-----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, C/CIvdI7ZECZCGb4FTONJZImVtfG2iaXI4sLNU1b+jjtklcNv5NWRKjjddzAmqj1 Q4NRaUjjelohJIQsFkCfwA== 0000031277-99-000004.txt : 19990330 0000031277-99-000004.hdr.sgml : 19990330 ACCESSION NUMBER: 0000031277-99-000004 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990329 ITEM INFORMATION: FILED AS OF DATE: 19990329 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: 8-K SEC ACT: SEC FILE NUMBER: 001-01396 FILM NUMBER: 99575351 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 8-K 1 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): March 29, 1999 EATON CORPORATION - -------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Ohio 1-1396 34-0196300 - ----------------- ------------ ------------------- (State or other (Commission (I.R.S. Employer jurisdiction of File Number) Identification No.) incorporation) Eaton Center Cleveland, Ohio 44114 - ---------------------------------------- ------------------- (Address of principal executive offices) (Zip Code) (216) 523-5000 ----------------------------- Registrant's telephone number, including area code Page 2 Item 5. Other Events ------------ EATON CORPORATION UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS On February 1, 1999, Eaton Corporation announced it had entered into an agreement to acquire all of the outstanding common stock of Aeroquip-Vickers, Inc., for $58 per share in cash, or approximately $1.7 billion, plus the assumption of debt. The following unaudited pro forma combined condensed financial statements have been prepared by Eaton's management. These financial statements reflect Eaton's planned acquisition of Aeroquip- Vickers, Inc., and combine, for the indicated date or period, the historical consolidated financial statements of Eaton and Aeroquip-Vickers, using the purchase method of accounting. The unaudited pro forma combined condensed balance sheet reflects adjustments as if the acquisition had occurred on December 31, 1998. The unaudited pro forma combined statement of income reflects adjustments as if the acquisition had occurred at the beginning of 1998. The pro forma financial statements include preliminary estimates and assumptions which Eaton's management believes are reasonable. However, the pro forma results do not include any anticipated cost savings or other effects of the planned integration of Eaton and Aeroquip-Vickers. Also, the pro forma results do not reflect an acquisition integration charge, which has not yet been determined, but will be recorded by Eaton in 1999, related to the integration of Eaton's product lines and operations with Aeroquip-Vickers. Therefore, the pro forma results 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. The pro forma financial statements have been prepared using the following facts and assumptions: - - Eaton acquires the common stock and common stock equivalents of Aeroquip-Vickers in exchange for a total cash payment of $1.623 billion. - - Eaton borrows $1.623 billion to finance the acquisition. Although Eaton intends to refinance a portion of the borrowings with the proceeds from the sale of Common Shares and business divestitures (see "Eaton to Sell Engineered Fasteners and Fluid Power Divisions" appearing in this report), that refinancing is not included in the pro forma assumptions. - - The assets acquired and liabilities assumed of Aeroquip-Vickers are recorded at estimated fair values as determined by Eaton's management based on information currently available and on current tentative assumptions as to the future operations of Aeroquip-Vickers. Eaton will be obtaining independent appraisals of the fair values of the acquired property, plant and equipment, and identified intangible assets, and their remaining useful lives. Eaton will also be reviewing and determining the fair values of the other assets acquired and liabilities assumed. Accordingly, the allocation of the purchase price to the acquired assets and liabilities of Aeroquip-Vickers is subject to revision as a result of the final determination of appraised and other fair values. The pro forma results do not reflect a $3 million aftertax expense recorded by Aeroquip-Vickers in 1998 for the cumulative effect of an accounting change to charge to income previously deferred start-up costs for new facilities. The pro forma financial statements should be read in conjunction with the historical consolidated financial statements, and related notes, of Eaton and Aeroquip-Vickers. Page 3 Unaudited Pro Forma Combined Condensed Balance Sheet December 31, 1998
(Millions of dollars) Historical Pro ---------------- forma Pro Aeroquip adjust- forma Eaton -Vickers ments combined ----- -------- ------ -------- ASSETS Current assets Cash $ 80 $ 18 $ 98 Short-term investments 42 42 Accounts receivable 885 342 1,227 Inventories 707 302 $ 28 2a 1,037 Deferred income taxes & other current assets 268 52 12 2b 2 2l 334 ----- ----- ----- ----- 1,982 714 42 2,738 Property, plant & equipment 1,837 548 82 2c 2,467 Identified intangible assets 214 289 2d 503 Excess of cost over net assets of businesses acquired 1,025 125 (125)2e 976 2n 2,001 Deferred income taxes & other assets 607 72 (16)2f 663 679 ----- ----- ----- ----- $5,665 $1,459 $1,248 $8,372 ===== ===== ===== ===== LIABILITIES & SHAREHOLDERS' EQUITY Current liabilities Short-term debt & current portion of long-term debt $ 333 $ 103 $ 923 (1) $1,359 Accounts payable & other current liabilities 1,183 338 49 2g (4)2h 1,566 ----- ----- ----- ----- 1,516 441 968 2,925 Long-term debt 1,191 278 700 (1) 22 2i 2,191 Postretirement benefits other than pensions 557 122 (19)2j 660 Deferred income taxes & other liabilities 344 49 34 2k 112 2l 539 Shareholders' equity Aeroquip-Vickers 569 (569)2m 0 Eaton 2,057 2,057 ----- ----- ----- ----- $5,665 $1,459 $1,248 $8,372 ===== ===== ===== ===== See accompanying notes.
