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Press release from Business Wire

Eaton Reports Record Fourth Quarter Net Income Per Share of $1.07, 30 Percent Above 2010

<p> <b>Record Full Year 2011 Sales of $16.0 Billion, 17 Percent Above 2010</b><br/><b>Record Full Year 2011 Net Income of $3.93 Per Share, 44 Percent Above 2010</b><br/><b>Announces 12 Percent Increase in Quarterly Dividend</b> </p>

Thursday, January 26, 2012

Eaton Reports Record Fourth Quarter Net Income Per Share of $1.07, 30 Percent Above 201006:31 EST Thursday, January 26, 2012 CLEVELAND (Business Wire) -- Diversified industrial manufacturer Eaton Corporation (NYSE:ETN) today announced net income per share of $1.07 for the fourth quarter of 2011, a 30 percent increase over net income per share of $0.82 in the fourth quarter of 2010. Net income in both periods included charges related to acquisition integration. Before acquisition integration charges, operating earnings per share in the fourth quarter of 2011 were $1.08 compared to $0.85 per share in the fourth quarter of 2010, an increase of 27 percent. Sales in the quarter were $4.0 billion, 10 percent higher than the same period in 2010. Net income was $362 million compared to $280 million in 2010, an increase of 29 percent. Operating earnings, which exclude acquisition integration charges, for the fourth quarter of 2011 were $366 million compared to $291 million in 2010, an increase of 26 percent. Alexander M. Cutler, Eaton chairman and chief executive officer, said, “Our earnings per share came in below the midpoint of our guidance range, driven by revenues in December falling roughly $200 million short of our expectations partially offset by a lower tax rate and better segment operating margins. “About 75 percent of the revenue shortfall was in our Electrical sector, with the shortfall spread evenly among the U.S., Europe, and Asia Pacific,” said Cutler. “The shortfall in the U.S. was principally due to customer requested delays of major project shipments. The shortfall in Europe was due to the slowing Eurozone economy, and in Asia Pacific the shortfall was due to a slowdown in China as a result of restrictions on credit availability. “The balance of the revenue shortfall was due to lower truck demand in Brazil and production reductions and shutdowns late in the quarter at several U.S. and European auto assembly plants,” said Cutler. “We believe that many of the factors behind the shortfall in fourth quarter revenues are temporary and, as a result, should not have a significant impact on 2012 revenues,” said Cutler. “Sales growth in the fourth quarter of 10 percent consisted of 9 percent growth in core sales and 1 percent growth from acquisitions. End markets in the fourth quarter grew by 8 percent,” said Cutler. “Our segment operating margin in the fourth quarter was 15.1 percent, an all-time record and a notable improvement over our segment operating margin of 14.6 percent in the third quarter.” For the full year 2011, sales were $16.0 billion, 17 percent higher than 2010. Net income was $1.35 billion, an increase of 45 percent over 2010, and net income per share of $3.93 was 44 percent more than in 2010. Operating earnings in 2011 totaled $1.36 billion, an increase of 42 percent over 2010. Operating earnings per share for 2011 of $3.96 were 41 percent higher than in 2010. “Our full year 2011 sales increase of 17 percent reflects strong growth, despite a volatile global economy over the course of 2011,” said Cutler. “We increased our earnings guidance three times during 2011, reflecting stronger markets than we had anticipated at the start of the year. “Looking back at 2011, it was a record year on many dimensions,” said Cutler. “Sales exceeded $16 billion for the first time, our segment operating margin rose by 1 1/2 percentage points to 14.2 percent, emerging markets as a percentage of sales were 27 percent, and operating earnings per share were 15 percent above our previous record. We completed nine acquisitions in 2011, acquiring businesses which had total revenues in 2011 of approximately $320 million. While the global economic outlook for 2012 is uncertain due principally to the sovereign debt problems within the Eurozone, we remain confident that 2012 is likely to be a year of solid growth in our overall global markets. “We estimate our markets for 2012 will grow 5 