11-K 1 l89125ae11-k.txt EATON CORP--11-K--SHARE PURCHASE AND INVSTMNT PLAN 1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 11-K ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) [X] Annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934 (Fee required) For the fiscal year ended December 30, 2000 Or [ ] Transition report pursuant to Section 15(d) of the Securities Exchange Act of 1934 (Fee required) For the transition period from _____________ to ___________ Commission file number ____________________________________ A. Full title of the plan and the address of the plan, if different from that of the issuer named below: EATON CORPORATION SHARE PURCHASE AND INVESTMENT PLAN B. Name of issuer of the securities held pursuant to the plan and the address of its principal executive office: Eaton Corporation 1111 Superior Avenue Cleveland, Ohio 44114-2584 SIGNATURES The Plan. Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees (or other persons who administer the employee benefit plan) have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized. (Name of Plan) EATON CORPORATION SHARE PURCHASE AND INVESTMENT PLAN Date: June 27, 2001 By: Eaton Corporation Pension Administration Committee By: /s/ S. J. Cook ---------------------------- (Signature) S. J. Cook Vice President-Human Resources Eaton Corporation 2 Report of Independent Auditors Corporate Compensation and Organization Committee of Eaton Corporation Eaton Corporation Share Purchase and Investment Plan We have audited the accompanying statements of net assets available for benefits of the Eaton Corporation Share Purchase and Investment Plan as of December 30, 2000 and 1999, and the related statement of changes in net assets available for benefits for the year ended December 30, 2000. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan at December 30, 2000 and 1999, and the changes in its net assets available for benefits for the year ended December 30, 2000, in conformity with accounting principles generally accepted in the United States. Our audits were performed for the purpose of forming an opinion on the financial statements taken as a whole. The accompanying supplemental schedules of assets held for investment purposes at end of year as of December 30, 2000, and reportable transactions for the year then ended, are presented for purposes of additional analysis and are not a required part of the financial statements but are supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. These supplemental schedules are the responsibility of the Plan's management. The supplemental schedules have been subjected to the auditing procedures applied in our audits of the financial statements and, in our opinion, are fairly stated in all material respects in relation to the financial statements taken as a whole. Cleveland, Ohio 1 June 14, 2001 /s/ Ernst & Young LLP 3 Eaton Corporation Share Purchase and Investment Plan Statements of Net Assets Available for Benefits
December 30, 2000 1999 --------------------------------------------- ASSETS Investments: At fair value: Eaton Corporation Common Shares $ 552,429,626 $ 540,182,986 Mutual funds 412,295,916 444,513,321 U.S. Government securities 51,022,283 64,258,014 Corporate debt instruments 44,342,102 52,529,896 Participant notes receivable 29,751,642 29,615,919 Short-term investments 40,988,452 37,967,724 At contract value: Guaranteed investment contracts -- 449,619 --------------------------------------------- Total investments 1,130,830,021 1,169,517,479 Receivables: Interest and dividends 15,972,958 1,849,505 Accrued sales of investments 21,110 869,881 Stock dividend 89,153,788 -- --------------------------------------------- Total receivables 105,147,856 2,719,386 --------------------------------------------- Total assets 1,235,977,877 1,172,236,865 LIABILITIES Accrued purchases of investments 14,467,844 4,034,862 Other payables 26,427 1,459 --------------------------------------------- Total liabilities 14,494,271 4,036,321 --------------------------------------------- Net assets available for benefits $ 1,221,483,606 $ 1,168,200,544 =============================================