Page 4 Notes to Unaudited Pro Forma Combined Condensed Balance Sheet The pro forma adjustments to give effect to Eaton's planned acquisition of Aeroquip-Vickers, and the estimated purchase price allocation at December 31, 1998, are as follows: 1) The borrowing by Eaton of $1.623 billion to finance the acquisition price. Of these borrowings, $700 million are classified on the balance sheet as long-term debt because Eaton expects to issue $200 million of notes payable due in 2000 and intends, and expects to have the ability under a new $500 million five-year revolving credit agreement to be entered into during April 1999, to refinance this amount of debt on a long-term basis. 2) The allocation of the aggregate purchase price of Aeroquip- Vickers, and the recognition of the excess of the purchase price over the estimated fair value of net assets of Aeroquip- Vickers acquired, is as follows (in millions): Adjustments ----------- 2a Adjust acquired inventories to estimated fair value $ 28 2b Adjust acquired pension assets for certain overfunded pension plans to estimated fair value 12 2c Adjust acquired property, plant and equipment to estimated fair value 82 2d Record acquired identified intangible assets at estimated fair value 289 2e Eliminate the excess of cost over net assets acquired related to Aeroquip- Vickers' acquisitions of businesses in prior years (125) 2f Eliminate certain costs deferred by Aeroquip-Vickers (16) 2g Record estimated current liabilities related to post-acquisition integration of Aeroquip-Vickers' product lines and operations with Eaton, and costs related to the acquisition (49) 2h Adjust acquired pension liability for certain underfunded pension plans to estimated fair value 4 2i Adjust acquired long-term debt to reflect Eaton's current interest rates (22) 2j Adjust acquired liability for post- retirement benefits other than pensions to estimated fair value 19 2k Record estimated long-term liabilities related to post-acquisition integration of Aeroquip-Vickers' product lines and operations with Eaton (34) 2l Record deferred income taxes for the above adjustments, except for adjustment 2e which is nontaxable, assuming a 35% income tax rate (110) 2m Eliminate shareholders' equity of Aeroquip- Vickers, prior to pro forma adjustments 569 2n Record preliminary estimate of excess of cost over net assets of Aeroquip-Vickers acquired 976 ----- Purchase price $1,623 ===== Page 5 Unaudited Pro Forma Combined Statement of Income Year Ended December 31, 1998
(Millions of dollars except for per share amounts) Historical Pro ---------------- forma Pro Aeroquip adjust- forma Eaton -Vickers ments combined ----- -------- ----- -------- Net sales $6,625 $2,150 $8,775 Costs & expenses Cost of products sold 4,759 1,620 $ 32 1a 1 1b 8 1c (4)1d (5)1e 12 1f 24 1g 6,447 Selling & administrative 1,050 272 1,322 Research & development 334 72 (32)1a 374 ----- ----- ----- ----- 6,143 1,964 36 8,143 ----- ----- ----- ----- Income from operations 482 186 (36) 632 Other income (expense) Interest expense-net (88) (27) (99)1h 1 1i (213) Gain on sale of businesses 43 43 Other-net 48 (12) 36 ----- ----- ----- ----- 3 (39) (98) (134) ----- ----- ----- ----- Income before income taxes 485 147 (134) 498 Income taxes 136 47 (41)1j 142 ----- ----- ----- ----- Net income $ 349 $ 100 $ (93) $ 356 ===== ===== ===== ===== Net income per Common Share (1k) - Assuming dilution $ 4.80 $ 4.90 Basic 4.89 4.99 Average number of Common Shares outstanding (in millions) - Assuming dilution 72.7 72.7 Basic 71.4 71.4 See accompanying notes.