percent, with U.S. markets a bit stronger than markets outside the U.S. We expect to outgrow our end markets in 2012 by approximately $320 million,” said Cutler. “We anticipate incremental revenues in 2012 from acquisitions net of divestitures completed in 2011 to be $90 million. Changes in exchange rates in 2012 are expected to reduce revenues by approximately $550 million. Overall, we anticipate our revenues in 2012 will grow by 4 percent compared to 2011. “We expect that 2012 operating earnings per share will set another record,” said Cutler. “We estimate that first quarter operating earnings per share, which exclude an estimated $0.01 of charges to integrate our recent acquisitions, will be between $0.80 and $0.90 per share. For the full year 2012, we estimate that operating earnings per share, which exclude an estimated $0.05 of charges to integrate our recent acquisitions, will be between $4.15 and $4.55. Based on this guidance, our operating earnings per share in 2012 will grow between 5 percent and 15 percent. “In light of our strong 2011 results and our outlook for 2012, we are increasing our quarterly dividend by 12 percent, raising the quarterly dividend from $0.34 per share to $0.38 per share,” said Cutler. Business Segment Results Fourth quarter sales for the Electrical Americas segment were $1.1 billion, up 11 percent from the fourth quarter of 2010. Operating profits in the fourth quarter were $173 million. Excluding acquisition integration charges of $1 million during the quarter, operating profits totaled $174 million, up 7 percent from the fourth quarter of 2010. “End markets for our Electrical Americas segment grew 10 percent during the fourth quarter, and our orders grew 11 percent,” said Cutler. “Our operating margin was 15.5 percent. “Our U.S. nonresidential electrical, residential electrical, and industrial control markets showed good growth during the quarter,” said Cutler. “For 2012, we expect our markets to increase by approximately 5 percent. “We won several important contracts in the fourth quarter, including a $27 million contract for the expansion of the Panama Canal and an $11 million contract to modernize pumping facilities at the Niagara Power project, the largest electricity producer in New York state,” said Cutler. “We were pleased to complete the acquisition of switchgear manufacturer E.A. Pedersen Company at the end of the fourth quarter,” said Cutler. “The acquisition of Pedersen adds important utility-oriented power products and custom engineering capabilities for our U.S. markets.” Fourth quarter sales for the Electrical Rest of World segment were $699 million, 9 percent lower than the fourth quarter of 2010. Operating profits were $69 million. Excluding acquisition integration charges of $1 million during the quarter, operating profits totaled $70 million, 26 percent below the fourth quarter of 2010. “During the fourth quarter, our Rest of World electrical markets declined 6 percent, as both Europe and APAC showed weakness,” said Cutler. “Despite the market decline and the associated decline in our revenues, we earned an operating margin of 10.0 percent in the quarter. “Orders in the fourth quarter declined 10 percent,” said Cutler. “For 2012, our Electrical Rest of World markets are expected to grow by 1 percent, with APAC growth at 3 percent and a 1 percent decline in Europe.” In the Hydraulics segment, fourth quarter sales were $705 million, 23 percent higher than the fourth quarter of 2010. Hydraulics markets in the fourth quarter grew 9 percent compared to the same period in 2010, with U.S. markets up 16 percent and non-U.S. markets up 3 percent. Operating profits in the fourth quarter were $103 million. Excluding acquisition integration charges of $3 million in the fourth quarter of 2011, operating profits were $106 million, up 45 percent over the fourth quarter of 2010. “The global hydraulics market had another quarter of strong growth, capping an outstanding year in which our global hydraulics markets grew by 18 percent. Our bookings in the quarter grew 5 percent over the fourth quarter of 2010,” said Cutler. “For 2012, we anticipate global hydraulics markets will increase by 4 percent, with U.S. markets up 6 percent and non-U.S. markets up 2 percent.” The Aerospace segment posted fourth quarter sales of $430 million, an increase of 8 percent over the fourth