SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 10, 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 are (1) information concerning the initial
public offering of Axcelis Technologies, Inc., (2) Eaton Corporation's
second quarter 2000 earnings release dated July 17, 2000 and (3) a
press release announcing the authorization of a share repurchase
program dated July 26, 2000.
1) Axcelis Technologies, Inc. initial public offering
On July 10, 2000, Axcelis Technologies, Inc. (Axcelis), then a wholly-
owned subsidiary of Eaton Corporation (Eaton), completed an initial
public offering (IPO) of 15,500,000 shares of its common stock at $22
per share. The net proceeds from the IPO were $317.5 million which,
together with cash from other sources available to Axcelis, were used
to pay a previously declared $300 million dividend to Eaton. On July
20, 2000, Axcelis sold an additional 1,550,000 shares of its common
stock upon exercise of the underwriters' over-allotment option. The net
proceeds from this sale were $32.1 million. For further information,
see the footnotes to Eaton's quarterly financial statements included in
the press release set forth in 2) below.
2) Press Release dated July 17, 2000
Eaton Corporation announced record sales, earnings and earnings per
share for the second quarter of 2000. Sales were $2.34 billion, 2
percent above the second quarter of 1999. Operating earnings per share
during the quarter were $1.95, 12 percent above one year earlier.
Comparable cash earnings per share, at $2.25, were up 9 percent. Net
income on a comparable basis was $145 million versus last year's $127
million.
During the quarter, the company realized a pretax gain on the sale of a
corporate asset of $12 million and had restructuring charges of $10
million related to the continuing integration of Aeroquip-Vickers into
Eaton. After non-recurring items, second quarter earnings were $1.96
per share, 15 percent above one year ago.
Sales and operating earnings per share for the first six months of 2000
were also at record levels. Net income before non-recurring items
reached $274 million, or $3.70 per share, on sales of $4.66 billion.
Comparable first half 1999 earnings were $211 million, or $2.91 per
share, on sales of $3.96 billion.
Stephen R. Hardis, Chairman and Chief Executive Officer, said, "During
the second quarter of 2000, Eaton's performance clearly demonstrated
the benefits of the strategic and operating initiatives we have
undertaken over the past several years. For the first time ever,
operating margins in all of our business segments were in double
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digits. As would be expected of a premier diversified industrial
corporation, operating issues in some businesses were offset by
outstanding performance in others. Overall, we met our very high
expectations for bottom line performance in the quarter.
"Last week's successful Initial Public Offering by Axcelis
Technologies, Inc., which comprises Eaton's Semiconductor Equipment
Operations, demonstrated the inherent worth of that business, as well
as our determination to deliver value to Eaton's owners.
"We continue to make good progress integrating the acquired Aeroquip-
Vickers business into Eaton's Fluid Power Segment; during the quarter,
Aeroquip-Vickers added about $0.19 per share to Eaton's earnings before
restructuring charges.
"For the first time ever, Eaton this year will deliver record earnings
in a down North American heavy truck market.
"I have never been more confident that Eaton will complete its
emergence as a premier diversified industrial enterprise. With Sandy
Cutler, who succeeds me at the end of this month as Eaton's Chairman
and Chief Executive Officer, our heritage of operating excellence and
innovation will continue to deliver superior value to our customers and
to our owners."
Sales and profits in the Automotive Components segment were flat with
last year's record results during the second quarter, with a 3 percent
increase in sales volume essentially offset by the impact of a weaker
Euro exchange rate. This compares to a 4 percent increase in NAFTA auto
production, a 2 percent rise in Europe and a 24 percent rise in South
American output. Hardis pointed to last year's remarkable 10 percent
jump in sales, and said that this year's relatively weak sales
comparison represented a return to market trends. Hardis also noted
that the company would begin an expansion of its Eaton Supercharger
capacity in Brazil to serve automotive customers in that region
beginning in 2002.
Second quarter sales of Fluid Power & Other Components were a record
$681 million, 3 percent above year earlier results, with the lower Euro
exchange rate reducing reported sales by about 3 percent. This 6
percent increase in sales volume compares to about a 7 percent rise in
North American fluid power markets and a 1 percent decline in Aerospace
markets. Segment profits before restructuring charges were $79 million,
25 percent above comparable profits last year.
Said Hardis, "We have been consistently cautious about the rebound in
the North American hydraulics market and, after a sharp rise over the
past six months, we are seeing a mid-year pause in industry activity,
with Eaton's second quarter orders about 4 percent ahead of one year
ago. On the other hand, it is increasingly clear we have seen the
bottom on commercial and military aircraft shipments, and our Aeroquip
fluid conveyance business is reporting steady gains. Most important, we
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are pleased with the continuing integration efforts. We remain
comfortable that Aeroquip-Vickers will add 75 cents to Eaton's earnings
over the course of this year."