See notes to financial statements. 2 4 Eaton Corporation Share Purchase and Investment Plan Statement of Changes in Net Assets Available for Benefits Year Ended December 30, 2000 ADDITIONS Investment income: Net appreciation in fair value of investments $ 29,455,700 Dividends 19,454,184 Interest 13,427,719 Transfers from other plans 1,927,383 ----------------- 64,264,986 Contributions: Employer 42,226,697 Employee 74,173,055 Rollover 5,765,163 ----------------- 122,164,915 ----------------- Total additions 186,429,901 DEDUCTIONS Distributions to participants 133,146,839 ----------------- Net increase 53,283,062 Net assets available for benefits at beginning of year 1,168,200,544 ----------------- Net assets available for benefits at end of year $1,221,483,606 ================= See notes to financial statements. 3 5 Eaton Corporation Share Purchase and Investment Plan Notes to Financial Statements December 30, 2000 and 1999 and Year Ended December 30, 2000 A. SIGNIFICANT ACCOUNTING POLICIES The financial statements of the Eaton Corporation Share Purchase and Investment Plan (Plan) are prepared under the accrual method of accounting. Investments are stated at fair value as measured by quoted prices in active markets, except for guaranteed investment contracts, which are recorded at contract value, and the Fidelity Contra Fund, which is stated at fair value as determined by the trustee. Contract value, which approximates fair value, represents contributions made under the contracts plus interest at the rates specified by the contracts less funds used to pay expenses of the contracts. Participant notes receivable are valued at their outstanding balances, which approximate fair value. At December 30, 2000, the Eaton Corporation Common Shares are valued at the ex-dividend price to reflect the spin-off and stock dividend related to Axcelis Technologies Inc. (See Note H). The cost of shares sold for the mutual funds and the Eaton Common Shares Fund is based upon the average cost of each participant's shares sold for purposes of determining realized gains and losses. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. B. DESCRIPTION OF PLAN The Plan generally provides that an Eaton employee who is in the regular service of a class in a division or group to which Eaton Corporation (Eaton, the "Company", or the "Plan Sponsor") has extended eligibility for membership in the Plan (other than a temporary employee who is hired for a specific, limited period of time or for the performance of a specific, limited assignment or employees covered by a collective bargaining agreement that does not specify coverage under the Plan) will be eligible to participate on any date established in accordance with administrative procedures which follows the date an employee first incurs an hour of service. 4 6 Eaton Corporation Share Purchase and Investment Plan Notes to Financial Statements (continued) B. DESCRIPTION OF PLAN (CONTINUED) Employees may make a combination of before-tax and after-tax contributions ranging from 1 to 17% of base pay. Employee contributions up to 6% of eligible compensation are eligible for employer match. Participants may change their contributions monthly and accounts are valued daily. Eaton matches regular employee contributions as determined under a formula. This formula compares Eaton's earnings per share for the most recently reported calendar quarter with the average of Eaton's per share earnings for the previous two calendar years. If the most recently reported calendar quarter's earnings per share are identical to the two calendar year average, the Company's matching contribution will be 50% for each dollar contributed by employees. Company matching contributions will increase or decrease depending on whether the most recently reported calendar quarter's earnings per share are greater than or less than the two calendar year average, respectively. For each 2% that the most recently reported calendar quarter's earnings per share is greater than or less than the two calendar year average, 1% will be added or subtracted respectively from the standard Company matching contribution of 50%. Company matching contributions will not be less than $.25, or more than $1.00 for each dollar of regular employee contributions, except under special circumstances as defined in the Plan document. There will be an additional $.10 match with ESOP shares per dollar of before-tax and after-tax contributions, up to 17% of eligible compensation, to match contributions initially invested in the Eaton Common Shares Fund. This match is reduced to $.05 for certain highly compensated employees. Each participant's account is credited with an allocation of the Plan's earnings based on participant account balances, as defined. Eligible employees may borrow from their accounts a minimum of $1,000, up to a maximum equal to the lessor of $50,000 or 50% of their vested account balance reduced by their highest outstanding loan balance during the preceding 12 months. The loans are secured by the balance in the participant's account and bear interest at a published rate, as defined. Principal and interest is paid ratably through payroll deductions. Company contributions are provisionally allocated during the year and become non-forfeitable on the last day of each Plan year or upon other events as indicated in the Plan document. 