United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the period ended June 30, 2000
-------------
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)
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
---
There were 72.9 million Common Shares outstanding as of June 30, 2000.
<PAGE>
Page 2
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Eaton Corporation
<TABLE>
Condensed Consolidated Balance Sheets
<CAPTION>
June 30, December 31,
(Millions) 2000 1999
---- ----
<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
------ ------
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
------ ------
$8,614 $8,437
====== ======
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt & current portion of
long-term debt $ 425 $ 970
Accounts payable 526 511
Accrued compensation 236 286
Accrued income & other taxes 178 257
Other current liabilities 770 625
------ ------
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
------ ------
$8,614 $8,437
====== ======
See accompanying notes.
</TABLE>
<PAGE>
Page 3
Eaton Corporation
<TABLE>
Statements of Consolidated Income
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
(Millions except for per share data) 2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $2,335 $2,300 $4,660 $3,961
Costs & expenses
Cost of products sold 1,661 1,643 3,324 2,815
Selling & administrative 356 354 718 629
Research & development 87 77 171 148
------ ------ ------ ------
2,104 2,074 4,213 3,592
------ ------ ------ ------
Income from operations 231 226 447 369
Other income (expense)
Interest - net (45) (44) (89) (65)
Other - net 32 4 61 5
------ ------ ------ ------
(13) (40) (28) (60)
------ ------ ------ ------
Income before income taxes 218 186 419 309
Income taxes 73 61 143 100
------ ------ ------ ------
Net income $ 145 $ 125 $ 276 $ 209
====== ====== ====== ======
Net income per Common Share
Assuming dilution $ 1.96 $ 1.71 $ 3.73 $ 2.88
Basic 1.99 1.74 3.78 2.92
Average number of Common Shares
outstanding
Assuming dilution 74.1 72.8 74.0 72.5
Basic 73.2 71.7 73.1 71.5
Cash dividends paid per Common Share $ .44 $ .44 $ .88 $ .88
See accompanying notes.
</TABLE>
<PAGE>
Page 4
Eaton Corporation
<TABLE>
Condensed Statements of Consolidated Cash Flows
<CAPTION>
Six Months Ended
June 30
----------------
(Millions) 2000 1999
---- ----
<S> <C> <C>
Net cash provided by operating activities
Net income $ 276 $ 209
Adjustments to reconcile to net cash provided
by operating activities
Depreciation 167 151
Amortization 64 50
Changes in operating assets & liabilities,
excluding acquisitions and sales of
businesses (320) (319)
Other - net 12 60
------ ------
199 151
Net cash used in investing activities
Acquisitions of businesses, less cash acquired (28) (1,593)
Sales of corporate assets 70
Expenditures for property, plant & equipment (150) (183)
Other - net 11 (8)
------ ------
(97) (1,784)
Net cash (used in) provided by financing activities
Borrowings with original maturities of more
than three months
Proceeds 820 820
Payments (930) (670)
Borrowings with original maturities of less
than three months - net 159 1,481
Cash dividends paid (64) (63)
Purchase of Common Shares (96)
Other - net 6 11
------ ------
(105) 1,579
------ ------
Decrease in cash (3) (54)
Cash at beginning of year 81 80
------ ------
Cash at end of period $ 78 $ 26
====== ======
See accompanying notes.
</TABLE>
<PAGE>
Page 5
The following notes are included in accordance with the
requirements of Regulation S-X and Form 10-Q:
All references to net income per Common Share assume dilution, unless
otherwise indicated.
Preparation of Financial Statements
-----------------------------------
The condensed consolidated financial statements of Eaton Corporation
(Eaton or the Company) are unaudited. However, in the opinion of
management, all adjustments have been made which are necessary for a
fair presentation of financial position, results of operations and
cash flows for the stated periods. These financial statements should
be read in conjunction with the consolidated financial statements and
related notes included in the Company's 1999 Annual Report on Form
10-K. The interim period results are not necessarily indicative of
the results to be expected for the full year.
Unusual Charges
---------------
Income in the second quarter of 2000 was reduced by restructuring
charges of $10 million ($7 million aftertax, or $.09 per Common Share).
Income in 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 as discussed in the "Acquisition of Aeroquip-Vickers, Inc."
footnote. These charges primarily related to plant consolidation and
other expenses, including fees paid to outside consultants, travel
expenses, and relocation of inventory and equipment.
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 also associated with the integration of Aeroquip-
Vickers into the Company.
The restructuring charges in 2000 and 1999 reduced operating profit
of the Fluid Power and Other Components segment and were included
in the Statements of Consolidated Income in Income from Operations.
Other Income (Expense)
---------------------
Income in 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 in 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 gains
were included in other income-net in the Statements of Consolidated
Income and in corporate and other-net in Business Segment Information.
<PAGE>
Page 6
Subsequent Event - 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 these 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 commenced 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, were used to pay a previously declared $300
million dividend to Eaton. These funds were used by Eaton to pay down
outstanding commercial paper. On July 20, 2000, Axcelis completed the
IPO by selling an additional 1,550,000 shares of its common stock due
to the exercise of the underwriters' over-allotment option. The net
proceeds from this sale were $32.1 million. Prior to the IPO, Eaton
owned 100% of the 80,000,000 shares of outstanding Axcelis common
stock. As a result of the IPO, Eaton now owns 82.4% of the 97,050,000
outstanding shares of Axcelis common stock.
Eaton currently plans to consummate its divestiture of the Axcelis
common stock to Eaton's shareholders approximately six months following
the IPO by distributing all of its shares of Axcelis common stock in a
tax-free transaction to Eaton 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 has filed such 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 acquisition of Aeroquip-Vickers, Inc. was completed
for $1.623 billion in cash. The acquisition was accounted for by the
purchase method of accounting and, accordingly, the operating results
of the Company for the first quarter of 1999 do not include the results
of Aeroquip-Vickers. Beginning with the second quarter of 1999, the
operating results of Aeroquip-Vickers are reported in the Fluid Power
and Other Components business segment.
<PAGE>
Page 7
The assets acquired and liabilities assumed were recorded at estimated
fair values as determined by the Company's management based on
information currently available and on current assumptions as to future
operations. The Company has obtained independent appraisals of the fair
values of the acquired property, plant and equipment, and identified
intangible assets, and their remaining useful lives. The Company has
completed the review and determination of the fair values of the other
assets acquired and liabilities assumed. A summary of the assets
acquired and liabilities assumed in the acquisition follows (in
millions):
Estimated fair values
Assets acquired $1,766
Liabilities assumed (1,216)
Goodwill (amortized by the straight-line
method over forty years) 1,073
------
Purchase price 1,623
Less cash acquired & liability for
outstanding shares (31)
------
Net cash paid $1,592
======
As a result of the acquisition of Aeroquip-Vickers, Eaton incurred
acquisition integration expenses for the incremental costs to exit and
consolidate activities at Aeroquip-Vickers locations, to involuntarily
terminate Aeroquip-Vickers employees, and for other costs to integrate
operating locations and other activities of Aeroquip-Vickers with
Eaton. Generally accepted accounting principles require that these
acquisition integration costs, which are not associated with the
generation of future revenues and have no future economic benefit, be
reflected as assumed liabilities in the allocation of the purchase
price to the net assets acquired. On the other hand, these same
principles require that acquisition integration expenses which are
associated with the generation of future revenues and have future
economic benefit, and those associated with integrating Eaton
operations into Aeroquip-Vickers locations, must be recorded as
expense. These expenses are discussed in the "Unusual Charges"
footnote. The components of the acquisition integration liabilities
included in the purchase price allocation for Aeroquip-Vickers are as
follows (in millions of dollars):
<PAGE>
Page 8
<TABLE>
<CAPTION>
Workforce reductions Plant
-------------------- consolidation
Employees Dollars & other Total
--------- ------- -------------- -----
<S> <C> <C> <C> <C>
Balance at
December 31, 1999 10 $ 3 $ 0 $ 3
2000 1,670 62 8 70
Utilized in the first
half of 2000 (190) (12) (1) (13)
----- --- --- ---
Balance remaining at
June 30, 2000 1,490 $ 53 $ 7 $ 60
===== === === ===
</TABLE>
The acquisition integration liabilities are based on the Company's
current integration plan which focuses on three key areas of
integration: 1) manufacturing process and supply chain rationalization,
including plant closings, 2) elimination of redundant administrative
overhead and support activities, and 3) restructuring and repositioning
of the sales/marketing and research and development organizations to
eliminate redundancies in these activities. Amounts provided in 2000
for workforce reductions primarily relate to plant closings and
consolidations, for which decisions were finalized in the first quarter
of 2000. Adjustments to these liabilities in the future, if any, will
be 1) recorded as a reduction of net income, if the ultimate liability
exceeds the estimate, or 2) recorded as a reduction of goodwill, if the
ultimate amount of the liability is below the estimate.