Industrial & Commercial Controls segment sales were a record $604
million, 5 percent above last year while segment profits of $65 million
were up 33 percent. Hardis noted that profits were at record levels and
exceeded the long-time operating margin target of 10 percent. Said
Hardis, "Our Cutler-Hammer business continues to enjoy good momentum,
with both shipments and orders up an above-market 8 percent in the
second quarter. We are particularly pleased with the second quarter
profits and with the operating traction we are achieving."
Semiconductor Equipment turned in a record performance in the second
quarter. Sales of $166 million were 69 percent above last year while
operating profits of $33 million were triple one year ago. Said Hardis,
"Assuming that we get a timely and favorable tax ruling on the
disposition, Eaton intends to deliver its remaining 84 percent
ownership in Axcelis to its shareholders via a spin- or split-off by
year end."
Second quarter sales of Truck components were $405 million, off 1
percent from last year. This compares to a 12 percent decline in NAFTA
production of Class 8 trucks, flat NAFTA production of medium duty
trucks, an 8 percent rise in European commercial vehicle production and
a 27 percent jump in South American truck output. Segment profits of
$52 million were 15 percent below one year ago.
Said Hardis, "Truck Components operating results continue to be
whipsawed by the extraordinary volatility of the NAFTA heavy truck
market. Over the past year alone, factory sales have surged from an
annual rate of 300,000 to 355,000 at the end of last year and back
again to about 290,000 in the quarter just ended. Over that period, we
have been incurring variances as we fulfilled our obligations as the
market leader to our customers, and as a result our operating results
have continued below expectations. We anticipate a more stable
operating environment in the second half of this year at about a
240,000 annual rate of production, and we are sizing the business for
that level of activity."
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 200 manufacturing sites in 24
countries. Eaton's sales for 1999 were $8.4 billion.
This news release contains forward-looking statements concerning the
North American industrial, commercial and off-highway mobile markets,
the auto and truck markets, European markets, Asian and Latin American
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markets, earnings for this year, the expansion of Supercharger capacity
in Brazil, commercial and military aircraft shipments, the contribution
of Aeroquip-Vickers to earnings for this year and the annual rate of
production in the second half of this year for the NAFTA heavy truck
market. 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 our profit
plans, the continuing demand for Superchargers and our ability to
adhere to the timetable for our expansion of Supercharger capacity, our
ability to implement successfully the integration of Aeroquip-Vickers,
continuity of business relationships with and purchases by major
customers, competitive pressure on sales and pricing, increases in
material and other production costs that cannot be recouped in product
pricing and global economic and financial conditions.
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Eaton Corporation
<TABLE>
Comparative Financial Summary
<CAPTION>
Three Months Ended
June 30
------------------
(Millions except for per share data) 2000 1999
---- ----
<S> <C> <C>
Net sales $2,335 $2,300
Income before income taxes 218 186
Net income 145 125
Net income per Common Share
Assuming dilution $ 1.96 $ 1.71
Basic 1.99 1.74
Average number of Common Shares outstanding
Assuming dilution 74.1 72.8
Basic 73.2 71.7
Cash dividends paid per Common Share $ .44 $ .44
</TABLE>
See accompanying notes.
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Eaton Corporation
<TABLE>
Comparative Financial Summary
<CAPTION>
Six Months Ended
June 30
----------------
(Millions except for per share data) 2000 1999
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<S> <C> <C>
Net sales $4,660 $3,961
Income before income taxes 419 309
Net income 276 209
Net income per Common Share
Assuming dilution $ 3.73 $ 2.88
Basic 3.78 2.92
Average number of Common Shares outstanding
Assuming dilution 74.0 72.5
Basic 73.1 71.5
Cash dividends paid per Common Share $ .88 $ .88
</TABLE>
See accompanying notes.
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Eaton Corporation
<TABLE>
Statements of Consolidated Income
<CAPTION>
Three Months Ended
June 30
------------------
(Millions except for per share data) 2000 1999
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<S> <C> <C>
Net sales $2,335 $2,300
Costs & expenses
Cost of products sold 1,661 1,643
Selling & administrative 356 354
Research & development 87 77
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2,104 2,074
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Income from operations 231 226
Other income (expense)
Interest expense - net (45) (44)
Other - net 32 4
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(13) (40)
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Income before income taxes 218 186
Income taxes 73 61
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Net income $ 145 $ 125
====== ======
Net income per Common Share
Assuming dilution $ 1.96 $ 1.71
Basic 1.99 1.74
Average number of Common Shares outstanding
Assuming dilution 74.1 72.8
Basic 73.2 71.7
Cash dividends paid per Common Share $ .44 $ .44
</TABLE>
See accompanying notes.
