-----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, NqNUsw8ftR2/QxIEEuotVstGE+x5bS13nmnc+pIx89Z2HiXarCBI8xSzWUN0VXl4 AkPPhfF6KFMjlN8mXm9nww== 0000031277-97-000009.txt : 19970507 0000031277-97-000009.hdr.sgml : 19970507 ACCESSION NUMBER: 0000031277-97-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970506 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: EATON CORP CENTRAL INDEX KEY: 0000031277 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC & OTHER ELECTRICAL EQUIPMENT (NO COMPUTER EQUIP) [3600] IRS NUMBER: 340196300 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-01396 FILM NUMBER: 97596548 BUSINESS ADDRESS: STREET 1: EATON CTR STREET 2: 1111 SUPERIOR AVE CITY: CLEVELAND STATE: OH ZIP: 44114-2584 BUSINESS PHONE: 2165235000 FORMER COMPANY: FORMER CONFORMED NAME: EATON YALE & TOWNE INC DATE OF NAME CHANGE: 19710822 10-Q 1 MARCH 31, 1997 FORM 10-Q Page 1 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, 1997 -------------- 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 77.2 million Common Shares outstanding as of March 31, 1997. Page 2 Part I - FINANCIAL INFORMATION Item 1. Financial Statements Eaton Corporation Condensed Consolidated Balance Sheets
March 31, December 31, (Millions) 1997 1996 ---- ---- ASSETS Current assets Cash $ 25 $ 22 Short-term investments 43 38 Accounts receivable 1,081 985 Inventories 723 729 Deferred income taxes and other current assets 261 243 ------ ------ 2,133 2,017 Property, plant and equipment 1,743 1,792 Excess of cost over net assets of businesses acquired 957 968 Deferred income taxes and other assets 526 530 ------ ------ $5,359 $5,307 ====== ====== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Short-term debt and current portion of long-term debt $ 30 $ 30 Accounts payable and other current liabilities 1,178 1,200 ------ ------ 1,208 1,230 Long-term debt 1,121 1,062 Postretirement benefits other than pensions 579 585 Other liabilities 261 270 Shareholders' equity 2,190 2,160 ------ ------ $5,359 $5,307 ====== ====== See accompanying notes.
Page 3 Eaton Corporation Statements of Consolidated Income
Three Months Ended March 31 ------------------ (Millions except for per share data) 1997 1996 ---- ---- Net sales $1,789 $1,736 Costs and expenses Cost of products sold 1,307 1,280 Selling and administrative 257 238 Research and development 75 65 ------ ------ 1,639 1,583 ------ ------ Income from operations 150 153 Other income (expense) Interest expense (20) (21) Interest income 2 2 Other--net 13 7 ------ ------ (5) (12) ------ ------ Income before income taxes 145 141 Income taxes 44 46 ------ ------ Net income $ 101 $ 95 ====== ====== Per Common Share Net income $ 1.31 $ 1.23 Cash dividends paid .40 .40 Average number of Common Shares outstanding 77.1 77.7
See accompanying notes. Page 4 Eaton Corporation Condensed Statements of Consolidated Cash Flows
Three Months Ended March 31 ------------------ (Millions) 1997 1996 ---- ---- Net cash provided by operating activities Net income $101 $ 95 Adjustments to reconcile to net cash provided by operating activities Depreciation and amortization 82 75 Changes in operating assets and liabilities, excluding acquisitions of businesses (154) (129) Other--net (2) (5) ---- ---- 27 36 Net cash used in investing activities Expenditures for property, plant and equipment (47) (55) Other--net (6) 6 ---- ---- (53) (49) Net cash provided by (used in) financing activities Borrowings with original maturities of more than three months Proceeds 64 8 Payments (82) (36) Borrowings with original maturities of less than three months--net 84 11 Proceeds from exercise of stock options 11 9 Cash dividends paid (31) (31) Purchase of Common Shares (17) (1) ---- ---- 29 (40) ---- ---- Increase (decrease) in cash 3 (53) Cash at beginning of year 22 56 ---- ---- Cash at end of period $ 25 $ 3 ==== ====
See accompanying notes. Page 5 The following notes are included in accordance with the requirements of Regulation S-X and Form 10-Q: 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 adjustments are of a normal recurring nature. These financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company's 1996 Annual Report on Form 10-K. Net Income per Common Share - --------------------------- Net income per Common Share is computed by dividing net income by the average month-end number of shares outstanding during each period. The dilutive effect of common stock equivalents, comprised solely of options for Common Shares, is not material. In February 1997, Statement of Financial Accounting Standards (SFAS) No. 128, 'Earnings per Share', was issued. SFAS No. 128 establishes new standards for computing and presenting earnings per share. The Company must adopt SFAS No. 128 for the year-ending 1997 and believes the effect of adoption will not be material. Inventories - ----------- March 31, December 31, (Millions) 1997 1996 ---- ---- Raw materials $243 $270 Work-in-process and finished goods 574 552 ---- ---- Gross inventories at FIFO 817 822 Excess of current cost over LIFO cost (94) (93) ---- ---- Net inventories $723 $729 ==== ==== 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 Page 6 engaged principally in the manufacture and/or sale of electrical and electronic controls, truck transmissions, fasteners, leaf spring assemblies, and engine and transaxle components. As a result of the Company's acquisition of CAPCO, as further discussed in Management's Discussion and Analysis of Financial