-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, E/9tgIemHTsUxrHM2mHUfHpiDUVW+/wBVGL/veWoCJysMhpxnDIOkyYk1Ky0p0R7 viUxGfsPMqTzx6UdhRIxkA== 0000031277-03-000009.txt : 20030515 0000031277-03-000009.hdr.sgml : 20030515 20030515120057 ACCESSION NUMBER: 0000031277-03-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EATON CORP CENTRAL INDEX KEY: 0000031277 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 340196300 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-56644 FILM NUMBER: 03702310 BUSINESS ADDRESS: STREET 1: EATON CTR STREET 2: 1111 SUPERIOR AVE CITY: CLEVELAND STATE: OH ZIP: 44114-2584 BUSINESS PHONE: 2165235000 MAIL ADDRESS: STREET 1: 1111 SUPERIOR AVENUE CITY: CLEVELAND STATE: OH ZIP: 44114 FORMER COMPANY: FORMER CONFORMED NAME: EATON YALE & TOWNE INC DATE OF NAME CHANGE: 19710822 10-Q 1 etn3q0310q.txt EATON CORPORATION 10-Q FOR PERIOD ENDING 03/31/2003 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 March 31, 2003 - ----------------------------------- 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 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X There were 70.9 million Common Shares outstanding as of March 31, 2003. PART I - FINANCIAL INFORMATION Item 1. Financial Statements - ----------------------------- Eaton Corporation Statements of Consolidated Income Three months ended March 31 --------------- (Millions except for per share data) 2003 2002 ---- ---- Net sales $1,925 $1,723 Costs & expenses Costs of products sold 1,415 1,286 Selling & administrative 329 310 Research & development 55 55 ------ ------ 1,799 1,651 ------ ------ Income from operations 126 72 Other income (expense) Interest expense-net (24) (27) Other-net (3) 3 ----- ------ (27) (24) ------ ------ Income before income taxes 99 48 Income taxes 27 15 ------ ------ Net income $ 72 $ 33 ====== ====== Net income per Common Share assuming dilution $ 1.00 $ 0.47 Average number of Common Shares outstanding 72.1 71.2 Net income per Common Share basic $ 1.01 $ 0.48 Average number of Common Shares outstanding 71.1 70.1 Cash dividends paid per Common Share $ 0.44 $ 0.44 See accompanying notes. Eaton Corporation Condensed Consolidated Balance Sheets Mar. 31, Dec. 31, (Millions) 2003 2002 ---- ---- ASSETS Current assets Cash $ 59 $ 75 Short-term investments 43 353 Accounts receivable 1,231 1,032 Inventories 777 698 Deferred income taxes & other current assets 299 299 ------ ------ 2,409 2,457 Property, plant & equipment-net 2,047 1,955 Goodwill 1,935 1,910 Other intangible assets 505 510 Other assets 366 306 ------ ------ $7,262 $7,138 ====== ====== LIABILITIES & SHAREHOLDERS' EQUITY Current liabilities Short-term debt & current portion of long-term debt $ 205 $ 201 Accounts payable 473 488 Accrued compensation 164 199 Accrued income & other taxes 239 225 Other current liabilities 711 621 ------ ------ 1,792 1,734 Long-term debt 1,874 1,887 Postretirement benefits other than pensions 651 652 Deferred income taxes & other liabilities 565 563 Shareholders' equity 2,380 2,302 ------ ------ $7,262 $7,138 ====== ====== See accompanying notes. Eaton Corporation Condensed Statements of Consolidated Cash Flows Three months ended March 31 ------------- (Millions) 2003 2002 ---- ---- Net cash (used) provided by operating activities Net income $ 72 $ 33 Adjustments to reconcile to net cash provided by operating activities Depreciation & amortization 92 89 Amortization of intangible assets 6 6 Changes in operating assets & liabilities, excluding acquisitions & sales of businesses (204) (46) Other-net 30 1 ----- ----- (4) 83 Net cash provided (used) by investing activities Expenditures for property, plant & equipment (43) (40) Acquisitions of businesses, less cash acquired (219) Net decrease in short-term investments 314 32 Other-net (10) 2 ----- ----- 42 (6) Net cash used by financing activities Borrowings with original maturities of more than three months Proceeds 76 Payments (2) (382) Borrowings with original maturities of less than three months-net (27) 217 Cash dividends paid (31) (30) Proceeds from exercise of employee stock options 6 24 ----- ----- (54) (95) ----- ----- Total (decrease) increase in cash (16) (18) Cash at beginning of period 75 112 ----- ----- Cash at end of period $ 59 $ 94 ===== ===== See accompanying notes. Notes To Consolidated Financial Statements - ------------------------------------------ Dollars and shares in millions, except per share data (per share data assume dilution, unless otherwise noted) 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 2002 Annual Report on Form 10-K. The interim period results are not necessarily indicative of the results to be expected for the full year. Acquisition of Business - ----------------------- On January 31, 2003, Eaton acquired the electrical business of