-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, J7jP92GgBOjFQflmd+V3CeCx3tGuHruk8vyxAwis3LPUwQ1K8YTvu5FKU69y3P0k D5Cv0bNyDxIxwKU+a+fpeA== 0000950152-99-005642.txt : 19990630 0000950152-99-005642.hdr.sgml : 19990630 ACCESSION NUMBER: 0000950152-99-005642 CONFORMED SUBMISSION TYPE: 11-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981230 FILED AS OF DATE: 19990629 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EATON CORP CENTRAL INDEX KEY: 0000031277 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC & OTHER ELECTRICAL EQUIPMENT (NO COMPUTER EQUIP) [3600] IRS NUMBER: 340196300 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 11-K SEC ACT: SEC FILE NUMBER: 033-12842 FILM NUMBER: 99654451 BUSINESS ADDRESS: STREET 1: EATON CTR STREET 2: 1111 SUPERIOR AVE CITY: CLEVELAND STATE: OH ZIP: 44114-2584 BUSINESS PHONE: 2165235000 MAIL ADDRESS: STREET 1: 1111 SUPERIOR AVENUE CITY: CLEVELAND STATE: OH ZIP: 44114 FORMER COMPANY: FORMER CONFORMED NAME: EATON YALE & TOWNE INC DATE OF NAME CHANGE: 19710822 11-K 1 EATON CORP/SHARE PURCHASE & INVESTMENT 11-K 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, 1998 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 Exhibit The following exhibit is filed herewith: Exhibit No. (23) Consent of Independent Auditors 17 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 2 Date: June 28, 1999 By: Eaton Corporation Pension Administration Committee By: /s/ S. J. Cook ------------------------ (Signature) S. J. Cook Vice President-Human Resources Eaton Corporation 3 Audited Financial Statements and Supplemental Schedules EATON CORPORATION SHARE PURCHASE AND INVESTMENT PLAN December 30, 1998 and 1997 4 Report of Independent Auditors Corporate Compensation 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, 1998 and 1997, and the related statement of changes in net assets available for benefits for the year ended December 30, 1998. 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 generally accepted auditing standards. 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, 1998 and 1997, and the changes in its net assets available for benefits for the year ended December 30, 1998, in conformity with generally accepted accounting principles. 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 as of December 30, 1998 and reportable transactions for the year then ended, are presented for purpose 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 Fund Information in the statements of net assets available for benefits and the statement of changes in net assets available for benefits is presented for purposes of additional analysis rather than to present the net assets available for benefits and the changes in net assets available for benefits of each fund. The supplemental schedules and Fund Information 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 11, 1999 1 5 Eaton Corporation Share Purchase and Investment Plan Statement of Net Assets Available for Benefits, with Fund Information December 30, 1998
EB Money Fidelity Vanguard Vanguard Templeton Fixed Income Market Contra Wellesley Windsor Foreign Fund Fund Fund Fund Fund Fund --------------------------------------------------------------------------------------------- ASSETS Investments: At fair value: Eaton Corporation Common Shares Mutual funds $ 97,255,100 $ 36,721,498 $ 129,109,418 $ 21,538,856 Government securities $ 53,871,768 Corporate debt instruments 84,241,102 Participant notes receivable Short-term investments 4,191,222 $ 16,628,639 At contract value: Guaranteed investment contracts --------------------------------------------------------------------------------------------- Total investments 142,304,092 16,628,639 97,255,100 36,721,498 129,109,418 21,538,856 Receivables: Interest and dividends receivable 1,353,608 75,170 Accrued sales of investments 161,046 --------------------------------------------------------------------------------------------- Total receivables 1,353,608 75,170 161,046 --------------------------------------------------------------------------------------------- Total assets 143,657,700 16,703,809 97,255,100 36,721,498 129,270,464 21,538,856 LIABILITIES Accrued purchases of investments 357,367 204,126 17,899 Notes payable Other payables --------------------------------------------------------------------------------------------- Total liabilities 357,367 204,126 17,899 --------------------------------------------------------------------------------------------- NET ASSETS AVAILABLE FOR BENEFITS $ 143,657,700 $ 16,703,809 $ 96,897,733 $ 36,517,372 $ 129,270,464 $ 21,520,957 =============================================================================================
