11-K 1 l94967ae11vk.txt EATON CORPORATION - FORM 11-K 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, 2001 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, 2002 By: Eaton Corporation Pension Administration Committee By: /s/ S. J. Cook ----------------------- (Signature) S. J. Cook Vice President-Human Resources Eaton Corporation AUDITED FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES Eaton Corporation Share Purchase and Investment Plan December 30, 2001 and 2000 and Year ended December 30, 2001 Eaton Corporation Share Purchase and Investment Plan Audited Financial Statements and Supplemental Schedules December 30, 2001 and 2000 and Year ended December 30, 2001 CONTENTS Report of Independent Auditors................................................1 Audited Financial Statements Statements of Net Assets Available for Benefits...............................2 Statement of Changes in Net Assets Available for Benefits.....................3 Notes to Financial Statements.................................................4 Supplemental Schedules Schedule H, Line 4(i)--Schedule of Assets (Held at End of Year)...............12 Schedule H, Line 4(j)--Schedule of Reportable Transactions....................15 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, 2001 and 2000, and the related statement of changes in net assets available for benefits for the year ended December 30, 2001. 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, 2001 and 2000 and the changes in its net assets available for benefits for the year ended December 30, 2001, 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 at end of year) as of December 30, 2001, 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. /s/ Ernst & Young LLP Cleveland, Ohio June 13, 2002 1 Eaton Corporation Share Purchase and Investment Plan Statements of Net Assets Available for Benefits
DECEMBER 30 2001 2000 --------------------------------- ASSETS Investments, at fair value Common stock $ 598,534,120 $ 552,429,626 Mutual funds 361,093,690 412,295,916 U.S. Government securities 61,982,374 51,022,283 Corporate debt instruments 51,296,419 44,342,102 Participant notes receivable 29,910,808 29,751,642 Money market fund 71,468,687 40,988,452 --------------------------------- Total investments 1,174,286,098 1,130,830,021 Receivables: Interest and dividends 1,763,766 15,972,958 Accrued sales of investments 179,375 21,110 Stock dividend -- 89,153,788 --------------------------------- Total receivables 1,943,141 105,147,856 --------------------------------- Total assets 1,176,229,239 1,235,977,877 LIABILITIES Accrued purchases of investments 501,411 14,467,844 Other payables -- 26,427 --------------------------------- Total liabilities 501,411 14,494,271 --------------------------------- Net assets available for benefits $1,175,727,828 $1,221,483,606 =================================
See notes to financial statements. 2 Eaton Corporation Share Purchase and Investment Plan Statement of Changes in Net Assets Available for Benefits Year ended December 30, 2001 ADDITIONS Investment income: Dividends $ 17,849,332 Interest 11,692,952 --------------- 29,542,284 Contributions: Participants 63,458,114 Employer 12,498,134 Rollover 3,289,321 --------------- 79,245,569 Net appreciation in fair value of investments 89,173,993 --------------- 197,961,846 DEDUCTIONS Distributions to participants 172,462,768 Transfers out 71,254,856 --------------- Total deductions 243,717,624 --------------- Net decrease (45,755,778) Net assets available for benefits at beginning of year 1,221,483,606 --------------- Net assets available for benefits at end of year $ 1,175,727,828 ===============
