SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 14, 2004
EATON CORPORATION
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(Exact name of registrant as specified in its charter)
Ohio 1-1396 34-0196300
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(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
Eaton Center
Cleveland, Ohio 44114
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(Address of principal executive offices) (Zip Code)
(216) 523-5000
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Registrant's telephone number,
including area code
Item 12. RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On April 14, 2004, Eaton Corporation issued a press release announcing financial
results for the quarter ended March 31, 2004. A copy of this press release is
attached hereto as Exhibit 99.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
Eaton Corporation
/s/ R. H. Fearon
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R. H. Fearon
Executive Vice President -
Chief Financial and Planning Officer
Date: April 14, 2004
Exhibit 99
EATON REPORTS FIRST QUARTER NET INCOME PER SHARE UP 70 PERCENT TO $.85 ON RECORD
QUARTERLY REVENUE
CLEVELAND ... Diversified industrial manufacturer Eaton Corporation (NYSE:ETN)
today announced net income per share of $.85 for the first quarter of 2004, an
increase of 70 percent over net income per share of $.50 in the first quarter of
2003. Sales in the quarter were a record $2.24 billion, 16 percent above the
same period in 2003. Net income was $134 million compared to $72 million in
2003, an increase of 86 percent.
Net income in both periods included charges for restructuring activities related
to the integration of acquisitions. Before these restructuring charges,
operating earnings per share in the first quarter of 2004 were $.88 versus $.53
per share in 2003, an increase of 66 percent, and operating earnings for the
first quarter of 2004 were $138 million compared to $77 million in 2003, an
increase of 79 percent.
Alexander M. Cutler, Eaton chairman and chief executive officer, said, "We are
very pleased with our first quarter, which exceeded our previous guidance.
Sales growth in the first quarter of 16 percent consisted of 2 percent from
acquisitions, 4 percent from higher exchange rates, and 10 percent from organic
growth. Our organic growth was made up of 6 percent growth in our end markets
and 4 percent growth from outgrowing our end markets.
"In the first quarter, our segment operating margin before restructuring charges
was 11.7 percent, the best quarter we have had since the second quarter of
2000," said Cutler.
"As we survey our end markets in 2004, we now anticipate growth of between 5 to
6 percent versus our original expectation for the year of 4 percent," said
Cutler. "The mobile hydraulics markets, in particular, are stronger than we had
anticipated, as are the residential electrical markets. Partially offsetting
these stronger markets is the nonresidential electrical market, which is weaker
than we anticipated."
During the quarter Eaton bought back 4.2 million shares, as announced in
January, at an average price of $59 per share. The total expenditure on the
repurchases was $250 million.
"We anticipate net income per share for the second quarter of 2004 to be $.90 to
$1.00. We are raising our full-year guidance for net income per share by $.50,
to between $3.65 and $3.80. Operating earnings per share, which exclude
restructuring charges to integrate our recent acquisitions, are anticipated to
be $.95 to $1.05 in the second quarter of 2004. We are raising our full-year
guidance for operating earnings per share by $.50, to between $3.75 and $3.90."
Business Segment Results
First quarter sales of Eaton's largest business segment, Fluid Power, were $768
million, 10 percent above the first quarter of 2003. Both sales and operating
profits for Fluid Power were all-time quarterly records. Fluid Power markets
grew 8 percent compared to the same period in 2003, with North American fluid
power industry shipments up 10 percent, commercial aerospace markets up 6
percent, and defense aerospace markets up 13 percent. Operating profits in the
first quarter were $81 million. Operating profits before restructuring charges
were $82 million, up 30 percent compared to a year earlier.
"The mobile and industrial hydraulics markets had strong growth in both sales
and orders during the first quarter," said Cutler. "We anticipate that the
growth in mobile hydraulics is likely to continue throughout 2004. The
commercial and defense aerospace markets were also a bit stronger than expected
in the first quarter."