Eaton Common Shares Fund Vanguard Oppenheimer ----------------------------- Life of Institutional Value Equity Participant Non-Participant Loan Virginia 1998 Index Fund Fund Directed Directed Fund GIC Fund --------------------------------------------------------------------------------------------- ASSETS Investments: At fair value: Eaton Corporation Common Shares $ 229,523,287 $ 345,494,106 Mutual funds $ 82,934,661 $ 4,128,021 Government securities Corporate debt instruments Participant notes receivable $ 25,448,042 Short-term investments 2,058,118 7,332,294 At contract value: Guaranteed investment contracts $ 1,142,123 --------------------------------------------------------------------------------------------- Total investments 82,934,661 4,128,021 231,581,405 352,826,400 25,448,042 1,142,123 Receivables: Interest and dividends receivable 8,941 21,657 1,363 7,268 Accrued sales of investments 258,068 426,487 --------------------------------------------------------------------------------------------- Total receivables 267,009 448,144 1,363 7,268 --------------------------------------------------------------------------------------------- Total assets 82,934,661 4,128,021 231,848,414 353,274,544 25,449,405 1,149,391 LIABILITIES Accrued purchases of investments 526,682 84,300 66,131 Notes payable 9,556,621 Other payables 24,950 6,306 --------------------------------------------------------------------------------------------- Total liabilities 526,682 84,300 66,131 9,556,621 24,950 6,306 --------------------------------------------------------------------------------------------- NET ASSETS AVAILABLE FOR BENEFITS $ 82,407,979 $ 4,043,721 $ 231,782,283 $ 343,717,923 $ 25,424,455 $ 1,143,085 =============================================================================================
New York Life 1999 GIC Fund Total ---------------------------- ASSETS Investments: At fair value: Eaton Corporation Common Shares $ 575,017,393 Mutual funds 371,687,554 Government securities 53,871,768 Corporate debt instruments 84,241,102 Participant notes receivable 25,448,042 Short-term investments $ 19,362 30,229,635 At contract value: Guaranteed investment contracts 601,301 1,743,424 ---------------------------- Total investments 620,663 1,142,238,918 Receivables: Interest and dividends receivable 2,906 1,470,913 Accrued sales of investments 845,601 ---------------------------- Total receivables 2,906 2,316,514 ---------------------------- Total assets 623,569 1,144,555,432 LIABILITIES Accrued purchases of investments 1,256,505 Notes payable 9,556,621 Other payables 31,256 ---------------------------- Total liabilities 10,844,382 ---------------------------- NET ASSETS AVAILABLE FOR BENEFITS $ 623,569 $1,133,711,050 ============================
See notes to financial statements. 6 Eaton Corporation Share Purchase and Investment Plan Statement of Net Assets Available for Benefits, with Fund Information December 30, 1997
EB Money Fidelity Vanguard Vanguard Templeton Fixed Income Market Contra Wellesley Windsor Foreign Fund Fund Fund Fund Fund Fund -------------------------------------------------------------------------------------------- ASSETS Investments: At fair value: Eaton Corporation Common Shares Mutual funds $ 71,706,167 $ 28,135,378 $ 155,848,084 $ 30,359,256 Government securities $ 62,948,560 Corporate debt instruments 75,298,231 Participant notes receivable Short-term investments 14,892,646 $ 15,481,400 2,818 1,121 6,151 1,207 At contract value: Guaranteed investment contracts -------------------------------------------------------------------------------------------- Total investments 153,139,437 15,481,400 71,708,985 28,136,499 155,854,235 30,360,463 Receivables: Interest and dividends receivable 1,863,276 18,006 6,053,287 1,988,692 94,626 15,797 Other (payables) receivables (138,990) -------------------------------------------------------------------------------------------- Total receivables 1,724,286 18,006 6,053,287 1,988,692 94,626 15,797 -------------------------------------------------------------------------------------------- Total assets 154,863,723 15,499,406 77,762,272 30,125,191 155,948,861 30,376,260 LIABILITIES Accrued purchases of investments 18,625 6,056,104 1,989,813 100,777 17,004 Notes payable Total liabilities 18,625 6,056,104 1,989,813 100,777 17,004 NET ASSETS AVAILABLE FOR BENEFITS $ 154,863,723 $ 15,480,781 $ 71,706,168 $ 28,135,378 $ 155,848,084 $ 30,359,256 ============================================================================================
