SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 17, 2000
EATON CORPORATION
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(Exact name of registrant as specified in its charter)
Ohio 1-1396 34-0196300
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(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
Eaton Center
Cleveland, Ohio 44114
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(Address of principal executive offices) (Zip Code)
(216) 523-5000
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Registrant's telephone number,
including area code
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Item 5. Other Events
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Included in this report is the first quarter 2000 earnings release
dated April 17, 2000.
Eaton Corporation announced record sales, earnings and earnings per
share for the first quarter of 2000. Sales were $2.33 billion, 40
percent above the first quarter of 1999. Operating earnings per share
during the quarter were $1.75, 50 percent above one year earlier.
Comparable cash earnings per share, at $2.04, were up 51 percent. Net
income on a comparable basis was $129 million versus last year's $84
million.
During the quarter, the company realized a pre-tax gain of $10 million
from the disposal of corporate assets and had restructuring charges of
$8 million related to the continuing integration of Aeroquip-Vickers
into Eaton. After non-recurring items, first quarter earnings were a
record $1.77 per share, 51 percent above one year ago.
Stephen R. Hardis, Chairman and Chief Executive Officer, said, "Eaton
has entered 2000 with considerable momentum. We took full advantage of
favorable conditions in the global auto industry. We are seeing an
acceleration of activity in Industrial & Commercial Controls markets.
The worldwide rebound in Semiconductor Equipment continues at a
remarkable pace. And, while orders weakened, North American heavy truck
production continued at record levels and we were again challenged to
meet customer demands.
"One year ago, we announced the acquisition of Aeroquip-Vickers, Inc.,
moving Eaton into a position of worldwide leadership in Fluid Power.
Today, we are #2 worldwide and the integration of this business into
Eaton is well advanced. During the quarter, Aeroquip-Vickers added
about $0.17 per share to Eaton's earnings before restructuring charges.
The industry recovery just now beginning will enable us to further
leverage and extend the increasing strengths of this combined franchise
in the quarters and years immediately ahead."
"Historically, Eaton has never achieved higher annual earnings in a
down heavy-truck market. This year, we will establish a new tradition
befitting Eaton's emergence as a premier diversified industrial
enterprise. With a strong quarter in hand, we look forward to a year of
record performance, and to the challenge of continuing to exceed market
expectations."
Looking at Eaton's business segment results, Hardis noted that
Automotive Components continued its consistent pattern of record
performance. First quarter sales were $497 million, 4 percent above
last year's record. Excluding the impact of the weak Euro, sales volume
was up nearly 8 percent. This compares to an 7 percent increase in
NAFTA light vehicle production, a 4 percent rise in Europe, and a
nearly 30 percent rise in South American output. Segment profits during
the quarter were up 19 percent to a record $74 million.
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First quarter sales of Fluid Power & Other Components, Eaton's largest
segment, were $665 million, nearly 320 percent above year earlier
results. Segment profits before restructuring charges were $75 million,
240 percent ahead of last year. Including Aeroquip-Vickers in 1999
results on a pro forma basis, sales were off less than 1 percent while
profits were about 39 percent higher than one year ago.
Said Hardis, "Once again, the net contribution of Aeroquip-Vickers to
first quarter earnings exceeded our expectations. We still have a long
way to go to realize the full potential of our integration efforts, and
we are pleased with progress to date. We are also anticipating stronger
industry conditions. Commercial aircraft shipments seem to have
bottomed and Aeroquip's fluid conveyance business continues modestly
higher. The incipient rebound in Fluid Power markets is also
encouraging: Industry orders were up over 10 percent in the first
quarter, while Eaton's orders were up 18 percent."
During the quarter, Eaton announced that its Aeroquip business unit
acquired the Ocala, Florida-based clamps, flanges, seals and flexible
joint business of Honeywell International, Inc., for an undisclosed
amount.
Eaton's Industrial & Commercial Controls segment also turned in a
record first quarter performance. Sales of $579 million were 13 percent
above last year while operating profits of $49 million were up 81
percent. Hardis noted that sales growth continued to far exceed the 8
percent rise in the North American market for electrical distribution
equipment and industrial controls. Said Hardis, "Our Cutler-Hammer
business achieved 12 percent year-to-year growth. We are seeing market
share gains in our traditional business as well as a 20 percent rise in
sales of Cutler-Hammer's Engineering Services and Systems business. In
addition, sales of our Navy Controls business were 70 percent above
last year."