Unaudited pro forma results of operations for the six-month period
ended June 30, 1999 as if Eaton and Aeroquip-Vickers had been combined
as of the beginning of that period, follow (in millions). The pro forma
results do not include any cost savings or other effects of the planned
integration of Eaton and Aeroquip-Vickers, and are not necessarily
indicative of the results which would have occurred if the business
combination had been in effect on the dates indicated, or which may
result in the future.
Pro forma
Six months ended
June 30, 1999
----------------
Net sales $4,499
Net income 197
Net income per Common Share
Assuming dilution $ 2.72
Basic 2.76
Refinancing of Debt
-------------------
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 and short-term notes that were issued in connection
with the 1999 acquisition of Aeroquip-Vickers.
<PAGE>
Page 9
Comprehensive Income
--------------------
The principal difference between net income as historically reported in
the Statements of Consolidated Income and comprehensive income are
foreign currency translation adjustments recorded in Shareholders'
Equity. Comprehensive income is as follows (in millions):
Three months ended Six months ended
June 30 June 30
------------------ ----------------
2000 1999 2000 1999
---- ---- ---- ----
Net income $145 $125 $276 $209
Foreign currency translation
and other adjustments (14) (9) (29) (108)
---- ---- ---- ----
Comprehensive income $131 $116 $247 $101
==== ==== ==== ====
Inventories
-----------
June 30, December 31,
(Millions) 2000 1999
---- ----
Raw materials $ 402 $ 341
Work-in-process and
finished goods 603 661
------ ------
Gross inventories at FIFO 1,005 1,002
Excess of current cost
over LIFO cost (40) (37)
------ ------
Net inventories $ 965 $ 965
====== ======
Net Income per Common Share
---------------------------
The calculation of net income per Common Share - assuming dilution and
basic follows (millions except for per share data):
Three months ended Six months ended
June 30 June 30
------------------ ----------------
2000 1999 2000 1999
---- ---- ---- ----
Net income $ 145 $ 125 $ 276 $ 209
==== ==== ==== ====
<PAGE>
Page 10
Average number of Common Shares
outstanding-assuming dilution 74.1 72.8 74.0 72.5
Less dilutive effect of stock
options .9 1.1 .9 1.0
---- ---- ---- ----
Average number of Common Shares
outstanding-basic 73.2 71.7 73.1 71.5
==== ==== ==== ====
Net income per Common Share
Assuming dilution $1.96 $1.71 $3.73 $2.88
Basic 1.99 1.74 3.78 2.92
Summary Financial Information for Eaton ETN Offshore Ltd.
---------------------------------------------------------
Eaton ETN Offshore Ltd. (Eaton Offshore), a wholly-owned subsidiary of
Eaton, 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. Eaton Offshore owns the common
stock of a number of Eaton's subsidiaries which are engaged principally
in the manufacture and/or sale of electrical and electronic controls,
truck transmissions and engine components. On August 31, 1999, the
Engineered Fasteners division was sold. Summary financial information
for Eaton Offshore and its consolidated subsidiaries is as follows (in
millions):
Six months ended
June 30
------------------
2000 1999
---- ----
Income statement data
Net sales $236 $245
Gross profit 71 70
Net income 31 17
June 30, December 31,
2000 1999
---- ----
Balance sheet data
Current assets $352 $354
Noncurrent assets 193 184
Net intercompany payables 49 93
Current liabilities 97 92
Noncurrent liabilities 128 115
Minority interest 8 3
<PAGE>
Page 11
Eaton Corporation
<TABLE>
Business Segment Information
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
(Millions) 2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales
Automotive Components $ 479 $ 480 $ 976 $ 958
Fluid Power & Other Components 681 661 1,346 820
Industrial & Commercial Controls 604 578 1,183 1,090
Semiconductor Equipment 166 98 307 155
Truck Components 405 407 848 789
------ ------ ------ ------
Total ongoing operations 2,335 2,224 4,660 3,812
Divested operations 76 149
------ ------ ------ ------
Total net sales $2,335 $2,300 $4,660 $3,961
====== ====== ====== ======
Operating profit (loss)
Automotive Components $ 65 $ 65 $ 139 $ 127
Fluid Power & Other Components 69 60 136 82
Industrial & Commercial Controls 65 49 114 76
Semiconductor Equipment 33 10 60 (2)
Truck Components 52 61 112 121
------ ------ ------ ------
Total ongoing operations 284 245 561 404
Divested operations 16 31
Amortization of goodwill & other
intangible assets (27) (27) (54) (44)
Interest expense - net (45) (44) (89) (65)
Corporate & other - net 6 (4) 1 (17)
------ ------ ------ ------
Income before income taxes $ 218 $ 186 $ 419 $ 309
====== ====== ====== ======
</TABLE>
<PAGE>
Page 12
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
---------------------
The Company reported record sales of $2.34 billion for the second
quarter of 2000, 2% above the comparable period in 1999. Sales for the
first half of 2000 were a record $4.66 billion, an increase of 18% from
the comparable period in 1999. As displayed in the Statements of
Consolidated Income, Income from Operations was $231 million in the
second quarter of 2000 and $447 million in the first half of 2000,
increasing 2% and 21% from the same periods in 1999, respectively.
These increases reflect the acquisition of Aeroquip-Vickers which were
included in the Company's operating results beginning in the second
quarter of 1999. During the second quarter of 2000, Aeroquip-Vickers
added about $.19 per share to the Company's earnings before
restructuring charges. The Company's performance also clearly
demonstrated the benefits of the strategic and operating initiatives
undertaken over the past several years. In the second quarter of 2000,
operating margins in all of the Company's business segments were in
double digits.
During the second quarter of 2000, income was reduced by restructuring
charges of $10 million ($7 million aftertax, or $.09 per Common Share).
During the first half of 2000, income was reduced by restructuring
charges of $18 million ($12 million aftertax, or $.16 per Common
Share).
Income in the second quarter of 1999 was reduced by restructuring
charges of $3 million ($2 million aftertax, or $.03 per Common Share).
The restructuring charges in 2000 and 1999 were associated with the
integration of Aeroquip-Vickers into the Company, reduced operating
profit of the Fluid Power and Other Components segment and were included
in the Statements of Consolidated Income in Income from Operations.
During the second quarter of 2000, income 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). In the first half of 2000, income
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
gains were included in other income-net in the Statements of
Consolidated Income and in corporate and other-net in Business Segment
Information.