5 7 Eaton Corporation Share Purchase and Investment Plan Notes to Financial Statements (continued) B. DESCRIPTION OF PLAN (CONTINUED) All Company matching contributions are invested in the Eaton Common Shares Fund. Employee contributions may be invested in any of the fund options available under the Plan. Participants may reallocate their accumulated contributions daily among the various funds consistent with the ratios specified in the Plan. Key Trust Company of Ohio, N.A. is the Trustee of the Plan. All costs and expenses incurred in administering the Plan are paid by the Plan unless otherwise determined by Eaton. Eaton may amend, modify, suspend or terminate the Plan. No amendment, modification, suspension or termination of the Plan shall have the effect of providing that any amounts then held under the Plan may be used or diverted to any purpose other than for the exclusive benefit of members or their beneficiaries. Information about the Plan is contained in the Plan document, which is available from the Company's Human Resources Department upon request. C. CONTRIBUTIONS Company matching contributions were made at the following rates per dollar of regular employee contribution: PERIOD RATE ------------------------------------------------------------------------- 1 month ended December 30, 2000 $ .25 3 months ended November 30, 2000 .96 3 months ended August 31, 2000 .68 3 months ended May 31, 2000 1.00 2 months ended February 28, 2000 1.00 6 8 Eaton Corporation Share Purchase and Investment Plan Notes to Financial Statements (continued) D. INVESTMENTS The fair value of individual investments that represent 5% or more of the Plan's net assets available for benefits are as follows: DECEMBER 30 2000 1999 -------------------------------- Fidelity Contra Fund $134,246,639 $145,901,976 Vanguard Windsor Fund 109,133,471 105,453,648 Vanguard Institutional Index Fund 108,341,202 121,945,681 Eaton Common Shares 552,429,626* 540,182,986* * Includes nonparticipant-directed contributions During 2000, the Plan's investments (including investments bought, sold, and held during the year) appreciated (depreciated) in fair value as follows: Eaton Common Shares $ 35,353,707 Mutual funds (7,899,466) Government securities 999,586 Corporate debt instruments 1,001,873 ------------------- $ 29,455,700 =================== 7 9 Eaton Corporation Share Purchase and Investment Plan Notes to Financial Statements (continued) D. INVESTMENTS (CONTINUED) The Eaton Common Shares Fund contains participant account balances that are both participant-directed and nonparticipant-directed. Because the fund contains balances that are nonparticipant-directed, the entire fund is considered nonparticipant-directed for disclosure purposes. Information about the net assets and the significant components of the changes in net assets relating to the nonparticipant-directed investments is as follows:
DECEMBER 30 2000 1999 ------------------------------------ Net assets: Eaton Corporation Common Shares $552,429,626 $540,182,986 Key Trust EB Money Market Fund 2,272 7,757,313 Contributions Receivable 21,110 443,077 Stock Dividend Receivable 89,153,788 - Accrued purchases - (3,419,063) ------------------------------------ $641,606,796 $544,964,313 ====================================
YEAR ENDED DECEMBER 30, 2000 ------------------- Changes in net assets: Participant contributions $ 38,732,930 Employer contributions 42,226,697 Interest and dividends 14,891,334 Net appreciation in fair value of investments 35,353,707 Distributions to participants (58,549,450) Net transfers from participant directed funds 23,987,265 ------------------- $ 96,642,483 ===================
8 10 Eaton Corporation Share Purchase and Investment Plan Notes to Financial Statements (continued) E. RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500 The following is a reconciliation of net assets available for benefits per the financial statements to the Form 5500: DECEMBER 30, 2000 --------------------- Net assets available for benefits per the financial statements $1,221,483,606 Amounts allocated to withdrawing participants (822,526) --------------------- Net assets available for benefits per Form 5500 $1,220,661,080 ===================== The following is a reconciliation of benefits paid to participants per the financial statements to the Form 5500: YEAR ENDED DECEMBER 30, 2000 -------------------- Benefits paid to participants per the financial statements $ 133,146,839 Add: Amounts allocated to withdrawing Participants at December 30, 2000 822,526 -------------------- Benefits paid to participants per Form 5500 $ 133,969,365 ==================== Amounts allocated to withdrawing participants are recorded on the Form 5500 for benefit claims that have been processed and