Eaton Third Quarter Operating Earnings Up 48 Percent Over 2012

  Eaton Third Quarter Operating Earnings Up 48 Percent Over 2012

Third Quarter Operating Earnings Per Share of $1.12, Up 5 Percent
Record Quarterly Cash Flow of $704 Million
Core Sales Growth In Quarter of 3 Percent, Bookings Strengthening

Business Wire

DUBLIN -- October 25, 2013

Power management company Eaton Corporation plc (NYSE:ETN) today announced
record sales and operating earnings, driven by the acquisition of Cooper
Industries. Operating earnings for the third quarter of 2013, excluding
charges of $38 million to integrate recent acquisitions, were $536 million, up
48 percent over the third quarter of 2012. Operating earnings per share for
the third quarter of 2013 were $1.12, an increase of 5 percent over the third
quarter of 2012. This result reflects the shares issued as part of the
acquisition of Cooper Industries and the purchase price accounting charges
resulting from the transaction. Sales in the third quarter were $5.6 billion,
42 percent above the third quarter of 2012.

Alexander M. Cutler, Eaton chairman and chief executive officer, said, “Our
third quarter results were slightly ahead of our second quarter results. We
saw little revenue growth from the second quarter while operating earnings per
share were higher at $1.12. We had expected that third quarter sales would be
approximately $75 million higher than second quarter sales, reflecting the
normal seasonal increase from the second to third quarter. Our actual revenue
increase from the second to the third quarter was only $5 million, as a result
of continued sluggish economic growth around the world. Our third quarter
bookings, however, strengthened in our Electrical, Hydraulics, and Aerospace
businesses, suggesting that growth is likely to accelerate as we go into 2014.

“Sales in the third quarter grew 42 percent over the third quarter of 2012,”
said Cutler. “Growth was comprised of 40 percent from acquisitions and 3
percent from core growth, partially offset by a 1 percent decline from
currency.

“Our segment margin in the third quarter of 15.6 percent equaled our second
quarter record segment margin, reflecting Cooper integration savings and our
continued focus on productivity improvements,” said Cutler. “Our electrical
segments posted particularly strong margins, with the Electrical Products
segment achieving an operating margin of 17.1 percent and the Electrical
Systems and Services segment achieving an operating margin of 14.7 percent.

“Our operating cash flow in the third quarter was a quarterly record $704
million,” said Cutler. “Over the last 12 months, operating cash flow has
totaled $2.1 billion. We expect operating cash flow in the fourth quarter to
be even stronger than in the third quarter, reflecting the typical seasonal
decline in working capital as we go through year end. We repurchased $31
million of debt during the third quarter and plan to repurchase additional
debt as opportunities arise.

“Due to the recent softness in the NAFTA Class 8 truck market and continued
weakness in the global hydraulics markets, we now believe our overall markets
in 2013 are likely to be flat,” said Cutler. “This compares to our
expectations at the end of the second quarter that our markets would grow 1
percent. For the fourth quarter, we anticipate our sales are likely to be
slightly lower than the third quarter, reflecting normal seasonality. We
expect operating earnings per share in the fourth quarter, after excluding an
estimated $40 million to integrate our recent acquisitions, to be between
$1.00 and $1.10. Based on this fourth quarter guidance, for all of 2013 we are
narrowing our range for operating earnings per share from between $4.05 and
$4.25 to between $4.05 and $4.15.”

Business Segment Results

Third quarter sales for the Electrical Products segment were $1.8 billion, up
98 percent over 2012, reflecting the impact of the Cooper Industries
acquisition. Operating profits in the third quarter were $301 million.
Excluding acquisition integration charges of $9 million during the quarter,
operating profits were $310 million, up 79 percent over results in 2012.

“Our bookings in the Electrical Products segment increased 7 percent from the
combined bookings of Eaton and legacy Cooper in the third quarter a year ago,”
said Cutler. “We now believe that our Electrical Products markets in 2013 will
grow by 1 percent, 1/2 percent lower than our expectation at the end of the
second quarter.

