Add
ETN to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| ETN > SEC Filings for ETN > Form 10-Q on 4-Aug-2009 | All Recent SEC Filings |
4-Aug-2009
Quarterly Report
Millions of dollars unless indicated otherwise (per share data assume dilution)
OVERVIEW OF EATON
Eaton Corporation is a diversified power management company with 2008 sales of
$15.4 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 70,000 employees and sells products to customers
in more than 150 countries.
In the first quarter of 2009, Eaton changed its business segment financial
reporting structure. The Electrical segment was divided into Electrical Americas
and Electrical Rest of World. The Hydraulics, Aerospace, Truck and Automotive
segments continue as individual reporting segments. Accordingly, business
segment information for prior years has been restated to conform to the current
year's presentation. The change to the business segments did not affect net
income for any of the periods presented.
The principal markets for the Electrical Americas and Electrical Rest of World
segments are industrial, institutional, government, utility, commercial,
residential, information technology and original equipment manufacturer
customers. These products are used wherever there is a demand for electrical
power in commercial buildings, data centers, residences, apartment and office
buildings, hospitals and factories. Customers are located globally and sales are
made directly and indirectly through distributors, resellers and manufacturers
representatives.
The principal markets for the Hydraulics segment include oil and gas, renewable
energy, marine, agriculture, construction, mining, forestry, utility, material
handling, truck and bus, machine tools, molding, primary metals, power
generation, and entertainment. Customers are located globally and sales are made
directly and indirectly through distributors, resellers and manufacturers
representatives.
The principal markets for the Aerospace segment are manufacturers of commercial
and military aircraft and related after-market customers. Customers are located
globally, and products are sold and serviced through a variety of channels.
The principal markets for the Truck and Automotive segments are original
equipment manufacturers and after-market customers of heavy-, medium-, and
light-duty trucks, SUVs, CUVs, and passenger cars. Customers are located
globally, and most sales are made directly to these customers.
SUMMARY OF RESULTS FOR 2009
Three months ended June 30 Six months ended June 30
2009 2008 Decrease 2009 2008 Decrease
Continuing operations
Net sales $ 2,901 $ 4,279 (32 )% $ 5,714 $ 7,775 (27 )%
Gross profit 712 1,210 (41 )% 1,351 2,174 (38 )%
Percent of net sales 24.5 % 28.3 % 23.7 % 28.0 %
Income (loss) before
income taxes 30 358 (33 ) 647
Income (loss) after
income taxes $ 31 $ 337 $ (21 ) $ 584
Income from
discontinued operations 3
Net income (loss) 31 337 (21 ) 587
Adjustment of net
income (loss) for
noncontrolling
interests (2 ) (4 ) (7 )
Net income
(loss) attributable to
Eaton Common
Shareholders $ 29 $ 333 $ (21 ) $ 580
Net income (loss) per
Common Share
attributable to Eaton
Common Shareholders -
assuming dilution
Continuing operations $ .17 $ 2.03 $ (.13 ) $ 3.68
Discontinued operations .01
$ .17 $ 2.03 $ (.13 ) $ 3.69
|
In the second quarter of 2009, net sales declined by 32% compared to the second
quarter of 2008. The reduction included 26% from core sales, which primarily
resulted from the global economic recession, and 6% from foreign exchange. The
decline in core sales resulted from end markets that fell 26% in the second
quarter of 2009 compared to the second quarter of 2008. Significant destocking
and inventory liquidation continued at customers for most of Eaton's businesses
during the second quarter and first half of 2009. The reduction from foreign
exchange was primarily due to changes in exchange rates for the euro, the
Brazilian real, the UK pound sterling and the Polish zloty.
Net sales in the first half of 2009 decreased by 27% compared to the first half
of 2008. The reduction reflected 24% from core sales, primarily due to the
global economic recession, and 7% from foreign exchange, partially offset by a
4% increase from acquisitions of
businesses. Acquisitions of businesses were primarily The Moeller Group,
acquired on April 4, 2008, and Phoenixtec Power Company Ltd., acquired on
February 26, 2008.
Gross profit declined by 41% in the second quarter of 2009 compared to the
second quarter of 2008. The reduction was primarily due to the decline in net
sales discussed above; operating inefficiencies related to the difficulty in
absorbing fixed manufacturing costs resulting from reduced sales; and pretax
charges of $69 resulting from actions to reduce the workforce, a substantial
portion of which were recognized in Cost of products sold. These reductions in
gross profit were partially offset by savings associated with employee
reductions in 2008 and 2009 and the benefits of integrating recently acquired
businesses, primarily Moeller and Phoenixtec.