quarter of 2010. Aerospace markets in the fourth quarter grew by 4 percent. Operating profits in the fourth quarter were $78 million, up 22 percent from the fourth quarter of 2010. “We were pleased with our fourth quarter aerospace volumes and our operating margin of 18.1 percent,” said Cutler. “Our bookings were up 1 percent in the quarter. For 2012, aerospace markets are expected to grow by 5 percent.” The Truck segment posted sales of $680 million in the fourth quarter, up 31 percent compared to 2010. Truck markets in the fourth quarter grew 27 percent, with U.S. markets up 52 percent and non-U.S. markets up 10 percent. Operating profits were $137 million, more than double the operating profits in the fourth quarter of 2010. “For 2012, we expect good market growth, driven by the continued rebound in NAFTA Class 8 truck production,” said Cutler. “We anticipate our overall truck markets will grow 9 percent, with U.S. markets growing 16 percent and non-U.S. markets growing 4 percent.” The Automotive segment posted fourth quarter sales of $398 million, up 1 percent over the fourth quarter of 2010. Core sales grew 8 percent in the quarter, which was offset by a 5 percent reduction related to the divestiture of a small automotive plastics joint venture during 2011 and by a 2 percent reduction from foreign exchange. Automotive unit production in the fourth quarter grew by 8 percent, with U.S. markets up 20 percent and non-U.S. markets up 3 percent. Operating profits in the fourth quarter were $42 million, down 2 percent from the fourth quarter of 2010 largely due to start-up costs associated with capacity expansion to support new program wins in China. “Looking at 2012, we anticipate global auto production will grow 5 percent,” said Cutler. “We expect growth in U.S. production of 7 percent and growth in non-U.S. production of about 4 percent.” Eaton Corporation is a diversified power management company with more than 100 years of experience providing energy-efficient solutions that help our customers effectively manage electrical, hydraulic and mechanical power. With 2011 sales of $16.0 billion, Eaton is a global technology leader in electrical components and systems for power quality, distribution and control; hydraulics components, systems and services for industrial and mobile equipment; aerospace fuel, hydraulics and pneumatic systems for commercial and military use; and truck and automotive drivetrain and powertrain systems for performance, fuel economy and safety. Eaton has approximately 73,000 employees and sells products to customers in more than 150 countries. For more information, visit www.eaton.com. Notice of conference call: Eaton's conference call to discuss its fourth quarter and full year 2011 results is available to all interested parties as a live audio webcast today at 10 a.m. Eastern time via a link on the center of Eaton's home page. This news release can be accessed under its headline on the home page. Also available on the website prior to the call will be a presentation on fourth quarter results, which will be covered during the call. This news release contains forward-looking statements concerning the first quarter 2012 and full year 2012 net income per share and operating earnings per share, the growth in full year 2012 revenues, the performance of our worldwide markets, and our growth in relation to end markets. These statements should be used with caution and are subject to various risks and uncertainties, many of which are outside the company's control. The following factors could cause actual results to differ materially from those in the forward-looking statements: unanticipated changes in the markets for the company's business segments; unanticipated downturns in business relationships with customers or their purchases from us; competitive pressures on sales and pricing; increases in the cost of material and other production costs, or unexpected costs that cannot be recouped in product pricing; the introduction of competing technologies; unexpected technical or marketing difficulties; unexpected claims, charges, litigation or dispute resolutions; the impact of acquisitions and divestitures; unanticipated difficulties integrating acquisitions; new laws and governmental regulations; interest rate changes; changes in currency exchange rates; stock market fluctuations; and unanticipated deterioration of economic and financial conditions in the United States and around the world. We do not assume any obligation to update these forward-looking statements. Financial Results The company's comparative financial results for the three months and year ended December 31, 2011 and 2010 are available on the company's website, www.eaton.com.                   