of 9%
debentures and $89 million of 8.5% debentures. The
extraordinary loss on these redemptions, including the write-off
of unamortized debt issuance costs, was $11 million ($7 million
after income tax credits, or $.10 per Common Share).
ACCOUNTS RECEIVABLE AND INVENTORIES
- -----------------------------------
Accounts receivable are net of an allowance for doubtful
accounts (in millions) of $15 and $14 at the end of 1995 and
1994, respectively.
The components of inventories at December 31 follow (in
millions):
1995 1994
---- ----
Raw materials $225 $213
Work in process 369 358
Finished goods 235 216
---- ----
Gross inventories at FIFO 829 787
Excess of current cost over LIFO cost (94) (89)
---- ----
Net inventories $735 $698
==== ====
Gross inventories accounted for using the LIFO method (in
millions) were $328 and $367 at the end of 1995 and 1994,
respectively.
<PAGE>
Page 24
INVESTMENT IN LIFE INSURANCE
- ----------------------------
The Company has company-owned life insurance policies insuring
the lives of a portion of active United States employees. The
policies accumulate asset values to meet future liabilities
including the payment of employee benefits such as health care.
At December 31, 1995 and 1994, the investment in the policies
included in other assets (in millions) was $10, net of policy
loans of $348 and $226, respectively. Net life insurance
expense (in millions) of $7 in 1995, $5 in 1994 and $2 in 1993,
including interest expense of $27, $15 and $4 in 1995, 1994 and
1993, respectively, was included in selling and administrative
expense.
DEBT AND OTHER FINANCIAL INSTRUMENTS
- ------------------------------------
The Company's subsidiaries outside the United States have lines
of credit, primarily short-term, aggregating $109 million from
various banks worldwide. At December 31, 1995, the Company had
$34 million outstanding under these lines of credit. The
weighted average interest rate on short-term debt, excluding
immaterial amounts for highly inflationary countries, at
December 31, 1995 and 1994 was 6.3% and 6.8%, respectively.
Long-term debt at December 31, excluding the current portion,
follows (in millions):
1995 1994
---- ----
Notes of Employee Stock Ownership
Plan due through 1999 $ 39 $ 66
6-3/8% notes due 1999 100 100
9% notes due 2001 100 100
8% debentures due 2006 (due 1996 at
option of debenture holders) 86 86
8.9% debentures due 2006 100 100
7% debentures due 2011, net of unamor-
tized discount of $92 million in 1995
and $93 million in 1994 (effective
interest rate 14.6%) 108 107
8-7/8% debentures due 2019 (due 2004 at
option of debenture holders) 38 38
8.1% debentures due 2022 100 100
7-5/8% debentures due 2024 100 100
6-1/2% debentures due 2025 (due 2005 at
option of debenture holders) 150
Unsecured notes (5.6% to 6.1%) 142 210
Other 21 46
------ ------
$1,084 $1,053
====== ======
The Company has a $500 million revolving credit agreement, which
expires in 2000, to provide funds for working capital and
general corporate purposes. The 8% debentures and unsecured
notes are classified as long-term debt because the Company
intends, and has the ability under the revolving credit agree-
ment, to refinance these debts on a long-term basis.
<PAGE>
Page 25
Notes of the Employee Stock Ownership Plan, which are guaranteed
by the Company, consist of $32 million at a floating interest
rate (4.5% at December 31, 1995) based on LIBOR and $21 million
at a fixed interest rate of 7.6% ($14 million of these notes are
included in current portion of long-term debt). The Company has
entered into a series of interest rate swaps, which expire
ratably through 1999, and which change the interest rate on the
$21 million of fixed interest rate notes to fixed interest rates
of 7.1% and 6.9% as to $6 million and $13 million, respectively,
and to a floating interest rate (4.6% at December 31, 1995)
based on LIBOR as to $2 million.
In March 1995, the Company entered into an agreement that
expires in 1998 which effectively converts $75 million of United
States dollar fixed rate debt into Japanese Yen denominated
debt. Interest is payable at 3.2% as to $50 million of debt and
at a floating interest rate (0.9% at December 31, 1995) based on
Yen LIBOR as to $25 million. In September 1995, the Company
entered into agreements that expire in 1998 which fix the
exchange rate on $50 million of the $75 million principal
payment. In January 1996, the Company entered into an agreement
that expires in 1998 which fixes the exchange rate on the
remaining $25 million principal payment. The initial agreement
was designated as a hedge of the Company's net investments in
affiliated companies.
In June 1995, the Company entered into an agreement that expires
in 1999 which effectively converts $40 million of United States
dollar fixed rate debt into Dutch Guilder denominated debt with
a fixed interest rate of 6.5%. This agreement has been
designated as a hedge of the Company's net investment in a
Netherlands subsidiary.
The Company has two interest rate swaps aggregating $50 million
that expire in 2000 which partially offset the effect of a $100
million 9% interest rate swap also expiring in 2000. The net
effect of these swaps at December 31, 1995 is to convert $50
million of floating rate debt to fixed rate debt at 9% and
another $50 million of floating rate debt to LIBOR plus 3.1%.
In 1994, the Company terminated, and settled for cash, interest
rate swap agreements with notional amounts totaling $200 million
which hedged the issuance of the 6-3/8% notes and 7-5/8%
debentures. The gain on the termination of the interest rate
swap agreements is being amortized to interest expense over the
life of the notes and debentures and effectively reduces the
annual rate of the notes to 4.8% and the debentures to 7.1%.
Aggregate mandatory sinking fund requirements and annual
maturities of long-term debt are as follows (in millions): 1996,
$20; 1997, $20; 1998, $12; 1999, $107; and 2000, $143. The
amount for 1999 includes the maturity of the $100 million 6-3/8%
notes. The amount for 2000 includes $142 million of unsecured
notes due to the expiration of the five-year revolving credit
agreement in 2000.
Interest capitalized as part of acquisition or construction of
major fixed assets (in millions) was $10 in 1995 and 1994, and
$12 in 1993. Interest paid (in millions) was $96, $93 and $83
in 1995, 1994 and 1993, respectively.
<PAGE>
Page 26
<TABLE>
Financial instruments outstanding at December 31 are as follows
(in millions):
<CAPTION>
1995 1994
--------------------------- ---------------------------
Notional Carrying Fair Notional Carrying Fair
amount amount value amount amount value
-------- -------- ----- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Cash and short-term
investments $ 84 $ 84 $ 41 $ 41
Marketable equity
investments 42 42 51 51
Marketable debt securities 19 19 26 26
Short-term debt (30) (30) (14) (14)
Long-term debt, current
portion of long-term
debt and foreign
currency principal swaps (1,104) (1,290) (1,075) (1,114)
Foreign currency forward
exchange contracts and
options $150 (2) (4) $189 1 (1)
Interest rate swaps
Fixed to floating 96 1 5 76 (5)
Floating to fixed 120 (1) (16) 123 (1) (4)
Fixed to fixed 90 1 4
Interest rate caps
Purchased 100 2
Sold (100) (2)
</TABLE>
The fair values of short-term investments, marketable equity
investments and debt securities, short-term and long-term debt,
and interest rate swaps and caps are principally based on quoted
market prices. The fair value of foreign currency forward
exchange contracts and options, which primarily mature in 1996,
and foreign currency principal and interest rate swaps are
estimated based on quoted market prices of comparable contracts,
adjusted through interpolation where necessary for maturity
differences.
PENSION PLANS
- -------------
The Company has non-contributory defined benefit pension plans
covering the majority of employees. Plans covering salaried and
certain hourly employees provide benefits that are generally
based on years of service and final average compensation.
Benefits for other hourly employees are generally based on years
of service. Company policy is to fund at least the minimum
amount required by applicable regulations. In the event of a
change in control of the Company, excess pension plan assets of
North American operations may be dedicated to funding of health
and welfare benefits for employees and retirees.
<PAGE>
Page 27
The components of pension expense for the years ended December
31 follow (in millions):
1995 1994 1993
---- ---- ----
Service cost - benefits earned
during year $ (51) $(55) $(42)
Interest cost on projected
benefit obligation (104) (94) (97)
Actual return on assets 347 36 155
Net amortization and deferral (208) 99 (17)
----- ---- ----
$ (16) $(14) $ (1)
===== ==== ====
As a result of the DCBU acquisition, pension expense increased
by $7 million in 1994.
<TABLE>
The pension asset (liability), by funded status of the plan,
recognized in the balance sheet at December 31 follows (in
millions):
<CAPTION>
1995 1994
--------------- ---------------
Over- Under- Over- Under-
funded funded funded funded
------ ------ ------ ------
<S> <C> <C> <C> <C>
Accumulated pension benefit
obligation
Vested $1,059 $ 218 $ 950 $ 147
Nonvested 64 29 62 8
------ ------ ------ ------
1,123 247 1,012 155
Value of future salary
projections 132 10 135 10
------ ------ ------ ------
Total projected pension benefit
obligation 1,255 257 1,147 165
Fair value of plan assets 1,535 146 1,370 70
------ ------ ------ ------
Plan assets in excess of or
(less than) projected benefit
obligation 280 (111) 223 (95)
Unamortized
Initial net (asset) obligation (34) 10 (40) 7
Net gain (180) (6) (125) (3)
Prior service cost 11 18 10 15
Adjustment to recognize minimum
liability (12) (12)
------ ------ ------ ------
$ 77 $ (101) $ 68 $ (88)
====== ====== ====== ======
</TABLE>
<PAGE>
Page 28
Actuarial assumptions used in the calculation of the pension
asset (liability) are as follows:
1995 1994 1993
---- ---- ----
Discount rate 7.25% 8.50% 7.25%
Compensation growth rate 4.70% 5.95% 4.95%
Long-term rate of return on
plan assets 9.50% 10% 10%
Plan assets are invested in equity and fixed income securities
and other instruments. Underfunded plans are associated
principally with operations outside the United States. The
change in the discount rate to 7.25% at the end of 1995 had the
effect of increasing the accumulated pension benefit obligation
by $127 million with an offsetting increase in the unamortized
net gain. This change will not have a material effect on future
expense.