In the Electrical segment, first quarter sales were $611 million, up 19 percent
over 2003. Excluding the impact of the Delta acquisition and the new joint
venture formed with Caterpillar, first quarter sales were up 12 percent compared
to 2003. Operating profits in the first quarter were $45 million. Operating
profits before restructuring charges were $50 million, up 52 percent from
results in 2003.
"End markets for our electrical business grew about 2 percent during the first
quarter," said Cutler. "Growth appears to be accelerating modestly but
significant pockets of weakness still exist, particularly for larger industrial
and commercial projects.
"We announced in early March the acquisition of the Electrum Group," said
Cutler. "This acquisition, while small in size, significantly expands our
capabilities to serve the telecommunications, data center and government power
markets."
The Automotive segment posted first quarter sales of $478 million, 9 percent
above the comparable quarter of 2003. Automotive production in NAFTA and in
Europe was flat compared to the first quarter of 2003. Operating profits were
$69 million, up 11 percent.
"Automotive segment revenue posted strong growth despite flat markets,
reflecting the significant product and platform wins we have generated over the
last couple of years," said Cutler. "We continue to expect that, for 2004 as a
whole, both the NAFTA and Europe automobile markets will be flat."
Among significant new business booked in the first quarter were contracts to
supply locking differentials to Hyundai and Kia for several new vehicle
programs. These contracts are expected to total approximately $150 million over
the next six years.
The Truck segment posted sales of $381 million in the first quarter, up 39
percent compared to 2003, and recorded operating profits of $61 million, nearly
three times the profit earned in the first quarter of 2003. NAFTA heavy-duty
production was up 47 percent compared to 2003, NAFTA medium-duty production was
up 22 percent, European truck production was down 2 percent, and Brazilian
vehicle production was up 14 percent.
"First quarter production of NAFTA heavy-duty trucks totaled 52,000 units,
slightly more than in the fourth quarter of 2003," said Cutler. "Monthly orders
for new NAFTA heavy-duty trucks during the first quarter have been running above
30,000 units. As a result, we are growing increasingly confident that the NAFTA
heavy-duty market in 2004 is likely to total at least 240,000 units.
"On March 31 we announced an agreement to form a joint venture in China with
First Auto Works (FAW) to produce medium-duty transmissions for commercial
vehicles," said Cutler. "This investment is particularly exciting given FAW's
position as the largest manufacturer of commercial vehicles in China."
Eaton Corporation is a diversified industrial manufacturer with 2003 sales of
$8.1 billion. Eaton is a global leader in fluid power systems and services for
industrial, mobile and aircraft equipment; electrical systems and components for
power quality, distribution and control; automotive engine air management
systems and powertrain controls for fuel economy; and intelligent drivetrain
systems for fuel economy and safety in trucks. Eaton has 51,000 employees and
sells products to customers in more than 100 countries. For more information,
visit www.eaton.com.
Notice of Conference Call: Eaton's conference call to discuss its first quarter
results is available to all interested parties via live audio webcast today at
10 a.m. EDT through the Investor Relations tab on Eaton's home page. This news
release can be accessed under the Corporate News heading on the Eaton home page
by clicking on the news release.
This news release contains forward-looking statements concerning the second
quarter 2004 and full year 2004 net income per share and operating earnings per
share, and our worldwide markets. These statements should be used with caution
and are subject to various risks and uncertainties, many of which are outside
the company's control. The following factors could cause actual results to
differ materially from those in the forward-looking statements: unanticipated
changes in the markets for the company's business segments; unanticipated
downturns in business relationships with customers or their purchases from us;
competitive pressures on sales and pricing; increases in the cost of material,
energy and other production costs, or unexpected costs that cannot be recouped
in product pricing; the introduction of competing technologies; unexpected
technical or marketing difficulties; unexpected claims, charges, litigation or
dispute resolutions; acquisitions and divestitures; new laws and governmental
regulations; interest rate changes; stock market fluctuations; and unanticipated
deterioration of economic and financial conditions in the United States and
around the world. We do not assume any obligation to update these forward-
looking statements.