Semiconductor Equipment continued its resurgence in the first quarter,
with sales up 147 percent to $141 million. Operating profits, at $27
million, compare to a loss of $12 million in last year's first quarter.
Said Hardis, "We are now seeing the full benefits of the fundamental
restructuring this business undertook during 1998 and early 1999.
Current industry forecasts are now calling for a worldwide rise in
semiconductor capital equipment purchases this year of over 40 percent,
and Eaton is fully participating in what we believe will be a multi-
year industry rebound.
"We are making excellent progress in our study of whether to sell to
the public up to 20 percent of our Semiconductor Equipment business in
an Initial Public Offering. We anticipate bringing a recommendation to
our Board of Directors later this month."
First quarter sales of Truck Components were a record $443 million, 16
percent above one year earlier. This compares with an 8 percent rise in
NAFTA Class 8 factory sales, a 5 percent rise in European commercial
truck production, and a 4 percent drop in South American truck output.
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Said Hardis, "First quarter activity was even stronger than in last
year's fourth quarter, and our successful new product initiatives have
enabled Eaton to measurably outpace the market. But, we also struggled
to meet surging demand, and profits were reduced by about $14 million
in extraordinary premium freight costs to keep customer lines running.
"We are now confident that these extraordinary expenses are behind us.
With industry orders down, it is clear we are now past the peak in
shipments for this year, and we will be able to move back into Eaton's
production 'sweet spot.' Given the mixed signals of strong U.S.
industry fundamentals and weak industry orders, our best current guess
is that NAFTA Class 8 factory sales will be down 10 percent - 15
percent this year to about 290,000 units. Next year, with the truck
industry adjustment completed and U.S. industry remaining strong, we
would anticipate factory sales back to about 300,000 units."
Eaton is a global manufacturer of highly engineered products that serve
industrial, vehicle, construction, commercial, aerospace and
semiconductor markets. Principal products include hydraulic products
and fluid connectors, electrical power distribution and control
equipment, truck drivetrain systems, engine components, ion implanters
and a wide variety of controls. Headquartered in Cleveland, Ohio, the
company has 64,000 employees and 195 manufacturing sites in 23
countries around the world. Eaton's sales for 1999 were $8.4 billion.
This news release contains forward-looking statements concerning the
Aeroquip-Vickers acquisition, industry conditions pertaining to
Aeroquip-Vickers, corporate performance during the year 2000,
semiconductor capital equipment purchases, and Class 8 truck factory
sales. Those statements should be used with caution. They are subject
to various risks and uncertainties, many of which are outside the
control of the Company. Important factors which could cause actual
results to differ materially from those in the forward-looking
statements include our ability to implement successfully the
integration of Aeroquip-Vickers, market conditions pertaining to the
Fluid Power, semiconductor equipment, and Class 8 truck industries,
continuity of business relationships with and purchases by major
customers, competitive pressure on sales and pricing, increases in
material and other production costs which cannot be recouped in product
pricing and global economic and financial conditions. We do not assume
any obligation to update these forward-looking statements.
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Eaton Corporation
<TABLE>
Comparative Financial Summary
<CAPTION>
Three months ended
March 31
------------------
(Millions except for per share data) 2000 1999
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<S> <C> <C>
Net sales $2,325 $1,661
Income before income taxes 201 123
Net income 131 84
Net income per Common Share
Assuming dilution $ 1.77 $1.17
Basic 1.80 1.18
Average number of Common Shares outstanding
Assuming dilution 73.8 72.2
Basic 72.9 71.2
Cash dividends paid per Common Share $ .44 $ .44
</TABLE>
See accompanying notes.
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Eaton Corporation
<TABLE>
Statements of Consolidated Income
<CAPTION>
Three months ended
March 31
------------------
(Millions except for per share data) 2000 1999
---- ----
<S> <C> <C>
Net sales $2,325 $1,661
Costs & expenses
Cost of products sold 1,663 1,172
Selling & administrative 362 275
Research & development 84 71
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2,109 1,518
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Income from operations 216 143
Other income (expense)
Interest expense - net (44) (21)
Other - net 29 1
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(15) (20)
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Income before income taxes 201 123
Income taxes 70 39
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Net income $ 131 $ 84
====== ======
Net income per Common Share
Assuming dilution $ 1.77 $ 1.17
Basic 1.80 1.18
Average number of Common Shares outstanding
Assuming dilution 73.8 72.2
Basic 72.9 71.2
Cash dividends paid per Common Share $ .44 $ .44
</TABLE>
See accompanying notes.