POSTRETIREMENT BENEFIT PLANS OTHER THAN PENSIONS
- ------------------------------------------------
Generally, United States employees become eligible for
postretirement benefits other than pensions, primarily health
care and life insurance, upon retirement. These benefits are
payable for life, although the Company retains the right to
modify or terminate the plans providing these benefits. The
plans are contributory, with retiree contributions adjusted
annually, and contain other cost-sharing features, including
deductibles and co-payments. Certain plans limit the annual
amount of the Company's future contributions towards employees'
postretirement health care benefits. Company policy is to pay
claims as they are incurred since, unlike pensions, there is no
effective method to obtain a tax deduction for prefunding of
these benefits under existing United States income tax
regulations.
Expense for postretirement benefits other than pensions for the
years ended December 31 follows (in millions):
1995 1994 1993
---- ---- ----
Service cost - benefits earned
during year $(12) $(13) $ (7)
Interest cost on projected
benefit obligation (49) (43) (37)
Net amortization and deferral 8 5 9
---- ---- ----
$(53) $(51) $(35)
==== ==== ====
As a result of the DCBU acquisition, the expense for
postretirement benefits other than pensions increased by $6
million in 1994.
<PAGE>
Page 29
The liability for postretirement benefit plans other than
pensions recognized in the balance sheet at December 31 follows
(in millions):
1995 1994
---- ----
Accumulated postretirement benefit
obligation
Retirees $442 $382
Eligible plan participants 55 44
Non-eligible plan participants 180 177
Unamortized
Prior service cost 61 67
Net loss (125) (62)
---- ----
$613 $608
==== ====
Actuarial assumptions used in the calculation of the liability
for postretirement benefits other than pensions are as follows:
1995 1994 1993
---- ---- ----
Discount rate 7.25% 8.50% 7.25%
Projected health care cost trend rate 10% 11% 12%
Ultimate trend rate 5% 6.25% 5%
Year ultimate trend rate is achieved 2001 2000 2000
The changes in assumed rates had the effect of increasing the
accumulated postretirement benefit obligation (APBO) by $33
million with an offsetting increase in the unamortized net loss.
These changes will have an immaterial effect on future expense.
An increase of 1% in assumed health care cost trend rates would
increase the APBO as of December 31, 1995 by $50 million and the
net periodic cost for 1995 by $4 million.
PROTECTION OF THE ENVIRONMENT
- -----------------------------
The Company has been named a potentially responsible party (PRP)
under the Federal Superfund or similar state laws at a number of
waste disposal sites. Although these laws technically impose
joint and several liability upon each PRP at each site, the
extent of the Company's required financial contribution to the
cleanup of these sites is expected to be limited based on the
number and financial strength of the other named PRP's and the
volume and types of waste involved which might be attributable
to the Company. The Company is also involved in remedial
response and voluntary environmental cleanup expenditures at a
number of other sites which are not the subject of any Superfund
law proceeding, including certain currently-owned or
formerly-owned plants.
Environmental and related remediation costs are difficult to
quantify for a number of reasons including the numbers of
parties involved at many sites, the difficulty in determining
the extent of the contamination, the length of time remediation
may require, the complexity of environmental regulation and the
continuing advancement of remediation technology. The Company's
<PAGE>
Page 30
environmental engineers, consultants and legal counsel have
developed estimates for this purpose based upon cost analyses
for each site. The Company accrues for these costs when it is
probable that a liability has been incurred and the amount can
be reasonably estimated. At December 31, 1995 and 1994, the
balance sheet included an accrual for these costs (in millions)
of approximately $38 and $48, respectively. Management
estimates that these costs may range up to approximately $70
million and that such costs would be incurred over a period of
several years. The Company has rights of recovery from
non-affiliated parties as to a portion of these costs with
regard to several of these sites. These estimates are forward
looking statements and given the inherent uncertainties in
evaluating environmental exposures, actual results can differ
from these estimates.
Based upon the Company's analyses and subject to the difficulty
in estimating these future costs, the Company expects that any
sum it may be required to pay in connection with environmental
matters is not reasonably likely to exceed the amounts recorded
or disclosed in an amount which would have a material adverse
effect on financial condition, results of operations or
liquidity.
SHAREHOLDERS' EQUITY
- --------------------
There are 300 million Common Shares authorized. At the end of
1995, there were 605,000 Common Shares held in treasury and 10
million Common Shares were reserved for exercise and grant of
stock options. At the end of 1995, there were 14,102 holders of
record of Common Shares. Additionally, 21,237 employees were
shareholders through participation in the Share Purchase and
Investment Plan.
In private placements, the Company sold 1.3 million Common
Shares in December 1993 for aggregate net proceeds of $62
million, and sold an additional 800,000 Common Shares in January
1994 for aggregate net proceeds of $38 million. The proceeds
from these private placements were used primarily to fund the
redemption in January 1994 of $89 million of 8.5% debentures.
In March 1994, in order to partially refinance the acquisition
of DCBU, the Company sold 3.8 million Common Shares to the
public for aggregate net proceeds of $214 million.
In November 1994, the Company issued 1.6 million Common Shares
in a pooling-of-interests with Lectron Products, Inc.
Stock options have been granted to certain employees and
directors, under various plans, to purchase the Company's Common
Shares at prices equal to fair market value as of date of grant.
These options expire ten years from date of grant. A summary of
stock option activity follows:
<PAGE>
Page 31
<TABLE>
<CAPTION>
1995 1994
------------------- -------------------
Average Average
price price
per per
share Shares share Shares
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Outstanding, January 1 $37.94 3,999,159 $31.53 3,433,850
Granted 48.60 1,080,570 57.71 959,390
Exercised 28.94 (424,409) 28.12 (348,720)
Canceled 50.58 (49,053) 46.42 (45,361)
--------- ---------
Outstanding, December 31 $41.12 4,606,267 $37.94 3,999,159
========= =========
Shares exercisable
January 1 2,839,095 2,401,683
December 31 3,296,346 2,839,095
Shares reserved for future grants
January 1 1,218,477 2,133,630
December 31 5,179,390 1,218,477
</TABLE>
The Company sponsors a Share Purchase and Investment Plan (SPIP)
for United States operations under which eligible participating
employees may choose to contribute up to 15% of their base pay
to the SPIP. The Company matches employee contributions up to
6% of a participant's base pay as limited by United States
income tax regulations. The matching contribution ranges from
25% to 100% of a participant's contribution and is invested in
the Company's Common Shares. The matching contribution
percentage is determined each quarter, based on net income per
Common Share.
In 1989, the Company prefunded, through 1999, a portion of
anticipated matching contributions to the SPIP by creating an
Employee Stock Ownership Plan (ESOP) under the SPIP and selling
5 million Common Shares for $150 million to the ESOP. The
shares held by the ESOP have not yet been allocated to employee
accounts and are included in shareholders' equity as
"Unallocated ESOP Shares" and the notes payable of the ESOP are
included in long-term debt. Shares in the ESOP are released at
historical cost and allocated to employee accounts based on the
ratio of the annual principal payment on the notes payable
compared to the original principal amount of the notes payable.
Cash dividends paid on shares in the ESOP are charged against
retained earnings and, along with Company contributions, are
used to repay the principal and interest due on the notes
payable. ESOP shares are considered as outstanding for purposes
of computing net income per Common Share. Shares in the ESOP at
the end of 1995 and 1994 (in millions) were 1.9 and 2.7,
respectively. Compensation expense related to the SPIP match,
including the effect of shares released by the ESOP at
historical cost, (in millions) was $17 in 1995, $15 in 1994 and
$11 in 1993.
<PAGE>
Page 32
PREFERRED SHARE PURCHASE RIGHTS
- -------------------------------
In June 1995, the Company declared a dividend of one Preferred
Share Purchase Right (Right) for each outstanding Common Share.
The dividend was paid on July 12, 1995 to shareholders of record
on that date. The Rights become exercisable only if a person or
group acquires, or offers to acquire, 20% or more of the
Company's Common Shares. The Company is authorized to reduce
the 20% threshold for triggering the Rights to not less than
10%. The Rights expire on July 12, 2005, unless redeemed
earlier at one cent per Right.
When the Rights become exercisable, the holder of each Right,
other than the acquiring person, is entitled (1) to purchase for
$250, one one-hundredth of a Series C Preferred Share (Preferred
Share), (2) to purchase for $250, that number of the Company's
Common Shares or common stock of the acquiring person having a
market value of twice that price, or (3) at the option of the
Company, to exchange each Right for one Common Share or one
one-hundredth of a Preferred Share.
LEASE COMMITMENTS
- -----------------
Future minimum rental commitments as of December 31, 1995, under
noncancelable operating leases, which expire at various dates
and in most cases contain renewal options, are as follows (in
millions): 1996, $48; 1997, $38; 1998, $28; 1999, $19; 2000,
$12; and after 2000, $94.
