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| ETN > SEC Filings for ETN > Form 10-Q on 5-Nov-2009 | All Recent SEC Filings |
5-Nov-2009
Quarterly Report
SUMMARY OF RESULTS FOR 2009
Three months ended September 30 Nine months ended September 30
2009 2008 Decrease 2009 2008 Decrease
Continuing operations
Net sales $ 3,028 $ 4,114 (26 )% $ 8,742 $ 11,889 (26 )%
Gross profit 850 1,150 (26 )% 2,201 3,324 (34 )%
Percent of net sales 28.1 % 28.0 % 25.2 % 28.0 %
Income before income
taxes 166 357 133 1,004
Income after income taxes $ 194 $ 318 $ 173 $ 902
Income from discontinued
operations 3
Net income 194 318 173 905
Adjustment of net income
for noncontrolling
interests (1 ) (3 ) (1 ) (10 )
Net income attributable
to Eaton Common
Shareholders $ 193 $ 315 $ 172 $ 895
Net income per Common
Share attributable to
Eaton Common Shareholders
- assuming dilution
Continuing operations $ 1.14 $ 1.87 $ 1.02 $ 5.55
Discontinued operations .02
$ 1.14 $ 1.87 $ 1.02 $ 5.57
Average shares
outstanding assuming
dilution (in millions) 169.2 168.4 168.2 160.8
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In the third quarter of 2009, net sales declined by 26% compared to the third
quarter of 2008. The reduction included 23% from core sales, which primarily
resulted from the global economic recession, and 3% from foreign exchange. The
decline in core sales was driven by end markets that fell 24% in the third
quarter of 2009 compared to the third quarter of 2008. 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. Sales in the
third quarter of 2009 grew 4% over the second quarter of 2009, reflecting
equally the very early stages of recovery in Eaton's end markets and the benefit
from the strengthening of currencies against the dollar.
Net sales in the first nine months of 2009 decreased by 26% compared to the
first nine months of 2008. The reduction reflected 23% from core sales,
primarily due to the global economic recession, and 6% from foreign exchange,
partially offset by a 3% 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 26% in the third quarter of 2009 compared to the third
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
$22 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 workforce reductions in 2008
and 2009, and the benefits of integrating recently acquired businesses,
primarily Moeller and Phoenixtec.
The 34% decrease in gross profit for the first nine months of 2009 compared to
the first nine months of 2008 was primarily due to the same factors as in the
third quarter of 2009. The reduction included workforce reduction charges of
$156, a substantial portion of which were recognized in Cost of products sold.
In the third quarter of 2009, Eaton reported net income of $193 and a net income
per Common Share of $1.14, compared to net income in the third quarter of 2008
of $315 and net income per share of $1.87. The declines were primarily due to
lower net sales in 2009 and the factors that affected gross profit discussed
above.
In the first nine months of 2009, Eaton reported net income of $172 and net
income per Common Share of $1.02, compared to net income of $895 and net income
per share of $5.57 for the first nine months of 2008. The declines were
primarily due to the same factors as in the third quarter of 2009. Net income
per share was also reduced due to a higher number of average shares outstanding
in the first nine months of 2009 compared to the first nine months of 2008,
resulting principally from the sale of 18.678 million shares in the second
quarter of 2008.
Net cash provided by operating activities rose to $939 in the first nine months
of 2009, an increase of $142 compared to cash provided by operating activities
of $797 in the first nine months of 2008. Operating cash flows in 2009 reflected
net income of $173 in the first nine months of 2009 compared to net income of
$905 in the first nine months of 2008. The effect of this decline in net income
was more than offset by the $917 cash flow resulting from the net reduction in
funding of working capital accounts in the first nine months of 2009 compared to
the first nine months 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 $665 at September 30, 2009, an increase of $135 from $530 at year-end
2008.
Total debt of $3,783 at September 30, 2009 declined by $488 from $4,271 at
year-end 2008. The decline was primarily due to a $706 reduction of short-term
debt (largely commercial paper) during the first nine months 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
30.8% at September 30, 2009 compared to 37.0% at the end of 2008, reflecting the
combined effect during the first nine months of 2009 of the $488 decrease in
total debt, the $135 increase in cash and short-term investments, and the $642
increase in Total equity. The increase in Equity primarily resulted from foreign
currency translation adjustments of $393 and after-tax adjustments of $241
related to pension and other postretirement benefits liabilities that were
recognized in Eaton shareholders' equity. The adjustments related to pension and
other postretirement benefits liabilities 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 net income of $173 in the first nine
months of 2009, partially offset by cash dividends paid of $250.