Including unusual items, net income in the second quarter of 2000 was a
record $145 million, an increase of 16% from the comparable period in
1999. Second quarter 2000 diluted earnings per share reached a record
$1.96, 15% above last year's $1.71. Net income for the first half 2000
was $276 million, an increase of 32% from the comparable period in
1999. Diluted earnings per share for the first half of 2000 were $3.73
compared to $2.88 for the same period in 1999.
<PAGE>
Page 13
Operating earnings per share represents earnings per share
excluding restructuring charges and net gains on the sales of corporate
assets. During the second quarter of 2000, operating earnings per share
were $1.95, 12% above one year earlier, based on net income in the
second quarter of 2000 of $145 million versus last year's $127
million. During the first half of 2000, operating earnings per share
were a record $3.70 based on net income of $274 million as compared to last
year's operating earnings per share of $2.91 and net income of $211
million. Operating earnings per share has been included because it is
commonly used by financial analysts as one measure of a company's
operating performance.
Automotive Components
---------------------
Sales in the second quarter of 2000 of $479 million were flat with last
year's record results, with a 3% increase in sales volume essentially
offset by the impact of a weaker Euro exchange rate. This compares to a
4% increase in NAFTA auto production, a 2% rise in Europe and a 24%
rise in South American output. Compared to last year's 10% increase in
sales, this year's relatively weak sales comparison represented a
return to market trends. Sales in the first half of 2000 of $976
million increased 2% compared to the same period in 1999.
Operating profits in the second quarter of 2000 of $65 million were
also flat compared to the same period in 1999. Operating profits for
the first half of 2000 were $139 million, an increase of 9% compared to
the same period in 1999. This segment's differentiated product
platforms drove the increase in operating profit.
The Company will begin an expansion of its Eaton Supercharger capacity
in Brazil to serve automotive customers in that region beginning in
2002.
Fluid Power & Other Components
------------------------------
Fluid Power and Other Components sales in the second quarter of 2000
were a record $681 million, 3% above year earlier results, with the
lower Euro exchange rate reducing reported sales by about 3%. This 6%
increase in sales volume compares to about a 7% rise in North American
fluid power markets and a 1% decline in Aerospace markets. Sales in the
first half of 2000 of $1.3 billion were 64% ahead of 1999's first half
results. This increase is primarily attributable to the acquisition of
Aeroquip-Vickers in April 1999.
Including restructuring charges, operating profits in the second
quarter of 2000 were $69 million, 15% ahead of one year earlier.
Operating profits for the first half of 2000 were $136 million, 66%
ahead of comparable results in 1999. Before restructuring charges of
$10 million in the second quarter of 2000, operating profits were $79
million, 25% above comparable profits last year. Before restructuring
charges of $18 million in the first half of 2000, operating profits
were $154 million, 81% above comparable profits in 1999. The increase
in operating profits is primarily attributable to the acquisition of
Aeroquip-Vickers.
<PAGE>
Page 14
The Company has been consistently cautious about the rebound in the
North American hydraulics market. After a sharp rise over the past six
months, the Company is seeing a mid-year pause in industry activity,
with second quarter orders about 4% ahead of one year ago. On the other
hand, it is increasingly clear to the Company that it has seen the bottom
on commercial and military aircraft shipments, and its Aeroquip fluid
conveyance business is reporting steady gains. Most important, the
Company is pleased with the continuing integration efforts and remains
comfortable that Aeroquip-Vickers will provide positive earnings during
the third and fourth quarters of 2000.
Industrial & Commercial Controls
--------------------------------
Industrial and Commercial Controls sales reached a record $604 million
in the second quarter of 2000, an increase of 5% from year earlier
results. The Cutler-Hammer business continues to enjoy good momentum,
with both shipments and orders up an above-market 8% in the second
quarter. Sales in the first half of 2000 of $1.2 billion were 9% ahead
of 1999's first half results.
Operating profits for the second quarter of 2000 were $65 million, an
increase of 33% compared to the same period in 1999. Operating profits
for the first half of 2000 were $114 million, an increase of 50% from
comparable results in 1999. The increase in operating profit can be
attributed to the increase in sales as well as the continuing benefits
realized from the restructuring actions taken in recent years.
Semiconductor Equipment
-----------------------
Semiconductor Equipment sales in the second quarter of 2000 were a
record $166 million, 69% above last year's comparable results. Sales in
the first half of 2000 of $307 million were 98% above sales in the
first half of 1999. The increase in sales was attributable to continued
high levels of capital spending by semiconductor manufacturing
customers, resulting in increased demand for the Company's
semiconductor equipment products and services.
Operating profits in the second quarter of 2000 were also a record $33
million, triple one year ago. Operating profits for the first half of
2000 were $60 million compared to an operating loss of $2 million in
the first half of 1999. These results reflect the increase in sales
volume as well as the benefits from the fundamental restructuring
this business undertook during 1998 and early 1999.
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 these 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.
<PAGE>
Page 15
In July 2000, Axcelis completed an initial public offering (IPO) for
the sale of 17,050,000 shares of common stock at $22 per share. The IPO
is more fully discussed in the "Subsequent Event - Initial Public
Offering of Axcelis Technologies, Inc." footnote.
Truck Components
----------------
Truck Components sales in the second quarter of 2000 were $405 million,
1% below last year's comparable results. This compares to a 12% decline
in NAFTA production of Class 8 trucks, flat NAFTA production of medium
duty trucks, an 8% rise in European commercial vehicle production and a
27% jump in South American truck output. Sales in the first half of
2000 were $848 million, 7% ahead of year earlier results.
Operating profits in the second quarter of 2000 were $52 million, 15%
below one year ago. Operating profits in the first half of 2000 were
$112 million, a decrease of 7% compared to the same period in 1999.
Truck Components operating results continue to be whipsawed by the
extraordinary volatility of the NAFTA heavy truck market. Over the past
year alone, OEM factory sales of Class 8 trucks have surged from an
annual rate of 300 thousand units to 355 thousand at the end of last
year and back again to about 290 thousand in the quarter just ended.
Over that period, the Company has been incurring manufacturing variances
in order to fulfill its obligations as the market leader to its customers,
and as a result, operating results have continued below expectations. The
Company is cautious about the anticipated significantly lower level
of production in the heavy truck market in the second half of this year
and is sizing the business accordingly.
Non-operating Income (Expense)
------------------------------
Amortization of goodwill and other intangible assets related to
acquisitions of $27 million in the second quarter of 2000 was
consistent with the same period in 1999. Amortization of $54 million
in the first half of 2000 increased by 23% compared to the same period
in 1999. The increase was primarily attributable to the amortization of
goodwill and other intangible assets related to the acquisition of
Aeroquip-Vickers.
Net interest expense of $45 million in the second quarter of 2000
increased by $1 million compared to the same period in 1999. Net
interest expense of $89 million in the first half of 2000 increased 37%
compared to the same period in 1999. The increase was primarily due to
additional borrowings required to partially finance the acquisition of
Aeroquip-Vickers.
Corporate and other income of $6 million in the second quarter of 2000
increased by $10 million compared to the same period in 1999. Corporate
and other income of $1 million in the first half of 2000 increased by
$18 million compared to the same period in 1999. The increases were
primarily attributable to the pretax gains on the sales of corporate
assets in 2000.
<PAGE>
Page 16
Changes in Financial Condition
------------------------------
The Company remained in a strong financial position at June 30, 2000;
net working capital increased to $831 million at June 30, 2000 from
$133 million at the end of 1999 (the current ratio was 1.4 and 1.1 at
those dates, respectively). The increase in accounts receivable due to
higher sales in 2000 and the reduction in short-term debt due to the
long-term refinancing of commercial paper were the major causes of
the increase in working capital.