Rental expense in 1995, 1994 and 1993 (in millions) was $67, $65
and $43, respectively.
INCOME TAXES
- ------------
Income before income taxes for the years ended December 31
follows (in millions):
1995 1994 1993
---- ---- ----
United States $471 $396 $214
Outside the United States 121 92 48
---- ---- ----
$592 $488 $262
==== ==== ====
Income taxes for the years ended December 31 follows (in
millions):
1995 1994 1993
---- ---- ----
Current
United States
Federal $109 $ 81 $108
State and local 24 15 7
Outside the United States 59 44 30
---- ---- ----
192 140 145
<PAGE>
Page 33
Deferred
United States
Reduction of valuation allowance
for deferred income tax assets (11)
Other Federal 26 24 (50)
State and local 1 1 (2)
Increase in statutory tax rate (5)
Outside the United States
Operating loss carryforwards (4) (8) (7)
Reduction of valuation allowance
for deferred income tax assets (3) (5)
Increase in statutory tax rate (2) (1)
Other (11) 3 7
---- ---- ----
1 15 (63)
---- ---- ----
$193 $155 $ 82
==== ==== ====
<TABLE>
Significant components of current and long-term deferred income
taxes at December 31 follow (in millions):
<CAPTION>
1995
-------------------------------
Current Long-term Long-term
assets assets liabilities
------- --------- -----------
<S> <C> <C> <C>
Accruals and other adjustments
Employee benefits $ 56 $240 $ (4)
Depreciation and amortization (161) (24)
Other 85 16 6
Operating loss carryforwards of
international subsidiaries 86 2
Other items 9 18 10
Valuation allowance (36)
---- ---- ----
$150 $163 $(10)
==== ==== ====
1994
-------------------------------
Current Long-term Long-term
assets assets liabilities
------- --------- -----------
Accruals and other adjustments
Employee benefits $ 54 $228 $ (4)
Depreciation and amortization (142) (17)
Other 81 20
Operating loss carryforwards of
international subsidiaries 78 1
Other items 16 18 9
Valuation allowance (44)
---- ---- ----
$151 $158 $(11)
==== ==== ====
</TABLE>
<PAGE>
Page 34
At December 31, 1995, certain subsidiaries outside the United
States had operating loss carryforwards aggregating $181
million. Carryforwards of $131 million have no expiration dates
and the balance expire at various dates from 1996 through 2005.
<TABLE>
Reconciliations of income taxes at the United States Federal
statutory rate to the effective income tax rate for the years
ended December 31 follow (in millions):
<CAPTION>
1995
------------- 1994 1993
Amount Rate Rate Rate
------ ---- ---- ----
<S> <C> <C> <C> <C>
Income taxes at the United
States statutory rate $207 35.0% 35.0% 35.0%
State and local income taxes 19 3.1 2.8 1.5
Adjustment of worldwide tax
liabilities 12 2.0 1.6 1.4
Possessions credit related to
Puerto Rican operations (32) (5.4) (5.2)
Reduction of valuation allowance
for deferred income tax assets (11) (1.8) (.6) (2.1)
Adjustment of deferred income taxes
for change in statutory rates (.4) (2.3)
Effective tax rate differential
on earnings of consolidated
subsidiaries and associate
companies outside the United
States (5) (.8) (1.3) .1
Other--net 3 .5 (2.1)
---- ----- ----- -----
$193 32.6% 31.9% 31.5%
==== ===== ===== =====
</TABLE>
The Company has manufacturing facilities in Puerto Rico. These
facilities operate under tax relief and other incentives that
expire at various dates beginning in 2004 through 2013.
No provision has been made for income taxes on undistributed
earnings of consolidated subsidiaries outside the United States
of $408 million at December 31, 1995, since the earnings
retained have been reinvested by the subsidiaries. If
distributed, such remitted earnings would be subject to
withholding taxes but substantially free of United States income
taxes.
Worldwide income tax payments, including Federal and state
income taxes in the United States, in 1995, 1994 and 1993 (in
millions) were $166, $109 and $156, respectively.
<PAGE>
Page 35
<TABLE>
QUARTERLY DATA
- --------------
(Unaudited)
<CAPTION>
Quarter ended
(Millions except for -----------------------------------------
per share data) Dec. 31 Sept. 30 June 30 Mar. 31
------- -------- ------- -------
<S> <C> <C> <C> <C>
1995
Net sales $1,661 $1,672 $1,758 $1,731
Gross margin 430 429 469 466
Percent of sales 26% 26% 27% 27%
Net income 90 91 110 108
Per Common Share
Net income $ 1.16 $ 1.18 $ 1.41 $ 1.39
Cash dividends paid .40 .40 .40 .30
Market price
High 56-1/4 62-1/2 61-1/4 55-7/8
Low 49-1/2 52-3/8 51-7/8 45-3/8
1994
Net sales $1,605 $1,531 $1,545 $1,371
Gross margin 442 411 429 373
Percent of sales 28% 27% 28% 27%
Net income 89 84 86 74
Per Common Share
Net income $ 1.15 $ 1.10 $ 1.13 $ 1.01
Cash dividends paid .30 .30 .30 .30
Market price
High 54-1/4 54-5/8 58-3/4 62-1/8
Low 43-7/8 45-3/4 49-7/8 50-3/8
</TABLE>
In the fourth quarter of 1995, the effective income tax rate for
full year 1995 was adjusted to 32.6% from 33.5%. This adjust-
ment reduced income tax expense for the fourth quarter by $4
million.
<PAGE>
Page 36
BUSINESS SEGMENT AND GEOGRAPHIC REGION INFORMATION
- --------------------------------------------------
Eaton is a global manufacturer of highly engineered products
which serve the vehicle, industrial, construction, commercial
and aerospace markets with operations located in 23 countries.
Operations are classified among three business segments:
Vehicle Components, Electrical and Electronic Controls and
Defense Systems. The major classes of products included in each
segment and other information follows.
Vehicle Components
- ------------------
Truck Components - Heavy and medium-duty mechanical and
automatic transmissions; power take-offs; drive, trailer and
steering axles; brakes; anti-lock brake systems; locking
differentials; engine valves; valve lifters; leaf springs;
viscous fan drives; fans and fan shrouds; power steering pumps;
tire pressure control systems; tire valves; collision warning
systems and advanced drivetrain controls.
Passenger Car Components - Engine valves; hydraulic valve
lifters; viscous fan drives; fans and fan shrouds; locking
differentials; spring fluid dampers; superchargers and tire
valves.
Off-Highway Vehicle Components - Mechanical and automatic
transmissions; drive and steering axles; specialty axle
products; brakes; engine valves; hydraulic valve lifters; gear
and piston pumps and motors; transaxles and steering systems;
geroters; control valves and cylinders; forgings; central tire
inflation systems and tire valves.
The principal market for these products is original equipment
manufacturers of heavy and medium-duty trucks, passenger cars
and off-highway vehicles. These original equipment
manufacturers are generally concentrated in North America,
however, sales are made on a global basis. Most sales of these
products are made directly to such manufacturers.
Electrical and Electronic Controls
- ----------------------------------
Industrial and Commercial Controls - Electromechanical and
electronic controls including motor starters, contactors,
overloads and electric drives; programmable controllers,
counters, man/machine interface panels and pushbuttons;
photoelectric, proximity, temperature and pressure sensors;
residential, molded case, hydraulic, air and medium voltage
circuit breakers; loadcenters; safety switches; panelboards;
switchboards; switchgear components; switchgear dry type
transformers; busway; meter centers; crane controls; portable
tool switches; commercial switches; relays; vacuum interrupters;
illuminated pushbuttons and panels; annunciator panels;
electrically actuated valves and actuators; pressure transducers
and switches; and Navy motor control and power conversion
systems.
Automotive and Appliance Controls - Electromechanical and
electronic controls including convenience, stalk and concealed
switches; knock sensors; climate control components; speed
controls; timers; pressure switches; water valves; range
<PAGE>
Page 37
controls; thermostats; gas valves; infinite switches;
temperature and humidity sensors; transmission valves; speed
sensitive steering systems; tone generators and chimes; lighting
controls; emission control valves; remote keyless entry systems
and remote actuated solenoids.
Specialty Controls - Ion implanters; plastic and steel spring
fasteners; retainer rings; clamps; golf grips; industrial rubber
products; industrial clutches and brakes.
The markets for these products are industrial, construction,
commercial, automotive, appliance, aerospace and government
customers concentrated principally in North America; however,
sales are made globally. Sales are made directly by the Company
and indirectly through distributors and manufacturers'
representatives to such customers.
Defense Systems
- ---------------
Strategic countermeasures; tactical jamming systems; electronic
intelligence; electronic support measures and radar surveillance.
The principal market for these products is the United States
Government.
Other Information
- -----------------
Identifiable assets for each segment and geographic region
represent those assets used in operations, including excess of
cost over net assets of businesses acquired, and exclude general
corporate assets, which consist principally of short-term
investments, deferred income taxes, investments carried at
equity, property and other assets.
Net sales to divisions and subsidiaries of one customer,
primarily from the Vehicle Components business segment (in
millions), were $653 in 1995, $623 in 1994 and $541 in 1993 (10%
of sales in 1995 and 1994, and 12% in 1993). Sales from the
Company's United States operations to customers in foreign
countries, primarily Canada, were $709 million in 1995 (10% of
sales).