Condition and Results of Operations, the majority ownership of CAPCO's Brazilian operations was acquired by Eaton Offshore through its subsidiaries. Summary financial information for Eaton Offshore and its consolidated subsidiaries is as follows (in millions): Three Months Ended March 31 ------------------ 1997 1996 ---- ---- Income statement data Net sales $192 $154 Gross profit 34 24 Net income 14 7 March 31, December 31, 1997 1996 ---- ---- Balance sheet data Current assets $361 $364 Noncurrent assets 183 215 Net intercompany payables 139 54 Current liabilities 98 111 Noncurrent liabilities 102 122 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations - --------------------- The Company achieved record sales in the first quarter of 1997, rising 3% over 1996. Net income and net income per Common Share were the second best first quarter results, increasing 6% over 1996. The Company is pleased with its overall financial performance in the first quarter of 1997. These results reinforce the Company's confidence that Eaton is on track to achieving the aggressive performance goals set for 1997. Income from operations decreased 2% in the first quarter of 1997 from 1996. The Company's first quarter 1997 performance was not achieved by compromising investments in the future, as the reduction in income from operations partially resulted from increased costs associated with various major growth programs designed to accelerate sustainable growth in the years ahead. These programs are key components of a strategy to position the Company to take advantage of growth opportunities in the global marketplace. First quarter 1997 results included $7 million of additional expense for these major growth programs. Page 7 Electrical and Electronic Controls segment results for the first quarter are summarized as follows (in millions): 1997 1996 ---- ---- Net sales Industrial and Commercial Controls $534 $505 Automotive and Appliance Controls 295 284 Specialty Controls 125 176 ---- ---- $954 $965 ==== ==== Operating profit $ 70 $ 82 ==== ==== Sales for Electrical and Electronic Controls, the Company's largest segment, in the first quarter of 1997 were slightly below 1996, while operating profit decreased 15% from 1996. Activity in this segment continued firm outside of the slumping semiconductor capital equipment market and operating performance was generally improved. These results are encouraging considering the fact that last year the Company's Semiconductor Equipment business was surging. A year ago, that business had consolidated first quarter sales of $130 million and, including the sales of the Company's 50% joint venture Sumitomo Eaton Nova, total sales of $178 million. This year, consolidated sales and operating profit relating to this business decreased more than $50 million and $25 million, respectively. Without the steep year-to-year decrease in Semiconductor Equipment, the Electrical and Electronic Controls segment would have achieved another all-time record for both sales and operating profit. The sharp downturn in worldwide demand for semiconductor capital equipment as discussed previously caused Specialty Controls' 29% sales decrease in the first quarter of 1997 from 1996. However, like other industry participants, the Company's new orders rose 25% over the past six months. Assuming this new order trend continues, the Company's sales should begin to show year-to-year improvement during the second half of 1997. Over time, this business demonstrates excellent growth and, because of the Company's worldwide leading position in ion implantation, it is an attractive business for Eaton. However, this extraordinarily dynamic market requires a sustained commitment to research and new product development. The Company spent an additional $3 million in research and new product development for Semiconductor Equipment in the first quarter of 1997 over 1996. Although that investment hurts today's operating results, it will help to ensure that the Company takes full advantage of Eaton's leadership position in the years ahead. Aided by continued strong nonresidential construction markets and modest gains in Cutler-Hammer's market position, Industrial and Commercial Controls experienced record sales in the first quarter of 1997, rising 6% over 1996, in an environment where the markets served increased only 3% on a year-to-year basis. Automotive and Appliance Controls sales rose 4% in the first quarter of 1997 over 1996 even Page 8 though there was only a 2% increase in the North American and European production of these products. Vehicle Components segment results for the first quarter are summarized as follows (in millions): 1997 1996 ---- ---- Net sales Truck Components $483 $449 Passenger Car Components 197 180 Off-Highway Vehicle Components 135 121 ---- ---- $815 $750 ==== ==== Operating profit $101 $ 88 ==== ==== Vehicle Components segment operating results in the first quarter of 1997 were sharply improved from recent quarters. Segment sales rose 9% in the first quarter of 1997 compared to 1996, while operating profit increased 15% over 1996. The improvement in operating profit was primarily attributable to improved sales volumes and added contributions resulting from the CAPCO acquisition described below. The Company is also beginning to benefit from the restructuring actions taken during 1996 and earlier. Comparisons with prior year results were affected by the April 1996 acquisition of CAPCO Automotive