Eaton Common Shares Fund Victory ----------------------------- Life of Life of Stock Index Participant Non-Participant Loan Virginia 1997 Virginia 1998 Fund Directed Directed Fund GIC Fund GIC Fund -------------------------------------------------------------------------------------------- ASSETS Investments: At fair value: Eaton Corporation Common Shares $ 270,551,738 $ 495,807,903 Mutual funds $ 51,810,811 Government securities Corporate debt instruments Participant notes receivable $ 20,119,485 Short-term investments 2,030 293,374 7,956,000 14,696 $ 11,794 $ 36,136 At contract value: Guaranteed investment contracts 649,233 1,371,892 -------------------------------------------------------------------------------------------- Total investments 51,812,841 270,845,112 503,763,903 20,134,181 661,027 1,408,028 Receivables: Interest and dividends receivable 98,675 4,081 17,081 72 179 Other (payables) receivables 1,994 59,178 (13,504) (1,100) (868) -------------------------------------------------------------------------------------------- Total receivables 98,675 6,075 76,259 (13,504) (1,028) (689) -------------------------------------------------------------------------------------------- Total assets 51,911,516 270,851,187 503,840,162 20,120,677 659,999 1,407,339 LIABILITIES Accrued purchases of investments 100,705 Notes payable 23,509,170 Total liabilities 100,705 23,509,170 NET ASSETS AVAILABLE FOR BENEFITS $ 51,810,811 $ 270,851,187 $ 480,330,992 $ 20,120,677 $ 659,999 $ 1,407,339 ============================================================================================
New York Life 1999 GIC Fund Total --------------------------- ASSETS Investments: At fair value: Eaton Corporation Common Shares $ 766,359,641 Mutual funds 337,859,696 Government securities 62,948,560 Corporate debt instruments 75,298,231 Participant notes receivable 20,119,485 Short-term investments $ 9,329 38,708,702 At contract value: Guaranteed investment contracts 714,561 2,735,686 ---------------------------- Total investments 723,890 1,304,030,001 Receivables: Interest and dividends receivable 70 10,153,842 Other (payables) receivables (371) (93,661) ---------------------------- Total receivables (301) 10,060,181 ---------------------------- Total assets 723,589 1,314,090,182 LIABILITIES Accrued purchases of investments 8,283,028 Notes payable 23,509,170 Total liabilities 31,792,198 NET ASSETS AVAILABLE FOR BENEFITS $ 723,589 $ 1,282,297,984 ============================
See notes to financial statements. 7 Eaton Corporation Share Purchase and Investment Plan Statement of Changes in Net Assets Available for Benefits, with Fund Information Year Ended December 30, 1998
EB Money Fidelity Vanguard Vanguard Templeton Fixed Income Market Contra Wellesley Windsor Foreign Fund Fund Fund Fund Fund Fund ---------------------------------------------------------------------------------------------------- Additions to net assets attributed to: Investment income: Net realized and unrealized appreciation (depreciation) in fair value of investments $ 1,194,357 $ 262,466 $ 22,433,944 $ 2,094,606 $ (1,093,474) $(1,838,878) Dividends--shares allocated to participants 1,596,342 2,028,829 610,452 Dividends--unallocated shares Interest 8,415,511 557,743 37,608 4,027 22,324 4,307 ---------------------------------------------------------------------------------------------------- 9,609,868 820,209 22,471,552 3,694,975 957,679 (1,224,119) Contributions: Employer contributions-- allocated to participants Employee contributions 8,098,835 491,087 6,548,121 2,591,360 8,232,388 2,142,032 Rollover contributions 853,853 227,313 1,204,758 911,042 1,121,869 365,758 ---------------------------------------------------------------------------------------------------- Total additions 18,562,556 1,538,609 30,224,431 7,197,377 10,311,936 1,283,671 ---------------------------------------------------------------------------------------------------- Deductions from net assets attributed to: Distributions to participants 24,431,603 5,050,583 6,750,437 3,479,110 14,684,573 2,060,317 Interest expense ---------------------------------------------------------------------------------------------------- Total deductions 24,431,603 5,050,583 6,750,437 3,479,110 14,684,573 2,060,317 ---------------------------------------------------------------------------------------------------- Net (decrease) increase prior to transfers (5,869,047) (3,511,974) 23,473,994 3,718,267 (4,372,637) (776,646) Net interfund transfers (2,651,974) 4,530,381 (233,397) 4,298,345 (19,100,452) (7,612,825) Transfer from