approved for payment prior to the end of the Plan year but not yet paid. 9 11 Eaton Corporation Share Purchase and Investment Plan Notes to Financial Statements (continued) F. INCOME TAX STATUS The Plan has received a determination letter from the Internal Revenue Service dated April 2, 1996, stating that the Plan is qualified under Section 401(a) of the Internal Revenue Code (IRC) and, therefore, the related trust is exempt from taxation. Once qualified, the Plan is required to operate in conformity with the IRC to maintain its qualification. The Plan Administrator believes the Plan is being operated in compliance with the applicable requirements of the IRC and, therefore, believes that the Plan is qualified and the related trust is tax exempt. G. TRANSFERS FROM OTHER PLANS Effective January 1, 2000, all participants of the SUMMA 401(k) Plan became eligible to participate in the Plan. Effective October 1, 2000, the SUMMA 401(k) Plan was merged with the Plan and total assets of approximately $760,000 were transferred to the Plan. Effective August 31, 1999, the Eaton Corporation Consolidated Controls Corporation Profit Sharing Plan (ECCCC Plan) was terminated in accordance with the plan description. On February 22, 2000, all participants of the ECCCC Plan became 100% vested and could elect a distribution of their account balance. On October 31, 2000, remaining account balances of approximately $1,170,000 were transferred to the Plan. H. TRANSACTIONS WITH PARTIES-IN-INTEREST Party-in-interest transactions included the investments in the common stock of Eaton and the special funds of the trustee and the payment of administrative expenses by the Company. Such transactions are exempt from being prohibited transactions. During 2000, the Plan received $14,891,334 in cash dividends on common stock of the Company. 10 12 Eaton Corporation Share Purchase and Investment Plan Notes to Financial Statements (continued) H. TRANSACTIONS WITH PARTIES-IN-INTEREST (CONTINUED) On June 30, 2000, Eaton Corporation (Eaton) semiconductor equipment operations were reorganized into a wholly owned subsidiary, Axcelis Technologies, Inc. (Axcelis). In July 2000, Axcelis completed an initial public offering for the sale of 20% of its common shares. On December 29, 2000, Eaton distributed its remaining interest in Axcelis to Eaton shareholders as a dividend (spin-off), which was tax free to Eaton and its shareholders for United States income tax purposes. Eaton shareholders (including the Plan) received 1.179023 shares of Axcelis common stock per each whole Eaton common share held as of December 6, 2000 and cash payments for fractional shares. The Axcelis common shares were received by the Plan on January 5, 2001. As a result of the Axcelis spin-off, the Plan had a stock dividend receivable from Eaton Corporation of $89,153,788 in Axcelis common stock at December 30, 2000. Plan will establish an Axcelis Common Stock Fund to hold the shares of Axcelis common stock received as a dividend, and which shall be maintained as a fund under the Plan for a period expiring on or before December 31, 2002. Upon termination of the Axcelis Common Stock Fund, all Axcelis common stock held by the Plan shall be sold and invested in a money market fund or stable value fund. Distributions from the Axcelis Common Stock Fund shall be made in cash and cash and stock dividends on the Axcelis common stock shall be invested in a stable value fund and Axcelis Common Stock Fund, respectively. Axcelis common stock received by the Plan shall be credited under the Plan to the account related to the Eaton common shares with respect to which the Axcelis common stock was received as a dividend. Participants are not allowed to direct contributions or transfers to the Axcelis Common Stock Fund, but are permitted to direct the transfer of amounts in the Axcelis Common Stock Fund to other funds available under the Plan. As soon as practicable after January 1, 2001 and effective as of that date, the Plan shall transfer to a defined contribution plan established by Axcelis, the account balances of all Axcelis plan participants, as defined by the Plan and the Employee Matters Agreement entered into on June 30, 2000 by and between Eaton and Axcelis. At December 30, 2000 the account balances of Axcelis plan participants was approximately $83,600,000. 11 13 Eaton Corporation Share Purchase and Investment Plan EIN 34-0196300 Plan Number: 055 Schedule H, Line 4(i)--Schedule of Assets (Held at End of Year) December 30, 2000