The 38% decrease in gross profit for the first half of 2009 compared to the
first half of 2008 was primarily due to the same factors as the second quarter
of 2009 and included workforce reduction charges of $134 in the first half of
2009, a substantial portion of which were recognized in Cost of products sold.
In the second quarter of 2009, Eaton reported net income of $29 and a net income
per Common Share of $.17, compared to net income in the second quarter of 2008
of $333 and net income per share of $2.03. The declines were primarily due to
lower net sales in 2009 and the factors that affected gross profit discussed
above. Net income per share was reduced due to a higher number of average shares
outstanding in the second quarter of 2009 compared to the second quarter of
2008, resulting from the sale of 18.678 million shares in the second quarter of
2008.
In the first half of 2009, Eaton reported a net loss of $21 and a net loss per
Common Share of $.13, compared to net income of $580 and net income per share of
$3.69 for the first half of 2008, primarily due to the same factors as the
second quarter of 2009.
Net cash provided by operating activities rose to $468 in the first half of
2009, an increase of $106 compared to cash provided by operating activities of
$362 in the first half of 2008. Operating cash flows in 2009 reflected the net
loss of $21 in the first half of 2009 compared to net income of $587 in the
first half of 2008. The effect of this net loss was more than offset by the $606
cash flow resulting from the net reduction in funding of working capital
accounts in the first half of 2009 compared to the first half of 2008. The
reduction in the working capital accounts, primarily accounts receivable and
inventory, was due to lower levels of operations resulting from the global
economic recession, and internal efforts to reduce the investment in working
capital. Cash and short-term investments totaled $581 at June 30, 2009, an
increase of $51 from $530 at year-end 2008.
Total debt of $4,042 at June 30, 2009 declined by $229 from $4,271 at year-end
2008. The decline was primarily due to a $703 reduction of short-term debt
(largely commercial paper) during the first half of 2009. Short-term debt was
reduced through the use of cash generated from operations and from long-term
borrowings discussed below. In March 2009, Eaton issued $550 of long-term debt
through the sale of $250 of 5.95% Notes due 2014 and $300 of 6.95% Notes due
2019, with the cash proceeds from the sale of the Notes used to repay
outstanding short-term commercial paper. The net-debt-to-capital ratio was 34.1%
at June 30, 2009 compared to 37.0% at the end of 2008, reflecting the combined
effect during the first half of 2009 of the $229 decrease in total debt, the $51
increase in cash and short-term investments, and the $326 increase in Total
equity. The increase in Equity primarily resulted from after-tax adjustments of
$239 related to pension and other postretirement benefits liabilities that were
recognized in Accumulated other comprehensive losses in Equity. These
adjustments included $182 resulting from the remeasurement of pension and other
postretirement benefits liabilities in the second quarter of 2009 that occurred
due to the reduction in workforce in 2009. The increase in equity was also due
to foreign currency translation adjustments of $216, partially offset by cash
dividends paid of $167 and the net loss of $21 in the first half of 2009.
Net working capital of $1,418 at June 30, 2009 rose by $368 from $1,050 at the
end of 2008. The increase was primarily due to short-term debt that was $703
lower at June 30, 2009 compared to the end of 2008, largely due to the repayment
of short-term commercial paper as discussed above. Changes in other working
accounts included reductions of $280 in accounts receivable and $181 in
inventories due to lower sales and internal efforts to reduce the investment in
working capital, and a net increase of $126 in other working capital accounts.
The current ratio was 1.5 at June 30, 2009 and 1.3 at year-end 2008.
As Eaton surveyed its end markets in mid-July, the year is shaping up to be
considerably weaker than it had forecast in April. Eaton now expects that its
overall end markets will decline by between 21% and 22% in 2009 compared to its
earlier forecast of a decline between 15% and 16%. U.S. markets are expected to
decline by 25%, while non-U.S. markets are expected to decline by 19%.