See notes to financial statements. 3 Eaton Corporation Share Purchase and Investment Plan Notes to Financial Statements December 30, 2001 and 2000 and Year ended December 30, 2001 1. SIGNIFICANT ACCOUNTING POLICIES BASIS OF ACCOUNTING The financial statements of the Eaton Corporation Share Purchase and Investment Plan (the Plan) are prepared under the accrual method of accounting. INVESTMENT VALUATION AND INCOME RECOGNITION Investments are stated at fair value as measured by quoted prices in active markets, except for the corporate and debt securities, which are valued at market values as determined by the Trustee, based on the mean of the most recent bid and ask price and other market information available. Participant notes receivable are valued at their outstanding balances, which approximate fair value. At December 30, 2000, the Eaton Corporation Common Shares were valued at the ex-dividend price to reflect the spin-off and stock dividend related to Axcelis Technologies Inc. (See Note 8). Purchases and sales of securities are recorded on a trade-date basis. Dividends are recorded on the ex-dividend date. The cost of shares sold for the mutual funds and the common shares is based upon the average cost of each participant's shares sold for purposes of determining realized gains and losses. ESTIMATES 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. 2. DESCRIPTION OF PLAN Effective December 30, 2001, the Plan year-end was changed to December 31. Effective January 1, 2002, the Plan was amended and restated. In conjunction with the amendment and restatement, the Plan was renamed The Eaton Savings Plan. 4 Eaton Corporation Share Purchase and Investment Plan Notes to Financial Statements (continued) 2. DESCRIPTION OF PLAN (CONTINUED) 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. 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 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 lesser 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. 5 Eaton Corporation Share Purchase and Investment Plan Notes to Financial Statements (continued) 2. DESCRIPTION OF PLAN (CONTINUED) 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. 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. 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. 3. CONTRIBUTIONS Company matching contributions during 2001 were made at $.25 per dollar of regular employee contribution. 4. INVESTMENTS Key Trust Company of Ohio, N.A., the Trustee of the Plan, holds the Plan's investment assets and executes investment transactions. 6 Eaton Corporation Share Purchase and Investment Plan Notes to Financial Statements (continued) 4. INVESTMENTS (CONTINUED) 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 2001 2000 --------------------------------------------- Fidelity Contra Fund $ 92,222,784 $ 134,246,639 Vanguard Windsor Fund 117,948,948 109,133,471 Vanguard Institutional Index Fund 82,299,090 108,341,202 Eaton Common Shares* 510,562,890 552,429,626 Axcelis Common Shares 87,971,230 Key Trust EB Money Market Fund* 71,468,687
* Includes nonparticipant-directed contributions During 2001, the Plan's investments (including investments bought, sold, and held during the year) appreciated (depreciated) in fair value as follows: Common stock $ 112,429,371 Mutual funds (25,912,683) U.S. Government securities 1,126,466 Corporate debt instruments 1,530,839 ---------------------- $ 89,173,993 ======================
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. 7 Eaton Corporation Share Purchase and Investment Plan Notes to Financial Statements (continued) 4. INVESTMENTS (CONTINUED) 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 2001 2000 ------------------------------------------- Net assets: Eaton Corporation common shares $ 510,562,890 $ 552,429,626 Key Trust EB Money Market Fund 7,039,337 2,272 Accrued sales of investments 106,385 21,110 Interest and dividends receivable 11,359 - Stock dividend receivable - 89,153,788 ------------------------------------------- $ 517,719,971 $ 641,606,796 ===========================================
YEAR ENDED DECEMBER 30, 2001 ---------------------- Changes in net assets: Participant contributions $ 32,726,639 Employer contributions 12,498,134 Interest and dividends 10,974,910 Net appreciation in fair value of investments 75,284,722 Distributions to participants (65,144,730) Transfer to another plan (33,412,714) Net transfers to participant directed funds (156,813,786) ---------------------- $ (123,886,825) ======================