<PAGE>
Page 38
<TABLE>
Geographic Region Information
<CAPTION>
United Latin Pacific Elimin-
(Millions) States Canada Europe America Region ations Totals
------ ------ ------ ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
1995
Net sales $5,390 $282 $1,153 $266 $136 ($405) $6,822
Operating profit 571 24 79 4 23 701
Identifiable assets 3,369 109 807 151 90 (99) 4,427
1994
Net sales $4,807 $292 $ 912 $298 $103 ($360) $6,052
Operating profit 491 30 50 9 14 594
Identifiable assets 3,081 119 636 156 57 (86) 3,963
1993
Net sales $3,404 $183 $ 769 $202 $ 81 ($238) $4,401
Operating profit 275 21 17 9 10 332
Identifiable assets 1,710 101 548 103 48 (60) 2,450
</TABLE>
Results for 1994 reflect the acquisition of DCBU on January
31, 1994.
Operating profit in 1993 was reduced $53 million in the
United States and $2 million in Canada by an acquisition
integration charge related to the purchase of DCBU, and by a
$9 million charge for streamlining operations in Europe.
Geographic region information (table above) does not include
results of associate companies and joint ventures in which the
Company holds a 20%-50% ownership interest, which are accounted
for by the equity method, and which had total sales as follows
(in millions):
<TABLE>
<CAPTION>
United Latin Pacific
States Europe America Region Totals
------ ------ ------- ------- ------
<S> <C> <C> <C> <C> <C>
1995 $21 $13 $20 $347 $401
1994 10 15 10 240 275
1993 7 13 15 169 204
</TABLE>
<PAGE>
Page 39
<TABLE>
Business Segment Information
<CAPTION>
(Millions) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net sales by classes of similar products
Vehicle Components
Truck Components $1,965 $1,798 $1,504
Passenger Car Components 669 616 524
Off-Highway Vehicle Components 458 414 329
------ ------ ------
3,092 2,828 2,357
Electrical and Electronic Controls
Industrial and Commercial Controls 1,975 1,812 779
Automotive and Appliance Controls 1,062 839 735
Specialty Controls 574 437 338
------ ------ ------
3,611 3,088 1,852
Defense Systems 119 136 192
------ ------ ------
$6,822 $6,052 $4,401
====== ====== ======
Operating profit
Vehicle Components $ 414 $ 354 $ 247
Electrical and Electronic Controls
(1993 reduced by the $55 million
acquisition integration charge) 285 239 83
Defense Systems 2 1 2
------ ------ ------
701 594 332
Interest expense (86) (83) (65)
Interest income 6 7 8
General corporate expenses--net (29) (30) (13)
------ ------ ------
Income before income taxes $ 592 $ 488 $ 262
====== ====== ======
Identifiable assets
Vehicle Components $1,463 $1,337 $1,213
Electrical and Electronic Controls 2,869 2,512 1,121
Defense Systems 95 114 116
------ ------ ------
4,427 3,963 2,450
General corporate assets 626 719 818
------ ------ ------
Total assets $5,053 $4,682 $3,268
====== ====== ======
Capital expenditures
Vehicle Components $ 203 $ 149 $ 124
Electrical and Electronic Controls 174 98 68
Defense Systems 4 5 7
Corporate 18 15 28
------ ------ ------
$ 399 $ 267 $ 227
====== ====== ======
Depreciation and amortization
Vehicle Components $ 118 $ 110 $ 101
Electrical and Electronic Controls 134 114 69
Defense Systems 13 14 15
Corporate 16 13 11
------ ------ ------
$ 281 $ 251 $ 196
====== ====== ======
</TABLE>
<PAGE>
Page 40
Results for 1994 reflect the acquisition of DCBU on January 31,
1994.
Operating profit of the Electrical and Electronic Controls
segment in 1993 was reduced by a $55 million acquisition
integration charge related to the purchase of DCBU. Operating
profit of the Vehicle Components segment in 1993 was reduced by
a $9 million charge for streamlining certain vehicle components
operations in Europe.
<PAGE>
Page 41
Summary Financial Information for Eaton ETN Offshore Ltd.
- ---------------------------------------------------------
Eaton ETN Offshore Ltd. (Eaton Offshore) was incorporated by
Eaton in 1990 under the laws of Ontario, Canada, primarily for
the purpose of raising funds through the offering of debt
securities in the United States and making these funds available
to Eaton or its subsidiaries. All of the common stock of Eaton
Offshore are owned directly or indirectly by Eaton. Eaton
Offshore owns the common stock of a number of the Eaton's
subsidiaries. These subsidiaries are engaged principally in the
manufacture of truck transmissions, fasteners, leaf spring
assemblies, engine components, and electrical and electronic
controls. Effective January 31, 1994, Eaton Offshore, through
its subsidiaries, acquired certain of the Canadian and Brazilian
operations of the former Distribution and Control Business Unit
(DCBU). On June 30, 1994 and on April 1, 1995, majority
ownership of certain other assets of DCBU and another subsidiary
were transferred to a subsidiary of Eaton Offshore from Eaton.
Summary financial information for Eaton Offshore and its
consolidated subsidiaries for the years ended December 31 follow
(in millions):
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Income statement data
Net sales $614 $494 $295 $295 $165
Gross profit 99 87 42 42 26
Net income 28 20 13 17 13
Balance sheet data
Current assets $324 $237 $160 $144 $124
Noncurrent assets 152 122 109 86 42
Net intercompany
receivables (payables) (15) (4) (15) 24 33
Current liabilities 97 83 50 51 20
Noncurrent liabilities 117 107 114 115 104
<PAGE>
Page 42
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
- --------
Buoyed by strength of the United States and European economies,
strong sales momentum that began in late 1993 continued in 1995
resulting in Eaton achieving the highest net sales, net income
and net income per Common Share in the Company's history. This
marks the second consecutive year of record results. The
strength of the year was underscored by the results of each
quarter in 1995 when sales exceeded $1.6 billion and net income
equaled or exceeded $90 million in every quarter for the first
time in the Company's history.
Each product class and most major geographic regions in the
Vehicle Components and Electrical and Electronic Controls
segments experienced sales growth in 1995 as compared to 1994.
The higher sales reflect positive contributions from the
Company's existing operations, improved industrial economic
market conditions worldwide, geographic expansion and business
acquisitions. Net income and net income per Common Share
increased 20% and 17%, respectively, in 1995 over 1994. These
improvements largely reflect the increased sales levels.
During 1995, the Company took actions intended to enhance
shareholder value, approving a 33% increase in the quarterly
dividend and a new Preferred Share Purchase Rights Plan, and
initiating a share repurchase program to avoid dilution of
earnings per share from exercise of stock options.
1995 COMPARED TO 1994
- ---------------------
NET SALES
- ---------
Net sales rose 13% in 1995 over 1994. The improvement in sales
was broadly based and primarily attributable to higher unit
volumes in both the Vehicle Components and the Electrical and
Electronic Controls segments. During 1995, the Company
benefited from the diversity of its product lines as well as
from its global markets. In 1995, the North American economy
continued to favor the transportation and capital goods markets
served by the Company which was the principal reason for the 11%
sales increase in North America in 1995 over 1994. The European
economic recovery that began in 1994 continued in 1995 and
coupled with the recently acquired IKU Group resulted in a 26%
sales increase in that region in 1995 over 1994. Despite the
continued recession in Japan, sales in the Pacific Region rose
32% in 1995 over 1994, due in part to the recently acquired
Emwest electrical switchgear and controls business. In Latin
America, economic weakness in Mexico, Brazil and Argentina
caused an 11% sales decline in 1995 over 1994. The weakness in
Mexico, Brazil and Argentina was partially offset by sales from
the recently acquired Mallory Controles Ltda.
<PAGE>
Page 43
The Vehicle Components segment continued its trend of increased
net sales, with 1995 showing an increase of 9% over 1994. Truck
Components sales rose 9% in 1995 over 1994. The North American
market for heavy-duty trucks set industry records again in 1995,
with Class 8 truck sales reaching 245,000 units, 9% above the
previous record set in 1994. However, the soft landing of the
United States economy in the second half of 1995 negatively
impacted sales of heavy-duty trucks in the fourth quarter of
1995. Fourth quarter 1995 heavy-duty truck production declined
6% in response to the sharp drop in orders. Slowing growth in
industrial output since the first quarter of 1995 affected truck
tonnage hauled; as a result, the rush to add fleet capacity,
which was at a frenzied pace in 1994 and early 1995, slowed
during the second half of 1995. In the third quarter of 1995,
though production and retail sales of heavy-duty trucks remained
high, net orders were negative as canceled orders exceeded new
incoming orders. In the fourth quarter of 1995, orders
rebounded somewhat but remained well below the levels
experienced earlier in the year. Backlog, which is at 114,000
units at year-end 1995, remains high by historical standards.
The Vehicle Components segment also reflects higher sales of
components for sport utility vehicles, minivans and light
trucks. North American factory sales in 1995 were comparable
with strong 1994 sales. These vehicles, where the Company's
component sales are particularly strong, now account for nearly
half of the domestic vehicle unit sales of United States-based
automobile manufacturers. Passenger Car Components sales rose
9% in 1995 over 1994 despite a 2% decline in North American
production of passenger cars and a modest 4% rise in Europe.
Sales benefited from the continued trend to multivalve engines
and particular strength in Europe. The continuing demand for
hydraulic components from the agricultural, construction and
industrial markets enabled Off-Highway Vehicle Components sales
to remain strong, showing an 11% increase in 1995 over 1994.