other plans 940,572 587,347 3,078,845 946,394 951,296 Transfer to other plan (3,625,574) (382,726) (1,127,877) (581,012) (4,055,827) (448,828) ---------------------------------------------------------------------------------------------------- Net (decrease) increase (11,206,023) 1,223,028 25,191,565 8,381,994 (26,577,620) (8,838,299) Net assets available for benefits at beginning of year 154,863,723 15,480,781 71,706,168 28,135,378 155,848,084 30,359,256 ---------------------------------------------------------------------------------------------------- NET ASSETS AVAILABLE FOR BENEFITS AT END OF YEAR $ 143,657,700 $ 16,703,809 $ 96,897,733 $36,517,372 $ 129,270,464 $21,520,957 ====================================================================================================
Eaton Common Shares Fund Victory Vanguard Oppenheimer ------------------------------ Stock Index Institutional Value Equity Participant Non-Participant Loan Fund Index Fund Fund Directed Directed Fund ------------------------------------------------------------------------------------------- Additions to net assets attributed to: Investment income: Net realized and unrealized appreciation (depreciation) in fair value of investments$ 7,725,158 $ 7,799,833 $ 18,088 $ (50,682,579) $ (93,206,076) Dividends--shares allocated to participants 206,504 762,502 5,401,223 8,234,710 Dividends--unallocated shares 862,328 Interest 107,543 150,101 160,619 $ 2,050,006 --------------------------------------------------------------------------------------------- 8,039,205 8,562,335 18,088 (45,131,255) (83,948,419) 2,050,006 Contributions: Employer contributions-- allocated to participants 8,824,353 Employee contributions 965,536 2,722,274 218,671 34,182,735 Rollover contributions 517,469 845,708 228,422 1,895,854 --------------------------------------------------------------------------------------------- Total additions 9,522,210 12,130,317 465,181 (9,052,666) (75,124,066) 2,050,006 --------------------------------------------------------------------------------------------- Deductions from net assets attributed to: Distributions to participants 1,584,196 4,102,960 71,055 28,249,486 56,522,009 1,641,717 Interest expense 1,325,259 --------------------------------------------------------------------------------------------- Total deductions 1,584,196 4,102,960 71,055 28,249,486 57,847,268 1,641,717 --------------------------------------------------------------------------------------------- Net (decrease) increase prior to transfers 7,938,014 8,027,357 394,126 (37,302,152) (132,971,334) 408,289 Net interfund transfers (58,664,014) 72,762,581 3,649,595 2,858,223 (3,641,735) 4,895,489 Transfer from other plans 1,618,041 Transfer to other plan (1,084,811) (4,624,975) --------------------------------------------------------------------------------------------- Net (decrease) increase (51,810,811) 82,407,979 4,043,721 (39,068,904) (136,613,069) 5,303,778 Net assets available for benefits at beginning of year 51,810,811 270,851,187 480,330,992 20,120,677 --------------------------------------------------------------------------------------------- NET ASSETS AVAILABLE FOR BENEFITS AT END OF YEAR $ 0 $82,407,979 $ 4,043,721 $ 231,782,283 $ 343,717,923 $ 25,424,455 =============================================================================================
Life of Life of New York Virginia 1997 Virginia 1998 Life 1999 GIC Fund GIC Fund GIC Fund Total --------------------------------------------------------- Additions to net assets attributed to: Investment income: Net realized and unrealized appreciation (depreciation) in fair value of investments$ $ (105,292,555) Dividends--shares allocated to participants 18,840,562 Dividends--unallocated shares 862,328 Interest $ 5,662 $ 118,751 $ 45,516 11,679,718 ---------------------------------------------------------- 5,662 118,751 45,516 (73,909,947) Contributions: Employer contributions-- allocated to participants 8,824,353 Employee contributions 66,193,039 Rollover contributions 8,172,046 ---------------------------------------------------------- Total additions 5,662 118,751 45,516 9,279,491 ---------------------------------------------------------- Deductions from net assets attributed to: Distributions to participants 58,516 30,671 148,717,233 Interest expense 1,325,259 ---------------------------------------------------------- Total deductions 58,516 30,671 150,042,492 ---------------------------------------------------------- Net (decrease) increase prior to transfers 5,662 60,235 14,845 (140,763,001) Net interfund transfers (665,661) (311,455) (113,101) 0 Transfer from other plans 8,122,495 Transfer to other plan (13,034) (1,764) (15,946,428) ---------------------------------------------------------- Net (decrease) increase (659,999) (264,254) (100,020) (148,586,934) Net assets available for benefits at beginning of year 659,999 1,407,339 723,589 1,282,297,984 ---------------------------------------------------------- NET ASSETS AVAILABLE FOR BENEFITS AT END OF YEAR $ 0 $ 1,143,085 $ 623,569 $ 1,133,711,050 ==========================================================
