Eaton Reports Third Quarter 2001 Operating

During the quarter, the company recognized pre-tax charges of

$33 million related to the restructuring of its operations. It also

realized a gain of $23 million from the sale of non-core businesses.

After all unusual items in both periods, third quarter net income was

$40 million compared to $69 million one year ago.

For the first nine months of 2001, operating earnings per share

were $2.64 on sales of $5.60 billion. Comparable earnings last year

were $4.23 per share, on sales of $6.36 billion.

Alexander M. Cutler, chairman and chief executive officer, said,

"Eaton's third quarter earnings came in about where we expected in the

wake of the September 11, 2001 terrorist attack on our nation. While

it is still early to accurately assess the full impact of that tragedy

on the U.S. and world economy, we remain comfortable with the guidance

we provided earlier for Eaton's fourth quarter 2001 and full year 2002

prospects.

"The rough parallel to the current situation that we have found

helpful is the Gulf War of 1990 -- 1991. If the analogy holds, the

overall U.S. economy will decline again in the fourth quarter and then

should begin to regain its bearings sometime next spring, with a

recovery that is aided by the full impact of a year's monetary easing,

low inflation, tax cuts and additional fiscal stimulus," Cutler said.

"International markets are trailing the U.S. economy with the normal

6-month lag, and are expected to continue weakening throughout the

next year.

"We expect Eaton's markets will be down again this quarter and

remain below year-ago levels until the second half of 2002. The

eventual market rebound will be first reflected in our Truck and

Automotive segments, with the turnaround in our Fluid Power and

Industrial & Commercial Controls segments not anticipated before

year-end.

"Because of our aggressive actions earlier in the year, Eaton is

in good shape to weather these extended, difficult operating

conditions. The $110 million we will have invested in restructuring

Eaton this year should deliver $75 million in net savings to the

bottom line in 2002. Eaton's net debt leverage is now below 50

percent, and we will have paid off over $500 million of debt by

year-end. While the economic environment remains highly uncertain, we

anticipate fourth quarter 2001 operating earnings will be in the range

of 60-70 cents per share. Our 2002 operating earnings guidance of

$3.75-$4.25 per share is also unchanged, but will be boosted by 87

cents per share after taking into account the impact of SFAS 142. The

company should be significantly cash flow positive again in 2002,"

said Cutler.

"While the global business environment remains highly uncertain,

we are determined to remain focused on that which we can control, and

actions we can take, to ensure that Eaton delivers superior

performance to our owners over the near- and long-term horizon."

Third quarter sales of Eaton's largest business segment, Fluid

Power, were $600 million, 5 percent below one year earlier. Excluding

the impact of acquisitions and divestitures made over the past year,

comparable sales were off about 10 percent. This compares with about

an 11 percent decline in Fluid Power's markets, with North American

fluid power industry shipments off about 18 percent and aerospace

markets up about 3 percent. Segment profits before restructuring

charges were $35 million, off 38 percent from one year ago.

Said Cutler, "Traditional mobile and industrial hydraulics markets

remain very weak and aren't anticipated to recover before mid-2002.

Eaton Corporation is a global $8 billion diversified industrial

manufacturer 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. For more information, visit