The Electrical and Electronic Controls segment continued its
trend of significant growth in net sales, with 1995 showing an
increase of 17% over 1994, nearly doubling the sales of just two
years ago. Sales for 1995 reflect twelve months from the former
Distribution and Control Business Unit (DCBU) versus eleven
months in 1994.
An increase in industrial and nonresidential construction,
partially offset by decreases in both residential construction
and sales to the United States Government, resulted in
Industrial and Commercial Controls sales rising 9% in 1995 over
1994. The 27% increase in sales of Automotive and Appliance
Controls in 1995 over 1994 was due in part to the acquisitions
of Lectron Products, Inc., Mallory Controles Ltda. and the IKU
Group as well as increased penetration on several new automotive
platforms.
Worldwide demand for the Company's semiconductor capital
equipment continues to be extraordinarily strong. Sales of the
<PAGE>
Page 44
Company's ion implanters in 1995 were at an all-time high,
rising 80% over 1994 and more than doubling the sales of just
two years ago. This demand was the primary contributor to
Specialty Controls' 31% sales increase in 1995 over 1994. Sales
of the joint venture related to this business, which are not
included in the Company's consolidated sales, also benefited
significantly from this increased demand, rising 61% over 1994.
The Company is experiencing surging markets as well as market
share gains throughout its entire ion implanter product line.
Based on industry capital spending plans, semiconductor capital
equipment sales are expected to rise significantly again in
1996. A new manufacturing facility in Austin, Texas, currently
under construction, will significantly expand the Company's
capacity to serve this growing market.
OPERATING RESULTS
- -----------------
Income from operations increased 16% in 1995 over 1994,
reflecting a 9% return on sales for both years. This increase
was primarily a result of the higher sales volumes described
above, as well as the impact of the Company's continued emphasis
on cost reduction efforts and productivity improvement programs.
These improvements have enabled the Company to maintain its
margins while pricing products competitively in value-driven
world markets.
Operating profit for the Vehicle Components segment continued to
be strong, improving 17% in 1995 over 1994 and reflecting a 13%
return on sales for both years. While the improvement in
profits was primarily attributable to improved sales volumes,
other contributing factors included ongoing cost reduction
efforts and productivity improvement programs, and economies
achieved through organizational rationalizations of certain
businesses which have better positioned operations to benefit
from further growth and market opportunities in global vehicle
markets. One such example is the demand in Europe for the
Company's new heavy-duty synchronized transmission which has
exceeded expectations. Despite the initial costs of bringing
this new product to market, which decreased margins in the third
quarter of 1995, it is now a positive contributor to margins.
Operating profit for the Electrical and Electronic Controls
segment continued to be strong, improving 20% in 1995 over 1994
and reflecting an 8% return on sales for both years. The
improvement in profits was primarily attributable to improved
sales volumes, but also included added contributions from
recently acquired businesses, continued stringent cost
containment efforts and the realization of benefits from earlier
resizings. On the negative side, transitional plant integration
difficulties, effects of two September hurricanes in Puerto Rico
and unanticipated program launch costs on several new automotive
platforms reduced margins in the last half of 1995. The Company
expects to correct the operational difficulties in Cutler-Hammer
and the program launch issues in the automotive controls
business in 1996. Investments in systems and infrastructure for
<PAGE>
Page 45
the Company's semiconductor equipment operations also reduced
margins in 1995, but will help Eaton take full advantage of the
growth opportunities in this profitable business in 1996 and
beyond.
Increased income from associate companies, a payment received
related to a dividend from a foreign subsidiary and reduced
foreign currency exchange losses primarily caused the increase
in Other income--net in 1995 over 1994.
An analysis of changes in income taxes and the effective income
tax rate is presented under 'Income Taxes' in the Financial
Review.
As the sales momentum in many of the Company's markets changed
markedly over the course of 1995, with earlier booming demand
giving way to more mixed conditions as 1995 ended, the Company
anticipates 1996 will be a challenging year. During 1996, the
Company expects to continue to benefit from the diversity of its
product lines as well as from its global markets. The North
American heavy-duty truck market is expected to decline between
20% to 25% from the unprecedented levels experienced in the last
two years. The Company expects production of light vehicles to
be flat, with passenger cars declining slightly and light trucks
modestly higher. The United States capital spending boom, while
maturing, is expected to show sustained, moderate growth, with
semiconductor capital equipment expected to rise another 40% in
1996.
The success of the Vehicle Components segment is closely linked
to increased use of heavy-duty trucks in support of domestic
manufacturing. Other significant factors include enduring
consumer preference for light trucks, particularly minivans and
sports utility vehicles; increasing production of multivalve
engines for enhanced performance and economy in light motor
vehicles worldwide; declining market share for imports in North
America; and demand for off-highway vehicles.
Several factors raise expectations for continued growth in the
Electrical and Electronic Controls segment, including continued
surging worldwide demand for semiconductor capital equipment,
broad based demand for technologically advanced controls to
serve industrial and commercial markets, ongoing strength of the
United States and European economies, high level of capacity
utilization across many industries and new market initiatives
the Company has undertaken in the Far East and Latin America.
The Company's long-term goal of building sustainable earnings
growth throughout the economic cycle is being accomplished
through continued emphasis on the development of new products,
increased expansion into global markets, and acquisition of
businesses and product lines to complement the Company's
existing operations.
<PAGE>
Page 46
To enhance Eaton's existing portfolio of products as well as to
develop the products of tomorrow, the Company spent a record
amount in 1995 in research and development. The Company is
providing increased value added to global customers through
investment in internal product development by applying
electronics to make mechanical products 'smart' and developing
assemblies and subsystems rather than the more traditional
individual components.
The Company continues to be active in pursuing growth through
acquisitions as well as through investments in 20% to 50% owned
associate companies. Over the past decade, the Company has
acquired thirty companies or product lines and invested in
eleven associate companies with an orientation towards
strengthening existing businesses and assuring their world-class
competitiveness. Each of the Company's major North American
business lines is a leader in the market it serves. The 1994
acquisition of DCBU tripled the size of Eaton's Cutler-Hammer
business. The Company has increased its efforts to expand in
the Pacific Region and Latin America, areas expected to have the
highest growth rates for the foreseeable future. Eaton intends
to leverage its strong established presence in North America and
Europe to these developing regions. Recent examples of this
expansion are the acquisition of Mallory Controles Ltda., a
leading Brazilian appliance and automotive controls company, and
the purchase of an additional minority interest in the Company's
majority-owned Mexican truck manufacturing operations. Pacific
Region acquisitions include Rubberon, a leading golf grip
manufacturer, and the Emwest electrical switchgear and controls
business. The Company's associate companies are predominately
located in the Pacific Region and Latin America.
CHANGES IN FINANCIAL CONDITION
- ------------------------------
Net working capital increased to $822 million at year-end 1995
from $744 million at year-end 1994, while the current ratio of
1.7 was consistent for both year-ends. The Company remains in a
strong financial position and has the capital resources
available in the form of working capital, lines of credit and
funds provided by operations for reinvestment in existing
operations, strategic acquisitions and managing the capital
structure.
Although sales in 1995 reached a record level, accounts
receivable and inventories at the end of 1995 only increased
slightly from 1994. The accounts receivable and inventory
turnover rates of seven times in 1995 were consistent with 1994.
Accounts receivable days sales outstanding and days of
inventory on-hand showed slight increases at year-end 1995 from
1994. The acquisitions of the IKU Group and Emwest, as
discussed under 'Acquisitions and Divestitures of Businesses' in
the Financial Review, were the principal cause of the increase
in excess of cost over net assets of businesses acquired from
the prior year-end.
<PAGE>
Page 47
Total debt, consisting of short-term and long-term debt and the
current portion of long-term debt, increased slightly from
December 31, 1994, the result of the issuance in June 1995 of
$150 million 6-1/2% debentures due 2025, which was partially
offset by payments on certain borrowings. In 1995, the Company
entered into a $500 million five-year revolving credit agreement
as discussed under 'Debt and Other Financial Instruments' in the
Financial Review.
Reflecting the Company's ongoing investment program under
long-range goals to achieve improvements in product quality,
manufacturing productivity and business growth, capital
expenditures for 1995 were a record. Over the past five years,
the Company has spent more than $1 billion on capital
expenditures to increase productivity, reduce costs and,
selectively, to add capacity. Capital spending in 1996 is
anticipated to be another all-time record in order to enable the
Company to enhance product quality through technology
improvements and to help achieve long-term growth prospects.
During 1994, the Company purchased DCBU, as discussed under
'Acquisitions and Divestitures of Businesses' in the Financial
Review. The Company has been actively progressing on the
comprehensive integration plan which was established for the
combination of DCBU with the Company's Industrial Controls and
Power Distribution Operations. To date, the Company has closed
and/or announced the closure of twenty-six facilities and sold
six facilities as a result of divestiture activities.
At December 31, 1995, the Company had net deferred income tax
assets reported as both current and long-term assets.
Management believes it is more likely than not that these tax
benefits will be realized through the reduction of future
taxable income. Significant factors considered by management in
determination of the probability of realization of deferred tax
assets include historical operating results of the Company,
expectations of future earnings and the extended period of time
over which the postretirement health care liability will be paid.
In the normal course of business, the Company is exposed to
various financial risks including changes in interest and
foreign exchange rates. The Company has developed systems to
continuously measure and assure that these exposures are
evaluated comprehensively so that appropriate and timely action
can be taken to reduce risk, if necessary. Monitoring of
exposures and the evaluation of risks includes approval of
derivative activities on a discrete basis by senior management.