Financial Results
The company's comparative financial results for the three months ended March 31,
2004 are available on the company's Web site, www.eaton.com.
Eaton Corporation
Comparative Financial Summary
Three months ended
March 31,
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(Millions except for per share data) 2004 2003
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Net sales $2,238 $1,925
Income before income taxes 173 99
Net income 134 72
Net income per Common Share assuming dilution $ 0.85 $ 0.50
Average number of Common Shares outstanding 157.1 144.2
Net income per Common Share basic $ 0.87 $ 0.51
Average number of Common Shares outstanding 153.1 142.3
Cash dividends paid per Common Share $ 0.27 $ 0.22
Reconciliation of net income to operating earnings
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Net income $ 134 $ 72
Excluding restructuring charges (after-tax) 4 5
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Operating earnings $ 138 $ 77
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Net income per Common Share assuming dilution $ 0.85 $ 0.50
Per share impact of restructuring charges (after-tax) 0.03 0.03
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Operating earnings per Common Share $ 0.88 $ 0.53
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Net income per Common Share, average number of Common Shares
outstanding, cash dividends paid per Common Share and operating earnings
per Common Share have been adjusted retroactively to reflect the two-for-one
stock split effective February 23, 2004.
See accompanying notes.
Eaton Corporation
Statements of Consolidated Income
Three months ended
March 31,
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(Millions except for per share data) 2004 2003
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Net sales $2,238 $1,925
Cost of products sold 1,621 1,415
Selling & administrative expense 361 329
Research & development expense 60 55
Interest expense-net 19 24
Other (income) expense-net 4 3
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Income before income taxes 173 99
Income taxes 39 27
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Net income $ 134 $ 72
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Net income per Common Share assuming dilution $ 0.85 $ 0.50
Average number of Common Shares outstanding 157.1 144.2
Net income per Common Share basic $ 0.87 $ 0.51
Average number of Common Shares outstanding 153.1 142.3
Cash dividends paid per Common Share $ 0.27 $ 0.22
Net income per Common Share, average number of Common Shares outstanding,
and cash dividends per Common Share have been adjusted retroactively to
reflect the two-for-one stock split effective February 23, 2004.
See accompanying notes.
Eaton Corporation
Business Segment Information
Three months ended
March 31,
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(Millions) 2004 2003
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Net sales
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Fluid Power $ 768 $ 697
Electrical 611 514
Automotive 478 440
Truck 381 274
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$2,238 $1,925
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Operating profit
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Fluid Power $ 81 $ 58
Electrical 45 32
Automotive 69 62
Truck 61 22
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256 174
Corporate
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Amortization of intangible assets (6) (6)
Interest expense-net (19) (24)
Minority interest (3) (3)
Pension & other postretirement benefit expense (18) (14)
Other corporate expense-net (37) (28)
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Income before income taxes 173 99
Income taxes 39 27
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Net income $ 134 $ 72
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See accompanying notes.
Eaton Corporation
Condensed Consolidated Balance Sheets
Mar. 31, Dec. 31,
(Millions) 2004 2003
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Assets
Current assets
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Cash $ 65 $ 61
Short-term investments 514 804
Accounts receivable 1,399 1,190
Inventories 751 721
Deferred income taxes & other current assets 330 317
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3,059 3,093
Property, plant & equipment-net 2,030 2,076
Goodwill 2,086 2,095
Other intangible assets 541 541
Deferred income taxes & other assets 477 418
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$8,193 $8,223
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Liabilities & Shareholders' Equity
Current liabilities
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Short-term debt & current portion of long-term debt $ 300 $ 302
Accounts payable 630 526
Accrued compensation 176 204
Accrued income & other taxes 295 298
Other current liabilities 811 796
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2,212 2,126
Long-term debt 1,662 1,651
Postretirement benefits other than pensions 632 636
Pensions & other liabilities 644 693
Shareholders' equity 3,043 3,117
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$8,193 $8,223
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See accompanying notes.