Total debt of $2.9 billion at June 30, 2000 was consistent with year-
end 1999. 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 and short-term notes that were issued in
connection with the 1999 acquisition of Aeroquip-Vickers.
On April 3, 2000, the Company entered into an additional $400 million
credit facility with a five-year term. This agreement increased its
total multi-year credit facility to $900 million, $500 million expiring
in 2003 and $400 million expiring in 2005. The Company also entered
into a $900 million credit facility with a 364-day term which replaces
an expired 364-day facility. The Company's credit facilities total $1.8
billion and support outstanding commercial paper of $1.3 billion at
June 30, 2000 of which $900 million is classified as long-term debt
compared to $500 million at year-end 1999. On July 14, 2000, the 364-day
facility was reduced by $300 million.
On July 26, 2000, to enhance shareholder value, the Board of Directors
authorized the Company to spend up to $500 million to purchase shares
of its common stock. This program is in addition to the $500 million,
five-year purchase program authorized in January 2000. In the first
half of 2000, 1.3 million shares were purchased at a cost of $96
million primarily under a previous program, which is now expired.
Forward-Looking Statements
--------------------------
This Form 10-Q contains forward-looking statements concerning the North
American hydraulics market, the expansion of Supercharger capacity in
Brazil, the contribution of Aeroquip-Vickers to earnings for this year
and the anticipated level of production in the heavy truck markets in
the second half of this year. 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 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. We do not assume
any obligation to update these forward-looking statements.
<PAGE>
Page 17
Item 3. Quantitative and Qualitative Disclosures about Market Risk
A discussion of market risk exposures is included in Part II, Item 7A,
"Quantitative and Qualitative Disclosure about Market Risk", of the
Company's 1999 Annual Report on Form 10-K. Long-term debt increased to
$2.5 billion at June 30, 2000 from $1.9 billion at the end of 1999.
This increase is primarily due to the offering in March of Euro 200
million of 6% notes due 2007 and the increase in commercial paper
classified as long-term debt. The carrying value of the Euro notes
approximated its fair value at June 30, 2000. There were no other
material changes in long-term debt during the six months ended June 30,
2000.
<PAGE>
Page 18
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - See Exhibit Index attached.
(b) Reports on Form 8-K.
1. On April 17, 2000, the Company filed a Current Report on Form
8-K regarding the first quarter 2000 earnings release.
2. On July 31, 2000, the Company filed a Current Report on Form
8-K which included information concerning the initial public
offering of Axcelis Technologies, Inc., Eaton's second quarter
2000 earnings release and the authorization of a share repurchase
program.
<PAGE>
Page 19
Signature
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: August 14, 2000 /s/ Billie K. Rawot
----------------------------
Billie K. Rawot
Vice President and Controller;
Principal Accounting Officer
<PAGE>
Page 20
EATON CORPORATION
EXHIBIT INDEX
Regulation S-K,
Item 601 - Exhibit
Reference Number Exhibit
------------------ -------
4 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 of the Company and its
subsidiaries.
3(b) Amended Regulations
27 Financial Data Schedule
<PAGE>
Page 1
Eaton Corporation
Exhibit 3(b)
Amended Regulations
As adopted by the Shareholders
at the Annual Meeting held on
April 26, 2000
ARTICLE I
SHAREHOLDERS
SECTION 1 - ANNUAL MEETING
The annual meeting of the shareholders shall be held on the fourth
Wednesday in April in each year, if not a legal holiday, and if a legal
holiday, then on the next Wednesday not a legal holiday, for the
purpose of electing directors and of considering reports to be laid
before said meeting. The annual meeting shall be held at such hour and
place as the Board of Directors may designate and cause to be stated in
the notice of such meeting given to shareholders. Upon due notice there
may also be considered and acted upon at an annual meeting any matter
which could properly be considered and acted upon at a special meeting,
in which case and for which purpose the annual meeting shall also be
considered as, and shall be, a special meeting. In the event the annual
meeting is not held or if directors are not elected thereat, a special
meeting may be called and held for that purpose.
SECTION 2 - SPECIAL MEETINGS
Special meetings of the shareholders may be called by the Chairman,
President or a Vice President, or by a majority of the members of the
Board of Directors acting with or without a meeting, or by the persons
who hold not less than fifty per cent of all the shares outstanding and
entitled to be voted on the proposal to be submitted at said meeting.
Upon request in writing delivered either in person or by registered
or certified mail, return receipt requested, to the President or
Secretary by any persons entitled to call a meeting of shareholders, it
shall be the duty of such President or Secretary forthwith to cause to
be given to the shareholders entitled thereto notice of such meeting to
be held on a date not less than seven nor more than sixty days after
the receipt of such request, as such officer may fix. If such notice is
not given within fifteen days after the delivery or mailing of such
request, the persons calling the meeting may fix the time of meeting
and give notice thereof as in the manner hereinafter provided, or cause
such notice to be given by any designated representative.
SECTION 3 - PLACE OF MEETINGS
Any meeting of the shareholders of the Corporation may be held
either within or without the State of Ohio.
<PAGE>
Page 2
SECTION 4 - NOTICE OF MEETINGS
Written notice stating the time, place, and purposes of a meeting of
the shareholders shall be given either by personal delivery or by mail
not less than seven nor more than sixty days before the date of the
meeting to each shareholder of record entitled to notice of the meeting
by or at the direction of the President or the Secretary or any other
person required or permitted by these Regulations to give such notice.
If mailed, such notice shall be addressed to the shareholder at the
address of such shareholder appearing on the records of the
Corporation. Notice of adjournment of a meeting need not be given if
the time and place to which it is adjourned are fixed and announced at
such meeting.
SECTION 5 - WAIVER OF NOTICE
Notice of the time, place, and purposes of any meeting of
shareholders may be waived in writing, either before or after the
holding of such meeting, by any shareholder, which writing shall be
filed with or entered upon the records of the meeting. The attendance
of any shareholder at any such meeting without protesting, prior to or
at the commencement of the meeting, the lack of proper notice shall be
deemed to be a waiver by such shareholder of notice of such meeting.
SECTION 6 - SHAREHOLDERS ENTITLED TO NOTICE AND TO VOTE
The Board of Directors may fix a future time not exceeding sixty
days preceding any meeting of shareholders as a record date for the
determination of the shareholders entitled to notice of and to vote at
any such meeting or any adjournments thereof, and, in such case, only
shareholders of record at the time so fixed shall be entitled to notice
of and to vote at such meeting or any adjournments thereof. The Board
of Directors may close the books of the Corporation against transfer of
shares during the whole or any part of such period, including the date
of the meeting of the shareholders and the period ending with the date,
if any, to which adjourned. If the Board of Directors shall not fix a
record date or close the books against transfer of shares as aforesaid,
the shareholders of record at the date next preceding the day of the
giving of notice of the meeting shall be entitled to notice thereof and
the shareholders of record at the date next preceding the day of the
meeting shall be entitled to vote thereat.
A shareholder of record on the record date or date of closing the
books of the Corporation against transfers of shares fixed as
aforesaid, shall not lose the right to vote at such meeting by reason
of not being a shareholder at the date of such meeting.
At any meeting of shareholders a list of shareholders entitled to
vote, alphabetically arranged, showing the addresses of, and the number
and classes of shares held by, each shareholder on the date fixed for
closing the books against transfers, or on the record date fixed as
hereinbefore provided (or if no such date has been fixed, then on the
date next preceding the day of the meeting), shall be produced on the
<PAGE>
Page 3
request of any shareholder and such list shall be prima facie evidence
of the ownership of shares and of the right of the shareholders to vote
when certified by the Secretary or by the agent of the Corporation
having charge of the transfers of the shares.