EATON CORPORATIONCONSOLIDATED STATEMENTS OF INCOME   Three months endedDecember 31 Year endedDecember 31 (In millions except for per share data) 2011 2010 2011 2010 Net sales $ 4,033 $ 3,663 $ 16,049 $ 13,715   Cost of products sold 2,817 2,565 11,261 9,633 Selling and administrative expense 707 644 2,738 2,486 Research and development expense 101 117 417 425 Interest expense-net 26 34 118 136 Other (income) expense-net (8 ) 10   (38 ) (1 ) Income before income taxes 390 293 1,553 1,036 Income tax expense 29   10   201   99   Net income 361 283 1,352 937 Adjustment for net loss (income) for noncontrolling interests 1   (3 ) (2 ) (8 ) Net income attributable to Eaton common shareholders $ 362   $ 280   $ 1,350   $ 929     Net income per common share Diluted $ 1.07 $ 0.82 $ 3.93 $ 2.73 Basic 1.08 0.83 3.98 2.76   Weighted-average number of common shares outstanding Diluted 338.1 342.7 342.8 339.5 Basic 334.2 337.7 338.3 335.5   Cash dividends paid per common share $ 0.34 $ 0.29 $ 1.36 $ 1.08   Reconciliation of net income attributable to Eaton common shareholders to operating earnings Net income attributable to Eaton common shareholders $ 362 $ 280 $ 1,350 $ 929 Excluding acquisition integration charges (after-tax) 4   11   10   27   Operating earnings $ 366   $ 291   $ 1,360   $ 956     Net income per common share - diluted $ 1.07 $ 0.82 $ 3.93 $ 2.73 Excluding per share impact of acquisition integration charges (after-tax) 0.01   0.03   0.03   0.08   Operating earnings per common share $ 1.08   $ 0.85   $ 3.96   $ 2.81     Net income per common share, weighted-average number of common shares outstanding, cash dividends paid per common share and operating earnings per common share have been restated to give effect to the two-for-one stock split. See the accompanying notes for additional information. See accompanying notes.                   EATON CORPORATIONBUSINESS SEGMENT INFORMATION   Three months endedDecember 31 Year endedDecember 31 (In millions) 2011 2010 2011 2010 Net sales Electrical Americas $ 1,121 $ 1,012 $ 4,192 $ 3,675 Electrical Rest of World 699 768 2,984 2,748 Hydraulics 705 571 2,835 2,212 Aerospace 430 400 1,648 1,536 Truck 680 518 2,644 1,997 Automotive 398   394   1,746   1,547   Total net sales $ 4,033   $ 3,663   $ 16,049   $ 13,715     Segment operating profit Electrical Americas $ 173 $ 163 $ 605 $ 529 Electrical Rest of World 69 81 278 264 Hydraulics 103 72 438 279 Aerospace 78 63 244 220 Truck 137 66 486 245 Automotive 42   43   209   163   Total segment operating profit 602 488 2,260 1,700   Corporate Amortization of intangible assets (47 ) (47 ) (190 ) (181 ) Interest expense-net (26 ) (34 ) (118 ) (136 ) Pension and other postretirement benefits expense (37 ) (29 ) (142 ) (120 ) Other corporate expense-net (102 ) (85 ) (257 ) (227 ) Income before income taxes 390 293 1,553 1,036 Income tax expense 29   10   201   99   Net income 361 283 1,352 937 Adjustment for net loss (income) for noncontrolling interests 1   (3 ) (2 ) (8 ) Net income attributable to Eaton common shareholders $ 362   $ 280   $ 1,350   $ 929     See accompanying notes.               EATON CORPORATIONCONDENSED CONSOLIDATED BALANCE SHEETS   December 31,2011 December 31,2010 (In millions) Assets Current assets Cash $ 385 $ 333 Short-term investments 699 838 Accounts receivable-net 2,444 2,239 Inventory 1,701 1,564 Other current assets 597 532 Total current assets 5,826 5,506   Property, plant and equipment-net 2,602 2,477   Other noncurrent assets Goodwill 5,537 5,454 Other intangible assets 2,192 2,272 Deferred income taxes 1,134 1,001 Other assets 582 542 Total assets $ 17,873 $ 17,252   Liabilities and shareholders' equity Current liabilities Short-term debt $ 86 $ 72 Current portion of long-term debt 321 4 Accounts payable 1,491 1,408 Accrued compensation 420 465 Other current liabilities 1,319 1,284 Total current liabilities 3,637 3,233   Noncurrent liabilities Long-term debt 3,366 3,382 Pension liabilities 1,793 1,429 Other postretirement benefits