Page 6 Notes to Unaudited Pro Forma Combined Statement of Income The pro forma adjustments to give effect to Eaton's planned acquisition of Aeroquip-Vickers, and the estimated purchase price allocation for the year ended December 31, 1998, are as follows: 1a Reclassify engineering expenses of Aeroquip-Vickers to cost of products sold to be consistent with Eaton's accounting policy 1b Adjust expense for acquired pensions and postretirement benefits other than pensions to reflect Eaton's current actuarial assumptions 1c Depreciate the write-up of acquired property, plant and equipment to estimated fair value over 10 years 1d Eliminate amortization of certain costs deferred by Aeroquip- Vickers 1e Eliminate amortization of the excess of cost over net assets acquired related to Aeroquip-Vickers' acquisitions of businesses in prior years 1f Amortize the estimated fair value of acquired identified intangible assets over 25 years 1g Amortize the excess of the purchase price of Aeroquip-Vickers over the estimated fair value of net assets acquired over 40 years 1h Record additional interest expense related to $1.623 billion increase in debt to fund the acquisition (assumed interest rate 6.1%) 1i Amortize adjustment of acquired long-term debt to reflect Eaton's current interest rates 1j Record the income tax effect of the above adjustments, except for adjustments 1e and 1g which are nontaxable, assuming a 35% income tax rate 1k Pro forma net income per Common Share is computed by dividing net income by the average number of Common Shares outstanding. ------------------------------------- Page 7 EATON TO SELL ENGINEERED FASTENERS AND FLUID POWER DIVISIONS On March 25, 1999, Eaton said it will sell the Company's Engineered Fasteners and Fluid Power Divisions to offset, in part, the cost of the impending acquisition of Aeroquip-Vickers, Inc. Engineered Fasteners, which is based in Brunswick, Ohio, and has approximately 650 employees, had 1998 sales of $94 million, while the Marshall, Michigan-based Fluid Power Division has approximately 1,050 employees and had 1998 sales of $189 million. "With the impending acquisition of Aeroquip-Vickers for $1.7 billion, Eaton has a number of options available to it in order to finance the transaction," said Chairman Stephen R. Hardis. "We are issuing debt, and we can, of course, finance the balance by issuing more Eaton shares. We may do that, too, but for some time we have felt that Eaton's stock has been undervalued, and equity financing is therefore very expensive. By selling the fasteners and fluid power businesses and applying the proceeds to the Aeroquip-Vickers purchase, we can minimize the number of Common Shares that we issue, and thereby limit earnings per share dilution. The decision to divest these strong businesses reflects our confidence in Eaton's future earnings. "Increasingly, the automotive industry is consolidating its supplier base, and expecting those suppliers to apply a more modular approach to the products they bring to the marketplace," Hardis continued. "As currently structured, neither our fastener nor our fluid power business have this capability, and it would require significant investments or additional acquisitions to grow these operations to that level. "Both the fastener and fluid power businesses have excellent work forces and leadership teams, which makes this decision particularly difficult, but in the final analysis, we believe this course of action is in the best interest of our owners." Sale of the Engineered Fasteners business will be handled by the investment banking firm of Bowles Hollowell Conner, a division of First Union Capital Markets Corp., while the Fluid Power transaction will be handled by Goldman, Sachs & Co. Eaton said it would not speculate on the sale price it might receive for the two businesses. Eaton's Engineered Fastener Division has manufacturing facilities in Brunswick and Massillon, Ohio, and in Hamilton, Ontario, Canada. The Fluid Power Division has manufacturing facilities in Fletcher, North Carolina, Markdorf, Germany, and San Jose dos Campos, Brazil, as well as a joint venture business in Ningbo, China. Page 8 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/ Billie K. Rawot ----------------------------- Vice President and Controller Chief Accounting Officer Date: March 29, 1999 -----END PRIVACY-ENHANCED MESSAGE-----