Delta plc for approximately $215. The Delta business, which has operations in Europe and in the Asia Pacific area, has 3,400 employees and is headquartered in the United Kingdom. The business' major electrical brands include MEM(R), Holec(TM), Bill(TM), Home Automation(TM), Elek(TM) and Tabula(TM). The Delta business will be integrated into the Industrial & Commercial Controls segment. The allocation of the purchase price for this acquisition is preliminary and will be finalized late in 2003. Restructuring Charges - --------------------- In 2003, Eaton incurred restructuring charges related primarily to the integration of the Boston Weatherhead fluid power business acquired in November 2002 and the electrical business of Delta plc acquired in January 2003. In 2002, the Company incurred charges to reduce operating costs across its business segments and certain corporate functions. The charges in 2002 were primarily a continuation of restructuring programs initiated in 2001. A summary of these charges follows: Three months ended March 31 ------------ 2003 2002 ---- ---- Business segment Fluid Power $ 5 $ 17 Industrial & Commercial Controls 1 13 Automotive 1 Truck 14 ---- ---- 6 45 Corporate 1 4 ---- ---- Total $ 7 $ 49 ==== ==== After-tax $ 5 $ 33 Per Common Share 0.06 0.46 The restructuring charges were included in the Statements of Consolidated Income in Income from Operations. In Business Segment Information, the restructuring charges reduced Operating Profit of the related business segment, while the corporate restructuring charges were included in Corporate Expense-Net. Restructuring liabilities recorded at December 31, 2002, those recorded in 2003 as described above, and those utilized thus far in 2003, are summarized as follows: Workforce reductions Plant -------------------- consolidation Employees Dollars & other Total --------- ------- ------------- ----- Liabilities remaining at December 31, 2002 494 $11 $ 5 $16 2003 charges 83 1 6 7 Utilized in 2003 (285) (3) (6) (9) ---- --- --- --- Liabilities remaining at March 31, 2003 292 $ 9 $ 5 $14 ==== === === === Stock Options - ------------- The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standard (SFAS) No. 123, "Accounting for Stock-Based Compensation". If Eaton accounted for its stock options under the fair value based method of SFAS No. 123, net income and net income per Common Share would have been as indicated below: Three months ended March 31 ------------- 2003 2002 ---- ---- Net income As reported $ 72 $ 33 Stock-based compensation cost, net of income taxes (3) (4) ----- ----- Assuming fair value method $ 69 $ 29 ===== ===== Net income per Common Share assuming dilution As reported $1.00 $0.47 Stock-based compensation cost, net of income taxes (0.04) (0.05) ----- ----- Assuming fair value method $0.96 $0.42 ===== ===== Net income per Common Share basic As reported $1.01 $0.48 Stock-based compensation cost, net of income taxes (0.04) (0.05) ----- ----- Assuming fair value method $0.97 $0.43 ===== ===== Comprehensive Income - -------------------- The principal differences between net income as historically reported in the Statements of Consolidated Income and comprehensive income are foreign currency translation adjustments and deferred gain on cash flow hedges which are recorded directly in Shareholders' Equity. Comprehensive income is as follows: Three months ended March 31 ------------ 2003 2002 ---- ---- Net income $ 72 $ 33 Foreign currency translation adjustments 8 (9) Deferred gain on cash flow hedges 5 3 Other 2 (1) ---- ---- Comprehensive income $ 87 $ 26 ==== ==== Inventories - ----------- Mar. 31, Dec. 31, 2003 2002 ---- ---- Raw materials $ 323 $ 283 Work-in-process & finished goods 489 449 ----- ----- Gross inventories at FIFO 812 732 Excess of FIFO cost over LIFO cost (35) (34) ----- ----- Net inventories $ 777 $ 698 ===== ===== Net Income Per Common Share - --------------------------- Three months ended March 31 ------------ 2003 2002 ---- ---- Net income $ 72 $ 33 ==== ==== Average number of Common Shares outstanding assuming dilution 72.1 71.2 Less dilutive effect of stock options 1.0 1.1 ---- ---- Average number of Common Shares outstanding basic 71.1 70.1 ==== ==== Net income per Common Share Assuming dilution $1.00 $0.47 Basic 1.01 0.48 Business Segment Information - ---------------------------- Three months ended March 31 --------------- 2003 2002 ---- ---- Net sales Fluid Power $ 697 $ 597 Industrial & Commercial Controls 514 486 Automotive 440 385 Truck 274 255 ------ ------ Total net sales $1,925 $1,723 ====== ====== Operating profit (loss) Fluid Power $ 58 $ 43 Industrial & Commercial Controls 32 18 Automotive 62 56 Truck 22 (10) ------ ------ 174 107 Corporate Amortization of intangible assets (6) (6) Interest expense-net (24) (27) Corporate expense-net (45) (26) ------ ------ Income before income taxes 99 48 Income taxes 27 15 ------ ------ Net income $ 72 $ 33 ====== ====== Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - ------------------------------------------------------------------------ Dollars and shares in millions, except per share data (per share data assume dilution) Results of Operations - --------------------- Sales for first quarter 2003 were $1,925, 12% above $1,723 in first quarter 2002. Sales growth was due to continued growth in excess of the Company's end markets, revenue from the four acquisitions completed from November 2002 through January, and higher exchange rates. Approximately 5% of the increase in sales came from outgrowing end markets, another 5% from the acquisitions, and 2% from higher exchange rates. Net income was $72 in first quarter 2003 compared to $33 in first quarter 2002, an increase of 118%. Net income per Common Share of $1.00 in 2003 increased 113% over net income per Common Share of $0.47 in first quarter 2002. Net income in 2003 included restructuring charges of $5 after-tax ($0.06 per share), compared to restructuring charges of $33 after-tax ($0.46 per share) in 2002. This increase in net income was also partially the result of the benefits derived from the restructuring actions taken over the last two years to resize the Company. Improved income was further due to higher sales in 2003, despite flat markets and considerable economic uncertainties. For the past four quarters, Eaton has experienced growth in revenue and improved operating margins compared to the same period of the prior year. In first quarter 2003, Eaton incurred restructuring charges related primarily to the integration of the Boston Weatherhead fluid power business acquired in November 2002 and the electrical business of Delta plc acquired in January 2003. These charges totaled $5 for the Fluid Power segment, $1 for the Industrial & Commercial Controls segment, and $1 for Corporate. In first quarter 2002, the Company incurred restructuring charges to reduce operating costs across its business segments and certain corporate functions. The charges in 2002 were primarily a continuation of restructuring programs initiated in 2001. These charges totaled $17 for the Fluid Power segment, $13 for the Industrial & Commercial Controls segment, $14 for the Truck segment, $1 for the Automotive segment, and $4 for Corporate. The restructuring charges in 2003 and 2002 related to the business segments were included in the Statements of Consolidated Income in Income from Operations and reduced Operating Profit of the related segment. The corporate restructuring charges were included in the Statements of Consolidated Income in Income from Operations and were included in Business Segment Information in Corporate Expense-Net. As displayed in the Statements of Consolidated Income, Income from Operations of $126 in first quarter 2003 increased 75% over first quarter 2002. The increase was primarily the result of the benefit of restructuring actions taken over the past two years combined with increased sales in 2003 and lower restructuring charges incurred in 2003, offset by increased pension and other postretirement expense in 2003. Eaton expects its end markets in the first half of 2003 to be slightly weaker than a year ago. In the second half, assuming current uncertainties related to the economy are resolved, growth is expected to resume towards year-end. As a result, the Company anticipates little overall growth in its end markets for the year as a whole. The Company projects second quarter net income of $1.15 to $1.25 per Common Share, with full year estimates of $4.50 to $4.75 per share. The Company anticipates the impact of restructuring charges on second quarter net income to be $0.15 per share, with a full year effect of $0.50 per share. In fourth quarter 2002, certain key assumptions used to calculate pension and other postretirement benefit expense were adjusted, including the lowering of the assumed return on pension plan assets from 10.00% to 8.75% and the discount rate from 7.25% to 6.75%. The effect of these changes on full year 2003 is estimated to be increased expense of $72 ($47 after-tax, or $0.65 per share). Business Segments - ----------------- Fluid Power - ----------- First quarter 2003 sales of Eaton's largest business segment, Fluid Power, were $697, 17% above $597 in first quarter 2002. Approximately 8% of this sales increase was due to the Boston Weatherhead and Mechanical Products acquisitions in fourth quarter 2002. The remaining 9% increase in sales resulted from growth in excess of end markets and higher foreign exchange rates. This compares to a decline of 3% in Fluid Power's markets, with North American