See notes to financial statements. 8 Eaton Corporation Share Purchase and Investment Plan Notes to Financial Statements December 30, 1998 and 1997 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. 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 generally accepted accounting principles 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. 5 9 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 are 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 cent 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 5 cents for certain highly compensated employees. The Plan document requires that quarterly Company contributions and dividend payments allocated to employees' accounts must equal or exceed the quarterly principal payments on the notes payable (see Note E). In the event that the quarterly principal payments exceed the allocated Company matching contributions plus dividends for the quarter, a supplemental contribution equal to the difference (none in 1998 and 1997) is required to be allocated to the participants' accounts. The allocation is based upon the percentage of each employee's quarterly contribution in relation to total quarterly employee contributions. Each participant's account is credited with an allocation of the Plan's earnings based on participant account balances, as defined. 6 10 Eaton Corporation Share Purchase and Investment Plan Notes to Financial Statements--Continued B. DESCRIPTION OF PLAN--CONTINUED Eligible employees may borrow from their fund 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. Loan transactions are treated as a transfer from (to) the investment fund and the loan fund. 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. All Company matching contributions are invested in the Eaton Common Shares Fund. Employee contributions may be invested in the Eaton Common Shares Fund, the Fixed Income Fund, the various Guaranteed Investment Contract Funds, the Stable Value Fund, the Mutual Funds (all as described in Note D), or a combination of the funds. 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. 7 11 Eaton Corporation Share Purchase and Investment Plan Notes to Financial Statements--Continued C. CONTRIBUTIONS Company matching contributions were made at the following rates per dollar of regular employee contribution:
Period Rate ----------------------------------- ------- 1 month ended December 30, 1998 .25 3 months ended November 30, 1998 .71 3 months ended August 31, 1998 .49 3 months ended May 31, 1998 1.00 2 months ended February 28, 1998 1.00
D. INVESTMENT PROGRAMS 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 1998 1997 ----------------------------- Fidelity Contra Fund $ 97,255,100 $ 71,706,167 Vanguard Windsor Fund 129,109,418 155,848,084 Vanguard Institutional Index Fund 82,934,661 Eaton Common Shares 575,017,393 766,359,641
The assets in the Fixed Income Fund are invested principally in U.S. Government securities and corporate debt instruments. 8 12 Eaton Corporation Share Purchase and Investment Plan Notes to Financial Statements--Continued D. INVESTMENT PROGRAMS--CONTINUED The assets in the EB Money Market Fund are invested in the Employee Benefits Money Market Fund, which is sponsored by Key Trust Company and invests primarily in high-grade money market instruments. The assets in Mutual Funds may be invested in the following funds:
Fund Description Sponsor - --------------------------------------------------------------------------------------------- Fidelity Contra Fund Aggressive Growth Fund Fidelity Investment Co. Vanguard Wellesley Fund Balanced Fund Vanguard Group Vanguard Windsor Fund Diversified Equity Fund Vanguard Group Templeton Foreign Fund International Fund Templeton Investment Co. Victory Stock Index Fund S&P 500 Index Victory Broker Dealer Services Vanguard Institutional Index Fund S&P 500 Index Vanguard Group Oppenheimer Value Equity Fund Large Cap Stock Fund Oppenheimer Funds