8 Eaton Corporation Share Purchase and Investment Plan Notes to Financial Statements (continued) 5. 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 2001 2000 ----------------------------------------------- Net assets available for benefits per the financial statements $ 1,175,727,828 $ 1,221,483,606 Amounts allocated to withdrawing participants (1,945,706) (822,526) ----------------------------------------------- Net assets available for benefits per Form 5500 $ 1,173,782,122 $ 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, 2001 ----------------------- Benefits paid to participants per the financial statements $ 172,462,768 Add: Amounts allocated to withdrawing participants at December 30, 2001 1,945,706 Deduct: Amounts allocated to withdrawing participants at December 30, 2000 (822,526) ----------------------- Benefits paid to participants per Form 5500 $ 173,585,948 =======================
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 Eaton Corporation Share Purchase and Investment Plan Notes to Financial Statements (continued) 6. 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 (the Code) and, therefore, the related trust is exempt from taxation. Subsequent to the issuance of the determination letter, the Plan was amended. Once qualified, the Plan is required to operate in conformity with the Code to maintain its qualification. The Plan Sponsor has indicated that it will take necessary steps, if any, to maintain the Plan's qualified status. 7. TRANSFERS TO/FROM OTHER PLANS During 2001, net assets totaling $63,531,151, representing Plan assets associated with participants who were employed with Eaton Corporation's Semi-Conductor Division, were transferred from the Plan in conjunction with the spin-off of Axcelis Technologies, Inc. (See Note 8). Also during 2001, net assets totaling $7,675,310, representing Plan assets associated with participants were employed with Eaton Corporation's Vehicle Switch/Electronic Division, were transferred in conjunction with the sale of the division to Delphi Automotive Corporation. An additional $48,395 in net assets was transferred from the Plan during 2001 in conjunction with the sales of various other divisions. 8. TRANSACTIONS WITH PARTIES-IN-INTEREST Party-in-interest transactions included the investments in the common stock of Eaton, the investment in the investment funds of the trustee and the payment of administrative expenses by the Company. Such transactions are exempt from being prohibited transactions. During 2001, the Plan received $12,754,675 in cash dividends on common stock of the Company. On June 30, 2000, Eaton reorganized its semiconductor equipment operations 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. 10 Eaton Corporation Share Purchase and Investment Plan Notes to Financial Statements (continued) 8. TRANSACTIONS WITH PARTIES-IN-INTEREST (CONTINUED) 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. The Plan has established 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. 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 participant's 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. 11 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, 2001
DESCRIPTION OF INVESTMENT INCLUDING MATURITY DATE, IDENTITY OF ISSUE, BORROWER, RATE OF INTEREST, COLLATERAL, CURRENT LESSOR OR SIMILAR PARTY PAR OR MATURITY VALUE COST VALUE ------------------------------------------------------------------------------------------------------------------- Corporate Debt Instruments: AT&T Corp. 6.50% due 9/15/02 $ 1,022,594 Allstate Corp. 7.875% due 5/01/05 107,874 Allstate Corp. 5.375% due 12/01/06 999,568 Associates Corp. 6.00% due 12/01/02 4,115,183 Bank One Corp. 6.5% due 2/01/06 2,387,879 Bell Telephone Co. PA 6.625% due 9/15/02 667,270 Bristol-Myers Squibb Co. 4.750% due 10/01/06 2,716,386 CIT Equipment Collateral 4.840% due 9/20/12 2,102,625 Caterpillar Financial Asset 4.850% due 04/25/07 3,056,250 Citibank Credit Card Master 5.500% due 02/15/06 501,237 DVI Receivables Corp. 5.137% due 11/11/04 3,071,250 DVI Receivables