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Press release from Business Wire

Eaton Announces Net Income Per Share in the Third Quarter of $1.02

<p> <b>Record Quarterly Electrical Results Drive Earnings Performance </b><br/><b>Acquisition of Cooper Industries plc on Track to Close in Fourth Quarter</b> </p>

Wednesday, October 31, 2012

Eaton Announces Net Income Per Share in the Third Quarter of $1.0206:31 EDT Wednesday, October 31, 2012 CLEVELAND (Business Wire) -- Diversified industrial manufacturer Eaton Corporation (NYSE:ETN) today announced net income per share of $1.02 for the third quarter of 2012, a decrease of 5 percent from the $1.07 earned in the record third quarter of 2011. Sales in the third quarter were $3.95 billion, 4 percent below the third quarter of 2011. Net income in the third quarter was $345 million compared to $365 million in 2011. Net income in both periods included charges for integration of acquisitions. Before these acquisition integration charges, operating earnings per share in the third quarter of 2012 were $1.07 compared to $1.08 per share in 2011, a decrease of 1 percent. Operating earnings in the third quarter were $363 million compared to $367 million in 2011. Alexander M. Cutler, Eaton chairman and chief executive officer, said, “Our third quarter results came in very close to our expectations despite the slowdown in economic growth which we discussed in September at several investment conferences. Economic growth in the EU and China remained subdued during the quarter, while industrial activity in the U.S. decelerated during the quarter reflecting uncertainties over fiscal reforms that have led customers to hold back on purchases. As a result, we expect our markets for full year 2012 will show less growth than we had anticipated earlier in the year, with our markets for the year now estimated to grow between 1 to 2 percent. “Sales in the third quarter declined by 4 percent compared to the third quarter of 2011,” said Cutler. “This reduction in sales was comprised of declines of 2 percent from core growth and 4 percent from foreign exchange, offset by 2 percent growth from acquisitions. End markets declined 1 percent in the quarter. “We are pleased with our 14.6 percent segment operating margin in the third quarter,” said Cutler. “Our electrical segments posted particularly strong margins, with the Electrical Americas segment registering an operating margin of 18.2 percent and the Electrical Rest of World segment registering an operating margin of 11.2 percent. “Our operating cash flow in the third quarter was $606 million,” said Cutler. “We expect our operating cash flow in the fourth quarter to be even stronger, reflecting our typical seasonal pattern. “For the fourth quarter we anticipate our sales, prior to any impact from the close of the Cooper transaction, are likely to be about the same as the third quarter,” said Cutler. “Our results in the fourth quarter will also be impacted by the expected close of the Cooper acquisition. In addition to Eaton's operating results, we expect our fourth quarter results to contain a partial quarter of Cooper operating results, purchase price accounting adjustments, and financing costs and the additional share count associated with closing the Cooper transaction. As a result, we anticipate to incur certain expenses in the fourth quarter related to the acquisition originally forecast to be incurred in 2013. “We are pleased that Eaton's and Cooper's shareholders approved the Cooper acquisition last Friday,” said Cutler. “We are awaiting two additional regulatory approvals and expect the acquisition to close in the fourth quarter. We are excited about the addition of Cooper to Eaton, as the combined company will have approximately 60 percent of its sales in the electrical markets, based on 2011 results, which are holding up well through this current period of global softness. In addition, Cooper's profitability, as shown in its third quarter earnings release, remains quite strong.” Business Segment Results Third quarter sales for the Electrical Americas segment were $1.14 billion, up 6 percent compared to 2011 and a quarterly record for this segment. Operating profits in the third quarter were a record $207 million. Excluding acquisition integration charges of $1 million during the quarter, operating profits were a record $208 million, up 31 percent over results in 2011. “End markets for our Electrical Americas segment grew 4 percent during the third quarter,” said Cutler. “Both the nonresidential and residential electrical markets posted particularly strong growth in the quarter. “Our bookings in the Electrical Americas segment, adjusted for foreign exchange and acquisitions, decreased 3 percent compared to our all-time record third quarter of 2011,” said Cutler. “We did book some particularly large orders in October. We expect that our Electrical Americas markets in 2012 will grow by 6 percent. “At the end of September, we completed the acquisition of Chilean electrical manufacturer Rolec Comercial e Industrial S.A.,” said Cutler. “Rolec significantly expands our capabilities to serve mining and other heavy industrial applications in Chile and Peru.” Sales for the Electrical Rest of World segment were $686 million, a decline of 9 percent compared to the third quarter of 2011. The sales decrease was comprised of a decline of 6 percent from foreign currency and 3 percent from core sales. The segment reported operating profits of $76 million. Excluding acquisition integration costs of $1 million during the quarter, operating profits were $77 million, up 24 percent over results in 2011. “Our markets in the third quarter declined 6 percent,” said Cutler. “Our bookings for the Electrical Rest of World segment, adjusted for foreign exchange and acquisitions, declined 3 percent in the quarter. For all of 2012, we continue to believe that the markets in our Electrical Rest of World segment will decline by 3 percent.” Hydraulics segment sales were $763 million, up 6 percent compared to the third quarter of 2011. The sales increase was comprised of a 13 percent increase from acquisitions offset by a decline of 4 percent from core sales and 3 percent from foreign exchange. Global hydraulics markets were down 4 percent in the quarter, with U.S. markets down 1 percent and non-U.S. markets down 6 percent. Operating profits in the third quarter were $93 million. Excluding acquisition integration costs of $5 million during the quarter, operating profits were $98 million, down 11 percent from the third quarter of 2011. “Global hydraulics markets in the third quarter were impacted by a slowdown in capital expenditures, particularly in the construction equipment industries in the U.S. and China,” said Cutler. “We believe the slowdown has been caused primarily by general economic uncertainties in both countries, which has resulted in some customers postponing purchases. Our bookings, adjusted for foreign exchange and acquisitions, declined 25 percent in the third quarter from last year's record third quarter. For all of 2012, we now believe global hydraulics markets will decline 2 percent, 5 percent lower than we had expected in July. “We were pleased to close our acquisition of South Korean hydraulics manufacturer Jeil during the third quarter,” said Cutler. “Jeil brings to Eaton an exciting range of motors and valves for the construction equipment market.” Aerospace segment sales were $419 million, flat with the third quarter of 2011. Aerospace markets were up 4 percent compared to the third quarter of 2011. Operating profits in the third quarter were $49 million, down 31 percent from the third quarter of 2011. “Our Aerospace margins were 11.7 percent,” said Cutler. “The margins were impacted by the continued shift in the mix to a higher percentage of commercial OEM business, as well as volume modestly below our earlier expectations. “Aerospace bookings decreased 7 percent during the third quarter, adjusted for foreign exchange, reflecting in particular the decline in defense aerospace markets,” said Cutler. “We continue to believe that our Aerospace markets will grow by 4 percent in 2012.” The Truck segment posted sales of $549 million in the third quarter, down 23 percent compared to 2011. Truck production in the third quarter was down 8 percent, with U.S. markets down 3 percent and non-U.S. markets down 11 percent. The segment reported operating profits of $103 million, down 26 percent compared to the third quarter of 2011. “We now expect the NAFTA Class 8 market to total 270,000 units, a reduction from our forecast in July, largely driven by the uncertain economic outlook in the U.S.,” said Cutler. “Despite the lower level of truck