“We are pleased with the 17.1 percent operating margin in Electrical
Products,” said Cutler. “This margin represents a significant step up from the
strong margins of 16.2 percent we recorded in the second quarter.”

Sales for the Electrical Systems and Services segment were $1.6 billion, an
increase of 80 percent over the third quarter of 2012, reflecting the impact
of the Cooper Industries acquisition. The segment reported operating profits
of $231 million. Excluding acquisition integration costs of $10 million during
the quarter, operating profits were $241 million, up 115 percent over results
in 2012.

“Combined bookings in the quarter increased 3 percent over the third quarter
of 2012,” said Cutler. “For all of 2013, we now believe that the markets in
our Electrical Systems and Services segment will grow by 1 1/2 percent, up 1/2
percent from our expectation at the end of the second quarter.”

Hydraulics segment sales were $739 million, down 3 percent from the third
quarter of 2012. Operating profits in the third quarter were $89 million.
Excluding acquisition integration charges of $8 million during the quarter,
operating profits were $97 million, down 1 percent from the third quarter of
2012.

“Global hydraulics markets in the third quarter remained sluggish,
particularly in the construction equipment industries in the U.S. and China,”
said Cutler. “Our bookings in the third quarter increased 8 percent over the
third quarter of 2012, the first time quarterly bookings have increased since
the fourth quarter of 2011. For all of 2013, we believe global hydraulics
markets will decline 6 percent, 1 percent lower than our expectation at the
end of the second quarter.”

Aerospace segment sales were $448 million, up 7 percent over the third quarter
of 2012. Operating profits in the third quarter were $64 million, up 31
percent over the third quarter of 2012.

“Our Aerospace segment margins were 14.3 percent, the same as the first
quarter and just slightly under second quarter margins,” said Cutler.
“Aerospace bookings in the third quarter increased 6 percent over 2012. We
continue to believe that our aerospace markets will grow by 3 percent in
2013.”

The Vehicle segment posted sales of $964 million in the third quarter, up 3
percent over the third quarter of 2012. The segment reported operating profits
of $161 million, up 12 percent over the third quarter of 2012.

“The strongest markets in our Vehicle segment were the Latin American markets,
as well as light vehicle markets in the U.S. and Asia,” said Cutler.

Eaton is a power management company providing energy-efficient solutions that
help our customers effectively manage electrical, hydraulic and mechanical
power. A global technology leader, Eaton acquired Cooper Industries plc in
November 2012. The 2012 revenue of the combined companies was $21.8 billion on
a pro forma basis. Eaton has approximately 102,000 employees and sells
products to customers in more than 175 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. United States 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 covered during the call.

This news release contains forward-looking statements concerning fourth
quarter and full year 2013 operating earnings per share, operating cash flow,
sales, and the performance of 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; 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 performance of recent acquisitions; unanticipated difficulties
integrating acquisitions; 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 ended
September 30, 2013 are available on the company’s website, www.eaton.com.

                                                           
                                                                             
                                                                             
EATON CORPORATION plc
CONSOLIDATED STATEMENTS OF INCOME
                                                                             
                             Three months ended       Nine months ended
                              September 30               September 30        
(In millions except         2013         2012          2013         2012
for per share data)
Net sales                   $ 5,607      $ 3,950       $ 16,519     $ 11,978
                                                                             
Cost of products            3,883        2,747         11,488       8,316
sold
Selling and
administrative              967          687           2,885        2,079
expense
Research and                166          102           479          313
development expense
Interest expense -          63           42            209          100
net
Other expense               7           (4      )     3           7        
(income) - net
Income before               521          376           1,455        1,163
income taxes
Income tax expense          7           29           64          123      
Net income                  514          347           1,391        1,040
Less net income for
noncontrolling              (4       )   (2      )     (9       )   (2       )
interests
Net income
attributable to             $ 510       $ 345        $ 1,382     $ 1,038  
Eaton ordinary
shareholders
                                                                             
Net income per
ordinary share
Diluted                     $ 1.07       $ 1.02        $ 2.90       $ 3.05
Basic                       1.08         1.02          2.92         3.08
                                                                             