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Eaton Corporation
<TABLE>
Statements of Consolidated Income
<CAPTION>
Six Months Ended
June 30
----------------
(Millions except for per share data) 2000 1999
---- ----
<S> <C> <C>
Net sales $4,660 $3,961
Costs & expenses
Cost of products sold 3,324 2,815
Selling & administrative 718 629
Research & development 171 148
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4,213 3,592
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Income from operations 447 369
Other income (expense)
Interest expense - net (89) (65)
Other - net 61 5
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(28) (60)
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Income before income taxes 419 309
Income taxes 143 100
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Net income $ 276 $ 209
====== ======
Net income per Common Share
Assuming dilution $ 3.73 $ 2.88
Basic 3.78 2.92
Average number of Common Shares outstanding
Assuming dilution 74.0 72.5
Basic 73.1 71.5
Cash dividends paid per Common Share $ .88 $ .88
</TABLE>
See accompanying notes.
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Eaton Corporation
<TABLE>
Business Segment Information
<CAPTION>
Three Months Ended
June 30
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(Millions) 2000 1999
---- ----
<S> <C> <C>
Net sales
Automotive Components $ 479 $ 480
Fluid Power & Other Components 681 661
Industrial & Commercial Controls 604 578
Semiconductor Equipment 166 98
Truck Components 405 407
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Total ongoing operations 2,335 2,224
Divested operations 76
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Total net sales $2,335 $2,300
====== ======
Operating profit
Automotive Components $ 65 $ 65
Fluid Power & Other Components 69 60
Industrial & Commercial Controls 65 49
Semiconductor Equipment 33 10
Truck Components 52 61
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Total ongoing operations 284 245
Divested operations 16
Amortization of goodwill & other intangible
assets (27) (27)
Interest expense - net (45) (44)
Corporate & other - net 6 (4)
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Income before income taxes $ 218 $ 186
====== ======
</TABLE>
See accompanying notes.
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Eaton Corporation
<TABLE>
Business Segment Information
<CAPTION>
Six Months Ended
June 30
------------------
(Millions) 2000 1999
---- ----
<S> <C> <C>
Net sales
Automotive Components $ 976 $ 958
Fluid Power & Other Components 1,346 820
Industrial & Commercial Controls 1,183 1,090
Semiconductor Equipment 307 155
Truck Components 848 789
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Total ongoing operations 4,660 3,812
Divested operations 149
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Total net sales $4,660 $3,961
====== ======
Operating profit (loss)
Automotive Components $ 139 $ 127
Fluid Power & Other Components 136 82
Industrial & Commercial Controls 114 76
Semiconductor Equipment 60 (2)
Truck Components 112 121
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Total ongoing operations 561 404
Divested operations 31
Amortization of goodwill & other intangible
assets (54) (44)
Interest expense - net (89) (65)
Corporate & other - net 1 (17)
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Income before income taxes $ 419 $ 309
====== ======
</TABLE>
See accompanying notes.
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Eaton Corporation
<TABLE>
Condensed Consolidated Balance Sheets
<CAPTION>
June 30, December 31,
(Millions) 2000 1999
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<S> <C> <C>
ASSETS
Current assets
Cash & short-term investments $ 145 $ 165
Accounts receivable 1,426 1,267
Inventories 965 965
Deferred income taxes & other current
assets 430 385
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2,966 2,782
Property, plant & equipment 2,285 2,369
Goodwill 2,009 1,905
Other intangible assets 598 625
Deferred income taxes & other assets 756 756
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$8,614 $8,437
====== ======
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt & current portion
of long-term debt $ 425 $ 970
Accounts payable & other current
liabilities 1,710 1,679
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2,135 2,649
Long-term debt 2,490 1,915
Postretirement benefits other than pensions 671 667
Deferred income taxes & other liabilities 550 582
Shareholders' equity 2,768 2,624
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$8,614 $8,437
====== ======
</TABLE>
See accompanying notes.
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Notes to the Second Quarter 2000 Earnings Release
(All references to net income per Common Share assume dilution.)
Restructuring Charges
---------------------
Income for the second quarter of 2000 was reduced by restructuring
charges of $10 million ($7 million aftertax, or $.09 per Common Share).
Income for the first half of 2000 was reduced by restructuring charges
of $18 million ($12 million aftertax, or $.16 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.
Income in the second quarter of 1999 was reduced by restructuring
charges of $3 million ($2 million aftertax, or $.03 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.