Oversight and review of exposures and derivative activities is
performed monthly by senior management. In order to minimize
the impact of potential defaults, the Company specifically
limits counterparty credit exposure to prudent dollar limits.
The effect of financial instruments on the Company's financial
condition and results of operations is not material. The
Company's derivative activities are described in greater detail
<PAGE>
Page 48
under 'Debt and Other Financial Instruments' in the Financial
Review.
To reflect current market conditions, the discount rate and
other rate assumptions used to measure the projected benefit
obligations for pensions and postretirement benefits other than
pensions was reduced in 1995, as further discussed under
'Pension Plans' and 'Postretirement Benefit Plans Other Than
Pensions' in the Financial Review.
Operations of the Company involve the use and disposal of
certain substances regulated under environmental protection
laws. The Company continues to modify, on an ongoing, regular
basis, certain processes in order to reduce the impact on the
environment, including the reduction or elimination of certain
chemicals used in and wastes generated from operations. The
Company's liabilities related to environmental matters are
further discussed under 'Protection of the Environment' in the
Financial Review.
Due to a strong balance sheet and cash flow from operations,
strength of the Company's markets and a commitment to enhancing
ongoing shareholder value, the Company raised the quarterly
dividend from 30 cents to 40 cents, effective with the second
quarter 1995 dividend. This represented a 33% increase and was
the second increase in dividend rates in less than two years.
The Company has paid dividends on Common Shares annually since
1923. Cash dividends paid in 1995 were a record. In addition,
a dividend of one Preferred Share Purchase Right on each
outstanding Common Share was declared as discussed under
'Preferred Share Purchase Rights' in the Financial Review.
To enhance shareholder value and to avoid dilution of earnings
per share resulting from the exercise of stock options by
employees, the Company's Board of Directors has authorized the
purchase of up to five million outstanding Common Shares. Under
the Board's authorization, the Company may purchase these shares
over a five year period; however, only a maximum of 1.5 million
shares can be purchased in any one year. Through December 31,
1995, the Company had repurchased 766,000 shares at an aggregate
purchase price of $40 million, or an average price of $52 per
share.
The Company continues to generate substantial cash from
operations. The Company's earnings growth and emphasis on asset
management generated record operating cash flow in 1995,
compared with the previous record in 1994. The improvement in
cash flow resulting from increased net income and other items
exceeded the cash requirements to fund increased working
capital. Net cash provided by operating activities,
supplemented by commercial paper and other borrowings, was used
to fund the purchase price of business acquisitions, the record
levels of capital expenditures and cash dividends, the repayment
of debt and repurchase of Common Shares.
<PAGE>
Page 49
1994 COMPARED TO 1993
- ---------------------
NET SALES
- ---------
Net sales increased 38% in 1994 over 1993. This increase
reflected the contributions of acquired businesses, principally
DCBU, as well as increased unit volume shipments in North
American transportation and capital goods markets. Sales
improvements were also recorded by virtually all of the
Company's operations outside the United States due in part to
export of products to meet North American market demands. The
economic recovery that began in the United Kingdom in 1993
spread to the European continent as additional market strength
was evident in Germany, France, Italy and other continental
countries as indicated by the 19% sales increase in Europe over
1993. The purchase of DCBU also expanded the Company's presence
in Latin America. The combination of this acquisition and the
growth in existing operations resulted in a 48% sales increase
in Latin America over 1993.
The Vehicle Components segment experienced significant growth as
net sales increased 20% in 1994 over 1993. Although the
increase in sales was driven by unprecedented levels of
production of heavy-duty trucks in North America, each product
class in this segment reported an increase in excess of 17% in
1994 as compared to 1993. The heavy-duty truck market set
industry records, with North American factory sales of 226,000
units, a 7% increase over the previous record levels of 1979 and
a 21% increase over 1993.
Vehicle Components segment sales also reflected higher sales of
components for sport utility vehicles, minivans and light trucks
which markets showed a 20% increase in North American factory
sales in 1994 over 1993. These vehicles, where the Company's
component sales are particularly strong, accounted for nearly
half of the domestic vehicle unit sales of United States-based
automobile manufacturers. Passenger Car Components sales in
1994 increased substantially over 1993 as the Company benefited
from the 5% increase in factory sales of passenger cars in North
America and also from improved market penetration.
Additionally, sales of Off-Highway Vehicle Components showed
marked improvement throughout the year as a result of strong
demand for hydraulic components from agricultural, construction
and industrial markets worldwide.
The Electrical and Electronic Controls segment's net sales in
1994 rose 67% over 1993. The DCBU acquisition was the principal
cause for the increase in the Industrial and Commercial Controls
product class, where sales more than doubled compared to 1993.
Also, each of the remaining product classes in this segment
reported an increase in excess of 14% in 1994 as compared to
1993. These increases were a reflection of strong growth
experienced in the industrial, residential and commercial
markets served by this segment.
<PAGE>
Page 50
Automotive and Appliance Controls sales in 1994 increased
significantly over 1993 due to improved conditions in the
passenger car and light truck markets served by the Company.
The strength of the North American household appliances market
in comparison to previous years and positioning with appliance
manufacturers also benefited the Company. Robust sales of
semiconductor equipment, included in Specialty Controls, also
contributed significantly to the 1994 sales increase for this
segment. Sales rose sharply due to increased market penetration
and worldwide demand for semiconductor equipment. Market
leadership permitted the Company to benefit substantially from
the industry's growth. To meet this continuing demand, a new
medium current ion implanter manufacturing facility is being
built in Austin, Texas. A new high energy ion implantation
system was introduced in mid-year 1994, and market response,
particularly in the Far East, exceeded expectations.
OPERATING RESULTS
- -----------------
Income from operations increased 80% in 1994 over 1993, which
was reduced by a $55 million acquisition integration charge
before income tax credits related to the purchase of DCBU. This
increase reflected the higher level of sales described above,
including the contributions of acquired businesses, results of
continuous improvement initiatives and inventory controls,
efforts to maintain and improve efficiency and productivity in
the face of greatly increased marketplace demand, and benefits
of recent capacity and workforce rationalizations.
Operating profit for the Vehicle Components segment was strong,
rising 43% in 1994 over 1993 and reflecting a 13% return on
sales (10% for 1993). Increased profits were attributable
largely to improved sales levels and also were a reflection of
continuing stringent cost containment efforts as well as
economies achieved through organizational rationalizations of
certain businesses which better positioned operations to benefit
from further growth and market opportunities in global vehicle
markets. In 1993, operating profit was reduced by $9 million as
a result of streamlining certain Vehicle Components operations
in Europe.
Operating profit for the Electrical and Electronic Controls
segment significantly improved, rising 73% in 1994 over 1993 and
reflecting an 8% return on sales (7% for 1993), before the
effect of the $55 million acquisition integration charge. The
improvement in profits resulted from higher sales volumes,
including contributions from acquired businesses, emphasis
placed on containing and controlling costs and realization of
benefits of earlier resizings.
The increase in interest expense in 1994 over 1993 was primarily
caused by a higher average borrowing level due to the issuance
of debt in 1994 to partially finance the acquisition of DCBU.
<PAGE>
Page 51
An analysis of changes in income taxes and the effective income
tax rate is presented under "Income Taxes" in the Financial
Review.
Page 52
<TABLE>
Eaton Corporation
<CAPTION>
Five-Year Consolidated Financial Summary
For the year 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------
(Millions except for per share data)
<S> <C> <C> <C> <C> <C>
Net sales $6,822 $6,052 $4,401 $4,101 $3,659
Income before extraordinary item and cumulative
effect of accounting changes 399 333 180 140 74
Extraordinary item (7)
Cumulative effect of accounting changes
Postretirement benefits other than pensions (274)
Income taxes 6
Net income (loss) 399 333 173 (128) 74
Per Common Share
Income before extraordinary item and
cumulative effect of accounting changes $ 5.13 $ 4.40 $ 2.57 $ 2.03 $ 1.09
Extraordinary item (.10)
Cumulative effect of accounting changes
Postretirement benefits other than pensions (3.97)
Income taxes 0.09
Net income (loss) 5.13 4.40 2.47 (1.85) 1.09
Cash dividends paid 1.50 1.20 1.15 1.10 1.10
At the year-end
- ---------------------------------------------------------------------------------------------------
Total assets $5,053 $4,682 $3,268 $3,220 $3,184
Long-term debt 1,084 1,053 649 833 795
Total debt 1,134 1,089 773 882 927
Shareholders' equity 1,975 1,680 1,105 948 1,153
</TABLE>
Results for 1994 reflect the acquisition of DCBU on January
31, 1994.
Income in 1993 was reduced by a $55 million acquisition
integration charge related to the purchase of DCBU ($34 million
after income tax credits, or $.49 per Common Share).
Income in 1993 was reduced by an extraordinary loss of $11
million for the redemption of debentures ($7 million after
income tax credits, or $.10 per Common Share).
Income in 1991 was reduced by a restructuring charge of $39
million ($25 million after income tax credits, or $.38 per
Common Share).