Weighted-average
number of ordinary
shares outstanding
Diluted                     477.2        339.8         476.2        339.7
Basic                       474.0        337.6         473.1        336.7
                                                                             
Cash dividends
declared per                $ 0.42       $ 0.76        $ 1.26       $ 1.52
ordinary share
                                                                             
Reconciliation of
net income
attributable to
Eaton ordinary
shareholders to
operating earnings
Net income
attributable to             $ 510        $ 345         $ 1,382      $ 1,038
Eaton ordinary
shareholders
Excluding
acquisition
integration charges         26          18           73          30       
and transaction
costs (after-tax)
Operating earnings          $ 536       $ 363        $ 1,455     $ 1,068  
                                                                             
Net income per
ordinary share -            $ 1.07       $ 1.02        $ 2.90       $ 3.05
diluted
Excluding per share
impact of
acquisition                 0.05        0.05         0.15        0.09     
integration charges
and transaction
costs (after-tax)
Operating earnings          $ 1.12      $ 1.07       $ 3.05      $ 3.14   
per ordinary share

See accompanying notes.

                                                           
                                                                             
                                                                             
EATON CORPORATION plc
BUSINESS SEGMENT INFORMATION
                                                                             
                             Three months ended       Nine months ended
                              September 30               September 30        
(In millions)               2013         2012          2013         2012
Net sales
Electrical Products         $ 1,817      $ 919         $ 5,235      $ 2,708
Electrical Systems          1,639        910           4,784        2,675
and Services
Hydraulics                  739          763           2,267        2,267
Aerospace                   448          419           1,328        1,285
Vehicle                     964         939          2,905       3,043    
Total net sales             $ 5,607     $ 3,950      $ 16,519    $ 11,978 
                                                                             
Segment operating
profit
Electrical Products         $ 301        $ 172         $ 814        $ 462
Electrical Systems          231          111           668          278
and Services
Hydraulics                  89           93            271          325
Aerospace                   64           49            193          168
Vehicle                     161         144          465         472      
Total segment               846          569           2,411        1,705
operating profit
                                                                             
Corporate
Amortization of             (110     )   (45     )     (325     )   (129     )
intangible assets
Interest expense -          (63      )   (42     )     (209     )   (100     )
net
Pension and other
postretirement              (55      )   (41     )     (136     )   (121     )
benefits expense
Inventory step-up           —            (1      )     (34      )   (4       )
adjustment
Other corporate             (97      )   (64     )     (252     )   (188     )
expense - net
Income before               521          376           1,455        1,163
income taxes
Income tax expense          7           29           64          123      
Net income                  514          347           1,391        1,040
Less net income for
noncontrolling              (4       )   (2      )     (9       )   (2       )
interests
Net income
attributable to             $ 510       $ 345        $ 1,382     $ 1,038  
Eaton ordinary
shareholders

See accompanying notes.

                                                           
                                                                  
                                                                  
EATON CORPORATION plc
CONDENSED CONSOLIDATED BALANCE SHEETS
                                                                  
                                                September 30,     December 31,
(In millions)                                   2013              2012
Assets
Current assets
Cash                                            $    642          $   577
Short-term investments                          698               527
Accounts receivable - net                       3,950             3,510
Inventory                                       2,403             2,339
Deferred income taxes                           404               393
Prepaid expenses and other current              669               429
assets
Total current assets                            8,766             7,775
                                                                  
Property, plant and equipment - net             3,757             3,823
                                                                  
Other noncurrent assets
Goodwill                                        14,276            14,211
Other intangible assets                         7,231             7,468
Deferred income taxes                           328               369
Other assets                                    954               1,704
Total assets                                    $    35,312       $   35,350
                                                                  
Liabilities and shareholders’ equity
Current liabilities
Short-term debt                                 $    88           $   757
Current portion of long-term debt               576               314
Accounts payable                                1,976             1,879
Accrued compensation                            430               463
Other current liabilities                       1,984             2,008
Total current liabilities                       5,054             5,421
                                                                  
Noncurrent liabilities
Long-term debt                                  9,029             9,762
Pension liabilities                             1,801             2,004
Other postretirement benefits                   733               740
liabilities
Deferred income taxes                           1,513             1,456
Other noncurrent liabilities                    1,065             812
Total noncurrent liabilities                    14,141            14,774
                                                                  
Shareholders’ equity
Eaton shareholders’ equity                      16,071            15,113
Noncontrolling interests                        46                42
Total equity                                    16,117            15,155
Total liabilities and equity                    $    35,312       $   35,350

See accompanying notes.