SECTION 7 - VOTING
Except when votes are cumulated in the election of directors as
hereinafter provided and except as otherwise provided in the Articles,
every shareholder of record at the time fixed as provided in these
Regulations for the determination of the shareholders entitled to vote
at such meeting shall be entitled to one vote on each proposal
submitted to the meeting for each share standing in said shareholder's
name at the time so fixed on which no installment is overdue and
unpaid.
At a meeting of shareholders at which directors are to be elected,
only persons nominated as candidates shall be eligible for election as
directors.
At all elections of directors the candidates receiving the greatest
number of votes shall be elected.
If notice in writing is given by any shareholder to the President, a
Vice President, or the Secretary, not less than forty-eight hours
before the time fixed for holding a meeting of the shareholders for the
purpose of electing directors if notice of such meeting shall have been
given at least ten days prior thereto, and otherwise not less than
twenty-four hours before such time, that the shareholder desires that
the voting at such election shall be cumulative, and if an announcement
of the giving of such notice is made upon the convening of the meeting
by the Chairman or Secretary or by or on behalf of the shareholder
giving such notice, each shareholder shall have the right to cumulate
such voting power as the shareholder possesses and to give one
candidate a number of votes equal to the number of directors to be
elected multiplied by the number of such shareholder's votes, or to
distribute the shareholder's votes on the same principle among two or
more candidates, as the shareholder sees fit.
SECTION 8 - PROXIES
A. A person who is entitled to attend a shareholders' meeting, to
vote at a shareholders' meeting, or to execute consents, waivers, or
releases, may be represented at the meeting or vote at the meeting, may
execute consents, waivers, and releases, and may exercise any of the
person's other rights, by proxy or proxies appointed by a writing
signed by the person, appointed by a verifiable communication
authorized by the person, or appointed by any other means or in any
other form now or hereafter permitted by Ohio Revised Code Chapter 1701
or any successor statute.
<PAGE>
Page 4
B. Any transmission that creates a record capable of authentication,
including, but not limited to, a telegram, a cablegram, electronic
mail, or an electronic, telephonic, or other transmission, that appears
to have been transmitted by a person described in subsection A of this
Section 8, and that appoints a proxy is a sufficient verifiable
communication to appoint a proxy. A photographic, photostatic,
facsimile transmission, or equivalent reproduction of a writing that is
signed by a person described in subsection A of this Section 8 and that
appoints a proxy is a sufficient writing to appoint a proxy.
C. No appointment of a proxy is valid after the expiration of eleven
months after it is made unless the writing or other form of proxy
appointment specifies the date on which it is to expire or the length
of time it is to continue in force.
D. Unless the writing or other form of proxy appointment otherwise
provides:
(1) Each proxy has the power of substitution, and, if three or
more proxies are appointed, a majority of them or of their
substitutes may appoint one or more substitutes to act for all;
(2) If more than one proxy is appointed, then (a) with respect
to voting or executing consents, waivers, or releases, or objections
to consents at a shareholders' meeting, a majority of the proxies
that attend the meeting, or if only one attends then that one, may
exercise all the voting and consenting authority at the meeting; and
if one or more attend and a majority do not agree on any particular
issue, each proxy so attending shall be entitled to exercise that
authority with respect to an equal number of shares; (b) with
respect to exercising any other authority, a majority may act for
all;
(3) A revocable appointment of a proxy is not revoked by the
death or incompetency of the maker unless, before the vote is taken
or the authority granted is otherwise exercised, written notice of
the death or incompetency of the maker is received by the
Corporation from the executor or administrator of the estate of the
maker or from the fiduciary having control of the shares in respect
of which the proxy was appointed;
(4) The presence at a meeting of the person appointing a proxy
shall not revoke the appointment. Without affecting any vote
previously taken, the person appointing a proxy may revoke a
revocable appointment by a later appointment received by the
Corporation or by giving notice of revocation to the Corporation in
writing, by a verifiable communication, by other statutorily
permissible means, or in open meeting.
Any signature on any instrument, or any reproduction of a signature
on any photographic, photostatic, facsimile transmission or equivalent
reproduction of any instrument, approved by the inspectors hereinafter
provided for as genuine, or as a reproduction of a genuine signature,
<PAGE>
Page 5
shall be deemed to be the signature of the shareholder whose name is
signed thereon, or a reproduction of the genuine signature of such
shareholder, as the case may be, and the falsity of such signature or
of such reproduction shall in no manner impair the validity of such
instrument or such reproduction of such instrument, or of any vote or
action taken at such meeting, provided that such shareholder shall not
have previously filed with the Corporation his or her authorized
signature guaranteed by a reputable bank or trust company. Any record
of a verifiable communication, or other statutorily permissible means
of proxy appointment, approved by such inspectors as authentic shall be
deemed to be authentic, and the falsity of such record shall in no
manner impair the validity of such verifiable communication, or other
statutorily permissible means of proxy appointment, or of any vote or
action taken at such meeting.
SECTION 9 - ORGANIZATION OF MEETING
The Board of Directors in advance of any meeting of shareholders may
appoint inspectors to act at such meeting or any adjournment thereof.
If inspectors of election are not so appointed, the officer or person
acting as chairman of any such meeting may, and on the request of any
shareholder or proxy shall, make such appointment. In case any person
appointed as inspector shall fail or refuse to appear or to act, the
vacancy may be filled by appointment made by the Board of Directors in
advance of the meeting, or at the meeting by the officer or person
acting as chairman. If there are three or more inspectors, the
decision, act, or certificate of a majority of them shall be effective
in all respects as the decision, act, or certificate of all. The
inspectors of election shall determine the number of shares
outstanding, the voting rights with respect to each, the shares
represented at the meeting, the existence of a quorum, and the
authenticity, validity and effect of proxies. They shall also receive
votes, ballots, assents, consents, waivers and releases, hear and
determine all challenges and questions in any way arising in connection
with the vote, count and tabulate all votes, assents, consents, waivers
and releases, determine and announce the result, and do such acts as
may be proper to conduct the election or vote with fairness to all
shareholders. No inspector, whether appointed by the Board of Directors
or by the officer or person acting as chairman, need be a shareholder.
On request, the inspectors shall make a report in writing of any
challenge, question, or matter determined by them and execute a
certificate of any fact found by them.
The certificate of the inspectors shall be prima facie evidence of
the facts stated therein and of the vote as certified by them.
SECTION 10 - QUORUM
The shareholders present in person or by proxy at any meeting of
shareholders shall constitute a quorum for such meeting, but no action
<PAGE>
Page 6
required by law, the Articles, or these Regulations to be authorized or
taken by the holders of a designated proportion of the shares of any
particular class or of each class, may be authorized or taken by a
lesser proportion.
The holders of a majority of the voting shares represented at a
meeting, whether or not a quorum is present, may adjourn such meeting
from time to time.
SECTION 11 - ACTION WITHOUT MEETING
Any action which may be authorized or taken at a meeting of
shareholders may be authorized or taken without a meeting in a writing
or writings signed by all of the shareholders who would be entitled to
notice of a meeting of the shareholders held for such purpose, which
writing or writings shall be filed with or entered upon the records of
the Corporation
SECTION 12 - ACCOUNTS AND REPORTS TO SHAREHOLDERS
The Board of Directors shall cause to be kept and maintained
adequate, correct and complete books and records of account, together
with minutes of the proceedings of the incorporators, shareholders,
directors, and committees of the directors, and records of the
shareholders showing their names and addresses and the number and class
of shares issued or transferred of record to or by them from time to
time.
Any shareholder of the Corporation, upon written demand stating the
specific purpose thereof, shall have the right to examine in person or
by agent or attorney at any reasonable time and for any reasonable and
proper purpose, the Articles of the Corporation, its Regulations, its
books and records of account, minutes, the aforesaid records of
shareholders, and voting trust agreements, if any, on file with the
Corporation, and to make copies or extracts thereof.
