CLEVELAND ... Diversified industrial manufacturer Eaton Corporation (NYSE:ETN) today announced net income per share of $1.00 for the first quarter of 2003, an increase of 113 percent over net income per share of $.47 in the first quarter of 2002. Sales in the quarter were $1.92 billion, 12 percent above last year. Net income was $72 million compared to $33 million in 2002.

Net income in both periods included charges related to restructuring activities. Before these charges, 2003 first quarter operating earnings per share were 14 percent above 2002, with 2003 operating earnings per share of $1.06 versus $.93 per share in 2002. Operating earnings for the first quarter of 2003 were $77 million versus $66 million in 2002.

Alexander M. Cutler, Eaton chairman and chief executive officer, said, "We are very pleased with our first quarter results, which were ahead of our expectations despite flat markets and considerable economic uncertainty. For the past four quarters, we have experienced growth in revenue and improved operating margins compared to the same period a year ago.

"Our sales growth in the first quarter of 12 percent compared to last year has been due to continued growth in excess of our end markets, revenue from the four acquisitions we completed from November through January, and higher exchange rates. Approximately 5 percent of the growth came from outgrowing end markets, another 5 percent from the acquisitions, and 2 percent from higher exchange rates.

"We concentrated during the first quarter on integrating our recent acquisitions. Progress has been made in reducing their working capital and improving their performance, but we are still in the early stages of our integration process. We anticipate that working capital levels in the acquired businesses will be reduced significantly by the end of the year.

"During the first quarter, we paid down $9 million of debt, while paying cash of $221 million to fund the acquisitions of the electrical business of Delta plc and the power systems business of Commonwealth Sprague Capacitor.

"We now expect our end markets in the first half of 2003 to be slightly weaker than a year ago. In the second half, assuming current uncertainties related to the economy are resolved, we expect growth to resume towards year end. As a result, for the year as a whole, we anticipate little overall growth in our end markets.

"We anticipate full-year net income per share of $4.50 to $4.75 and second quarter net income per share of $1.15 to $1.25," said Cutler. "Excluding the restructuring charges to integrate our four recent acquisitions, we are maintaining our full-year operating earnings guidance of $5.00 to $5.25 per share. We anticipate second quarter operating earnings per share will be in the $1.30 to $1.40 range.

"In late March, Institutional Shareholder Services ranked our corporate governance practices in the top 2 percent of all United States capital goods companies. We are pleased that our focus on good corporate governance is being recognized."

Business Segment Results

First quarter sales of Eaton's largest business segment, Fluid Power, were $697 million, 17 percent above one year earlier, and excluding the impact of the Boston Weatherhead and Mechanical Products acquisitions, up 9 percent over the first quarter of 2002. This compares to a decline of 3 percent in Fluid Power's markets, with North American fluid power industry shipments down about 2 percent, commercial aerospace markets off 20 percent, and defense aerospace markets up by 11 percent. Operating profits in the first quarter were $58 million. Operating profits before restructuring charges were $63 million, up 5 percent compared to a year earlier.

"We do not anticipate a recovery in the traditional mobile and industrial hydraulics markets until late in the year. The construction and agricultural equipment markets have shown little growth thus far, and are likely to be restrained until economic uncertainties are resolved," said Cutler. "The decline in the commercial aerospace market has occurred as we expected. Military aerospace markets have been strong, largely offsetting the decline in the commercial markets."

In the Industrial & Commercial Controls segment, first quarter sales were $514 million, up 6 percent from last year. Excluding the impact of the Delta and Commonwealth Sprague Capacitor acquisitions in 2003 and the divestiture of the Navy Controls business last year, first quarter sales were flat compared to 2002. Operating profits in the first quarter were $32 million. Operating profits before restructuring charges were $33 million, up 6 percent from results one year ago.

"End markets for our electrical business weakened slightly during the first quarter, with an estimated 1 percent decline in the markets for this business compared to last year," said Cutler. "We expect that the electrical distribution equipment market will not begin to recover until the end of 2003. The residential market in North America has remained strong thus far in 2003.

"We completed the purchase of the electrical division of Delta plc on January 31st, for $215 million," said Cutler. "The Delta business represents a significant addition to the capabilities and geographic footprint of our Industrial & Commercial Controls business.

The Automotive segment posted sales of $440 million in the first quarter, 14 percent above the comparable quarter last year. This is a new record for Eaton's quarterly Automotive segment revenues. NAFTA automotive production increased 2 percent, while European production was flat, compared to the same period last year. Operating profits were $62 million, up 9 percent from a year ago.

"Our Automotive segment continued its strong performance with sales that considerably outpaced its end markets," said Cutler. "The heavy investments we have made in new product development over the last several years are continuing to deliver tangible results as we have been able to maintain the accelerated pace of new product introductions and gain market share."

The Truck segment posted sales of $274 million in the first quarter, a 7 percent increase over the comparable period last year, and recorded operating profits of $22 million, compared to a loss in 2002 of $10 million. The first quarter of 2002 included restructuring charges of $14 million. NAFTA heavy-duty truck production was up 4 percent and NAFTA medium-duty truck production was up 1 percent. European truck production was up 1 percent and South American production was up 11 percent versus a year ago.

"First quarter production of NAFTA heavy-duty trucks totaled about 36,000 units. For the full year, we continue to expect production of heavy-duty trucks in NAFTA to total approximately 190,000 units," said Cutler. "The positive impact of our extensive restructuring actions over the last two years can be seen in the improved profitability over 2002, with profits before restructuring charges up $18 million on a sales increase of $19 million."

Eaton is a global diversified industrial manufacturer with 2002 sales of $7.2 billion that is a leader in fluid power systems; electrical power quality, distribution and control; automotive engine air management and fuel economy; and intelligent truck systems for fuel economy and safety. Eaton has 51,000 employees and sells products in more than 50 countries.

Notice of Conference Call: Eaton's conference call to discuss its first quarter results is available to all interested parties via live audio webcast today at 10 a.m. EDT on www.eaton.com. This news release can be accessed through the homepage of www.eaton.com

This news release contains forward-looking statements concerning the second quarter 2003 and the full year 2003 net income per share and operating earnings per share, our worldwide markets, expenses of our restructuring programs, and working capital. These statements 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; failure to implement restructuring plans; 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 or dispute resolutions; and unanticipated further 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 March 31, 2003 and 2002.