EATON CORPORATION plc
NOTES TO THE THIRD QUARTER 2013 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 ordinary
share, and operating profit before acquisition integration charges and
transaction costs 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, Eaton acquired businesses in separate transactions. The Consolidated
Statements of Income include the results of these businesses from the dates of
the transactions. These transactions and the related annual sales prior to
acquisition are summarized below:

Acquired businesses         Date of         Business      Annual sales
                                transaction       segment
Cooper Industries plc           November 30,      Electrical      $5,409
(Cooper)
A diversified global
manufacturer of
electrical products and
systems, with brands
including Bussmann
electrical and                                    Products;
electronic fuses;               2012              Electrical      for 2011
Crouse-Hinds and CEAG                             Systems and
explosion-proof                                   Services
electrical equipment;
Halo and Metalux
lighting fixtures; and
Kyle and McGraw-Edison
power systems products.
                                                                  
Rolec Comercial e               September 28,     Electrical      $85 for the
Industrial S.A.
A Chilean manufacturer
of integrated power
assemblies and low- and                                           12 months
medium-voltage                                                    ended
switchgear, and a               2012              Systems and     September
provider of engineering                           Services        30,
services serving mining                                           2012
and other heavy
industrial applications
in Chile and Peru.
                                                                  
Jeil Hydraulics Co.,            July 6,           Hydraulics      $189
Ltd.
A Korean manufacturer
of track drive motors,
swing drive motors,
main control valves and         2012                             for 2011
remote control valves
for the construction
equipment market.
                                                                  
Polimer Kaucuk Sanayi           June 1,           Hydraulics      $335
ve Pazarlama A.S.
A Turkish manufacturer
of hydraulic and
industrial hose for
construction, mining,
agriculture, oil and
gas, manufacturing,             2012                             for 2011
food and beverage, and
chemicals markets. This
business sells its
products under the SEL
brand name.
                                                                  
Gycom Electrical
Low-Voltage Power               June 1,           Electrical      $24
Distribution, Control
and Automation
A Swedish electrical
low-voltage power                                 Systems and
distribution, control           2012              Services        for 2011
and automation
components business.
                                                                  

Note 2. ACQUISITION INTEGRATION CHARGES AND TRANSACTION COSTS

Eaton incurs integration charges and transaction costs related to acquired
businesses. A summary of these charges follows:

                    Acquisition                                   Operating profit
                    integration charges     Operating profit      excluding
                and                   as reported         acquisition
                    transaction costs                             integration
                                                                  charges
                    Three months ended September 30
                    2013      2012       2013     2012      2013     2012
Acquisition
integration
charges
Electrical          $ 9        $ 1          $ 301     $ 172       $ 310     $ 173 
Products
Electrical
Systems and         10         1            231       111         241       112
Services
Hydraulics          8          5            89        93          97        98
Aerospace           —          —            64        49          64        49
Vehicle             —         —           161      144        161      144   
Total
business            27         7            $ 846    $ 569      $ 873    $ 576 
segments
Corporate           9         1      
Total
acquisition         $ 36      $ 8    
integration
charges
                                                                            
Transaction
costs
Corporate           $ 2       $ 19   
Total
transaction         $ 2       $ 19   
costs
                                                                            
Total
acquisition
integration
charges and
transaction         $ 38      $ 27   
costs
before
income
taxes
Total after
income              $ 26       $ 18
taxes
Per
ordinary            $ 0.05     $ 0.05
share -
diluted
                                                                            