Eaton Corporation
Notes to First Quarter 2004 Earnings Release
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Dollars in millions, except for per share data (per share data assume dilution)
Two-For-One Stock Split
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On January 21, 2004, the Board of Directors of Eaton announced a two-for-one
split of the Company's Common Shares effective in the form of a 100% stock
dividend. The date of record for the stock split was February 9, 2004, and it
was distributed on February 23, 2004. Accordingly, all per share amounts,
average shares outstanding, and shares outstanding have been adjusted
retroactively to reflect the stock split.
Acquisition of Business
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On January 31, 2003, Eaton acquired the electrical division of Delta plc for
approximately $215. First quarter 2003 includes only two months of sales and
operating results for this business. This business has operations in Europe and
in the Asia/Pacific area and had sales of $326 in 2002. This business is
included in the Electrical segment.
Restructuring Charges
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In 2004 and 2003, Eaton incurred restructuring charges related primarily to the
integration of the Boston Weatherhead fluid power business acquired in November
2002 and the electrical division of Delta plc acquired in January 2003. A
summary of these charges follows:
Three months ended March 31
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Operating profit
before
Restructuring Operating profit restructuring
charges as reported charges
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2004 2003 2004 2003 2004 2003
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Fluid Power $1 $5 $81 $58 $82 $63
Electrical 5 1 45 32 50 33
Automotive - - 69 62 69 62
Truck - - 61 22 61 22
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6 6 $256 $174 $262 $180
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Corporate - 1
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Total pretax charges $ 6 $ 7
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After-tax charges $ 4 $ 5
Per Common Share $0.03 $0.03
Operating margin 11.4% 9.0% 11.7% 9.4%
The restructuring charges are included in the Statements of Consolidated Income
in Cost of products sold or Selling & administrative expense, as appropriate.
In Business Segment Information, the charges reduced Operating profit of the
related business segment or are included in Corporate expense-net, as
appropriate.
Pension & Other Postretirement Benefit Expense
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Pretax income for first quarter 2004 was reduced by $4 ($3 after-tax, or $0.02
per Common Share) compared to first quarter 2003 due to increased pension and
other postretirement benefit expense in first quarter 2004 resulting from the
decline over the last several years in the market value of equity investments
held by Eaton's pension plans, coupled with the effect of the lowering of
discount rates associated with pension and other postretirement benefit
liabilities at year-end 2003. Also, during January 2004, Eaton made a voluntary
contribution of $75 to its United States pension plans.
Income Taxes
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The effective income tax rate for first quarter 2004 was 22.5% compared to 27.0%
for first quarter 2003 and 24.0% for full-year 2003. The lower rate in 2004
reflects many factors, including higher earnings in international tax
jurisdictions with lower income tax rates and increased use of international tax
credit carryforwards.
Repurchase of Common Shares
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In January 2004, Eaton initiated a plan to repurchase 4.2 million of its Common
Shares to offset the shares issued during 2003 from the exercise of stock
options. During first quarter 2004, the shares were repurchased at a cost of
approximately $250.
Reconciliation of Operating Earnings
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This earnings release discloses operating earnings, operating earnings per
Common Share and operating profit before restructuring charges for each business
segment, each of which excludes amounts that make it different from the most
directly comparable measure calculated in accordance with generally accepted
accounting principles (GAAP). A reconciliation of each of these financial
measures to the most directly comparable GAAP measure is included in this
earnings release in the Comparative Financial Summary or in the notes to the
earnings release. Management believes that each of these financial measures is
useful to investors because it excludes transactions that are unusual due to
their nature, size, infrequency, or limited duration and therefore allows
investors to more easily compare the Company's financial performance period to
period. Management uses this information in monitoring and evaluating the on-
going performance of the Company and each business segment.