Eaton Reports Q4 Operating Earnings Results for Full Year 2000
CLEVELAND--Jan. 22, 2001--Eaton Corporation
Note: Eaton Corporation completed the spin-off of its remaining 82 percent ownership of Axcelis Technologies, Inc. effective December 29, 2000. As such, accounting rules require that the operating results of Axcelis be reported as a discontinued operation. For purposes of continuity and comparability with previously reported results, this press release text reports Eaton fourth quarter and full year 2000 results as if Axcelis were a continuing operation through year-end, unless specifically noted otherwise. The accompanying financial summary treats Axcelis as a discontinued operation on a retroactive basis.
Diversified industrial manufacturer Eaton Corporation today announced operating earnings per share of $1.40 during the fourth quarter of 2000, 12 percent below one year earlier. Sales in the quarter were $2.14 billion, 3 percent below last year. Net income before unusual items was $98 million versus last year's $119 million.
Net income, including restructuring charges in both years and a gain on the sale of a business in 1999, was $84 million, or $1.20 per share, in the fourth quarter of 2000 compared to $224 million, or $2.98 per share, for the comparable quarter of 1999.
Sales and operating earnings per share for the full year 2000 were at record levels. Net income before non-recurring items reached $473 million, or $6.52 per share, on sales of $8.99 billion. Comparable 1999 earnings were $439 million, or $5.95 per share, on sales of $8.40 billion. Including all unusual items, earnings reached $6.24 per share in 2000 compared to $8.36 per share in 1999.
Alexander M. Cutler, chairman and chief executive officer, said, "We are pleased to report fourth quarter results in line with our expectations and those of the investment community, despite the increasingly challenging economic environment. As promised, Eaton delivered record operating earnings per share this year despite the severe downturn in the North American heavy truck market. This is a first. Our diversification paid off again in the fourth quarter, with notable performances by our Industrial & Commercial Controls and Fluid Power segments offsetting extraordinarily difficult conditions in Truck Components. We achieved a fourth quarter consolidated operating margin of 10 percent.
"We also delivered exceptional value to our owners this year via the IPO and year-end spin-off of Axcelis to our owners. In addition to $300 million of proceeds to Eaton, the combined market value of Eaton and Axcelis outperformed the market in 2000 by roughly $1 billion. Looking ahead, we see a very bright future for Axcelis as a fully independent entity, and wish our former colleagues all the best.
"After a record 2000, we believe Eaton has earned the right to be considered a legitimate diversified industrial. The challenge for Eaton in 2001 is to continue to reap the benefits of diversification and to leverage the Eaton Business System. Excluding Axcelis, Eaton's operating earnings per share this year reached $5.28. Our goal, despite an uncertain economy and significantly lower vehicle markets, will be to equal or exceed our 2000 results.
"Through superior performance, we intend to demonstrate that Eaton deserves to be recognized, and valued, as a premier diversified industrial enterprise."
Business Segment Results
Fourth quarter Automotive Components sales were $428 million, 6 percent below one year earlier, in large part because of the weak euro exchange rate. Cutler noted that a 2 percent decline in volume compared favorably with the trend of Eaton's light vehicle markets, including a 7 percent drop in production in the NAFTA region, a 3 percent decline in Europe, and a 27 percent rise in South American output. He attributed the above market volume performance largely to new product introductions. Segment profits in the quarter were $45 million, down $14 million from year- earlier results.
Fluid Power sales were a fourth quarter record $631 million, with a weaker euro's impact on sales offset by acquisitions. The 5 percent volume increase compares to a flat year-to-year trend of North American fluid power markets and a 2 percent increase in aerospace markets. Segment profits before restructuring charges were $72 million, up 16 percent from one year ago.
Said Cutler, "We are pleased with the performance of Fluid Power, especially in the context of soft industry conditions and the ongoing integration of Aeroquip-Vickers, Inc. We have now completed the most difficult aspects of our manufacturing integration. Overall, the acquisition added about 70 cents to Eaton's earnings per share in 2000.