<PAGE>
Page 1
Eaton Corporation
1995 Annual Report on Form 10-K
Item 14 (c)
Listing of Exhibits Filed
3(a) Amended Articles of Incorporation (as amended and
restated May 19, 1994) - Incorporated by reference to
the Form 8-K Report dated May 19, 1994
3(b) Amended Regulations (as amended and restated as of April
27, 1988) - Incorporated by reference to the Annual
Report on Form 10-K for the year ended December 31, 1994
4(a) Instruments defining rights of security holders,
including indentures (Pursuant to Regulation S-K Item
601(b)(4), the Company agrees to furnish to the
Commission, upon request, a copy of the instruments
defining the rights of holders of long-term debt)
4(b) Eaton Corporation Rights Agreement dated June 28, 1995
- Incorporated by reference to the Form 8-K Report dated
June 28, 1995
10 Material contracts
The following are either a management contract or a
compensatory plan or arrangement:
(a) Deferred Incentive Compensation Plan (as amended
and restated May 1, 1990) - Incorporated by
reference to the Annual Report on Form 10-K for
the year ended December 31, 1993
(b) Executive Strategic Incentive Plan, effective as
of January 1, 1991 - Incorporated by reference
to the Annual Report on Form 10-K for the year
ended December 31, 1992
(c) Group Replacement Insurance Plan (GRIP),
effective as of June 1, 1992 - Incorporated by
reference to the Annual Report on Form 10-K for
the year ended December 31, 1992
(d) 1991 Stock Option Plan - Incorporated by
reference to the definitive Proxy Statement
dated March 18, 1991
(e) The following are incorporated by reference to
the definitive Proxy Statement dated March 17,
1995:
<PAGE>
Page 2
(i) 1995 Stock Option Plan
(ii) Incentive Compensation Deferral Plan
(f) The following are incorporated by reference to
the Quarterly Report on Form 10-Q for the
quarter ended June 30, 1990:
(i) Strategic Incentive and Option Plan (as
amended and restated as of January 1,
1989)
(ii) Limited Eaton Service Supplemental
Retirement Income Plan (as amended and
restated as of January 1, 1989)
(iii) Amendments to the 1980 and 1986 Stock
Option Plans
(iv) Form of "Change in Control" Agreement
entered into with all officers of Eaton
Corporation
(v) Eaton Corporation Supplemental Benefits
Plan (as amended and restated as of
January 1, 1989) (which provides supple-
mental retirement benefits)
(vi) Eaton Corporation Excess Benefits Plan
(as amended and restated as of January
1, 1989) (with respect to Section 415
limitations of the Internal Revenue
Code)
(g) The following are incorporated by reference to
the Annual Report on Form 10-K for the year
ended December 31, 1990:
(i) Executive Incentive Compensation Plan
(ii) Plan for the Deferred Payment of
Directors' Fees (as amended and restated
as of January 1, 1989)
(iii) Plan for the Deferred Payment of
Directors' Fees (originally adopted in
1980 and amended and restated in 1989)
(iv) Eaton Corporation Retirement Plan for
Non-Employee Directors (as amended and
restated as of January 1, 1989)
<PAGE>
Page 3
11 Statement regarding computations of net income per
Common Share (filed as a separate section of this
report)
21 Subsidiaries of Eaton Corporation (filed as a separate
section of this report)
23 Consent of Independent Auditors (filed as a separate
section of this report)
24 Power of Attorney (filed as a separate section of this
report)
27 Financial Data Schedule (filed as a separate section of
this report)
<PAGE>
Page 1
Eaton Corporation
1995 Annual Report on Form 10-K
Item 14(c)
Exhibit 11
Computations of Net Income per Common Share
Year ended December 31
------------------------
(Millions except for per share data) 1995 1994 1993
---- ---- ----
Average number of Common Shares
outstanding 77.8 75.6 69.8
Income before extraordinary item $ 399 $ 333 $ 180
Per share amount 5.13 4.40 2.57
===== ===== =====
Extraordinary item $ (7)
Per share amount (.10)
=====
Net income $ 399 $ 333 $ 173
Per share amount 5.13 4.40 2.47
===== ===== =====
<PAGE>
Page 1
Eaton Corporation
1995 Annual Report on Form 10-K
Item 14(c)
Exhibit 21
Subsidiaries of Eaton Corporation
<TABLE>
Eaton is publicly held and has no parent corporation. Eaton's
subsidiaries, the state or country in which each was organized,
and the percentage of voting securities owned by Eaton or
another Eaton subsidiary as of December 31, 1995 are as follows:
<CAPTION>
Percentage of voting
securities owned (by
Where Eaton unless otherwise
Consolidated subsidiaries (A) organized indicated)
- ------------------------------- ---------- -------------------------
<S> <C> <C> <C>
American Nucleonics Corporation California 100% AIL Systems
Inc.
Vorad Safety Systems, Inc. California 100% IVHS
Technologies,
Inc.
AIL Systems Inc. Delaware 95.046% AIL Systems
Holding
Company
BAC Investments Ltd. Delaware 100%
Cutler-Hammer de Puerto Rico Inc. Delaware 100% Cutler-Hammer
(Partnership)
Cutler-Hammer Inc. Delaware 100%
Eaton Administration Corporation Delaware 100%
Eaton ESC Holding Company Delaware 100%
Eaton Holding Corporation Delaware 100% Eaton
International
Corporation
Eaton International Corporation Delaware 100%
Eaton Semiconductor Equipment,Inc. Delaware 100%
Eaton Truck Systems, Inc. Delaware 100%
Eaton USEV Holding Company Delaware 100%
Eaton VORAD Technologies, L.L.C. Delaware 50% Eaton Truck
Systems, Inc.
50% Vorad Safety
Systems, Inc.
ERC Corporation Delaware 100% Eaton Leasing
Corporation
ERC II Corporation Delaware 100% Eaton Leasing
Corporation
IVHS Technologies, Inc. Delaware 70%
Lectron Products, Inc. Indiana 100% Lectron
Products, Inc.
(Michigan)
IKU USA Inc. Michigan 100% SPIVICO Inc.
Lectron Products, Inc. Michigan 100%
SPIVICO Inc. Michigan 100% Eaton Holding
Corporation
AIL Systems Holding Company Nevada 100%
<PAGE>
Page 2
Cutler-Hammer (Partnership) Ohio 99%
1% Cutler-Hammer
Inc.
Cutler-Hammer de Puerto Rico
Company (Partnership) Ohio 99% Cutler-Hammer
de Puerto
Rico Inc.
1% Cutler-Hammer
Inc.
Cutler-Hammer Products
(Partnership) Ohio 99%
1% Cutler-Hammer
Inc.
Eaton Consulting Services
Corporation Ohio 100%
Eaton IDT, Inc. Ohio 100%
Eaton Leasing Corporation Ohio 100%
Eaton Properties Corporation Ohio 100% Eaton Leasing
Corporation
Eaton Utah Corporation Ohio 100% Eaton Leasing
Corporation
Eaton Westlake Corporation Ohio 100% Eaton Leasing
Corporation
U.S. Engine Valve (Partnership) Ohio 75.607% Eaton USEV
Holding
Company
Eaton I.C.S.A. Argentina 100%
Eaton Holding G.m.b.H. Austria 100% Eaton
International
Corporation
Eaton Controls Pty. Ltd. Australia 99.99996% Eaton
International
Corporation
.00004% Eaton Pty.
Ltd.
Eaton Pty. Ltd. Australia 100%
Eaton Specialty Controls Pty.
Ltd. Australia 99.99996%
.00004% Eaton
International
Corporation
Eaton Foreign Sales Corporation Barbados 100%
Eaton Holding Limited Barbados 100% Eaton Yale
Ltd.
Eaton Services Limited Barbados 100% Eaton Holding
Limited
Saturn Insurance Company Ltd. Bermuda
Islands 100%
Eaton Controles Ltda. Brazil 51%
49% Eaton
International
Corporation
<PAGE>
Page 3
Eaton Ltda. Brazil 70.67% Eaton
Services
Limited
28.73% Eaton
International
Corporation
.60% Cutler-Hammer
Inc.
Eaton Mercantil Exportadora
Ltda. Brazil 100% Equipamentos
Eaton Ltda.
Eaton Technologies Ltda. Brazil 99.99%
.01% Eaton
International
Corporation
Equipamentos Eaton Ltda. Brazil 1.9%
98.1% BAC
Investments Ltd.
Eaton ETN Offshore Ltd. Canada 100% Common Shares -
Eaton
Corporation
100% Preferred
Shares -
Eaton
International
Corporation
Eaton Yale Ltd. Canada 100% Eaton ETN
Offshore Ltd.
Eaton Holding I Limited Cayman
Islands 100% Eaton Holding
III Limited
Eaton Holding II Limited Cayman
Islands 100% Eaton Holding
III Limited
Eaton Holding III Limited Cayman
Islands 100% Eaton G.m.b.H.
Eaton Controles Industriales S.A. Costa Rica 97.53% Eaton
International
Corporation
Eaton Controls d.o.o. Croatia 80% Eaton
Controls S.A.
20% Eaton
Technologies S.A.
Coupatan Immobiliere S.A. France 100% Eaton Controls
S.A.
Eaton Controls S.A. France 100% Eaton
Technologies S.A.
Eaton S.A. France 100%
Eaton Technologies S.A. France 55%
45% Eaton
International
Corporation
Kirsten France S.A. France 100% Eaton
Beteiligungs
G.m.b.H.
<PAGE>
Page 4
Eaton Automotive G.m.b.H. Germany 100% Eaton G.m.b.H.
Eaton Beteiligungs G.m.b.H. Germany 100% Eaton G.m.b.H.
Eaton Controls G.m.b.H. & Co.
K.G. (Partnership) Germany 99.5% Eaton Yale Ltd.
.5% Eaton Controls
Verwaltungs
G.m.b.H.