                Nine months ended September 30
                    2013      2012       2013       2012        2013       2012
Acquisition
integration
charges
Electrical          $ 24       $ 1          $ 814       $ 462         $ 838       $ 463   
Products
Electrical
Systems and         26         8            668         278           694         286
Services
Hydraulics          28         9            271         325           299         334
Aerospace           —          —            193         168           193         168
Vehicle             —         —           465        472          465        472     
Total
business            78         18           $ 2,411    $ 1,705      $ 2,489    $ 1,723 
segments
Corporate           21        2      
Total
acquisition         $ 99      $ 20   
integration
charges
                                                                                  
Transaction
costs
Corporate           $ 9       $ 26   
Total
transaction         $ 9       $ 26   
costs
                                                                                  
Total
acquisition
integration
charges and
transaction         $ 108     $ 46   
costs
before
income
taxes
Total after
income              $ 73       $ 30
taxes
Per common
share -             $ 0.15     $ 0.09
diluted
                                                                                  

Business segment integration charges in 2013 were related primarily to the
integrations of Cooper and Polimer Kaucuk Sanayi ve Pazarlama. Business
segment integration charges in 2012 were related primarily to the integrations
of Internormen Technology Group, Jeil Hydraulics, Polimer Kaucuk Sanayi ve
Pazarlama and E. Begerow GmbH & Co. KG. 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 integration charges in 2013 and 2012 were related primarily to the
acquisition of Cooper. These charges were included in Selling and
administrative expense. In Business Segment Information the charges were
included in Other corporate expense - net.

Acquisition-related transaction costs, such as investment banking, legal, and
other professional fees are not included as a component of consideration
transferred in an acquisition but are expensed as incurred.
Acquisition-related transaction costs in 2013 and 2012 were related to the
acquisition of Cooper. These charges were included in Selling and
administrative expense, Interest expense - net and Other corporate expense -
net. In Business Segment Information the charges were included in Interest
expense - net and Other corporate expense - net.

See Note 1 for additional information about Cooper and other business
acquisitions.

Note 3. RETIREMENT BENEFITS PLANS

The components of retirement benefits expense follow:

                                  Three months ended September 30
                                      Pension           Other postretirement
                                      benefit expense     benefits expense
                                      2013    2012       2013        2012
Service cost                          $ 48     $ 41       $  5         $  5
Interest cost                         57       51         10           10
Expected return on plan               (77  )   (64  )     (2     )     (2    )
assets
Amortization                          40      33        3           3     
                                      68       61         16           16
Settlement loss                       23      8         —           —     
Total expense                         $ 91    $ 69      $  16       $  16 
                                                                             

                                Nine months ended September 30
                                    Pension             Other postretirement
                                    benefit expense       benefits expense
                                    2013     2012        2013        2012
Service cost                        $ 142     $ 123       $  15        $  13
Interest cost                       170       156         27           29
Expected return on plan             (232  )   (192  )     (5     )     (5    )
assets
Amortization                        120      99         10          10    
                                    200       186         47           47
Settlement loss                     39       19         —           —     
Total expense                       $ 239    $ 205      $  47       $  47 
                                                                             

Note 4. INCOME TAXES

The effective income tax rate for the third quarter of 2013 was 1.4% compared
to 7.7% for the third quarter of 2012 and 4.4% for the first nine months of
2013 compared to 10.6% for the first nine months of 2012. The lower effective
tax rate in the third quarter of 2013 was primarily attributable to tax
effects associated with the acquisition of Cooper. The lower effective tax
rate in the first nine months of 2013 was attributable to the item noted
above, the recording of the entire 2012 U.S. research and experimentation
credit in the first quarter of 2013, the reinstatement in 2013 of the U.S.
research and experimentation credit and enhanced utilization of foreign tax
credits in the U.S.

Contact:

Eaton Corporation plc
Media Relations
Scott Schroeder, +1 440-523-5150
scottrschroeder@eaton.com
or
Investor Relations
Donald Bullock, +1 440-523-5127
 
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