"We remain cautious about the prospects for fluid power markets in 2001, given the current stagnant trend in industry orders, but aerospace markets should be at least 10 percent above 2000. Our volumes should exceed market trends due to the three acquisitions we completed over the course of 2000, and the addition of SEHYCO, which is now expected to close at the end of February. Profits in 2001 will also benefit from the additional 25 cents per share accretion generated by completion of our Aeroquip-Vickers integration."
During the quarter, Eaton announced it had agreed to purchase Sumitomo Heavy Industries' 50 percent interest in SEHYCO, the two companies' Japanese hydraulic products joint venture, for an undisclosed amount.
Industrial & Commercial Controls sales and profits were at fourth quarter records. Sales of $616 million were 3 percent above last year, with a 5 percent increase in Cutler-Hammer sales offset by year-to-year declines in Navy and Commercial Controls. This compares to about a 4 percent increase in North American shipments of distribution equipment and industrial controls. Segment profits of $64 million were 25 percent higher than last year at 10.3 percent of sales.
Said Cutler, "The performance of this business continues to be impressive. Fourth quarter Cutler-Hammer orders were up 6 percent with disproportionate strength in distribution equipment offsetting weakness in industrial controls. CHESS, our engineering services business, was in the black during the quarter. While we expect moderating volume growth compared to last year, we anticipate another record year from Industrial & Commercial Controls in 2001."
At year end, the company sold its power tool switch product line, with annual sales of about $40 million, to Tyco International, Ltd. for an undisclosed amount.
Fourth quarter Truck Components sales were 36 percent below one year ago, at $273 million. This compares to a 50 percent decline in NAFTA production of Class 8 trucks, a 30 percent drop in NAFTA medium-duty truck production, a 2 percent rise in European truck output and a 4 percent increase in South American commercial vehicle production. The segment had an operating loss of $12 million compared to profits of $54 million before restructuring charges one year ago.
Said Cutler, "The NAFTA heavy truck industry suffered a 25 percent drop during 2000, with all of that production decline occurring in the second half of the year. This is unprecedented, especially during a period of still generally favorable macroeconomic conditions. As industry leaders, we have been fully affected by this extraordinary volatility, and have been unable to reduce resources at the same pace as orders. We are continuing to win new business on a global scale. But, we have determined that the costs of serving demanding customer needs in the context of unprecedented volatility have become unacceptably high.
"As recently announced, Truck Components will evolve to a business model that is less vertically integrated, takes better advantage of our global presence, and focuses on those areas where Eaton brings distinctive value to the marketplace. We expect to take a $55 million charge during 2001 to restructure this business, with about $40 million recognized in the first quarter and the balance of the expense recognized over the remainder of the year. Recurring annual savings from the restructuring are anticipated to reach $40 million, with a payback period of approximately 18 months.
"The result will be a more flexible, more profitable organization that is less affected by the inevitable ups and downs of this dynamic, growth market, and can better serve the needs of our customers, suppliers, employees and owners."
During the quarter, the company announced a multi-year, $250 million agreement to supply medium-duty truck transmission components to DaimlerChrysler AG in Brazil.
The financial results
The company's comparative financial results for the three months and twelve months ended December 31, 2000 and 1999 follow:
Eaton Corporation
Comparative Financial Summary
Three months ended
December 31
-----------------
(Millions except for per share data) 2000 1999
---- ----
Continuing operations
Net sales $1,948 $2,081
Income before income taxes 85 354
Income after income taxes $ 58 $ 215
Income from discontinued operations 26 9
------ -----
Net income $ 84 $ 224
------ ------
------ ------
Net income per Common Share
Assuming dilution
Continuing operations $ 0.83 $ 2.86
Discontinued operations 0.37 0.12
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$ 1.20 $ 2.98
------ ------
------ ------
Basic
Continuing operations $ 0.84 $ 2.91
Discontinued operations 0.37 0.13
------ -----
$ 1.21 $ 3.04
------ ------
------ ------
Average number of Common Shares outstanding
Assuming dilution 70.1 75.1
Basic 69.6 73.7
Cash dividends paid per Common Share $ 0.44 $ 0.44
See accompanying notes.