liabilities 642 743 Deferred income taxes 442 487 Other noncurrent liabilities 501 575 Total noncurrent liabilities 6,744 6,616   Shareholders' equity Eaton shareholders' equity 7,469 7,362 Noncontrolling interests 23 41 Total equity 7,492 7,403 Total liabilities and equity $ 17,873 $ 17,252   See accompanying notes. EATON CORPORATIONNOTES TO THE FOURTH QUARTER 2011 EARNINGS RELEASE Amounts are in millions of dollars unless indicated otherwise (per share data assume dilution). On January 27, 2011, Eaton's Board of Directors announced a two-for-one stock split of the Company's common shares effective in the form of a 100% stock dividend. The record date for the stock split was February 7, 2011, and the additional shares were distributed on February 28, 2011. Accordingly, all per share amounts and average shares outstanding presented in this earnings release have been adjusted retroactively to reflect the stock split. This earnings release includes certain non-GAAP financial measures. These financial measures include operating earnings, operating earnings per common share, and operating profit before acquisition integration charges for each business segment, each of which excludes amounts that differ from the most directly comparable measure calculated in accordance with generally accepted accounting principles (GAAP). A reconciliation of each of these financial measures to the most directly comparable GAAP measure is included in this earnings release. Management believes that these financial measures are useful to investors because they exclude transactions of an unusual nature, allowing investors to more easily compare Eaton's financial performance period to period. Management uses this information in monitoring and evaluating the on-going performance of Eaton and each business segment. Note 1. ACQUISITIONS OF BUSINESSES In 2011 and 2010, Eaton acquired businesses and entered into a joint venture in separate transactions. The Consolidated Statements of Income include the results of these businesses from the dates of the transactions or formation. These transactions are summarized below: Acquired businesses and joint venture   Date oftransaction   Businesssegment   Annualsales E.A. Pedersen Company December 29, Electrical $37 for 2011 A United States manufacturer of medium voltage switchgear, metal-clad switchgear, power control buildings and relay control panels primarily for the electrical utilities industry. 2011 Americas   IE Power, Inc. August 31, Electrical $5 for 2010 A Canada-based provider of high power inverters for a variety of mission-critical applications including solar, wind and battery energy storage. 2011 Americas   E. Begerow GmbH & Co. KG August 15, Hydraulics $84 for 2010 A Germany-based system provider of advanced liquid filtration solutions. This business develops and produces technologically innovative filter media and filtration systems for food and beverage, chemical, pharmaceutical and industrial applications. 2011   ACTOM Low Voltage June 30, Electrical $65 for the A South Africa manufacturer and supplier of motor control components, engineered electrical distribution systems and uninterruptible power supply (UPS) systems. 2011 Rest ofWorld year endedMay 31,2011   C.I. ESI de Colombia S.A. June 2, Electrical $8 for 2010 A Colombia-based distributor of industrial electrical equipment and engineering services in the Colombian market, focused on oil and gas, mining, and industrial and commercial construction. 2011 Americas   Internormen Technology Group May 12, Hydraulics $55 for 2010 A Germany-based manufacturer of hydraulic filtration and instrumentation with sales and distribution subsidiaries in China, the United States, India and Brazil. 2011   Eaton-SAMC (Shanghai) Aircraft Conveyance System Manufacturing Co., Ltd. March 8, Aerospace New joint A 49%-owned joint venture in China focusing on the design, development, manufacturing and support of fuel and hydraulic conveyance systems for the global civil aviation market. 2011 venture   Tuthill Coupling Group January 1, Hydraulics $35 for the A United States and France-based manufacturer of pneumatic and hydraulic quick coupling solutions and leak-free connectors used in industrial, construction, mining, defense, energy and power applications. 