Net working capital of $1,575 at September 30, 2009 rose by $525 from $1,050 at
the end of 2008. The increase was primarily due to short-term debt that was $706
lower at September 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 capital accounts included reductions of $248 in accounts receivable and
$195 in inventories due to lower sales and internal efforts to reduce the
investment in working capital, and a net increase of $262 in other working
capital accounts. The current ratio was 1.5 at September 30, 2009 and 1.3 at
year-end 2008.
As Eaton surveyed its end markets in mid-October, it expects the economic
recovery that it is beginning to experience in its early cycle markets will
continue. Eaton continues to expect that its overall end markets will decline by
between 21% and 22% in 2009.
RESULTS OF OPERATIONS - 2009 COMPARED TO 2008
Three months ended September 30 Nine months ended September 30
2009 2008 Decrease 2009 2008 Decrease
Continuing operations
Net sales $ 3,028 $ 4,114 (26 )% $ 8,742 $ 11,889 (26 )%
Gross profit 850 1,150 (26 )% 2,201 3,324 (34 )%
Percent of net sales 28.1 % 28.0 % 25.2 % 28.0 %
Income before income
taxes 166 357 133 1,004
Income after income taxes $ 194 $ 318 $ 173 $ 902
Income from discontinued
operations 3
Net income 194 318 173 905
Adjustment of net income
for noncontrolling
interests (1 ) (3 ) (1 ) (10 )
Net income attributable
to Eaton Common
Shareholders $ 193 $ 315 $ 172 $ 895
Net income per Common
Share attributable to
Eaton Common Shareholders
- assuming dilution
Continuing operations $ 1.14 $ 1.87 $ 1.02 $ 5.55
Discontinued operations .02
$ 1.14 $ 1.87 $ 1.02 $ 5.57
Average shares
outstanding assuming
dilution (in millions) 169.2 168.4 168.2 160.8
|
In the third quarter of 2009, net sales declined by 26% compared to the third
quarter of 2008. The reduction included 23% from core sales, which primarily
resulted from the global economic recession, and 3% from foreign exchange. The
decline in core sales was driven by end markets that fell 24% in the third
quarter of 2009 compared to the third quarter of 2008. 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. Sales in the
third quarter of 2009 grew 4% over the second quarter of 2009, reflecting
equally the very early stages of recovery in Eaton's end markets and the benefit
from the strengthening of currencies against the dollar.
Net sales in the first nine months of 2009 decreased by 26% compared to the
first nine months of 2008. The reduction reflected 23% from core sales,
primarily due to the global economic recession, and 6% from foreign exchange,
partially offset by a 3% 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 26% in the third quarter of 2009 compared to the third
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
$22 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 workforce reductions in 2008
and 2009, and the benefits of integrating recently acquired businesses,
primarily Moeller and Phoenixtec.
The 34% decrease in gross profit for the first nine months of 2009 compared to
the first nine months of 2008 was primarily due to the same factors as in the
third quarter of 2009. The reduction included workforce reduction charges of
$156, a substantial portion of which were recognized in Cost of products sold.
OTHER RESULTS OF OPERATIONS
Eaton took significant actions in 2008 and 2009 to reduce the workforce in
response to the severe economic downturn. 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 $22 in the third quarter of 2009 and $156 in the first nine
months 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. In Business Segment Information, the charges reduced Operating
profit of the related business segment.
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 recognized in the second quarter of 2009. 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 postretirement
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 Nine months ended
September 30 September 30
2009 2008 2009 2008
Electrical Americas $ 1 $ 1 $ 4 $ 2
Electrical Rest of World 12 13 38 22
Hydraulics 2 1 3 4
Aerospace 4 4 9 17
Automotive 1 1 3
Corporate 1 3
Pretax charges $ 19 $ 21 $ 55 $ 51
After-tax charges $ 12 $ 14 $ 36 $ 34
Per Common Share $ .07 $ .08 $ .21 $ .21
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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 third quarter and the first nine months of 2009, income tax benefits
of $28 and $40 were recognized (a tax benefit rate of 17.0% for the third
quarter and 30.5% for the first nine months of 2009) compared to income tax
expense of $39 and $102 for the third quarter and the first nine months of 2008,
respectively (10.9% and 10.1% effective tax rates). The income tax rates for the
third quarter and the first nine months of 2009 were 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 ASC Topic 740, "Income Taxes". Further during the third quarter
of 2009, the favorable impact of several foreign audit settlements and a foreign
tax law change was offset by a change in value of foreign deferred tax assets.
In the third quarter of 2009, Eaton reported net income of $193 and a net income
per Common Share of $1.14, compared to net income in the third quarter of 2008
of $315 and net income per share of $1.87. The declines were primarily due to
lower net sales in 2009 and the factors that affected gross profit discussed
above.