At the annual meeting of shareholders, or the meeting held in lieu
thereof, the officers of the Corporation shall lay before the
shareholders a financial statement consisting of:
A. A balance sheet containing a summary of the assets,
liabilities, stated capital, and surplus (showing separately any
capital surplus arising from unrealized appreciation of assets,
other capital surplus, and earned surplus) of the Corporation as of
a date not more than four months before such meeting: if such
meeting is an adjourned meeting, said balance sheet may be as of a
date not more than four months before the date of the meeting as
originally convened;
B. A statement of profit and loss and surplus, including a summary
of profits, dividends paid, and other changes in the surplus
accounts of the Corporation for the period commencing with the date
<PAGE>
Page 7
marking the end of the period for which the last preceding statement
of profit and loss required under this section was made and ending
with the date of said balance sheet.
The financial statement shall have appended thereto a certificate
signed by the President or a Vice President or the Treasurer or an
Assistant Treasurer of the Corporation or by a public accountant or
firm of public accountants to the effect that the financial statement
presents fairly the position of the Corporation and the results of its
operations in conformity with generally accepted accounting principles
applied on a basis consistent for the period covered thereby, or such
other certificate as is in accordance with sound accounting practice.
Upon the written request of any shareholder made within sixty days
after notice of any such meeting has been given, the Corporation1 not
later than the fifth day after receiving such request or the fifth day
before such meeting, whichever is the later date, shall mail to such
shareholder a copy of such financial statement.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1 - POWERS AND QUALIFICATION
All the capacity of the Corporation shall be vested in and all its
authority, except as otherwise provided by law or by the Articles in
regard to action required to be taken, authorized or approved by the
shareholders, shall be exercised by the Board of Directors, which shall
manage and conduct the business of the Corporation.
In discharging his or her duties, a director may, when acting in
good faith, rely upon the books and records of the Corporation, upon
reports made to the Corporation by an officer or employee or by any
other person selected for the purpose with reasonable care by the
Corporation, and upon financial statements or written reports prepared
by an officer or employee of the Corporation in charge of its accounts
or certified by a public accountant or firm of public accountants.
Each person elected a director of the Corporation shall within 60
days from the date of his or her election qualify as such by either (a)
accepting in writing his or her election as a director, or (b) being
present and acting as a director in a duly called meeting of the Board
of Directors.
SECTION 2 - ELECTION, NUMBER AND TERM OF OFFICE
Directors shall be elected at the annual meeting of shareholders or,
if not so elected, at a special meeting of the shareholders called for
that purpose.
The Board of Directors shall be composed of fourteen members and
shall be divided into three classes. The first and second classes shall
<PAGE>
Page 8
consist of five members each, and the third class shall consist of four
members. Directors elected at the first election for the first class
shall hold office for a term of one year from the date of their
election; directors elected at the first election for the second class
shall hold office for a term of two years from the date of their
election; and directors elected at the first election for the third
class shall hold office for a term of three years from the date of
their election. In each instance such directors shall hold office until
their successors are chosen and qualified. At each annual election, the
successors to the directors of each class whose term shall expire in
that year shall be elected to hold office for a term of three years
from the date of their election and until their successors are chosen
and qualified.
All directors, for whatever terms elected, shall hold office subject
to provisions of law, the Amended Articles and the Amended Regulations
as to removals and the creation of vacancies.
The number of directors of any such class may be fixed or changed by
resolution adopted by the vote of the shareholders entitled to exercise
66 2/3% of the voting power of the shares represented at a meeting
called to elect directors in person or by proxy at such meeting and
entitled to vote at such election, but in no event shall the number of
directors of any class be less than three. No reduction in the number
of directors shall have the effect of removing any director prior to
the expiration of his or her term of office. In the event of any
increase in the number of directors of any class, any additional
directors elected to such class shall hold office for a term coincident
with the term of such class.
The number of directors may also be changed by the directors by
resolution adopted by the vote of a majority of the directors present
at a meeting at which a quorum is present.
SECIION 3 - REMOVAL OF DIRECTORS AND FILLING VACANCIES
The office of a director shall become vacant if he or she dies or
resigns.
The Board of Directors may remove any director and thereby create a
vacancy in the Board:
1 - If the director is declared of unsound mind by an order of
court, or is adjudicated a bankrupt;
2 - If the director does not qualify within sixty days as provided
by these Regulations.
Any vacancy in the Board of Directors may be filled for the
unexpired term by the remaining director or directors, though less than
a majority of the whole Board, by a vote of a majority of their number.
Within the meaning of this section a vacancy or vacancies shall be
deemed to exist in case the shareholders shall increase the authorized
number of directors but shall fail at the meeting at which such
<PAGE>
Page 9
increase is authorized, or an adjournment thereof, to elect the
additional directors so provided for, or in case the shareholders fail
at any time to elect the whole authorized number of directors. A
vacancy or vacancies shall also be deemed to exist within the meaning
of this section in case the directors shall increase the authorized
number of directors.
All the directors, or all the directors of a particular class, or
any individual director, may be removed from office by the vote of the
holders of 66 2/3% of the voting power entitling them to elect
directors in place of those to be removed, provided that unless all the
directors, or all the directors of a particular class, are removed, no
individual director shall be removed in case the votes of a sufficient
number of shares are cast against his or her removal which, if
cumulatively voted at an election of all the directors, or all the
directors of a particular class, as the case may be, would be
sufficient to elect at least one director. In case of any such removal,
a new director may be elected at the same meeting for the unexpired
term of each director removed. Failure to elect a director to fill the
unexpired term of any director removed shall be deemed to create a
vacancy in the board.
SECTION 4 - MEETINGS
Meetings of the Board of Directors may be held at any time within or
without the State of Ohio. Such meetings may be held through any
communications equipment if all persons participating can hear each
other and participation in a meeting pursuant to this paragraph shall
constitute presence at such meeting.
Regular meetings of the Board of Directors shall be held immediately
after the annual meetings of the shareholders and at such other stated
times as may be fixed by the Board of Directors, and such regular
meetings may be held without further notice.
Special meetings of the Board of Directors may be called by the
Chairman of the Board or by the President of the Corporation, or by not
less than one-third of the directors. Notice of the time and place of
such meetings shall be served upon or telephoned to each director at
least twenty-four hours, or given by mail, telegram or cablegram to
each director at his or her address as shown by the books of the
Corporation at least forty-eight hours, prior to the time of the
meeting. Such notice may be waived in writing by any director, either
before or after the meeting. Attendance at the meeting by a director
without protesting, prior to or at the commencement of the meeting, the
lack of proper notice, shall constitute waiver of such notice by such
director
SECTION 5 - QUORUM
A majority of the whole authorized number of directors is necessary
to constitute a quorum for a meeting of the directors, except that a
majority of the directors in office constitutes a quorum for filling a
<PAGE>
Page 10
vacancy in the Board. The act of a majority of the directors present at
a meeting at which a quorum is present is the act of the Board, unless
the act of a greater number is required by the Articles or these
Regulations.
SECTION 6 - ACTION WITHOUT MEETING
Any action which may be authorized or taken at a meeting of the
Board of Directors may be authorized or taken without a meeting with
the affirmative vote or approval of, and in a writing or writings
signed by all, of the directors, which writing or writings shall be
filed with or entered upon the records of the Corporation.