RESULTS OF OPERATIONS - 2009 COMPARED TO 2008
Three months ended June 30 Six months ended June 30
2009 2008 Decrease 2009 2008 Decrease
Continuing operations
Net sales $ 2,901 $ 4,279 (32 )% $ 5,714 $ 7,775 (27 )%
Gross profit 712 1,210 (41 )% 1,351 2,174 (38 )%
Percent of net sales 24.5 % 28.3 % 23.7 % 28.0 %
Income (loss) before
income taxes 30 358 (33 ) 647
Income (loss) after
income taxes $ 31 $ 337 $ (21 ) $ 584
Income from
discontinued operations 3
Net income (loss) 31 337 (21 ) 587
Adjustment of net
income (loss) for
noncontrolling
interests (2 ) (4 ) (7 )
Net income
(loss) attributable to
Eaton Common
Shareholders $ 29 $ 333 $ (21 ) $ 580
Net income (loss) per
Common Share
attributable to Eaton
Common Shareholders -
assuming dilution
Continuing operations $ .17 $ 2.03 $ (.13 ) $ 3.68
Discontinued operations .01
$ .17 $ 2.03 $ (.13 ) $ 3.69
|
In the second quarter of 2009, net sales declined by 32% compared to the second
quarter of 2008. The reduction included 26% from core sales, which primarily
resulted from the global economic recession, and 6% from foreign exchange. The
decline in core sales resulted from end markets that fell 26% in the second
quarter of 2009 compared to the second quarter of 2008. Significant destocking
and inventory liquidation continued at customers for most of Eaton's businesses
during the second quarter and first half of 2009. The reduction from foreign
exchange was primarily due to changes in exchange rates for the euro, the
Brazilian real, the UK pound sterling and the Polish zloty.
Net sales in the first half of 2009 decreased by 27% compared to the first half
of 2008. The reduction reflected 24% from core sales, primarily due to the
global economic recession, and 7% from foreign exchange, partially offset by a
4% increase from acquisitions of businesses. Acquisitions of businesses were
primarily The Moeller Group, acquired on April 4, 2008, and Phoenixtec Power
Company Ltd., acquired on February 26, 2008.
Gross profit declined by 41% in the second quarter of 2009 compared to the
second quarter of 2008. The reduction was primarily due to the decline in net
sales discussed above; operating inefficiencies related to the difficulty in
absorbing fixed manufacturing costs resulting from reduced sales; and pretax
charges of $69 resulting from actions to reduce the workforce, a substantial
portion of which were recognized in Cost of products sold. These reductions in
gross profit were partially offset by savings associated with employee
reductions in 2008 and 2009 and the benefits of integrating recently acquired
businesses, primarily Moeller and Phoenixtec.
The 38% decrease in gross profit for the first half of 2009 compared to the
first half of 2008 was primarily due to the same factors as the second quarter
of 2009 and included workforce reduction charges of $134 in the first half of
2009, a substantial portion of which were recognized in Cost of products sold.
OTHER RESULTS OF OPERATIONS
Eaton took significant actions in 2008 to reduce the workforce in anticipation
of the severe economic downturn, and in the first half of 2009 took further
action. The reductions in 2008 and 2009 total approximately 15% of the full-time
workforce. These actions resulted in the recognition of pretax charges for
severance and pension and other postretirement benefits expense of $69 in the
second quarter of 2009 and $134 in the first half of 2009. These pretax charges
included $31 related to pension and other postretirement benefits expenses
attributable to the settlements and curtailments recognized in the second
quarter of 2009, as described below. The workforce reduction charges were
included in the Statements of Consolidated Income in Cost of products sold or
Selling & administrative expense, as appropriate.
Due to limitations imposed by the Pension Protection Act on pension lump sum
distributions, Eaton's U.S. Qualified Pension Plan became restricted in the
second quarter of 2009 from making 100% lump sum payments. As a result, the plan
experienced a significant increase in lump sum payments in the second quarter
before the limitation went into effect, resulting in pension settlement expense
of $51 in the second quarter. This expense was included in Pension & other
postretirement benefits expense in Business Segment Information.
As a result of the workforce reduction in 2009, curtailment expense of $14
related to U.S. pension and other postretirement benefits plans was recognized
in the second quarter of 2009. The curtailment expense includes recognition of
the change in the projected benefit obligation or accumulated post retirement
benefit obligation, as well as recognition of a portion of the unrecognized
prior service cost. This expense was included in Pension & other postretirement
benefits expense in Business Segment Information.
