Document dY6Jp0mmD4xmEJ3OYN6ynpbze

TO OUR SHAREHOLDERS By nearly all measures. Eaton has attained the qualities of a stellar performer - market leadership, superior returns, a solid balance sheet and enviable cash generation. We are now leveraging those strengths to realize our remaining goal: sustained, above-average growth in earnings. Progress made in 1994 provides credible indicators that such growth can become reality. Achieving the highest earnings and sales in our 83-year history is but one sign of Eaton's gathering strength. Another is the extension of market leader ship. Fifteen years of building and pruning have brought Eaton to the point where every major line of business is a leader in the market it serves. More than 80 percent of the company's sales, in fact, come from products that are number one or number two in their markets. This has been largely responsible for a total return on your invest ment of 15.2 percent annually over the past five years. 91 9? 93 94 NET SALES . ,n IMI I JO u 91 92 93 94 INCOME BEFORE ACCOUNTING CHANGES m: .V A 91 92 93 94 RETURN ON SHAREHOLDERS' EQUITY rtotn, The 1994 acquisition of the Westinghouse Distribution and Control Business Unit (DCBU) tripled the size of our CutlerHammer industrial control and power distribution business, put us on an equal footing with our primary competitors in North America and gave Eaton 51 billion of additional sales. This business, which had been our last major operating unit with out substantial leadership across its industry, now represents our largest concentration of sales. Its growth, coupled with that of our other businesses, pushed Eaton's sales above S6 billion for the first time. We believe the future will continue to reward companies with leadership in industrial markets. Production in this sector has outperformed the general economy in the United States by 50 percent throughout the current expansion, and we see several reasons for continued opti mism. On the immediate horizon: t Order backlogs for heavy-duty trucks in North America at the end of 1994 were a record 212.000 units, more than twice the level of a year ago. t Contracts representing current and future non-residential building construction in the U.S. increased 27 percent in 1994, strong evidence that these markets are recovering from the prolonged slump. < Europe and Japan are emerging from their recessions, and exports of capital goods to Latin America and Pacific Rim countries are rising significantly. We are. however, aware that orders are not shipments and favorable economic winds can die. It is there fore encouraging to see evidence that the industrial economy is benefiting from underlying trends which add force to the current cycle but will not disappear with rising interest rates. Fundamental improve ments in productivity and quality have given U.S. manufacturers a competitive advantage in world T