Eaton Corporation - Company Profile, Information, Business Description, History, Background Information on Eaton Corporation

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History of Eaton Corporation

The Eaton Corporation is the United States' largest manufacturer of axles and transmissions for heavy-duty trucks. With operations in North America, Europe, Latin America, and the Pacific region, the company also manufactures automotive components, industrial controls, switching equipment, and defense systems. Eaton's greatest period of growth occurred during the 1960s, and the company has since sought to off-set the cyclical nature of its traditional businesses through diversification.

In 1920, Joseph Oriel Eaton established a small machine shop in Bloomfield, New Jersey, manufacturing heavy-duty truck axles for the expanding automotive industry. Three years later, the Eaton Axle Company was acquired by the Torbensen Gear & Axle Company, and its operations were moved to Cleveland, in order to be closer to the auto manufacturers there and in Detroit. Over the next few years, the new company, Eaton Axle & Spring, acquired several smaller auto parts manufacturers; diversification of its product line also included a new line of parts for aircraft engines.

The company weathered the Great Depression, acquiring several companies that were nearing bankruptcy. By the late 1930s industrial growth was stimulated by President Roosevelt's New Deal program, and demand for products from the Eaton Manufacturing Company--a name change registered in May 1932--increased slowly and steadily. When the United States became involved in World War II, Eaton, as a primary manufacturer of vehicle parts, produced a variety of items for the war effort.

In 1946, Eaton purchased the Dynamatic Corporation and one year later established a joint sales and engineering company with two British firms, Rubry Owen and E.N.V. Engineering. These companies soon became suppliers of axles and gears to Ford Motor Co. and General Motors Corp. in England. In 1953, Livia, a small Italian manufacturer of engine valves, acquired technological assistance and a production license from Eaton. As a result, Livia become the exclusive supplier of engine valves for Simca of France as well as for all trucks built by Fiat. Livia was purchased by Eaton in 1961.

John C. Virden was named president of Eaton in 1958 and followed the company's diversification policy. A strong believer in 'divisional autonomy,' Virden ensured that Eaton's subsidiaries and divisions maintained a large degree of managerial independence. Under Virden, Eaton made 23 major acquisitions between 1958 and 1973, including Fuller Manufacturing, which produced automotive transmissions, and, perhaps more importantly, the Yale & Towne Manufacturing Company. Yale & Towne was founded in the 1870s by the inventor Linus Yale, Jr., who developed a revolutionary pin-tumbler cylinder lock, or padlock, which proved popular and has remained essentially unchanged since its invention. When Yale died in 1913 at the age of 47, Henry Towne took over the company and served as its leader for the next 50 years. Yale & Towne was acquired by Eaton on October 31, 1963, and a full merger occurred on January 1, 1966, under the name of Eaton Yale & Towne.

During this time, Eaton's auto parts division suffered a temporary setback when General Motors, one of Eaton's primary customers, reduced its orders after model changes and higher wages forced the auto manufacturer to scale down production. Nevertheless, Eaton Yale & Towne remained profitable, as its other divisions supported the company until demand for auto parts recovered. In 1966, Eaton Yale & Towne experienced record growth in sales and profits, largely as a result of an expansion in industrial growth.

Following the merger with Yale & Towne, the company executed a careful integration of managerial personnel; officials at Yale & Towne were given important permanent positions in the new company. Gordon Patterson, formerly president of Yale & Towne, was named vice-chairperson, and John Virden became chairperson, as Elliot Ludvigsen, a former president of Fuller Manufacturing, was named president. When Virden retired in 1969, E. Mandell de Windt, who had joined the company as a production clerk, was elected chairperson. The company's name was changed once again on April 21, 1971, to Eaton Corporation.

In the 1970s, decreased demand for American cars severely affected the three largest manufacturers of automobile components: Bendix, Rockwell, and Eaton. As a result, all three companies attempted further diversification of their operations. While Bendix acquired new product lines, and Rockwell added electronics products to its line, Eaton began to focus on the less volatile truck components market, as well as on expansion into foreign markets. Eaton also initiated a $470 million diversification program to develop a new line of factory automation products.

In 1978, with the automotive market still sluggish, Eaton made three acquisitions: Samuel Moore & Company, a manufacturer of hydraulic motors and transmissions; Kenway, a company specializing in robotic warehouse storage systems; and, most importantly, the electronics company Cutler-Hammer, whose AIL electronics division had developed the ALQ-161 advanced radar counter-measures system for Rockwell's B-1 bomber and had also been chosen by NASA to build the landing system for the space shuttles. Eaton intended to combine the resources of these three companies in order to develop a new line of factory automation products. However, during the development stage, high capital investments and low profit margins ensued, and Eaton began to struggle financially. Moreover, the Yale & Towne division's ventures in forest equipment and lift-truck manufacturing proved barely profitable; 1980 was a particularly bad year for Eaton.

The following year, Eaton sold or closed down 18 subsidiaries whose profits were marginal or nonexistent. The forestry equipment and lift-truck businesses were written off and sold in 1982 for $200 million. That year, Eaton registered its first loss in 50 years, $189.6 million on sales of $2.4 billion. Determined to reduce the company's exposure to the vagaries of the automotive components business, de Windt declared that Eaton had now dedicated itself to becoming a 'high technology company servicing the growth markets of the 1980s.'