Other Income (Expense)
---------------------
Income for the second quarter of 2000 was increased by a net pretax
gain on the sale of a corporate asset of $12 million ($7 million
aftertax, or $.10 per Common Share). Income for the first half of 2000
was increased by a net pretax gain on the sale of corporate assets of
$22 million ($14 million aftertax, or $.19 per Common Share). These
non-recurring gains were included in other income.
Initial Public Offering of Axcelis Technologies, Inc.
-----------------------------------------------------
On April 26, 2000, the Company announced a plan to reorganize its
semiconductor equipment operations into an independent, publicly held
company. On June 30, 2000, the Company substantially completed the
transfer of all the assets and related liabilities of its semiconductor
equipment operations to Axcelis Technologies, Inc. (Axcelis), a wholly-
owned subsidiary. As a result, Axcelis includes all of the Company's
operations that manufacture, sell and service capital equipment used in
the production of semiconductors, including high- and medium- current
implanters and high-energy implanters, and other products, including
photostablizers, ozone and plasma ashers and thermal processing
systems.
On July 10, 2000, Axcelis completed an initial public offering (IPO)
for the sale of 15,500,000 shares of common stock at $22 per share. The
net proceeds from the IPO were $317.5 million and the number of
outstanding shares of Axcelis common stock increased to 95,500,000. The
net proceeds from the IPO, together with cash from other sources
available to Axcelis, will be used to pay a previously declared $300
million dividend to the Company. These funds will be used to pay down
outstanding commercial paper. Prior to the IPO, the Company owned 100%
of the 80,000,000 shares of outstanding Axcelis common stock. As a
result of the IPO, the Company now owns approximately 83.8% of the
outstanding shares of Axcelis common stock.
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The Company currently plans to consummate the divestiture of the
Axcelis common stock to its shareholders approximately six months
following the completion of this offering by distributing all of its
shares of common stock in a tax-free transaction to Company
shareholders. The Company may accomplish this divestiture through a
split-off, a spin-off or some combination of both transactions. The
Company will, in its sole discretion, determine the timing, structure
and terms of the divestiture of the remaining shares of Axcelis common
stock that it owns. This planned divestiture is subject to receiving a
private letter ruling from the Internal Revenue Service that the
divestiture will be tax-free to the Company and its shareholders and
that the Company's contribution of assets to Axcelis in connection with
the separation from the Company will qualify as a tax-free
reorganization for U.S. federal income tax purposes. The Company
recently filed the private letter ruling request.
Acquisition of Aeroquip-Vickers, Inc.
-------------------------------------
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 1999 do not include the results of Aeroquip-Vickers.
3) Press Release dated July 26, 2000
Eaton Corporation's Board of Directors authorized the company to spend
up to $500 million to purchase shares of its common stock. The company
intends to purchase these shares in the open market and, market
conditions permitting, expects to complete these repurchases by year-
end 2000. The company noted that this new program is in addition to the
continuing $500 million, five-year repurchase program authorized by
Eaton's Board earlier this year.
"In today's market, the best way to translate Eaton's outstanding cash
flow performance into value for long-term investors is to harness our
capacity to support additional borrowings so we can take advantage of
the intrinsic value we see in this enterprise," said Stephen R. Hardis,
Eaton's chairman and chief executive officer. "It would be inconsistent
with our responsibilities to our owners if we did not take advantage of
what we believe is a major buying opportunity.
"Our stock price has been unaffected by Eaton's strong earnings results
and the July 10th initial public offering by Axcelis Technologies,
Inc., which is more than 80 percent owned by Eaton Corporation. Eaton's
long-term owners have not been rewarded for the material progress we've
achieved in strengthening our businesses, gaining far more balanced
sources of earnings and delivering five years of healthy growth in our
business.
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"This does not represent a change in our long-term strategy," Hardis
continued. "We will not compromise our ability to make the investments
necessary to fund our growth programs. We are prepared to issue new
shares to help fund a major purchase if attractive opportunities
develop and if our shares are better valued.
"Money today is rushing to so-called new economy companies while funds
that traditionally invested in high quality, diversified industrial
companies, like Eaton, have seen massive redemptions," said Hardis.
"The result is the unavoidable rationing of money available for
investment in these robust older enterprises, and investors' self-
fulfilling belief that there is no penalty for delaying such an
investment. Even worse, when Wall Street regards results as
disappointing, the market's penalties are as severe as if the company
had been valued at high multiples in anticipation of extraordinary
growth."
Eaton Corporation 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,
the company has 64,000 employees and 200 manufacturing sites in 24
countries. Eaton's sales for 1999 were $8.4 billion.
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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: July 31, 2000
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