2011 year endedNovember 30,2010   Chloride Phoenixtec Electronics October 12, Electrical $25 for the A China manufacturer of UPS systems. Eaton acquired the remaining shares to increase its ownership from 50% to 100%. 2010 Rest ofWorld year endedSeptember 30,2010   CopperLogic, Inc. October 1, Electrical $35 for the A United States-based manufacturer of electrical and electromechanical systems. 2010 Americas year endedSeptember 30,2010   Wright Line Holding, Inc. August 25, Electrical $101 for the A United States provider of customized enclosures, rack systems, and air-flow management systems to store, power, and secure mission-critical IT data center electronics. 2010 Americas year endedJune 30,2010   EMC Engineers, Inc. July 15, Electrical $24 for 2009 A United States energy engineering and energy services company that delivers energy efficiency solutions for a wide range of governmental, educational, commercial and industrial facilities. 2010 Americas     Note 2. ACQUISITION INTEGRATION CHARGES Eaton incurs charges related to the integration of acquired businesses. A summary of these charges follows:         Three months ended December 31 Acquisitionintegration charges     Operating profitas reported     Operating profitexcluding acquisitionintegration charges 2011   2010 2011   2010 2011   2010 Business segment Electrical Americas $ 1 $ — $ 173 $ 163 $ 174 $ 163 Electrical Rest of World 1 13 69 81 70 94 Hydraulics 3 1 103 72 106 73 Aerospace — 1 78 63 78 64 Truck — — 137 66 137 66 Automotive —   —   42   43   42   43 Total before income taxes $ 5   $ 15   $ 602   $ 488   $ 607   $ 503 After-tax integration charges $ 4 $ 11 Per common share $ 0.01 $ 0.03           Year ended December 31 Acquisitionintegration charges     Operating profitas reported     Operating profitexcluding acquisitionintegration charges 2011   2010 2011   2010 2011   2010 Business segment Electrical Americas $ 8 $ 2 $ 605 $ 529 $ 613 $ 531 Electrical Rest of World 2 33 278 264 280 297 Hydraulics 4 1 438 279 442 280 Aerospace — 4 244 220 244 224 Truck — — 486 245 486 245 Automotive —   —   209   163   209   163 Total before income taxes $ 14   $ 40   $ 2,260   $ 1,700   $ 2,274   $ 1,740 After-tax integration charges $ 10 $ 27 Per common share $ 0.03 $ 0.08   Charges in 2011 were related primarily to CopperLogic, Tuthill Coupling Group, Wright Line Holding, EMC Engineers and Internormen Technology Group. Charges in 2010 were related primarily to Moeller and Phoenixtec. These charges were included in Cost of products sold or Selling and administrative expense, as appropriate. In Business Segment Information, the charges reduced Operating profit of the related business segment. Note 3. RETIREMENT BENEFITS PLANS The components of retirement benefits expense follow:         Three months ended December 31 Pensionbenefit expense     Other postretirementbenefits expense 2011   2010 2011   2010 Service cost $ 35 $ 30 $ 3 $ 4 Interest cost 52 50 11 12 Expected return on plan assets (58 ) (55 ) — — Amortization 22   16   3   2 51 41 17 18 Curtailment loss — 1 — — Settlement loss 6   3   —   — Total expense $ 57   $ 45   $ 17   $ 18           Year ended December 31 Pensionbenefit expense     Other postretirementbenefits expense 2011   2010 2011   2010 Service cost $ 141 $ 119 $ 15 $ 16 Interest cost 210 200 41 46 Expected return on plan assets (234 ) (218 ) — — Amortization 88   61   12   10 205 162 68 72 Curtailment loss 1 1 — — Settlement loss 21   16   —   — Total expense $ 227   $ 179   $ 68   $ 72   During the fourth quarter and full year 2011, Eaton contributed $54 and $154, respectively, into a Voluntary Employee Benefit Association (VEBA) trust for the pre-funding of postretirement Medicare Part D prescription drug benefits for the Company's eligible United States employees and retirees. No VEBA contributions were made during 2010. Note 4. INCOME TAXES The effective tax rate for the fourth quarter of 2011 was 7.2% compared to 3.3% for the fourth quarter 2010 and 12.9% for full year 2011 compared to 9.5% for full year 2010. The higher effective tax rates in both the fourth quarter and full year 2011, compared to 2010, were primarily attributable to greater levels of income in high tax jurisdictions, particularly in the United States and Brazil, due to the continued improvement in market conditions. Eaton CorporationMedia RelationsScott Schroeder, 216-523-5150scottrschroeder@eaton.comorInvestor RelationsDonald Bullock, 216-523-5127