SECTION 7 - FIXING OF RECORD DATE
A. For any lawful purpose, including, without limitation, the
determination of the shareholders who are entitled to:
(1) receive notice of or to vote at a meeting of shareholders;
(2) receive payment of any dividend or distribution;
(3) receive or exercise rights of purchase of or subscription
for, or exchange or conversion of, shares or other securities,
subject to contract rights with respect thereto; or
(4) participate in the execution of written consents, waivers
or releases,
the directors may fix a record date which shall not be a date earlier
than the date on which the record date is fixed and, in the cases
provided for in clauses (1), (2), and (3) above, shall not be more than
sixty days preceding the date of the meeting of the shareholders, or
the date fixed for the payment of any dividend or distribution, or the
date fixed for the receipt or the exercise of rights, as the case may
be.
B. If a meeting of the shareholders is called by persons entitled to
call the same, or action is taken by shareholders without a meeting,
and if the directors fail to refuse, within such time as the persons
calling such meeting or initiating such other action may request, to
fix a record date for the purpose of clause (1) or (4) of division A of
this section, then the persons calling such meeting or initiating such
other action may fix a record date for such purpose, subject to the
limitations set forth in division A of this section.
C. The record date for the purpose of clause (1) of division A of
this section shall continue to be the record date for all adjournments
of such meeting, unless the directors or the persons who shall have
fixed the original record date shall, subject to the limitations set
forth in division A of this section, fix another date, and in case a
new record date is so fixed, notice thereof and of the date to which
the meeting shall have been adjourned shall be given to shareholders of
record as of said date in accordance with the same requirements as
those applying to a meeting newly called.
<PAGE>
Page 11
D. The directors may close the share transfer books against
transfers of shares during the whole or any part of the period provided
for in division A above, including the date of the meeting of the
shareholders and the period ending with the date, if any, to which
adjourned.
E. If no record date is fixed therefor, the record date for
determining the shareholders who are entitled to receive notice of, or
who are entitled to vote at, a meeting of shareholders, shall be the
date next preceding the day on which notice is given, or the date next
preceding the day on which the meeting is held, as the case may be.
F. The record date for a change of shares shall be the time when
the certificate of amendment or of amended Articles effecting such
change is filed in the office of the Secretary of State.
SECTION 8 - COMMITTEES
The Board of Directors may from time to time create an Executive
Committee, a Finance Committee and such other committees as it may deem
to be advisable and may delegate to any such committee any of the
powers of the Board of Directors, other than that of filling vacancies
among the directors or in any committee of the directors. Any such
committee shall be composed of not less than three members of the Board
of Directors to serve until otherwise ordered by the Board of Directors
and shall act only in the interval between meetings of the Board of
Directors and shall be subject at all times to the control and
direction of the Board of Directors. The Board of Directors may appoint
one or more directors as alternate members of any such committee, who
may take the place of any absent member or members at any meeting of
such committee.
Any such committee may act by a writing or writings signed by all its
members or by a majority of any such committee present at a meeting at
which a quorum is present. Meetings of any committee may be held at any
time within or without Ohio and through any communications equipment if
all persons participating can hear each other. Participation through
use of communications equipment shall constitute presence at the
meeting. A majority of the whole authorized number of members of any
such committee is necessary to constitute a quorum for a meeting of
that committee. Any act or authorization of an act by any such
committee within the authority delegated to it shall be as effective
for all purposes as the act or authorization of the Board of Directors.
ARTICLE III
OFFICERS
SECTION 1 - OFFICERS
The Corporation shall have a Chairman of the Board of Directors and
a President (both of whom shall be members of the Board of Directors),
a Secretary, a Treasurer and a Controller, all of whom shall be elected
<PAGE>
Page 12
by the Board of Directors. The Corporation may also have one or more
Vice Presidents, Assistant Secretaries, Assistant Treasurers, Assistant
Controllers and such other officers as the Board may deem advisable,
all of whom shall be elected by the Board of Directors. All officers
shall 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 shall be subject to removal, with
or without cause, at any time by the vote of a majority of the Board of
Directors. The election of an officer for a given term, or a general
provision in the Articles or these Regulations with respect to term of
office, shall not be deemed to create contract rights
Any two or more offices may be held by the same person, but no
officer shall execute, acknowledge or verify any instrument in more
than one capacity if such instrument is required by law or by the
Articles or these Regulations to be executed, acknowledged or verified
by two or more officers.
SECTION 2 - CHAIRMAN OF THE BOARD
The Chairman of the Board shall preside at all meetings of the
shareholders and of the Board of Directors, shall supervise and direct
the Corporation's affairs and the administration thereof by the other
executive officers of the Corporation and shall have such other powers
and duties as may be assigned to or vested in him or her by the Board
of Directors.
SECTION 3 - THE PRESIDENT
The President, in the absence of the Chairman of the Board, shall
preside at all meetings of the shareholders and of the Board of
Directors. Subject to the direction of the Board of Directors, the
Executive Committee and the Chairman of the Board, the President shall
have general charge and authority over the business of the Corporation.
The President shall from time to time make such reports of the business
of the Corporation as the Board of Directors may require. The President
shall perform such other duties and have such powers as are assigned to
or vested in him or her by the Board of Directors.
SECTION 4 - THE VICE PRESIDENT
The Vice President, or, if there be more than one, the Vice
Presidents, in order of their seniority by designation (or if not
designated, in order of their seniority of election), shall perform the
duties of the President in his or her absence or during his or her
disability to act. The Vice Presidents shall have such other duties and
powers as may be assigned to or vested in them by the Board of
Directors or the Executive Committee.
SECTION 5 - THE SECRETARY
The Secretary shall issue notices of all meetings for which notice
<PAGE>
Page 13
is required to be given, shall keep the minutes of all meetings, shall
have charge of the corporate seal and corporate record books, shall
cause to be prepared for each meeting of shareholders the list of
shareholders referred to in Section 6 of Article I hereof, and shall
have such other powers and perform such other duties as are assigned to
or vested in him or her by the Board of Directors or the Executive
Committee.
SECTION 6 - THE TREASURER AND THE CONTROLLER
(a) The Treasurer shall be the financial officer of the Corporation.
The Treasurer shall have the custody of all moneys and securities of
the Corporation and shall keep adequate and correct accounts of the
Corporation's receipts and disbursements, including records of
customers' credits and collections. The funds of the Corporation shall
be deposited in the name of the Corporation by the Treasurer in such
depositories as the Board of Directors may from time to time designate.
The Treasurer shall have such other powers and perform such other
duties as are assigned to or vested in him or her by the Board of
Directors or the Executive Committee.
(b) The Controller shall be the accounting officer of the
Corporation. The Controller shall keep adequate and correct accounts of
the Corporation's business transactions (except those kept by the
Treasurer as herein provided), including accounts of its assets,
liabilities, gains, losses, stated capital and shares. He or she shall
prepare and lay before the shareholders' meetings the data referred to
in Section 12 of Article I hereof, and shall mail copies of such data
as required in said section to any shareholder requesting same. The
Controller shall have such other powers and perform such other duties
as are assigned to or vested in him or her by the Board of Directors or
the Executive Committee.
SECTION 7 - OTHER OFFICERS
Other officers of the Corporation shall have such powers and duties
as may be assigned to or vested in them by the Board of Directors or
the Executive Committee.
SECTION 8 - AUTHORITY TO SIGN
Share certificates shall be signed as hereinafter in Article V
provided. Except as otherwise specifically provided by the Board of
Directors or the Executive Committee of the Corporation, checks, notes,
drafts, contracts or other instruments authorized by the Board of
Directors or the Executive Committee may be executed and delivered on
behalf of the Corporation by the Chairman of the Board, the President
or a Vice President and by the Secretary or an Assistant Secretary or
the Treasurer or an Assistant Treasurer.