Eaton Corporation
Comparative Financial Summary
Twelve months ended
December 31
-------------------
(Millions except for per share data) 2000 1999
---- ----
Continuing operations:
Net sales $8,309 $8,005
Income before income taxes 552 943
Income after income taxes $ 363 $ 603
Income from discontinued operations 90 14
------ -----
Net income $ 453 $ 617
------ ------
------ ------
Net income per Common Share
Assuming dilution
Continuing operations $ 5.00 $ 8.17
Discontinued operations 1.24 0.19
------ -----
$ 6.24 $ 8.36
------ ------
------ ------
Basic
Continuing operations $ 5.06 $ 8.31
Discontinued operations 1.25 0.20
------ -----
$ 6.31 $ 8.51
------ ------
------ ------
Average number of Common Shares outstanding
Assuming dilution 72.6 73.7
Basic 71.8 72.5
Cash dividends paid per Common Share $ 1.76 $ 1.76
See accompanying notes.
Eaton Corporation
Statements of Consolidated Income
Three months ended
December 31
------------------
(Millions except for per share data) 2000 1999
---- ----
Net sales $1,948 $2,081
Costs & expenses
Cost of products sold 1,455 1,532
Selling & administrative 320 317
Research & development 63 69
------ ------
1,838 1,918
------ ------
Income from operations 110 163
Other income (expense)
Interest expense - net (46) (41)
Gain on sales of businesses 207
Other - net 21 25
------ ------
(25) 191
------ ------
Income from continuing operations before income
taxes 85 354
Income taxes of continuing operations 27 139
------ ------
Income from continuing operations 58 215
Income from discontinued operations 26 9
------ ------
Net income $ 84 $ 224
------ ------
------ ------
Net income per Common Share
Assuming dilution
Continuing operations $ 0.83 $ 2.86
Discontinued operations 0.37 0.12
------ ------
$ 1.20 $ 2.98
------ ------
------ ------
Basic
Continuing operations $ 0.84 $ 2.91
Discontinued operations 0.37 0.13
------ ------
$ 1.21 $ 3.04
------ ------
------ ------
Average number of Common Shares outstanding
Assuming dilution 70.1 75.1
Basic 69.6 73.7
Cash dividends paid per Common Share $ 0.44 $ 0.44
See accompanying notes.
Eaton Corporation
Statements of Consolidated Income
Twelve months ended
December 31
-------------------
(Millions except for per share data) 2000 1999
---- ----
Net sales $8,309 $8,005
Costs & expenses
Cost of products sold 6,092 5,792
Selling & administrative 1,299 1,248
Research & development 269 262
------ ------
7,660 7,302
------ ------
Income from operations 649 703
Other income (expense)
Interest expense - net (177) (152)
Gain on sales of businesses 340
Other - net 80 52
------ ------
(97) 240
------ ------
Income from continuing operations before income
taxes 552 943
Income taxes of continuing operations 189 340
------ ------
Income from continuing operations 363 603
Income from discontinued operations 90 14
------ ------
Net income $ 453 $ 617
------ ------
------ ------
Net income per Common Share
Assuming dilution
Continuing operations $ 5.00 $ 8.17
Discontinued operations 1.24 0.19
------ ------
$ 6.24 $ 8.36
------ ------
------ ------
Basic
Continuing operations $ 5.06 $ 8.31
Discontinued operations 1.25 0.20
------ ------
$ 6.31 $ 8.51
------ ------
------ ------
Average number of Common Shares outstanding
Assuming dilution 72.6 73.7
Basic 71.8 72.5
Cash dividends paid per Common Share $ 1.76 $ 1.76
See accompanying notes.