sales in the third quarter, our margins remained strong at 18.8 percent.” The Automotive segment posted third quarter sales of $390 million, down 12 percent from the third quarter of 2011. Global automotive markets were flat, with U.S. markets up 8 percent and non-U.S. markets down 3 percent. The segment reported operating profits of $41 million, down 34 percent from the third quarter of 2011. “U.S. automotive production in the third quarter of 2012 was strong while European automotive production in the quarter declined considerably,” said Cutler. “For all of 2012, we now expect global automotive markets to grow 2 percent, 1 percent less than our expectations in July.” 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, systems and services 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 74,000 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 third quarter 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 third quarter results, which will be discussed during the call. This news release contains forward-looking statements concerning our fourth quarter sales, the closing of the Cooper acquisition, 2013 results and our worldwide 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; the availability of credit to customers and suppliers; 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; strikes or other labor unrest; the impact of acquisitions and divestitures; unanticipated difficulties in completing or integrating acquisitions including Cooper; failure to close the Cooper acquisition; new laws and governmental regulations; interest rate changes; stock market and currency 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 nine months ended September 30, 2012 are available on the company's website, www.eaton.com.                   EATON CORPORATIONCONSOLIDATED STATEMENTS OF INCOME     Three monthsendedSeptember 30     Nine monthsendedSeptember 30 (In millions except for per share data) 2012 2011 2012 2011 Net sales $ 3,950 $ 4,123 $ 11,978 $ 12,016   Cost of products sold 2,747 2,900 8,316 8,444 Selling and administrative expense 687 668 2,079 2,031 Research and development expense 102 104 313 316 Interest expense-net 42 29 100 92 Other (income) expense-net (4 ) (10 ) 7   (30 ) Income before income taxes 376 432 1,163 1,163 Income tax expense 29   65   123   172   Net income 347 367 1,040 991 Less net income for noncontrolling interests (2 ) (2 ) (2 ) (3 ) Net income attributable to Eaton common shareholders $ 345   $ 365   $ 1,038   $ 988     Net income per common share Diluted $ 1.02 $ 1.07 $ 3.05 $ 2.86 Basic 1.02 1.07 3.08 2.90   Weighted-average number of common shares outstanding Diluted 339.8 341.9 339.7 344.4 Basic 337.6 338.1 336.7 339.7   Cash dividends declared per common share $ 0.76 $ 0.34 $ 1.52 $ 1.02   Reconciliation of net income attributable to Eaton common shareholders to operating earnings Net income attributable to Eaton common shareholders $ 345 $ 365 $ 1,038 $ 988 Excluding acquisition integration charges (after-tax) 18   2   30   6   Operating earnings $ 363   $ 367   $ 1,068   $ 994     Net income per common share - diluted $ 1.02 $ 1.07 $ 3.05 $ 2.86 Excluding per share impact of acquisition integration charges (after-tax) 0.05   0.01   0.09   0.02   Operating earnings per common share $ 1.07   $ 1.08   $ 3.14   $ 2.88     See accompanying notes.                   EATON CORPORATIONBUSINESS SEGMENT INFORMATION     Three monthsendedSeptember 30     Nine monthsendedSeptember 30 (In millions) 2012 2011 2012 2011 Net sales Electrical Americas $ 1,143 $ 1,074 $ 3,363 $ 3,071 Electrical Rest of World 686 755 2,020 2,285 Hydraulics 763 717 2,267 2,130 Aerospace 419 420 1,285 1,218 Truck 549 715 1,805 1,964 Automotive 390   442   1,238   1,348   Total net sales $ 3,950   $ 4,123   $ 11,978   $ 12,016     Segment operating profit Electrical Americas $ 207 $ 156 $ 559 $ 432 Electrical Rest of World 76 62 181 209 Hydraulics 93 109 325 335 Aerospace 49 71 168 166 Truck 103 139 339 349 Automotive 41   62   133   167   Total segment operating profit 569 599 1,705 1,658   Corporate Amortization of intangible assets (45 ) (47 ) (129 ) (143 ) Interest expense-net (42 ) (29 ) (100 ) (92 ) Pension and other postretirement benefits expense (41 ) (35 ) (121 ) (105 ) Other corporate expense-net (65 ) (56 ) (192 ) (155 ) Income before income taxes 376 432 1,163 1,163 Income tax expense 29   65   123   172   Net income 347 367 1,040 991 Less net income for noncontrolling interests (2 ) (2 ) (2 ) (3 ) Net income attributable to Eaton common shareholders $ 345   $ 365   $ 1,038   $ 988     See accompanying notes.               