SECTION 9 - DUTIES OF OFFICERS MAY BE DELEGATED
In case of the absence or disability of an officer of the
Corporation, or for any other reason that may seem sufficient to the
<PAGE>
Page 14
Board, the Board of Directors may for the time being, delegate his or
her powers and duties to any other officer or to any director.
ARTICLE IV
SALARIES, COMPENSATION AND INDEMNIFICATION
SECTION 1 - SALARIES AND COMPENSATION
The Board of Directors may fix the pay of all officers. The Board
may also allow compensation to members of any committee. The Board may
vote compensation to any director for attendance at meetings or for any
special services.
SECTION 2 - INDEMNIFICATION
(a) The Corporation shall indemnify any director, officer or
employee and any former director, officer or employee of the
Corporation and any such director, officer or employee who is or has
served at the request of the Corporation as a director, officer or
trustee of another corporation, partnership, joint venture, trust or
other enterprise (and his or her heirs, executors and administrators)
against expenses, including attorney's fees, judgments, fines and
amounts paid in settlement, actually and reasonably incurred by such
person by reason of the fact that he or she is or was such director,
officer, employee or trustee in connection with any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, to the full extent permitted by
applicable law. The indemnification provided for herein shall not be
deemed to restrict the right of the Corporation to indemnify agents and
others to the extent not prohibited by law. The Corporation may
purchase and maintain insurance or furnish similar protection on behalf
of or for any person who is or was a director, officer, employee or
agent of the Corporation, or any person who is or was serving at the
request of the Corporation as a director, officer, trustee, employee or
agent of another corporation, joint venture, partnership, trust or
other enterprise against any liability asserted against such person or
incurred by him or her in any such capacity or arising out of his or
her status as such.
(b) The Corporation is expressly authorized to enter into any
indemnification or insurance agreements with or on the behalf of any
person who is or was a director, officer, employee or designated agent
of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or designated agent of
another corporation, partnership, joint venture, trust or other
enterprise, in accordance with the terms of this Article IV or the laws
of the State of Ohio. Such agreements may include, but are not limited
to, agreements providing for indemnification or the advancement of
expenses, agreements providing for insurance, indemnification or the
advancement of expenses by way of self-insurance, whether or not funded
through the use of a trust, escrow agreement, letter of credit, or
other arrangement, in accordance with subsection (a) of this Section 2,
and agreements providing for insurance or indemnification through the
commercial insurance market.
<PAGE>
Page 15
ARTICLE V
CERTIFICATES
SECTION 1 - CERTIFICATES
Each shareholder of the Corporation shall be entitled to a
certificate signed by the President or a Vice President and by the
Secretary or an Assistant Secretary or the Treasurer or an Assistant
Treasurer, evidencing the number and class of paid-up shares held by
such shareholder in the Corporation, but no certificate for shares
shall be executed or delivered until such shares are fully paid,
provided, however, that when any such certificate is countersigned by
an incorporated transfer agent or registrar, the signature of any such
officer upon such certificate may be facsimile, engraved, stamped or
printed.
In case any officer or officers, who shall have signed, or whose
facsimile signature shall have been engraved, stamped or printed on any
certificate or certificates for shares, shall cease to be such officer
or officers of the Corporation, because of death, resignation, or
otherwise, before such certificate or certificates shall have been
delivered by the Corporation, such certificate or certificates, if
authenticated by the endorsement thereon of the signature of an
incorporated transfer agent or registrar, shall nevertheless be
conclusively deemed to have been adopted by the Corporation by the use
and delivery thereof and shall be effective in all respects when
delivered.
Such certificates shall be in such form as shall be approved by the
Board of Directors and shall contain such statements as are required by
the Ohio General Corporation Law.
SECTION 2 - TRANSFER AND REGISTRATION
The Board of Directors shall have authority to make such rules and
regulations, not inconsistent with law, the Articles or these
Regulations, as it deems expedient concerning the execution, delivery,
transfer and registration of share certificates and may appoint
incorporated transfer agents and registrars thereof.
Transfer books may be kept in any state of the United States or in
any foreign country for the purpose of transferring shares issued by
the Corporation; but if no transfer agent is appointed to act in this
State, the Corporation shall keep an office in this State at which
shares shall be transferable, and at which it shall keep books in which
shall be recorded the names and addresses of all shareholders, and all
transfers of shares.
SECTION 3 - SUBSTITUTED CERTIFICATES
Any person claiming a share certificate to have been lost, destroyed
<PAGE>
Page 16
or stolen, shall make an affidavit or affirmation of that fact, and if
required by the Board of Directors shall advertise the same in such
manner as the Board of Directors may require, and shall give the
Corporation, its transfer agents and its registrars a bond of
indemnity, in form and with one or more sureties satisfactory to the
Board or anyone designated by the Board with authority to act thereon,
whereupon a new certificate may be executed and delivered of the same
tenor and for the same number of shares as the one alleged to have been
lost, destroyed or stolen.
ARTICLE VI
VOTING UPON STOCKS
SECTION 1 - VOTING UPON STOCKS
Unless otherwise ordered by the Board of Directors, the Chairman of
the Board, the President, a Vice President, the Secretary or the
Treasurer of the Corporation, or a proxy appointed by any such officer,
shall have full power and authority on behalf of the Corporation to
attend, to act and to vote at any meeting of shareholders and to
execute consents, waivers and releases relating to the affairs of any
other corporation, domestic or foreign, for profit or non-profit, in
which the Corporation may hold stock or membership, and at any such
meeting shall possess and may exercise any and all of the rights and
powers incident to the ownership of such stock and which as the owner
thereof the Corporation would have possessed and might have exercised
if present. The Board of Directors by resolution from time to time may
confer like powers upon any other person or persons.
ARTICLE VII
CORPORATE SEAL
SECTION 1 - CORPORATE SEAL
The seal of the Corporation shall be circular in form with the name
of the Corporation followed by the words "Cleveland, Ohio" stamped
around the margin, and the words "Corporate Seal" stamped across the
center.
ARTICLE VIII
AMENDMENTS
SECTION 1 - AMENDMENTS
The Regulations of the Corporation may be amended or added to by the
affirmative vote of the shareholders of record entitled to exercise a
majority of the voting power on such proposal or, without a meeting, by
the written consent of the shareholders of record entitled to exercise
66 2/3% of the voting power on such proposal. Notwithstanding anything
to the contrary contained herein, to amend, repeal or add to Article I
- Section 2, Article II - Section 2, the last paragraph of Article II -
<PAGE>
Page 17
Sections or this paragraph of Article VIII - Section 1, shall require
the affirmative vote at a meeting of the shareholders of record
entitled to exercise 66 2/3% of the voting power on such proposal,
unless such action is recommended by two-thirds of the members of the
Board of Directors.
If an amendment is adopted by written consent without a meeting of
the shareholders, it shall be the duty of the Secretary to enter the
amendment in the records of the Corporation and to mail a copy of such
amendment to each shareholder of record who would be entitled to vote
thereon and did not participate in the adoption thereof.
CERTIFICATE
The undersigned, the duly elected, qualified and acting Secretary of
Eaton Corporation, an Ohio corporation having its principal office in
Cleveland, Ohio, hereby certifies that the foregoing is a true and
correct copy of the Amended Regulations of said corporation which were
duly adopted by the affirmative vote of the shareholders of record of
said corporation entitled to exercise a majority of the voting power on
such proposal, to supersede and take the place of the theretofore
existing Amended Regulations, at the Annual Meeting of said
shareholders on April 26, 2000, and that the foregoing Amended
Regulations are in full force and effect, without amendment or
modification, on the date of this certificate.
Dated: April 26, 2000
/s/ E. R. Franklin
------------------
E. R. Franklin
Secretary of Eaton Corporation
<PAGE>