Eaton Corporation
Business Segment Information
Three months ended
December 31
------------------
(Millions) 2000 1999
---- ----
Net sales of continuing operations
Automotive Components $ 428 $ 455
Fluid Power 631 602
Industrial & Commercial Controls 616 597
Truck Components 273 427
------ ------
Total ongoing operations 1,948 2,081
Divested operations 0 0
------ ------
Total net sales $1,948 $2,081
------ ------
------ ------
Operating profit of continuing operations
Automotive Components $ 45 $ 59
Fluid Power 55 52
Industrial & Commercial Controls 64 51
Truck Components (12) 47
------ ------
Total ongoing operations 152 209
Divested operations 4
Amortization of goodwill & other intangible assets (25) (25)
Interest expense - net (46) (41)
Gain on sales of businesses 207
Corporate & other - net 4 0
------ ------
Income from continuing operations before income
taxes 85 354
Income taxes from continuing operations 27 139
------ ------
Income from continuing operations 58 215
Income from discontinued operations 26 9
------ ------
Net income $ 84 $ 224
------ ------
------ ------
Results of the discontinued semiconductor equipment
operations are as follows:
Net sales $ 189 $ 133
Operating profit $ 45 $ 17
Other income (expense) - net (5) (5)
------ ------
Income before income taxes 40 12
Income taxes 14 3
------ ------
Income from discontinued operations $ 26 $ 9
------ ------
------ ------
See accompanying notes.
Eaton Corporation
Business Segment Information
Twelve months ended
December 31
-------------------
(Millions) 2000 1999
---- ----
Net sales of continuing operations
Automotive Components $1,825 $1,857
Fluid Power 2,607 2,036
Industrial & Commercial Controls 2,421 2,274
Truck Components 1,456 1,630
------ ------
Total ongoing operations 8,309 7,797
Divested operations 208
------ ------
Total net sales $8,309 $8,005
------ ------
------ ------
Operating profit of continuing operations
Automotive Components $ 225 $ 236
Fluid Power 235 177
Industrial & Commercial Controls 251 181
Truck Components 107 235
------ ------
Total ongoing operations 818 829
Divested operations 44
Amortization of goodwill & other intangible assets (98) (89)
Interest expense - net (177) (152)
Gain on sales of businesses 340
Corporate & other - net 9 (29)
------ ------
Income from continuing operations before income
taxes 552 943
Income taxes from continuing operations 189 340
------ ------
Income from continuing operations 363 603
Income from discontinued operations 90 14
------ ------
Net income $ 453 $ 617
------ ------
------ ------
Results of the discontinued semiconductor equipment
operations are as follows:
Net sales $ 679 $ 397
Operating profit 147 31
Other income (expense) - net (15) (12)
------ ------
Income before income taxes 132 19
Income taxes 42 5
------ ------
Income from discontinued operations $ 90 $ 14
------ ------
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See accompanying notes.
Eaton Corporation
Condensed Consolidated Balance Sheets
December 31 December 31
(Millions) 2000 1999
---- ----
ASSETS
Current assets
Cash & short-term investments $ 126 $ 162
Accounts receivable 1,219 1,165
Inventories 872 876
Deferred income taxes & other current
assets 354 349
------ ------
2,571 2,552
Property, plant & equipment 2,274 2,294
Goodwill 2,026 1,853
Other intangible assets 556 598
Deferred income taxes & other assets 753 714
Net assets of discontinued operations 331
------ ------
$8,180 $8,342
------ ------
------ ------
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt & current portion
of long-term debt $ 557 $ 970
Accounts payable 485 487
Accrued compensation 199 277
Accrued income & other taxes 191 255
Other current liabilities 675 579
------ ------
2,107 2,568
Long-term debt 2,447 1,915
Postretirement benefits other than pensions 679 666
Deferred income taxes & other liabilities 537 569
Shareholders' equity 2,410 2,624
------ ------
$8,180 $8,342
------ ------
------ ------
See accompanying notes.
Eaton Corporation
Notes to the Fourth Quarter 2000 Earnings Release
(All references to net income per Common Share assume dilution.)