EATON CORPORATIONCONDENSED CONSOLIDATED BALANCE SHEETS   September 30,2012 December 31,2011 (In millions) Assets Current assets Cash $ 425 $ 385 Short-term investments 620 699 Accounts receivable-net 2,645 2,444 Inventory 1,801 1,701 Other current assets 704   597 Total current assets 6,195 5,826   Property, plant and equipment-net 2,794 2,602   Other noncurrent assets Goodwill 5,838 5,537 Other intangible assets 2,253 2,192 Deferred income taxes 1,064 1,134 Other assets 656   582 Total assets $ 18,800   $ 17,873   Liabilities and shareholders' equity Current liabilities Short-term debt $ 108 $ 86 Current portion of long-term debt 307 321 Accounts payable 1,441 1,491 Accrued compensation 385 420 Other current liabilities 1,467   1,319 Total current liabilities 3,708   3,637   Noncurrent liabilities Long-term debt 3,690 3,366 Pension liabilities 1,509 1,793 Other postretirement benefits liabilities 645 642 Deferred income taxes 569 442 Other noncurrent liabilities 437   501 Total noncurrent liabilities 6,850   6,744   Shareholders' equity Eaton shareholders' equity 8,220 7,469 Noncontrolling interests 22   23 Total equity 8,242   7,492 Total liabilities and equity $ 18,800   $ 17,873   See accompanying notes.     EATON CORPORATIONNOTES TO THE THIRD QUARTER 2012 EARNINGS RELEASE Amounts are in millions of dollars unless indicated otherwise (per share data assume dilution). 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 as well as corporate expense, 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 2012 and 2011, 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 and the related annual sales prior to acquisition are summarized below: Acquired businesses and joint venture         Date oftransaction     Businesssegment     Annualsales Rolec Comercial e Industrial S.A. September 28, Electrical $85 for the A Chilean manufacturer of integrated power assemblies and low- and medium-voltage switchgear, and a provider of engineering services serving mining and other heavy industrial applications in Chile and Peru. 2012 Americas 12 monthsendedSeptember 30,2012   Jeil Hydraulics Co., Ltd. July 6, Hydraulics $189 for 2011 A Korean manufacturer of track drive motors, swing drive motors, main control valves and remote control valves for the construction equipment market. 2012   Polimer Kaucuk Sanayi ve Pazarlama A.S. June 1, Hydraulics $335 for 2011 A Turkish manufacturer of hydraulic and industrial hose for construction, mining, agriculture, oil and gas, manufacturing, food and beverage, and chemicals markets. This business sells its products under the SEL brand name. 2012   Gycom Electrical Low-Voltage Power Distribution, Control and Automation June 1, Electrical $24 for 2011 A Swedish electrical low-voltage power distribution, control and automation components business. 2012 Rest ofWorld   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 Canadian 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 German 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 African 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 Colombian 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 Joint venture 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   Tuthill Coupling Group January 1, Hydraulics $35 for the A United States 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   On May 21, 2012, Eaton reached an agreement to acquire Cooper Industries plc (Cooper). Cooper is incorporated in Ireland and is a diversified global manufacturer of electrical components and tools with sales of $5.4 billion for 2011. At the close of the transaction, Eaton and Cooper will be combined under a newly created company (New Eaton), which is currently called Eaton Corporation Limited and is incorporated in Ireland. The total consideration to be received by Cooper shareholders in the transaction is comprised of both cash and equity and has a value of approximately $11.8 billion based on the closing share price of Eaton common stock of $42.40 on May 18, 2012. At the close of the transaction, the former shareholders of Eaton and Cooper are expected to own approximately 73% and 27% of New Eaton, respectively. The transaction was approved by shareholders of both companies on October 26, 2012, and is subject to receipt of certain regulatory approvals and other customary conditions. The transaction is expected to close in the fourth quarter of 2012.   