Eaton Controls Verwaltungs
G.m.b.H. Germany 100%
Eaton G.m.b.H. Germany 100%
Eaton Technologies Limited Hong Kong 100% Eaton
International
Corporation
Eaton Automotive S.p.A. Italy 33%
67% Eaton S.p.A.
Eaton Controls S.p.A. Italy 99.9998% Eaton S.p.A.
.0002% Eaton
Automotive S.p.A.
Eaton Finance S.p.A. Italy 50% Eaton
Automotive S.p.A.
50% Eaton Controls
S.p.A.
Eaton S.p.A. Italy 99.9053%
.0947% Eaton B.V.
Eaton Japan Co., Ltd. Japan 100%
Eaton International Inc. Liberia 100%
C-H Controls Sdn. Bhd. Malaysia 100% Eaton
International
Corporation
Condura S.A. de C.V. Mexico 100% Eaton
International
Corporation
Cutler-Hammer Mexicana S.A. Mexico 100% Eaton
International
Corporation
Controles Latinamericanos,
S.A. de C.V. Mexico 100% Eaton
International
Corporation
Eaton Manufacturera S.A.
de C.V. Mexico 87.427%
Equipos Cutler-Hammer S.A.
de C.V. Mexico 99.99999% Eaton
International
Corporation
.00001% Cutler-Hammer
Inc.
<PAGE>
Page 5
Operaciones de Maquila de
Juarez S.A. de C.V. Mexico 99.99999% Eaton
International
Corporation
.00001% Cutler-Hammer
Inc.
Eaton s.a.m. Monaco 100%
Eaton B.V. Netherlands 100%
Eaton C.V. (Partnership) Netherlands 99.9% Eaton Holding
III Limited
.1% Eaton
International
Corporation
Eaton Holding B.V. Netherlands 100% Eaton Holding
Corporation
IKU B.V. Netherlands 100% IKU Holding
Montfoort B.V.
IKU Holding Montfoort B.V. Netherlands 100% Eaton Holding
B.V.
Eaton Finance N.V. Netherlands
Antilles 45%
55% Eaton
International
Inc.
Eaton Electrical Components
Limited New Zealand 99.98%
.02% Eaton
International
Corporation
Cutler-Hammer Asia Corporation Philippines 100% Eaton
International
Corporation
IKU Poland Spolka z.o.o. Poland 51.5% Eaton Holding
B.V.
Cutler-Hammer Pte. Ltd. Singapore 100% Eaton
International
Corporation
Eaton Services Pte. Ltd. Singapore 100% Eaton
Semiconductor
Equipment, Inc.
Eaton Limited South Korea 100%
Eaton Ros S.A. Spain 66.025% Eaton
Beteiligungs
G.m.b.H.
33.975% Eaton G.m.b.H.
Eaton S.A. Spain 50.14% Eaton B.V.
49.29%
Productos Eaton Livia S.A. Spain 52% Eaton B.V.
28% Eaton S.A.
(Spain)
Eaton Limited Taiwan 19.42%
80.58% Eaton
International
Corporation
<PAGE>
Page 6
Eaton Technologies Limited Thailand 100%
Rubberon Technology Corporation
Limited Thailand 100%
Eaton Financial Services Limited United
Kingdom 100% Eaton Limited
(U.K.)
Eaton Limited United
Kingdom 100%
Cutler-Hammer de Venezuela S.A. Venezuela 100% Eaton
International
Corporation
Cutler-Hammer Electro
Metalurgica C.A. Venezuela 100% Cutler-Hammer de
Venezuela S.A.
Luz-a-Tec S.A. Venezuela 99.99% Cutler-Hammer
Electro
Metalurgica C.A.
.01% Cutler-Hammer
Inc.
</TABLE>
(A) Other Eaton subsidiaries, most of which are inactive, are
not listed above. If considered in the aggregate, they would
not be material.
<PAGE>
Page 1
Eaton Corporation
1995 Annual Report on Form 10-K
Item 14(c)
Exhibit 23
Consent of Independent Auditors
<TABLE>
We consent to the incorporation by reference in the following
Registration Statements and related Prospectuses of our report
dated January 22, 1996, with respect to the consolidated
financial statements of Eaton Corporation included in this Form
10-K for the year ended December 31, 1995:
<CAPTION>
Registration
number Description Filing date
- ------------ ------------------------------------------ -----------------
<S> <C> <C>
333-01365 Eaton Corporation Incentive Compensation
Deferral Plan - Form S-3 Registration
Statement March 1, 1996
33-64201 Eaton Corporation $120,837,500 of Debt
Securities and Debt Warrants - Form S-3
Registration Statement November 14, 1995
33-63357 Lectron Products, Inc. Retirement Savings
Plan - Form S-8 Registration Statement October 12, 1995
33-60907 Eaton 1995 Stock Plan - Form S-8
Registration Statement July 7, 1995
33-59459 Eaton Corporation 2,072,400 of Common
Shares - Form S-3 Registration Statement May 19, 1995
33-58295 Eaton Corporation 1,599,988 of Common
Shares - Form S-3 Registration Statement March 29, 1995
33-52333 Eaton Corporation $600,000,000 of Debt
Securities, Debt Warrants, Common Shares
and Preferred Shares - Form S-3
Registration Statement February 18, 1994
33-53521 Cutler-Hammer Inc. Savings Plan for
Certain Hourly Employees - Form S-8
Registration Statement May 6, 1994
33-49393, Eaton Corporation Stock Option Plans -
33-12842, Form S-8 Registration Statement March 9, 1993
2-76349 &
2-58718
33-49777 Eaton Corporation Share Purchase and
Investment Plan - Form S-8
Registration Statement July 15, 1993
33-49779 Eaton Limited U.K. Savings-Related Share
Option Scheme (1191) - Form S-8
Registration Statement July 16, 1993
<PAGE>
Page 2
33-15582 Eaton Limited U.K. Savings-Related Share
Option Scheme - Form S-8 Registration
Statement July 7, 1987
33-2688 Eaton Corporation Shareholder Dividend
Reinvestment Plan (Including Post
Effective Amendment No. 1 filed
February 19, 1986) January 15, 1986
2-77090 Eaton Corporation Strategic Incentive and
Option Plan - Form S-8 Registration
Statement May 10, 1982
Ernst & Young LLP
</TABLE>
Cleveland, Ohio
March 20, 1996
<PAGE>
Page 1
Eaton Corporation
1995 Annual Report on Form 10-K
Item 14(c)
Exhibit 24
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS: That each person whose name is
signed below has made, constituted and appointed, and by this
instrument does make, constitute and appoint, Adrian T. Dillon,
Ronald L. Leach or William J. Nowak his or her true and lawful
attorney, for him or her and in his or her name, place and stead
to subscribe, as attorney-in-fact, his or her signature as
Director or Officer or both, as the case may be, of Eaton
Corporation, an Ohio corporation (the "Corporation"), to the
Annual Report on Form 10-K for the year ended December 31, 1995
pursuant to the Securities Exchange Act of 1934, and to any and
all amendments to that Annual Report on Form 10-K, giving and
granting unto each such attorney-in-fact full power and
authority to do and perform every act and thing whatsoever
necessary to be done in the premises, as fully as he or she
might or could do if personally present, hereby ratifying and
confirming all that each such attorney-in-fact shall lawfully do
or cause to be done by virtue hereof.
This Power of Attorney shall not apply to any Annual Report on
Form 10-K or amendment thereto filed after December 31, 1996.
IN WITNESS WHEREOF, this Power of Attorney has been signed this
28th day of February, 1996.
/s/ Stephen R. Hardis /s/ Charles E. Hugel
- ---------------------------- ----------------------------
Stephen R. Hardis Charles E. Hugel
Chairman and Chief Executive Director
Officer; Principal
Executive Officer; Director
/s/ Alexander M. Cutler /s/ John R. Miller
- ---------------------------- ----------------------------
Alexander M. Cutler John R. Miller
President and Chief Operating Director
Officer; Director
/s/ Billie K. Rawot /s/ Furman C. Moseley
- ---------------------------- ----------------------------
Billie K. Rawot Furman C. Moseley
Vice President and Controller Director
/s/ Neil A. Armstrong /s/ Victor A. Pelson
- ----------------------------- ----------------------------
Neil A. Armstrong Victor A. Pelson
Director Director
/s/ Phyllis B. Davis /s/ A. William Reynolds
- ----------------------------- ----------------------------
Phyllis B. Davis A. William Reynolds
Director Director
<PAGE>
Page 2
/s/ Ernie Green /s/ Gary L. Tooker
- ----------------------------- ----------------------------
Ernie Green Gary L. Tooker
Director Director
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheets and the Statements of Consolidated Income and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 56
<SECURITIES> 28
<RECEIVABLES> 947
<ALLOWANCES> 15
<INVENTORY> 735
<CURRENT-ASSETS> 1,967
<PP&E> 3,214
<DEPRECIATION> 1,561
<TOTAL-ASSETS> 5,053
<CURRENT-LIABILITIES> 1,145
<BONDS> 1,084
0
0
<COMMON> 39
<OTHER-SE> 1,936
<TOTAL-LIABILITY-AND-EQUITY> 5,053
<SALES> 6,822
<TOTAL-REVENUES> 6,822
<CGS> 5,028
<TOTAL-COSTS> 6,182
<OTHER-EXPENSES> (38)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 86
<INCOME-PRETAX> 592
<INCOME-TAX> 193
<INCOME-CONTINUING> 399
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 399
<EPS-PRIMARY> 5.13
<EPS-DILUTED> 5.03
</TABLE>