In 2009 and 2008, Eaton incurred charges related to the integration of acquired businesses. These charges, which consisted of plant consolidations and integration, were recognized as expense as incurred. A summary of these charges follows:
Three months ended Six months ended
June 30 June 30
2009 2008 2009 2008
Electrical Americas $ 2 $ 1 $ 3 $ 1
Electrical Rest of World 10 6 26 9
Hydraulics 1 1 3
Aerospace 3 6 5 13
Automotive 1 1 2
Corporate 2 2
Pretax charges $ 15 $ 17 $ 36 $ 30
After-tax charges $ 10 $ 11 $ 24 $ 20
Per Common Share $ .06 $ .07 $ .14 $ .13
|
Charges in 2009 were related primarily to the integration of the following
acquisitions: Integrated Hydraulics, Kirloskar, Moeller, Phoenixtec and
Argo-Tech. Charges in 2008 were related primarily to the integration of the
following acquisitions: Moeller, Phoenixtec, the MGE small systems UPS business,
Argo-Tech, Synflex, PerkinElmer and Cobham. The acquisition integration charges
were included in the Statements of Consolidated Income in Cost of products sold
or Selling & administrative expense, as appropriate. In Business Segment
Information, the charges reduced Operating profit of the related business
segment.
During the second quarter of 2009 and the first half of 2009, income tax
benefits of $1 and $12 were recognized (a tax benefit rate of 4.8% in the second
quarter and 36.6% for the first half of 2009) compared to income tax expense of
$21 and $63 in the second quarter of 2008 and the first half of 2008,
respectively (6.0% and 9.7% effective tax rates). The income tax rate for the
second quarter of 2009 was favorably affected by tax benefits from U. S.
Federal, U.S. state and local, and certain foreign deferred tax assets where it
is more likely than not that the deferred tax asset will be realized, based on
available sources of future taxable income determined in accordance with SFAS
No. 109, "Accounting for Income Taxes".
In the second quarter of 2009, Eaton reported net income of $29 and a net income
per Common Share of $.17, compared to net income in the second quarter of 2008
of $333 and net income per share of $2.03. The declines were primarily due to
lower net sales in 2009 and the factors that affected gross profit discussed
above. Net income per share was reduced due to a higher number of average shares
outstanding in the second quarter of 2009 compared to the second quarter of
2008, resulting from the sale of 18.678 million shares in the second quarter of
2008.
In the first half of 2009, Eaton reported a net loss of $21 and a net loss per
Common Share of $.13, compared to net income of $580 and net income per share of
$3.69 for the first half of 2008, primarily due to the same factors as the
second quarter of 2009.
In the first quarter of 2009, Eaton adopted Statement of Financial Accounting
Standards (SFAS) No. 160, "Noncontrolling Interests in Consolidated Financial
Statements - an amendment of ARB No. 51".This Standard clarifies accounting and
reporting for noncontrolling interests, sometimes called a minority interest,
which is the portion of equity in a subsidiary not owned, directly or
indirectly, by Eaton. As a result of the adoption of this Standard, the
Consolidated Financial Statements were reclassified to report separately
noncontrolling interests. The adoption of this Standard did not have a material
effect on Eaton's consolidated results of operations, financial position or cash
flows.
RESULTS BY BUSINESS SEGMENT
Electrical Americas
Three months ended June 30 Six months ended June 30
2009 2008 Decrease 2009 2008 Decrease
Net sales $ 881 $ 1,028 (14 )% $ 1,740 $ 1,939 (10 )%
Operating profit 144 158 (9 )% 250 300 (17 )%
Operating margin 16.3 % 15.4 % 14.4 % 15.5 %
|
Sales of the Electrical Americas segment declined 14% in the second quarter of
2009 compared to the second quarter of 2008. The reduction included 12% from
core sales and 2% from foreign exchange. The decline in core sales included 22%
from lower end markets during the second quarter of 2009 compared to the second
quarter of 2008, partially offset by a 10% increase from outgrowing end markets.
Sales for the first half of 2009 decreased 10% compared to the first half of
2008. The reduction in sales included 8% from core sales and 2% from foreign
exchange and was primarily due to the same factors as in the second quarter of
2009. Eaton now anticipates end markets for the Electrical Americas segment are
likely to decline by 20% in 2009.
Operating profit declined 9% in the second quarter of 2009 compared to the
second quarter of 2008. The reduction was largely due to the decline in net
sales discussed above, operating inefficiencies related to the difficulty in
absorbing fixed manufacturing costs resulting from reduced sales in 2009, and a
changed sales mix. Operating profit was reduced by acquisition integration
charges of $2 in the second quarter of 2009 compared to charges of $1 in the
second quarter of 2008, which reduced operating margin by 0.2% in 2009 and 0.1%
in 2008. Operating profit reflected net savings of $13 resulting from the
workforce reductions in 2008 and 2009.