Ironically, the automotive division generated most of the company's profit the following year. Eaton's major automotive customers, International Harvester (later renamed Navistar International Corp.), Ford, General Motors, and Paccar Inc., had fully recovered from the recession of the mid-1970s and were once again selling a wide range of trucks. Even so, automotive components, which had accounted for 79 percent of Eaton's sales in 1977, were down to 46 percent by 1983. In 1984, 12 of the company's automotive components plants were closed, and the work force was reduced to 41,000, down from 63,000 in 1979. During this time, sales from the electronic components division rose dramatically from 21 percent of turnover in 1977 to 54 percent in 1983.

Jim Stover, president and chief operating officer of Eaton since 1979, was named chairperson and chief executive officer when de Windt retired on April 23, 1986. Stover maintained de Windt's commitment to the company's substantial foreign markets, remarking that Eaton had learned from the recession that 'you compete on a global basis or you don't compete at all.' Stover took over after Eaton had reported a 1985 profit of $231 million on sales of $3.7 billion.

At the beginning of 1986, Eaton had $1 billion available for financing acquisitions, and, by July of that year, it had purchased three more companies: Consolidated Controls (precision instruments), Singer Controls (switches and valves), and Pacific-Sierra Research (defense and computer systems). At the end of the year, Stover unexpectedly placed the company's defense electronics business, AIL Systems, Inc., up for sale, noting quality control problems and reduced orders for the division's B-1B bomber systems. This segment of Eaton's business had suffered several other setbacks during this period as well. It was suspended from bidding on new Air Force contracts, and, in March 1988, AIL paid the Department of Defense $9.5 million to settle improper billing charges. Unable to sell the subsidiary, Eaton sustained it as a discontinued operation until mid-1993, when it was 'reconsolidated,' according to that year's annual report.

From 1984 to 1993, Eaton invested almost $1.7 billion in capital improvements and $2.3 billion in research and development, which enabled it to introduce several new products in the early 1990s. One noteworthy innovation was the AutoSelect automatic transmission, the result of $10 million and six years of planning. Introduced in 1993, AutoSelect promised the trucking industry increased fuel efficiency, safer and easier driving, and drastically lowered training costs. An article in the June 1993 issue of Forbes magazine suggested that AutoSelect might also be intended to attract more female drivers to the shorthanded trucking industry, an allegation that Eaton strongly denied.

Eaton's global expansion resulted in annual sales increases from 13.4 percent in 1985 to nearly 30 percent by 1993. However, domestic sales from its automotive division continued to provide the largest share, over 50 percent, of Eaton's revenues. Still susceptible to market fluctuations, the company recorded rather meager profits from 1989 to 1991, and reported a loss in 1992. Nevertheless, profits rebounded the following year, fueled by surging sales in the North American market for sport utility vehicles.

That year, Eaton announced a plan to lessen its dependence on automotive components through the $1.1 billion acquisition of Westinghouse's Distribution and Control business unit. The purchase advanced Eaton to a top position in industrial control and power distribution markets, providing such products as circuit breakers. The company planned to pay off the $930 million debt it incurred for the acquisition by 1998. With heavy-duty truck backlogs of nearly 100,000 units and the addition of the Westinghouse business, Eaton's CEO William E. Butler hoped to stabilize Eaton's earnings throughout the 1990s.

Principal Subsidiaries: Eaton International Corp.; AIL Systems Holding Co.; Eaton Consulting Services Corp.; Eaton-Kenway, Inc.; Eaton I.C.S.A. (Argentina); Eaton Proprietary., Ltd. (Australia); Eaton S.p.A. (Italy); Eaton EST S.p.A. (Italy) (99%); Eaton Controls Verwaltungs GmbH (Germany); Eaton International, Inc. (Liberia); Eaton B.V. (Netherlands); Eaton, S.A. (Spain) (50.14%); Eaton, Ltd. (U.K.); Eaton, GmbH. (Germany); BAC Investments Ltd.; Eaton Administration Corp.; Eaton ESC Holding Company Inc.; Eaton USEV Holding Company Inc.; Eaton Leasing Corp.; Eaton IDT, Inc.; Eaton ETN Offshore Ltd.; Saturn Insurance Commune ltd.; Eaton Technologies S.A.; Eaton EST SpA (99%); Eaton Manufacturera S.A. de C.V. (53.9%); Eaton BV; Eaton Electrical Components Ltd., (99.98%); Eaton Ltd. (South Korea); Eaton Foreign Sales Corp.

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Further Reference

Ludvigsen, E.L., Eaton Yale & Towne: A Corporate Portrait, New York: Newcomen Society in North America, 1968.Machan, Dyan, 'Don't Clutch,' Forbes, June 21, 1993, p. 46.Verespej, Michael A., 'Unfazed by the Challenge: Eaton Corp.,' Industry Week, July 21, 1986, pp. 47-48.Whitney, Allison A., 'Eaton AIL Settles DOD Probe: Agrees to Pay $9.5 Million,' Manufacturing Week, March 7, 1988, pp. 12-13.

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