DESCRIPTION OF INVESTMENT INCLUDING MATURITY DATE, IDENTITY OF ISSUE, BORROWER RATE OF INTEREST, COLLATERAL, CURRENT OR SIMILAR PARTY PAR OR MATURITY VALUE COST VALUE ----------------------------------------------------------------------------------------------------------------------- Corporate Debt Instruments: AT&T Corp. 6.50% due 9/15/02 $ 996,150 Allstate Corp. 7.874% due 5/01/05 106,108 Associates Corp. 6.00% due 12/01/02 4,989,750 Bank One Corp. 6.40% due 8/01/02 2,303,910 Bell Telephone Co. PA 6.625% due 9/15/02 653,140 Citigroup Inc. 6.75% due 12/01/05 631,954 Copelco Capital Funding Corp. 7.12% due 8/18/03 2,121,651 E.I. Dupont 6.50% due 9/01/02 2,014,800 Electronic Data Systems 6.85% due 10/15/04 254,228 Fingerhut Master Trust 6.23% due 2/15/07 5,049,000 Ford Motor Credit Corp. 6.125% due 4/28/03 3,973,880 General Electric 6.52% due 10/08/02 440,050 General Electric 5.50% due 11/01/01 1,994,815 General Electric 7.25% due 2/01/05 601,663 General Motors 5.75% due 11/10/03 735,090 Honeywell Int'l Inc. 6.875% due 10/03/05 1,341,548 Household Fin Corp. 6.70% due 6/15/02 100,399 Lehman Bros Holdings Inc. 6.625% due 4/01/04 238,517 Nationsbank Corp. 5.75% due 3/15/01 4,990,600 Norwest Financial Inc. 6.625% due 7/15/04 151,349 Salomon Inc. 6.75% due 2/15/03 1,212,965 Salomon Smith Barney 5.875% due 2/01/01 499,835 TCI Communications Inc. 6.375% due 5/01/03 492,850 Telefonica Europe BV 7.35% due 9/15/05 606,156 USAA Auto 6.00% due 5/15/04 390,702 Unileven Capital Corp. 6.75% due 11/01/03 5,091,300 WalMart Stores 6.55% due 8/10/04 1,327,547 Wells Fargo Co. 7.25% due 8/24/05 518,590 Wells Fargo Financial Inc. 7.00% due 11/01/05 513,555 ---------------------- 44,342,102
12 14 Eaton Corporation Share Purchase and Investment Plan Schedule H, Line 4(i)--Schedule of Assets (Held at End of Year) (continued)
DESCRIPTION OF INVESTMENT INCLUDING MATURITY DATE, IDENTITY OF ISSUE, BORROWER RATE OF INTEREST, COLLATERAL, CURRENT OR SIMILAR PARTY PAR OR MATURITY VALUE COST VALUE ------------------------------------------------------------------------------------------------------------------------ U.S. Government Securities: U.S. Treasury Notes 5.75% due 4/30/03 6,247,858 U.S. Treasury Notes 5.25% due 8/15/03 1,504,680 U.S. Treasury Notes 6.375% due 8/15/02 6,031,183 U.S. Treasury Notes 5.625% due 5/15/01 3,396,804 U.S. Treasury Notes 6% due 7/31/02 1,717,799 U.S. Treasury Notes 5.5% due 7/31/01 10,506,850 U.S. Treasury Notes 5.875% due 10/31/01 1,352,525 Federal Home Loan Banks 6.00% due 8/15/02 1,014,060 Federal Home Loan Banks 5.28% due 12/10/03 4,920,300 Federal Home Loan Banks 4.99% due 12/24/01 2,978,430 Federated Home Loan Banks 6.75% due 2/15/02 1,016,720 Federated Home Loan Banks 6.75% due 5/04/01 501,485 Fannie Mae 5.25% due 12/20/01 3,437,725 Fannie Mae 6.50% due 8/15/04 1,026,250 Fannie Mae 6.20% due 5/22/03 4,969,550 Fannie Mae 6.47% due 5/16/01 400,064 ---------------------- 51,022,283 Interest in Registered Investment Companies: Vanguard Windsor Fund 7,137,572 shares 109,133,471 Vanguard Wellesley Fund 1,336,352 shares 27,181,391 Fidelity Contra Fund 2,730,255 shares 134,246,639 Templeton Foreign Fund 3,229,518 shares 33,393,213 Vanguard Institutional Index Fund 897,459 shares 108,341,202 ---------------------- 412,295,916
13 15 Eaton Corporation Share Purchase and Investment Plan Schedule H, Line 4(i)--Schedule of Assets (Held at End of Year) (continued)
DESCRIPTION OF INVESTMENT INCLUDING MATURITY DATE, IDENTITY OF ISSUE, BORROWER RATE OF INTEREST, COLLATERAL, CURRENT OR SIMILAR PARTY PAR OR MATURITY VALUE COST VALUE --------------------------------------------------------------------------------------------------------------------------- Key Trust Company of Ohio, N.A.: Employee Benefits Money Market Fund* 40,988,452 units 40,988,452 40,988,452 Common Stock: Eaton Corporation* 8,520,188 shares 439,427,757 552,429,626 Participant notes receivable* 7-11%; variable maturities 29,751,642 -------------------- Total investments $ 1,130,830,021 ====================
*Indicates party-in-interest to the Plan. 14 16 Eaton Corporation Share Purchase and Investment Plan EIN 34-0196300 Plan Number 055 Schedule H, Line 4(j)--Schedule of Reportable Transactions Year Ended December 30, 2000
CURRENT VALUE OF ASSET ON IDENTITY OF PARTY DESCRIPTION PURCHASE TRANSACTION NET GAIN INVOLVED OF ASSETS PRICE SELLING PRICE COST OF ASSET DATE OR (LOSS) ----------------------------------------------------------------------------------------------------------------------------------- CATEGORY (iii)--SERIES OF TRANSACTIONS IN EXCESS OF 5% OF PLAN ASSETS Key Trust Company of Ohio, N.A.* Employee Benefits Money Market Fund $182,855,339 182,855,339 182,855,339 $187,924,934 187,924,934 187,924,934 $ - Eaton Corporation* Eaton Corporation 85,762,323 85,762,323 85,762,323 Common Stock 43,577,697 37,086,293 43,577,697 6,491,404
There were no category (i), (ii) or (iv) reportable transactions during the year ended December 30, 2000. * Indicates party-in-interest to the Plan. 15