Operating profit for the first half of 2009 decreased 17% compared to the first
half of 2008 primarily due to the same factors as in the second quarter of 2009.
Operating profit was reduced by acquisition integration charges of $3 in the
first half of 2009 compared to charges of $1 in the first half of 2008, which
reduced operating margin by 0.2% in 2009 compared to 0.1% in 2008.
Electrical Rest of World
Three months ended June 30 Six months ended June 30
2009 2008 Decrease 2009 2008 Decrease
Net sales $ 595 $ 911 (35 )% $ 1,139 $ 1,304 (13 )%
Operating profit 16 92 (83 )% 10 110 (91 )%
Operating margin 2.7 % 10.1 % 0.9 % 8.4 %
|
Sales of the Electrical Rest of World segment declined 35% in the second quarter
of 2009 compared to the second quarter of 2008. The reduction included 24% from
core sales and 11% from foreign exchange. The decline in core sales included 22%
from lower end markets during the second quarter of 2009 compared to the second
quarter of 2008. The European electrical markets declined particularly steeply
in the quarter, down 24%, while Asian markets declined by 15%.
Sales for the first half of 2009 decreased 13% compared to the first half of
2008, which was less than the 35% reduction in sales in the second quarter of
2009 discussed above, primarily because of the acquisitions of Moeller, acquired
on April 4, 2008, and Phoenixtec, acquired on February 26, 2008. The sales
reduction of 13% included 21% from core sales and 13% from foreign exchange,
partially offset by 21% from the acquisitions of businesses, primarily Moeller
and Phoenixtec. Eaton now anticipates end markets for the Electrical Rest of
World segment are likely to decline by 17% in 2009.
Operating profit in the second quarter of 2009 declined 83% from the second
quarter of 2008. The reduction was largely due to the reduced operating profit
related to the 24% decline in core sales and the negative effect of foreign
exchange. The decline in operating profit also reflected acquisition integration
charges of $10 in the second quarter of 2009 that increased over similar charges
of $6 in the second quarter of 2008. These charges reduced the operating margin
by 1.7% in the second quarter 2009 and 0.7% in the second quarter of 2008.
Acquisition integration charges in 2009 primarily related to Moeller and
Phoenixtec, while charges in 2008 related to the MGE small systems UPS business.
Operating profit in the first half of 2009 decreased 91% compared to the first
half of 2008. The reduction was primarily due to the same factors as in the
second quarter of 2009. Operating profit was reduced by acquisition integration
charges of $26 in the first half of 2009 compared to charges of $9 in the first
half of 2008, which reduced operating margin by 2.3% in 2009 and 0.7% in 2008.
On July 6, 2009, Eaton entered into a joint venture in Abu Dhabi. The joint
venture will operate through SEG Middle East Power Solutions & Switchboard
Manufacture LLC, a manufacturer of low voltage switchboards and control panel
assemblies for use in the Middle East power generation and industrial markets.
SEG Middle East Power Solutions & Switchboard Manufacture LLC had annual sales
of $10 in 2008.
Hydraulics
Three months ended June 30 Six months ended June 30
2009 2008 Decrease 2009 2008 Decrease
Net sales $ 425 $ 695 (39 )% $ 855 $ 1,352 (37 )%
Operating profit 14 92 (85 )% 20 170 (88 )%
Operating margin 3.3 % 13.2 % 2.3 % 12.6 %
|
Sales of the Hydraulics segment declined 39% in the second quarter of 2009
compared to the second quarter of 2008. The reduction included 36% from core
sales and 4% from foreign exchange, partially offset by a 1% increase from
acquisitions of businesses. Global hydraulics markets were down 39% in the
second quarter of 2009 compared to the second quarter of 2008, with non-U.S.
markets down 33% and U.S. markets down 45%.
Sales for the first half of 2009 decreased 37% compared to the first half of
2008. The reduction in sales included 34% from core sales and 4% from foreign
exchange, partially offset by a 1% increase from acquisitions of businesses, and
was primarily due to the same factors as in the second quarter of 2009. Eaton
believes these markets will remain weak, with only slightly improved conditions
in the second half of 2009. As a result, it now believes global hydraulics
. . .
|
|