Document 4peMgOvXm1YmbbzkxOpxz1ea

EATON CORPORATION FINANCIAL REVIEW The Company has facilities in Puerto Rico that manufacture products for both domestic and foreign markets. These facilities operate under tax relief and other incentives that expire at various dates beginning in 2004 through 2013. The parent company has not provided income taxes on undistributed earnings of consolidated subsidiaries outside the United States of S353 million at December 31,1994, since the earnings retained have been reinvested by the subsidiaries. If distributed, such remitted earnings would be subject to withholding taxes but substantially free of United States income taxes. Worldwide income tax payments, including Federal and state income taxes in the United States, in 1994, 1993 and 1992 (in millions) were $109, $156 and $71, respectively. QUARTERLY DATA (Unaudited) ________________ (Milliom except toe pee there dau) 1994 Net sales Gross margin Percent of sales Net income Per Common Share Net income Cash dividends paid Market price High Low 1993 Net sales Gross margin Percent of sales Income before extraordinary item Extraordinary item Net income Per Common Share Income before extraordinary item Extraordinary item Net income Cash dividends paid Market price High Low Quarter ended Dec. 31 Sept. 30 June JO Mar. 31 $1,605 $1,531 $1545 $1,371 442 411 429 373 28% 21% 28% 27% 89 84 86 74 $ 1.15 $ 1.10 $ 1.13 $ 1.01 .30 .30 .30 .30 54k 54k 58k 62k 43k 45k 49k 50k $1,115 $1,053 $1,147 $1,086 297 266 279 275 21% 25% 24% 25% 30 44 53 53 (4) (3) 26 44 53 50 $ .41 $ .63 (.05) .36 .63 .30 .30 $ .77 .77 275 S .76 (.05) .71 .275 55k 51k 47k 43k 48 43 41k 38k Results for 1994 reflect the acquisition of DCBU on January 31 . 1994. Results for the fourth quarter of 1993 were reduced by a $55 million acquisition integration charge related to the purchase of DCBU (S34 million after income tax credits, or $.49 per Common Share). The redemption of debentures in 1993 resulted in extraordinary losses of $5 million and $6 million in the first and fourth quarters, respectively ($3 million and $4 million after income tax credits, or $.05 per Common Share in each quarter). Gross margin for the second quarter of I993 was reduced by a $9 million charge for streamlining certain Vehicle Components operations in Europe. BUSINESS SEGMENT AND GEOGRAPHIC REGION INFORMATION Operations are classified among three business segments: Vehicle Components. Electrical and Electronic Controls and Defense Systems. The major classes of products included in each segment and other information follows. Vehicle Components Truck Components - Heavy and medium duty mechanical and auto matic transmissions; power take-offs; drive, trailer and steering axles; brakes: anti-lock brake systems; locking differentials: engine valves; valve lifters; leaf springs; viscous fan drives; fans and fan shrouds: power steering pumps; tire pressure control systems; tire valves. Passenger Car Components - Engine valves; hydraulic valve lifters; viscous fan drives; fans and fan shrouds; locking differentials: spring fluid dampers; superchargers: tire valves. Off-Highway Vehicle Components - Mechanical and automatic trans missions: drive and steering axles; specialty axle products; brakes; engine valves; hydraulic valve lifters; gear and piston pumps and motors; transaxles and steering systems; geroters; control valves and cylinders: forgings; central tire inflation systems: tire valves. The principal market for these products is original equipment manufac turers of trucks, passenger cars and off-highway vehicles. Most sales of these products are made directly from the Company's plants to such manufacturers. Electrical and Electronic Controls Industrial and Commercial Controls - Electromechanical and electronic controls including motor starters, contactors, overloads and electric drives; programmable controllers, counters, man/machine interface panels and pushbuttons; photoelectric, proximity, temperature and pressure sensors; residential, molded case, air and medium voltage circuit breakers; loadcenters; safety switches; panelboards; switch boards; switchgear components: switchgear dry type transformers; busway; meter centers; portable tool switches; commercial switches: relays; vacuum interrupters; illuminated pushbuttons and panels: annunciator panels; electrically actuated valves and actuators; pressure transducers and switches. Automotive and Appliance Controls - Electromechanical and electronic controls including convenience, stalk and concealed switches: knock sensors: climate control components; speed controls; timers; pressure switches: water valves; range controls; thermostats; gas valves: infinite switches: temperature and humidity sensors: transmission valves: speed sensitive steering systems; tone generators and chimes; lighting con trols; emission control valves; remote keyless entry systems and remote actuated solenoids. Specialty Controls - Ion implanters; engineered fasteners; golf grips: industrial clutches and brakes: automated material handling systems, automated guided vehicles and stacker cranes. The principal markets for these products are industrial, construction, commercial, automotive, appliance, aerospace and government cus tomers. Sales are made directly by the Company or indirectly through distributors and manufacturers' representatives. T