Document e5znVEVzEVJXkBBY3bZvMqmey

TO OUR SHAREHOLDERS: Eiiltm's sircnuth. historically. has conic from murkei leadership. primarily Itom ihc Vehicle Components side of our business. In order to earn greater balance in our earnings and make baton less susceptible to cyclical dips in the auto and truck markets, we Ikoc commiited considerable resources over the past decade to elevate our various Controls businesses to leadership level' The completion earlier this year of our SI. I billion acquisition of VVcstiiiuhouse Klcciric Corporation s Distribution and Control Business Unit (DCBUl vastly enhances haton s ability to meet its strategic goals. Our presence m the industrial control and power distribution market is now three times larger than it was when I communicated with you on these pages a year ago. GROWTH LEADERSHIP BALANCE In large measure, credit for the strong position that Eaton enjoys today isdue to the dedication, determination and vision of my predecessors. Jim Stover and Del de Windt. Early in the 1980s. Eaton's management team recognized the structural changes taking place in the world economy as a result of intense global competi tion. Although our own markets were not under attack from foreign competitors at that time, many ol our customers, most notably the U S. passenger car manufacturers, were losing ground to Japanese and European competitors. Ii was clear that this indirect threat endangered the future of a bedrock part of Eaton's business Worse, we feared it mighi balloon into direct assault from global competitors on virtually all of our own markets. In response, we restructured, lorlilied amJ reinvigorated our best businesses, concentrated pro duction in our most efficient-facilities, and sold T off those operations which did not contribute to long-term competitiveness. The result was seven operations to carry Eaton into the 21st century, serving markets for vehicle components and electrical and electronic controls: ~ Truck Components. - Engine Components. 77 Hydraulics & General Product'. ~ Automotive & Appliance Controls. - Commercial & Military Controls. - Industrial Control & Power Distribution. -7 Semiconductor Equipment. To strengthen these seven operations, wc have spent nearly $600 million over the past 10 year' on a series of acquisitions. By IW. we had achieved market leadership in most ol these primary businesses, with the exception of our Industrial Control and Power Distribution oper ation. The purchase of the Westmghousc busi ness provides vital economies ol scale needed to compete effectively, and puts Eaton on a par