fluid power industry shipments down about 2%, commercial aerospace markets off 20%, and defense aerospace markets up by 11%. The Company does not anticipate a recovery in the traditional mobile and industrial hydraulics markets until late in the year. The construction and agricultural equipment markets have shown little growth thus far, and are likely to be restrained until economic uncertainties are resolved. The decline in the commercial aerospace market has occurred as expected. Military aerospace markets have been strong, largely offsetting the decline in the commercial markets. Operating profits were $58 in first quarter 2003, up from $43 in first quarter 2002. Restructuring charges recognized in 2003 were $5 compared to $17 in 2002. These operating profits represented a return on sales of 8.3% in 2003, which was lower by 0.7% as a result of restructuring charges. The return on sales in 2002 was 7.2%, which was lower by 2.8% as a result of restructuring charges. In spite of general weakness in end markets, profits in 2003 benefited from aggressive restructuring actions taken to resize this business in prior periods and increased sales in 2003, as well as the $12 reduction in restructuring charges. Industrial & Commercial Controls - -------------------------------- In the Industrial & Commercial Controls segment, sales for first quarter 2003 were $514, up 6% from $486 in first quarter 2002. The sales increase was primarily due to the Delta and Commonwealth Sprague Capacitor acquisitions in first quarter 2003, partially offset by the divestiture of the Navy Controls business in 2002. End markets for the electrical business weakened slightly during the first quarter, with an estimated 1% decline in the markets for this business compared to 2002. It is expected that the electrical distribution equipment market will not begin to recover until the end of 2003. The residential market in North America has remained strong thus far in 2003. Operating profits were $32 in first quarter 2003 compared to $18 in first quarter 2002. Restructuring charges recognized in 2003 were $1 compared to $13 in 2002. These operating profits represented a return on sales of 6.2% in 2003, which was lower by 0.2% as a result of restructuring charges. The return on sales in 2002 was 3.7%, which was lower by 2.7% due to restructuring charges. The increase in operating profits, after taking into account the lower restructuring charges of $12, was primarily due to increased sales and the benefits of restructuring actions. In January 2003, Eaton completed the acquisition of the electrical business of Delta plc for $215. The Delta business represents a significant addition to the capabilities and geographic footprint in Europe of the Industrial & Commercial Controls business. Additionally, in early January 2003 the acquisition of the power systems business of Commonwealth Sprague Capacitor was completed. This business will add to offerings in the areas of power quality and energy management. Automotive - ---------- The Automotive segment posted sales of $440 in first quarter 2003, 14% above $385 in first quarter 2002. This is a new record for Eaton's quarterly Automotive segment revenues. NAFTA automotive production increased 2%, while European production was flat, compared to first quarter 2002. The Automotive segment continued its strong performance with sales growth that considerably outpaced its end markets. The heavy investments the Company has made in new product development over the last several years are delivering tangible results as this business has been able to maintain the accelerated pace of new product introductions and gain market share. Operating profits were $62 in first quarter 2003, or an increase of 11%, compared to $56 in first quarter 2002. First quarter 2002 included $1 of restructuring charges. The segment produced a return on sales of 14.1% in 2003, down from 14.5% in 2002. The increase in profits was primarily the result of the increase in sales during 2003. Truck - ----- The Truck segment posted sales of $274 in first quarter 2003, a 7% increase over $255 in first quarter 2002. NAFTA heavy-duty truck production was up 4% in 2003, NAFTA medium-duty truck production was up 1%, European truck production was up 1%, and South American production increased by 11% versus a year ago. First quarter production of NAFTA heavy-duty trucks totaled about 36,000 units. For the full year, the Company expects production of heavy-duty trucks in NAFTA to total approximately 190,000 units. Operating profits were $22 in first quarter 2003, compared to a loss of $10 in first quarter 2002. There were no restructuring charges in 2003, versus $14 in 2002. The operating profits in 2003 represented a return on sales of 8.0%. The positive impact of