In the first nine months of 2009, Eaton reported net income of $172 and net
income per Common Share of $1.02, compared to net income of $895 and net income
per share of $5.57 for the first nine months of 2008. The declines were
primarily due to the same factors as in the third quarter of 2009. Net income
per share was also reduced due to a higher number of average shares outstanding
in the first nine months of 2009 compared to the first nine months of 2008,
resulting principally from the sale of 18.678 million shares in the second
quarter of 2008.
In the first quarter of 2009, Eaton adopted ASC Topic 810-10-65-1,
"Noncontrolling Interests in Consolidated Financial Statements". This guidance
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, the
Consolidated Financial Statements were reclassified to separately report
noncontrolling interests. The adoption of this guidance 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 September 30 Nine months ended September 30
2009 2008 Decrease 2009 2008 Decrease
Net sales $ 843 $ 1,048 (20 )% $ 2,583 $ 2,987 (14 )%
Operating profit 142 167 (15 )% 392 467 (16 )%
Operating margin 16.8 % 15.9 % 15.2 % 15.6 %
|
Sales of the Electrical Americas segment declined 20% in the third quarter of
2009 compared to the third quarter of 2008. The reduction included 19% from core
sales and 1% from foreign exchange. The decline in core sales included 20% from
lower end markets during the third quarter of 2009 compared to the third quarter
of 2008, partially offset by a 1% increase from outgrowing end markets. Activity
levels in the engineering service business continue to be robust and orders in
the residential electrical and single-phase power quality markets are starting
to increase, but further declines in the non-residential electrical market are
expected.
Sales for the first nine months of 2009 decreased 14% compared to the first nine
months of 2008. The reduction included 12% from core sales and 2% from foreign
exchange and was primarily due to the same factors as in the third quarter of
2009. Eaton now anticipates end markets for the Electrical Americas segment are
likely to decline by 19% in 2009.
Operating profit declined 15% in the third quarter of 2009 compared to the third
quarter of 2008. The reduction in operating profit was largely due to the
decline in net sales discussed above, partially offset by net savings resulting
from the workforce reductions in 2008 and 2009. Operating profit was reduced by
acquisition integration charges of $1 in both the third quarters of 2009 and
2008, which reduced the operating margin by 0.1% in 2009 and 2008.
Operating profit for the first nine months of 2009 decreased 16% compared to the
first nine months of 2008 primarily due to the same factors as in the third
quarter of 2009. Operating profit was reduced by acquisition integration charges
of $4 in the first nine months of 2009 compared to charges of $2 in the first
nine months of 2008, which reduced the operating margin by 0.2% in 2009 and 0.1%
in 2008.
Electrical Rest of World
Three months ended September 30 Nine months ended September 30
2009 2008 Decrease 2009 2008 Decrease
Net sales $ 646 $ 893 (28 )% $ 1,785 $ 2,197 (19 )%
Operating profit 45 92 (51 )% 55 202 (73 )%
Operating margin 7.0 % 10.3 % 3.1 % 9.2 %
|
Sales of the Electrical Rest of World segment declined 28% in the third quarter
of 2009 compared to the third quarter of 2008. The reduction included 23% from
core sales and 5% from foreign exchange. The decline in core sales included 22%
from lower end markets during the third quarter of 2009 compared to the third
quarter of 2008. The European electrical markets declined 26% during the third
quarter of 2009, while Asian markets declined by 9%, a significant improvement
from the 15% decline in the second quarter.
Sales for the first nine months of 2009 decreased 19% compared to the first nine
months of 2008, which was less than the 28% reduction in sales in the third
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 19% included 22% from core sales and 9% from
foreign exchange, partially offset by 12% 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 19% in 2009.
Operating profit in the third quarter of 2009 declined 51% from the third
quarter of 2008, although the operating margin improved significantly over the
margin for the second quarter of 2009. The reduction in operating profit was
largely due to the decline in sales described above, unabsorbed fixed costs
resulting from significant sales reductions, and changes in sales mix, partially
offset by net savings resulting from the workforce reductions in 2008 and 2009.
Operating profit was reduced by acquisition integration charges of $12 in the
third quarter of 2009 compared to charges of $13 in the third quarter of 2008,
which reduced the operating margin by 1.9% in 2009 and 1.5% in 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 nine months of 2009 decreased 73% compared to the
first nine months of 2008. The reduction was primarily due to the same factors
as in the third quarter of 2009. Operating profit was reduced by acquisition
integration charges of $38 in the first nine months of 2009 compared to charges
of $22 in the first nine months of 2008, which reduced the operating margin by
2.1% in 2009 and 1.0% in 2008.
On September 1, 2009, Eaton acquired the remaining 50% of the shares of Micro
Innovation Holding AG, increasing its ownership from 50% to 100%. The company is
a Switzerland-based manufacturer of human machine interfaces, programmable logic
. . .
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