Discontinued Operations
-----------------------
On June 30, 2000, the semiconductor equipment operations were reorganized into a wholly-owned subsidiary, Axcelis Technologies, Inc. (Axcelis). In July 2000, Axcelis completed an initial public offering (IPO) for the sale of 17,050,000 common shares at $22 per share. The proceeds from the IPO, net of an underwriting discount and other offering expenses, were $349.2 million and, together with cash from other sources available to Axcelis, were used to pay a $300 million dividend to Eaton. Subsequent to the IPO, Eaton owned 82.4% of the 97,050,000 outstanding common shares of Axcelis.
On December 29, 2000, Eaton distributed the remaining 79,994,900 shares of Axcelis to Eaton shareholders in a tax- free dividend (spin-off). The net assets of Axcelis at the spin-off, after a reduction for the 17.6% minority interest in Axcelis, were recorded as a reduction of retained earnings in Eaton's shareholders' equity. No gain or loss was recognized for the IPO or spin-off.
As a result of the spin-off of Axcelis, the consolidated financial statements of Eaton have been restated to display the semiconductor equipment operations as a discontinued operation. Operating results of discontinued operations are summarized as follows (millions):
Three months ended Twelve months ended
December 31 December 31
------------------ --------------------
2000 1999 2000 1999
---- ---- ---- ----
Net sales $189 $133 $679 $397
Income before
income taxes 40 12 132 19
Income from
discontinued
operations 26 9 90 14
Restructuring Charges
---------------------
Income was reduced by the following restructuring charges (millions except for per share data):
Three months ended Twelve months ended
December 31 December 31
------------------ -------------------
2000 1999 2000 1999
---- ---- ---- ----
Pretax $ 21 $ 18 $ 52 $ 30
Aftertax 14 12 34 20
Per Common Share .20 .16 .47 .27
The charges in 2000 were associated with the integration of Aeroquip-Vickers into the Company. The charges in 1999 were primarily related to the integration of Aeroquip-Vickers and also included a provision of $7 million recorded in the fourth quarter of 1999 for the restructuring of certain European operations of the Truck Components segment. The charges in 2000 and 1999 reduced operating profit of the Fluid Power segment, except for the $7 million charge in the fourth quarter of 1999 which reduced operating profit of the Truck Components segment and certain charges which related to corporate expense ($4 million and $1 million for the fourth quarters of 2000 and 1999, respectively; and $5 million and $2 million for the full years).
The restructuring charges in 2000 and 1999 were included in the Statements of Consolidated Income in Income from Operations.
Other Income (Expense)
----------------------
Income for the full year of 2000 was increased by net pretax gains on the sale of corporate assets of $22 million ($14 million aftertax, or $.19 per Common Share). These gains were included in the Statements of Consolidated Income in Other income - net and in Business Segment Information in Corporate and other - net.
Gain on Sales of Businesses
---------------------------
On October 1, 1999, the Company completed the sale of the Fluid Power Division. The sale of this business, and adjustments related to businesses sold in prior periods, resulted in a pretax gain of $207 million ($117 million aftertax, or $1.55 per Common share) which was recorded in the fourth quarter of 1999. On December 30, 1999, the Company sold substantially all of Vickers Electronics Systems, which was acquired in the acquisition of Aeroquip- Vickers, resulting in no gain or loss.
On August 31, 1999, the Company completed the sale of the Engineered Fasteners Division. The sale of this business resulted in a pretax gain of $133 million ($81 million aftertax, or $1.08 per Common Share) which was recorded in the third quarter of 1999.
The operating results of these businesses are included in divested operations in Business Segment Information.
Acquisition of Aeroquip-Vickers, Inc.
-------------------------------------
On April 9, 1999, the Company completed the acquisition of Aeroquip-Vickers, Inc. The acquisition was accounted for by the purchase method of accounting and, accordingly, the Statements of Consolidated Income include the results of Aeroquip-Vickers from the date of acquisition.