the extensive restructuring actions in this segment over the last two years can be seen in the improved profitability in 2003 over 2002. Corporate - --------- Corporate expense-net was $45 in first quarter 2003 compared to $26 in first quarter 2002. The increase was primarily the result of increased pension expense and other postretirement benefit expense in 2003 compared to 2002. In fourth quarter 2002, certain key assumptions used to calculate pension and other postretirement benefit expense were adjusted, including the lowering of the assumed return on pension plan assets from 10.00% to 8.75% and the discount rate from 7.25% to 6.75%. Changes in Financial Condition During 2003 - ------------------------------------------ Eaton's financial position remained strong during the first quarter of 2003. Net working capital of $617 at the end of the quarter decreased from $723 at year-end 2002 (the current ratio was 1.3 at March 31, 2003 and 1.4 at December 31, 2002). The decrease was substantially related to the use of $219 of cash and short-term investments to fund the acquisitions of businesses in first quarter 2003. This decrease was partially offset by increased accounts receivable primarily resulting from increased sales in first quarter 2003. Cash generated from operating activities was lower in 2003 compared to 2002 due to an increase in accounts receivable primarily related to increased sales in 2003, and a reduction of accounts payable and other current liabilities, and a payment of estimated United States Federal income taxes in 2003. Capital expenditures for first quarter 2003 were $43, $3 more than first quarter 2002 and just over 2% of sales in 2003. Capital expenditures in 2003 are forecasted to be approximately $300 and will be funded primarily by cash flow from operations. Total debt of $2,079 at the end of the first quarter of 2003 decreased $9 from the end of 2002. The net debt to capital ratio increased to 45.4% at March 31, 2003 from 41.9% at December 31, 2002, primarily the result of the use of cash and short-term investments to fund the acquisitions of businesses in first quarter 2003. The Company has credit facilities of $900, of which $500 expire in May 2003 and $400 in April 2005. In the latter part of May 2003, the Company intends to enter into a new $250 revolving credit facility that will expire in May 2008. As noted in Item 6.(b) below, on April 17, 2003, the Company filed a Current Report on Form 8-K in relation to Standard & Poor's Rating Services' decision to place the Company's long-term credit rating on CreditWatch. Contingencies - ------------- The Company is subject to a broad range of claims, administrative proceedings, and legal proceedings, such as lawsuits that relate to contractual claims, patent infringement, personal injury (including asbes- tos claims) and employment-related matters. Although it is not possible to predict with certainty the outcome or cost of these matters, the Company be- lieves that these matters will not have a material adverse effect on its financial position, results of operations or cash flows. Forward-Looking Statements - -------------------------- This Form 10-Q contains forward-looking statements concerning the second quarter 2003 and full year 2003 net income per share, Eaton's worldwide markets, expenses of restructuring programs, and contingencies. These statements 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; failure to implement restructuring plans; unanticipated downturns in business relationships with customers or their purchases from the Company; competitive pressures on sales and pricing; increases in the cost of material 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 or dispute resolutions; and unanticipated further deterioration of economic and financial conditions in the United States and around the world. Eaton does not assume any obligation to update these forward-looking statements. 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 2002 Annual Report on Form 10-K. There have been no material changes in reported market risk since the inclusion of this discussion in the Company's 2002 Annual Report on Form 10-K referenced above. Item 4. Controls & Procedures - ----------------------------- Within 90 days prior to filing this report, an evaluation was performed, under the supervision and with the participation of Eaton's management, including Alexander M. Cutler - Chairman and Chief Executive Officer and Richard H. Fearon - Executive Vice President - Chief Financial and Planning Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on that evaluation, Eaton's management concluded that the Company's disclosure controls and procedures were effective as of March 31, 2003. Subsequent to March 31, 2003, there have been