Corp. 4.613% due 11/11/09 2,163,563 John Deere B V 5.875% due 04/06/06 2,526,324 E.I. Dupont 6.5% due 09/01/02 2,060,747 Electronic Data Systems 6.850% due 10/15/04 258,957 General Electric 6.520% due 10/08/02 447,631 General Electric 7.25% due 02/01/05 617,366 Honda Auto Receivables Owner TR 5.560% due 06/19/06 2,066,036 Household Fin Corp. 6.70% due 6/15/02 101,896 Household Fin Corp. 6.50% due 1/24/06 1,023,460 IBM Corp. 4.875% due 10/10/06 1,485,748 Lehman Bros Holdings Inc. 6.625% due 4/01/04 251,169 Merrill Lynch & Co. Inc. 5.35% due 6/15/04 3,802,185 Morgan Stanley Dean Witter 6.10% due 4/15/06 3,077,791 National Rural Utils Coop Fin 5.25% due 7/15/04 2,036,464 Norwest Financial Inc. 6.625% due 7/15/04 158,727 TCI Communications Inc. 6.375% due 5/01/03 511,819 Telefonica Europe BV 7.35% due 9/15/05 630,680 Unilever Capital Corp. 6.75% due 11/01/03 4,228,630 Wells Fargo Co. 7.25% due 8/24/05 535,770 Wells Fargo Financial Inc. 7.00% due 11/01/05 530,275 Wisconsin Energy Corp. 5.875% due 4/01/06 2,033,065 --------------- 51,296,419
12 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) (continued)
DESCRIPTION OF INVESTMENT INCLUDING MATURITY DATE, IDENTITY OF ISSUE, BORROWER, RATE OF INTEREST, COLLATERAL, CURRENT LESSOR OR SIMILAR PARTY PAR OR MATURITY VALUE COST VALUE ------------------------------------------------------------------------------------------------------------------- U.S. Government Securities: U.S. Treasury Notes 6.00% due 7/31/02 1,742,074 U.S. Treasury Notes 5.75% due 4/30/03 6,432,661 U.S. Treasury Notes 5.25% due 8/15/03 6,232,400 U.S. Treasury Notes 4.625% due 5/15/06 1,312,566 Federal Home Loan Banks 6.75% due 2/15/02 1,005,331 Federal Home Loan Banks 4.75% due 6/28/04 5,088,707 Federal Home Loan Banks 2.50% due 11/14/03 4,424,334 Federal Home Loan Banks 3.625% due 10/15/04 9,843,243 Fannie Mae 5.125% due 2/13/04 7,970,124 Fannie Mae 6.50% due 8/15/04 1,060,960 Fannie Mae 5.75% due 3/27/06 251,814 Fannie Mae 5.50% due 5/02/06 3,058,236 Fannie Mae 3.375% due 11/22/04 5,478,905 Freddie MAC 5.70% due 7/26/06 1,009,033 Freddie MAC 4.15% due 9/04/03 2,011,016 Freddie MAC 2.50% due 12/27/02 4,504,016 Freddie MAC 5.25% due 1/15/06 50,927 Freddie MAC 4.50% due 8/15/04 506,027 ------------------ 61,982,374 Interest in Registered Investment Companies: Vanguard Windsor Fund 7,484,070 shares 117,948,948 Vanguard Wellesley Fund 2,168,052 shares 43,100,864 Fidelity Contra Fund 2,145,215 shares 92,222,784 Templeton Foreign Fund 2,771,119 shares 25,522,004 Vanguard Institutional Index Fund 775,894 shares 82,299,090 ------------------ 361,093,690
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) (continued)
DESCRIPTION OF INVESTMENT INCLUDING MATURITY DATE, IDENTITY OF ISSUE, BORROWER, RATE OF INTEREST, COLLATERAL, CURRENT LESSOR OR SIMILAR PARTY PAR OR MATURITY VALUE COST VALUE ------------------------------------------------------------------------------------------------------------------- Key Trust Company of Ohio, N.A. Employee Benefits Money Market Fund* 71,468,687 shares 71,468,687 71,468,687 Common Stock: Eaton Corporation* 6,808,413 shares 328,654,947 510,562,890 Axcelis Stock 6,715,361 shares 87,971,230 ------------------ 598,534,120 Participant notes receivable* 6-11%; variable maturities 29,910,808 ------------------ Total investments $ 1,174,286,098 ==================
*Indicates party-in-interest to the Plan. 14 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, 2001
CURRENT VALUE OF ASSET ON IDENTITY OF PARTY DESCRIPTION PURCHASE SELLING COST OF TRANSACTION NET GAIN INVOLVED OF ASSETS PRICE PRICE 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 $122,977,897 $122,977,897 $ 122,977,897 Fund $115,967,720 115,967,720 115,967,720 $ - Eaton Corporation* Eaton Corporation 61,216,275 61,216,275 61,216,275 Common Stock 126,408,426 82,558,332 126,408,426 43,850,094
* Indicates party-in-interest to the Plan. There were no category (i), (ii) or (iv) reportable transactions during the year ended December 30, 2001. 15 EXHIBIT INDEX Exhibit Number Description of Exhibit 23 Consent of Ernst & Young LLP.