CLEVELAND, OHIO… Eaton Corporation (NYSE:ETN) today announced operating earnings per share of $1.40 during the third quarter of 2000, 3 percent below results one year earlier. Sales in the quarter were $2.19 billion, 2 percent below last year. Net income before unusual items was $101 million versus last year’s $108 million. Comparable cash earnings per share reached $1.69 compared to $1.76 during last year’s third quarter.

Net income, including restructuring charges in both years and a gain on the sale of a business in 1999, was $93 million, or $1.28 per share, for the third quarter of 2000 compared to $184 million, or $2.46 per share, for the comparable quarter of 1999.

Sales and operating earnings per share during the first nine months of 2000 were at record levels. Net income before non-recurring items reached $375 million, or $5.10 per share, on sales of $6.85 billion. Comparable year earlier earnings were $319 million, or $4.35 per share, on sales of $6.19 billion.

Including restructuring charges in both years and a gain on the sale of a business in 1999, net income for the first nine months of 2000 was $369 million, or $5.02 per share, compared to $393 million, or $5.35 per share, for the comparable period of 1999.

Alexander M. Cutler, chairman and chief executive officer, said, "Our third quarter results were consistent with the revised expectations we communicated a month ago. This performance, with operating EPS off only 3 percent from last year’s record results, clearly shows the benefits of Eaton’s business diversification, even with the extraordinarily volatile conditions we are seeing in North American vehicle markets.

"The record performance of Industrial & Commercial Controls last quarter is particularly notable. Axcelis Technologies, Inc., Eaton’s 82 percent-owned semiconductor equipment subsidiary, also turned in an outstanding performance. The results of these two businesses, in combination with the sustained progress we are seeing in Fluid Power, nearly offset the impact of very difficult operating conditions we are experiencing in Automotive and, especially, Truck Components.

"Eaton this year will deliver record earnings per share despite the severe downturn in the North American heavy truck market. Market conditions preclude precise forecasting, but our current projections for fourth quarter results are generally in line with the range of current analyst forecasts."

Cutler announced that Eaton intends to divest its ownership of Axcelis via a dividend to Eaton shareholders, and that its board of directors has authorized the necessary preparations for the spin-off. Said Cutler, "We have received confirmation from the Internal Revenue Service that the company’s divestiture of its Axcelis common stock will be tax-free to Eaton and its shareholders. We now anticipate that Eaton’s board will formally authorize a year-end spin-off of Axcelis shares at its meeting later this month.

Cutler noted that, during July, the company’s board of directors had authorized the company to spend up to $500 million to purchase shares of its common stock to take advantage of the intrinsic value it sees in this enterprise. To date, the company has repurchased $201 million of shares under that program.

Third quarter Automotive Component segment sales were five percent below last year at $421 million because of the weak euro exchange rate. Volumes were essentially at last year’s levels compared to 1 percent drops in NAFTA and European production of light vehicles and a 12 percent rise in South American output. Segment profits were $41 million, down $9 million from year earlier results. Cutler noted that, in addition to the euro, profits in the current period were affected by the 7 percent reduction in North American light truck production, where Eaton enjoys a richer product mix.

During the quarter, Eaton announced it was divesting its $330 million Vehicle Switch/Electronics Division because the business no longer fits the company’s longer-term strategic objectives.

Sales of Fluid Power & Other Components were a third quarter record $630 million, 3 percent above year earlier results. Cutler noted that the weaker euro reduced reported sales by about 3 percent. The resulting 6 percent increase in volume compares favorably to the 2 percent rise in North American fluid power markets and a 3 percent decline in aerospace markets. Segment profits before restructuring charges were $57 million, up 12 percent from one year ago.

Said Cutler, "Our Fluid Power business achieved a fine year-to-year profit improvement despite somewhat softer industry conditions and an acceleration of our manufacturing integration activities related to last year’s acquisition of Aeroquip-Vickers, Inc. Overall, that acquisition contributed about 12 cents to Eaton’s third quarter earnings per share. The acceleration of our restructuring activities, along with two new important acquisitions, are designed to ensure we continue to build a world leading franchise and meet our earnings commitment for this business in 2001."

During the quarter, Eaton announced it had acquired the industrial cylinder business of International Motion Control Incorporated, and that it had also acquired Frederick Duffield PTY Ltd., an Australian-based manufacturer of metal hydraulic fittings and adapters.

Industrial & Commercial Controls segment sales and profits were at record levels in the third quarter. Sales of $622 million were 6 percent above last year and in line with the trend of North American markets for distribution equipment and industrial controls. Segment profits of $73 million were 35 percent higher than last year and a record 11.7 percent of sales. Said Cutler, "We are very pleased with the performance of this business. Orders continue strong, up 10 percent from last year, driven in part by demand for back-up power generation, and by the continued strength in telecommunications infrastructure building."

Semiconductor Equipment achieved record results in the third quarter. Sales by Axcelis were $183 million, 68 percent above one year ago. Segment profits of $42 million were more than 2½ times higher than last year. Said Cutler, "We intend to deliver the value Eaton has created in this extraordinary franchise directly to our owners via the spin-off we anticipate at year-end."

Third quarter Truck Component sales were 19 percent below one year earlier at $335 million. This compares to a 36 percent decline in NAFTA production of Class 8 trucks, a 22 percent decline in NAFTA medium duty truck production, a 6 percent rise in European truck output and a 24 increase in South American commercial vehicle production. Segment profits of $7 million were $60 million below year earlier results.

Said Cutler, "NAFTA heavy truck production has fallen an unprecedented 40 percent in the past six months. During that time, we have reduced employment by over 900 and in the last quarter incurred about $10 million of downsizing expenses. But, we are struggling to reduce costs and resources to match the pace of the decline in our orders. Making matters worse, only fleets are buying trucks at present, resulting in a marked shift to basic fleet transmissions from our higher-valued automated products. During the fourth quarter, we will continue resizing the business for the roughly 200,000 unit annual rate of production we anticipate for the next six to nine months and the roughly 230,000 total build rate we see for the year 2001."

With 1999 sales of $8.4 billion, Eaton is a diversified industrial manufacturer that serves industrial, vehicle, construction, commercial, aerospace and semiconductor markets. Principal products include hydraulic products and fluid connectors, electrical power distribution and control equipment, truck drivetrain systems, engine components, ion implanters and a wide variety of controls. The company has 64,000 employees and 200 manufacturing sites in 24 countries.

This news release contains forward-looking statements, including statements about the continuing progress of our Fluid Power businesses, our projected fourth quarter and full-year results, the planned spin-off of our 82 percent interest in Axcelis, and anticipated production rates in the NAFTA heavy- and medium-duty truck markets. Those statements should be used with caution. They 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: any change in our ability to integrate Aeroquip-Vickers successfully, a decline in the health of the global market for semiconductor equipment or our board’s deciding not to proceed with the Axcelis spin-off, an unanticipated change in the NAFTA heavy- and medium-duty truck markets, a significant downturn in business relationships with major customers or their purchases from us, competitive pressure on sales and pricing, increases in the cost of material and other production costs that cannot be recouped in product pricing, any change in our ability to implement our profit plans successfully, or a deterioration in global economic and financial conditions.