no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls and no significant deficiencies and material weaknesses existed which required corrective actions. Disclosure controls and procedures are designed to ensure that information required to be disclosed in Company reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in Company reports filed under the Exchange Act is accumulated and communicated to management, including the Company's Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders - ----------------------------------------------------------- At the Company's Annual Meeting of Shareholders on April 23, 2003, the shareholders re-elected three directors (Alexander M. Cutler, Gary L. Tooker and Deborah L. McCoy) and elected two new directors (Gregory R. Page and Kiran M. Patel), and ratified the appointment of the accounting firm of Ernst & Young LLP as the Company's independent auditors for 2003. Results of voting in connection with each issue were as follows: Voting on Directors For Withheld Total - ------------------- --- -------- ----- Alexander M. Cutler 62,945,686 1,396,573 64,342,259 Gary L. Tooker 63,233,139 1,109,120 64,342,259 Deborah L. McCoy 58,566,172 5,776,087 64,342,259 Gregory R. Page 63,359,225 983,034 64,342,259 Kiran M. Patel 63,350,378 991,881 64,342,259 Ratification of Ernst & Young LLP as Independent Auditors - --------------------------------------------------------- For 57,213,834 Against 6,482,984 Abstain 645,441 ---------- Total 64,342,259 ========== Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- (a) Exhibits - See Exhibit Index attached. (b) Reports on Form 8-K. 1. On January 21, 2003, the Company filed a Current Report on Form 8-K regarding the fourth quarter 2002 earnings release. 2. On April 14, 2003, the Company filed a Current Report on Form 8-K regarding the first quarter 2003 earnings release. 3. On April 17, 2003, the Company filed a Current Report on Form 8-K in relation to Standard & Poor's Rating Services' decision to place the Company's long-term credit rating on CreditWatch. 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: May 15, 2003 /s/ Richard H. Fearon ---------------------------- Richard H. Fearon Executive Vice President - Chief Financial and Planning Officer Certification I, Alexander M. Cutler, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Eaton Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 15, 2003 /s/ Alexander M. Cutler ---------------------------------------- Alexander M. Cutler - Chairman and Chief Executive Officer Certification I, Richard H. Fearon, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Eaton Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 15, 2003 /s/ Richard H. Fearon -------------------------- Richard H. Fearon - Executive Vice President - Chief Financial and Planning Officer Eaton Corporation Quarterly Report on Form 10-Q First quarter 2003 Exhibit Index Exhibit 4 Instruments defining rights of security holders, including indentures (Pursuant to Regulation S-K Item 601(b)(4), the Company agrees to furnish to the Commission, upon request, a copy of the instruments defining the rights of holders of long- term debt) 12 Ratio of Earnings to Fixed Charges Eaton Corporation 2003 Quarterly Report on Form 10-Q Item 6 Exhibit 12 Ratio of Earnings to Fixed Charges Three months ended Year ended December 31 March 31, -------------------------------- 2003 2002 2001 2000 1999 1998 ---- ---- ---- ---- ---- ---- Income from continuing operations before income taxes $ 99 $399 $278 $552 $ 943 $616 Adjustments Minority interests in consolidated subsidiaries 3 14 8 8 2 (2) Income of equity investees (1) (1) 0 (1) (1) (1) Interest expensed 26 110 149 182 159 93 Amortization of debt issue costs 0 2 1 1 0 0 Estimated portion of rent expense representing interest 8 34 38 39 36 28 Amortization of capitalized interest 3 13 13 10 8 7 Distributed income of equity investees 0 0 0 1 0 1 ---- ---- ---- ---- ------ ---- Adjusted income from continuing operations before income taxes $138 $571 $487 $792 $1,147 $742 ==== ==== ==== ==== ====== ==== Fixed charges Interest expensed $ 26 $110 $149 $182 $159 $ 93 Interest capitalized 2 8 12 22 21 16 Amortization of debt issue costs 0 2 1 1 0 0 Estimated portion of rent expense representing interest 8 34 38 39 36 28 ---- ---- ---- ---- ---- ---- Total fixed charges $ 36 $154 $200 $244 $216 $137 ==== ==== ==== ==== ==== ==== Ratio of earnings to fixed charges 3.83 3.71 2.44 3.25 5.31 5.42 Income from continuing operations before income taxes for years before 2002 include amortization expense related to goodwill and other intangible assets. Upon adoption of SFAS No. 142 on January 1, 2002 the Company ceased amortization of goodwill and indefinite life intangible assets. -----END PRIVACY-ENHANCED MESSAGE-----