Note 2. ACQUISITION INTEGRATION CHARGES Eaton incurs charges related to the integration of acquired businesses. A summary of these charges follows:         Three months ended September 30 Acquisitionintegration charges     Operating profitas reported     Operating profitexcluding acquisitionintegration charges Business segment 2012   2011 2012   2011 2012   2011 Electrical Americas $ 1 $ 3 $ 207 $ 156 $ 208 $ 159 Electrical Rest of World 1 — 76 62 77 62 Hydraulics 5 1 93 109 98 110 Aerospace — — 49 71 49 71 Truck — — 103 139 103 139 Automotive —   —   41   62   41   62 Total business segments before income taxes 7 4 $ 569   $ 599   $ 576   $ 603 Corporate 20   —   Total before income taxes $ 27   $ 4   After-tax integration charges $ 18 $ 2 Per common share $ 0.05 $ 0.01   Nine months ended September 30 Acquisitionintegration charges Operating profitas reported Operating profitexcluding acquisitionintegration charges Business segment 2012 2011 2012 2011 2012 2011 Electrical Americas $ 4 $ 7 $ 559 $ 432 $ 563 $ 439 Electrical Rest of World 5 1 181 209 186 210 Hydraulics 9 1 325 335 334 336 Aerospace — — 168 166 168 166 Truck — — 339 349 339 349 Automotive —   —   133   167   133   167 Total business segments before income taxes 18 9 $ 1,705   $ 1,658   $ 1,723   $ 1,667 Corporate 28   —   Total before income taxes $ 46   $ 9   After-tax integration charges $ 30 $ 6 Per common share $ 0.09 $ 0.02   Business segment charges for the third quarter of 2012 were related primarily to Internormen Technology Group, Jeil Hydraulics, Polimer Kaucuk Sanayi ve Pazarlama (SEL) and E. Begerow GmbH & Co. KG. Business segment charges for the first nine months of 2012 were related primarily to The Moeller Group, Internormen Technology Group, E. Begerow GmbH & Co. KG and Tuthill Coupling Group. Business segment charges in 2011 were related primarily to CopperLogic, Wright Line Holding and EMC Engineers. 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. Corporate charges in 2012 were related primarily to pre-acquisition transaction costs associated with the planned acquisition of Cooper. These charges were included in Selling and administrative expense and Interest expense-net. In Business Segment Information, the charges were included in Interest expense-net and Other corporate expense-net.   Note 3. RETIREMENT BENEFITS PLANS The components of retirement benefits expense follow:         Three months ended September 30 Pensionbenefit expense     Other postretirementbenefits expense 2012   2011 2012   2011 Service cost $ 41 $ 35 $ 5 $ 4 Interest cost 51 52 10 10 Expected return on plan assets (64 ) (58 ) (2 ) — Amortization 33   22   3   3 61 51 16 17 Curtailment loss — 1 — — Settlement loss 8   5   —   — Total expense $ 69   $ 57   $ 16   $ 17   Nine months ended September 30 Pensionbenefit expense Other postretirementbenefits expense 2012 2011 2012 2011 Service cost $ 123 $ 106 $ 13 $ 12 Interest cost 156 158 29 30 Expected return on plan assets (192 ) (176 ) (5 ) — Amortization 99   66   10   9 186 154 47 51 Curtailment loss — 1 — — Settlement loss 19   15   —   — Total expense $ 205   $ 170   $ 47   $ 51     Note 4. INCOME TAXES The effective income tax rate for the third quarter of 2012 was 7.7% compared to 15.2% for the third quarter of 2011 and 10.6% for the first nine months of 2012 compared to 14.8% for the first nine months of 2011. The lower effective tax rate in the third quarter of 2012 was primarily attributable to the utilization of deferred tax assets in Asia Pacific jurisdictions, as well as adjustments related to the filing of the 2011 income tax returns in the United States and international tax jurisdictions. The lower effective tax rate in the first nine months of 2012 was attributable to the items noted above, the favorable impact of enhanced investment incentives in Europe, and a reduction in deferred tax liabilities in a European jurisdiction due to the realization of a lower effective tax rate. Eaton CorporationMedia RelationsScott Schroeder, 216-523-5150scottrschroeder@eaton.comorInvestor RelationsDonald Bullock, 216-523-5127