Eaton announced record quarterly sales, net income, and cash flow for the second quarter of 2006. Net income per share was $1.64 for the second quarter of 2006, an increase of 20 percent over net income per share of $1.37 in the second quarter of 2005. Sales in the quarter were ...

... $3.19 billion, 12 percent above the same period in 2005. Net income was $253 million compared to $209 million in 2005, an increase of 21 percent.

Net income in both periods included charges for integration of acquisitions. Before these acquisition integration charges, operating earnings per share in the second quarter of 2006 were $1.68 versus $1.40 per share in 2005, an increase of 20 percent, and operating earnings for the second quarter of 2006 were $259 million compared to $214 million in 2005, an increase of 21 percent.

Alexander M. Cutler, Eaton chairman and chief executive officer, said, "Our second quarter results exceeded our guidance. Sales growth in the quarter of 12 percent consisted of 5 percent from organic growth, 6 percent from acquisitions, and 1 percent from exchange rates. Our end markets grew by approximately 4 percent.

"In the second quarter, our segment operating margin before acquisition integration charges was 12.9 percent, after a reduction of 0.7 percent due to net costs associated with our Excel 07 program. Our Excel 07 program is on schedule and meeting our original expectations," said Cutler.

Excel 07 is the program Eaton initiated in the first quarter to address resource levels and operating performance in businesses which underperformed in 2005 and businesses in which markets are expected to soften during the second half of 2006 and in 2007. As disclosed previously, the Excel 07 program includes the costs of the actions as well as funding sources such as savings generated from the actions, sales of non-strategic product lines, and benefits from corporate actions such as resolution of tax audits.

"The net impact of our Excel 07 program in the second quarter totaled a $.09 per share benefit to earnings, slightly ahead of the $.05 per share benefit we had expected at the start of the quarter. Included in the program were benefits from the resolution of tax audits in the second quarter of $29 million," said Cutler. "For the first half of 2006, our Excel 07 program has had a positive impact of $.02 per share and in the third quarter the impact of the Excel 07 program is expected to be neutral.

"As we survey our end markets, the year is shaping up about as we forecasted at the start of the year," said Cutler. "We expect the strong growth we experienced in many of our markets in the first half to slow somewhat over the balance of the year as markets respond to the impact of the continuing rise in interest rates in the United States and many other countries. Overall, we anticipate our markets in 2006 to grow between 4 and 5 percent.

"Our operating cash flow for the quarter was a quarterly record of $441 million," said Cutler. "That compares to operating cash flow in the second quarter of 2005 of $322 million.

"In light of our strong performance, and our outlook for the rest of this year and 2007, we are raising our quarterly dividend by 11 percent, from $.35 per share to $.39 per share," said Cutler. "Additionally, we took advantage of the weakness in the stock market in early June to repurchase $63 million of stock.

"We anticipate net income per share for the third quarter of 2006 to be between $1.50 and $1.60," said Cutler. "Operating earnings per share, which exclude charges to integrate our recent acquisitions, are anticipated to be between $1.55 and $1.65 in the third quarter of 2006.

"For the full year, we are maintaining our guidance of between $5.90 and $6.20 for net income per share and between $6.10 and $6.40 for operating earnings per share."

Business Segment Results