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Eaton Corporation
<TABLE>
Business Segment Information
<CAPTION>
Three months ended
March 31
------------------
(Millions) 2000 1999
---- ----
<S> <C> <C>
Net sales
Automotive Components $ 497 $ 478
Fluid Power & Other Components 665 159
Industrial & Commercial Controls 579 512
Semiconductor Equipment 141 57
Truck Components 443 382
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Total ongoing operations 2,325 1,588
Divested operations 73
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Total net sales $2,325 $1,661
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Operating profit (loss)
Automotive Components $ 74 $ 62
Fluid Power & Other Components 67 22
Industrial & Commercial Controls 49 27
Semiconductor Equipment 27 (12)
Truck Components 60 60
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Total ongoing operations 277 159
Divested operations 15
Amortization of goodwill & other
intangible assets (27) (17)
Interest expense - net (44) (21)
Corporate & other - net (5) (13)
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Income before income taxes $ 201 $ 123
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</TABLE>
See accompanying notes.
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Eaton Corporation
<TABLE>
Condensed Consolidated Balance Sheets
<CAPTION>
March 31, December 31,
(Millions) 2000 1999
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<S> <C> <C>
ASSETS
Current assets
Cash & short-term investments $ 101 $ 165
Accounts receivable 1,406 1,267
Inventories 975 965
Deferred income taxes & other current
assets 438 385
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2,920 2,782
Property, plant & equipment 2,320 2,369
Goodwill 2,010 1,905
Other intangible assets 620 625
Deferred income taxes & other assets 732 756
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$8,602 $8,437
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LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt & current portion
of long-term debt $ 927 $ 970
Accounts payable & other current
liabilities 1,697 1,679
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2,624 2,649
Long-term debt 2,104 1,915
Postretirement benefits other than pensions 671 667
Deferred income taxes & other liabilities 540 582
Shareholders' equity 2,663 2,624
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$8,602 $8,437
====== ======
</TABLE>
See accompanying notes.
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Eaton Corporation
Notes to the First Quarter 2000 Earnings Release
(All references to net income per Common Share assume dilution.)
Other Income (Expense)
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In the first quarter of 2000, the Company recorded a net pretax
gain on the sale of corporate assets of $10 million
($7 million aftertax, or $.09 per Common Share) which was
included in other income.
Restructuring Charges
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Income for the first quarter of 2000 was reduced by
restructuring charges of $8 million ($5 million aftertax, or
$.07 per Common Share). These charges were associated with the
integration of Aeroquip-Vickers into the Company and reduced
operating profit of the Fluid Power and Other Components
segment.
Possible Sale of Equity in Semiconductor Equipment Business
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On February 24, 2000, the Company announced that it planned to
study the feasibility of selling a minority interest in Eaton's
Semiconductor Equipment business through an initial public
offering. A possible sale of equity would involve less than a
20% interest.
Refinancing of Debt
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In March 2000, the Company sold Euro 200 million of 6% notes due
2007. Net proceeds from the sale of the notes were used to reduce
outstanding commercial paper that was issued in connection with
the 1999 acquisition of Aeroquip-Vickers.
Share Repurchase Program
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In January 2000, to avoid the dilution of earnings per share
resulting from the exercise of stock options, the Board of
Directors authorized the purchase of up to $500 million of
Common Shares over a five-year period. This authorization
replaced the expired five million share repurchase program
authorized in 1994.
Acquisition of Aeroquip-Vickers, Inc.
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As discussed in the Company's 1999 Annual Report to
Shareholders, on April 9, 1999, the Company completed the
acquisition of Aeroquip-Vickers, Inc. Aeroquip-Vickers had
1998 sales of $2.1 billion. The acquisition was accounted for
by the purchase method of accounting and, accordingly, the
statements of consolidated income for the first quarter of
1999 do not include the results of Aeroquip-Vickers.
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Signature
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
Eaton Corporation
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/s/ Adrian T. Dillon
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Adrian T. Dillon
Executive Vice President -
Chief Financial and Planning Officer
Principal Financial Officer
Date: April 17, 2000
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