Products Corporation (CAPCO), a Brazilian manufacturer of transmissions for light- and medium-duty trucks and transaxle components for passenger cars. Excluding the effects of CAPCO, first quarter 1997 segment sales approximated $783 million, a 4% increase compared to 1996, with corresponding operating profit approximating $99 million, a 13% increase over 1996. The Company is pleased that CAPCO was in the black during the first quarter of 1997. The Truck Components team is performing an excellent job under difficult economic conditions. The Company can now begin to realize the full strategic potential of this key acquisition. Truck Components sales increased 8% in the first quarter of 1997 over 1996. Excluding the effects of CAPCO, Truck Components sales increased 4% over 1996 despite an 8% decrease in North American heavy-duty truck production. Based on the strong industry orders trend, the Company's 1997 forecast for essentially flat North American factory sales of heavy-duty trucks appears achievable. North American heavy-duty truck backlog, which was at 81,500 units at March 31, 1997, remains high by historical standards. Passenger Car Components experienced record sales in the first quarter of 1997, rising 9% over 1996 despite only a 2% increase in passenger car production in North America and Europe. This better- than-market performance was attributed to new product launches and participation in the growing Latin American markets. Aided by a 6% year-to-year growth in hydraulics industry shipments, Off-Highway Page 9 Vehicle Components also experienced record sales in the first quarter of 1997, rising 12% over 1996. Defense Systems segment results for the first quarter are summarized as follows (in millions): 1997 1996 ---- ---- Net sales $ 20 $ 21 Operating profit 2 Changes in Financial Condition - ------------------------------ The Company remains in a strong financial position at March 31, 1997. Net working capital increased to $925 million at March 31, 1997 from $787 million at the end of 1996 and the current ratio rose to 1.8 from 1.6 at those dates, respectively. Higher sales in March 1997 primarily caused the increase in accounts receivable at March 31 from the end of 1996. Cash flow from operating activities, supplemented by commercial paper borrowings, was used to fund capital expenditures, repayment of debt, cash dividends and the repurchase of Common Shares. Forward-Looking Statements - -------------------------- The Company has included in this Form 10-Q, expectations of the outlook for 1997. Actual results could differ materially from these expectations, since they are forward-looking statements which inherently are subject to risks and uncertainties. Important factors which could cause actual results to differ from the 1997 expectations include: continuity of business relationships with and purchases by major customers, product mix, competitive pressure on sales and pricing, increases in material and other production costs which cannot be recouped in product pricing, difficulties in introducing new products as well as global economic and market conditions. Page 10 PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The Company held its Annual Meeting of Shareholders on April 23, 1997 at which shareholders re-elected four directors and elected one new director, and ratified the appointment of the accounting firm of Ernst & Young LLP as the Company's independent auditors for 1997. Results of the voting in connection with each issue were as follows: Voting on Directors - ------------------- For Withheld Total --- -------- ----- A. M. Cutler 68,012,413 773,100 68,785,513 P. B. Davis 67,979,724 805,789 68,785,513 S. R. Hardis 67,986,473 799,040 68,785,513 N. C. Lautenbach 68,010,731 774,782 68,785,513 G. L. Tooker 68,023,773 761,740 68,785,513 Ratification of Independent Auditors - ------------------------------------ In Favor 68,208,587 Against 317,167 Abstain 259,759 ---------- Total 68,785,513 Item 5. Other Information Reflecting the Company's confidence that its growth strategy is on track, the Board of Directors raised the quarterly cash dividend from 40 cents to 44 cents. This 10% dividend increase raises the annualized dividend payout to $1.76, and is the second increase made by the Company in two years. Eaton has paid dividends on Common Shares annually since 1923. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - See Exhibit Index attached. (b) Reports on Form 8-K. There were no reports on Form 8-K filed during the three months ended March 31, 1997. Page 11 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 6, 1997 /s/ Adrian T. Dillon ---------------------------- Adrian T. Dillon Executive Vice President - Chief Financial and Planning Officer; Principal Financial Officer Page 1 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. 11 Computations of net income per Common Share can be determined from the Statements of Consolidated Income on page 3 and the footnote "Net Income per Common Share" on page 5. 27 Financial Data Schedule EX-27 2 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Consolidated Balance Sheets and the Statements of Consolidated Income and is qualified in its entirety by reference to such financial statements. 1,000,000 3-MOS DEC-31-1997 MAR-31-1997 25 43 1,095 14 723 2,133 3,475 1,732 5,359 1,208 1,121 0 0 39 2,151 5,359 1,789 1,789 1,307 1,639 (15) 0 20 145 44 101 0 0 0 101 1.31 1.28
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