Effective May 1, 1998, the Vanguard Institutional Index Fund was added as an investment election and replaced the Victory Stock Index Fund. All assets of the Victory Stock Index Fund were transferred to the Vanguard Institutional Index Fund. Effective June 1, 1998, the Oppenheimer Value Equity Fund was added as an investment election. The assets of the Eaton Common Shares Fund are invested principally in Eaton Common Shares, which can be purchased in the open market, from Eaton, or from private sources at Eaton's discretion. Effective May 1, 1998, the plan began assigning units of the Eaton Common Shares Fund to its participants. At December 30, 1998 participants owned 7,865,622 units at $71.73 per unit. Participants may reallocate their accumulated contributions daily among the various funds consistent with the ratios specified in the Plan. 9 13 Eaton Corporation Share Purchase and Investment Plan Notes to Financial Statements--Continued D. INVESTMENT PROGRAMS--CONTINUED During 1998, the Plan's investments (including investments bought, sold, and held during the year) appreciated (depreciated) in fair value as follows:
Eaton Common Shares $ (143,888,655) Mutual funds 37,139,277 Money Market funds 262,466 Government Securities 682,929 Corporate Debt Instruments 511,428 --------------- $ (105,292,555) ===============
E. EMPLOYEE STOCK OWNERSHIP PLAN (ESOP) An Employee Stock Ownership Plan (ESOP), established to prefund a portion of anticipated Company contributions to the Plan, is contained within the Eaton Common Shares Fund. The ESOP was funded by proceeds from bank notes. The Plan is obligated to pay all principal and interest on the notes and all other monetary obligations using Company contributions made to the Plan for that purpose and dividends on the unallocated Eaton Common Shares acquired with the bank note proceeds. The ESOP notes payable to banks and insurance companies bear interest at a fixed rate of 7.2% as to $2.3 million of notes payable, a fixed interest rate of 7.7% per annum as to $5 million of notes payable, and a floating rate (4.3% at December 30, 1998) based on LIBOR as to $2.2 million of notes payable. The Plan entered into interest rate swaps that effectively convert the $5 million of notes payable to a combination of new fixed rates (.6% for $3.0 million and 7.1% for $1.4 million) and a floating rate (5.4% for $.6 million) based on LIBOR. The Plan has also entered into an interest rate swap which effectively converts the $2.3 million of fixed rate notes payable to a floating rate (4.5% at December 30, 1998) based on LIBOR. The interest rate differential to be received or paid is determined quarterly and recognized as an adjustment to interest expense. The Plan is exposed to market risk as a result of potential increases in LIBOR. The notes payable are due through 1999 and are guaranteed by the Company. Annual principal payments are payable in quarterly installments, and the notes are anticipated to be paid in full by December 30, 1999. 10 14 Eaton Corporation Share Purchase and Investment Plan Notes to Financial Statements--Continued E. EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)--CONTINUED Unallocated Eaton Common Shares acquired by the ESOP are held in a suspense account and are pledged as security for the notes. These Common Shares are released from the suspense account and allocated to the participants' accounts based on the market value at the time of allocation on a monthly basis in an amount equal to the Company contributions for the period. The market value of the unallocated Eaton Common Shares was $14,950,465 at December 30, 1998 ($66,020,592 at December 30, 1997). 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 TO/FROM PLAN During the first quarter of 1998, total assets of approximately $16 million were transferred from the Plan to Siebe in connection with the Plan Sponsor's sale of the Appliance Controls division. Effective January 1, 1998, both employee and employer contributions to the Fusion Systems Corporation 401(k) Savings Plan (Fusion 401(k) Plan) were frozen. On that same date, all participants of the Fusion 401(k) Plan became eligible for the Plan. Effective November 1, 1998, the Fusion 401(k) Plan was merged with the Plan and total assets of approximately $6.6 million were transferred into the Plan. Effective January 1, 1998, both employee and employer contributions to the IKU-USA Inc. Employees' Retirement Plan (IKU Plan) were frozen. On that same date, all participants of the IKU Plan became eligible for the Plan. Effective November 1, 1998, the IKU Plan was merged with the Plan and total assets of approximately $1.5 million were transferred into the Plan. 11 15 Eaton Corporation Share Purchase and Investment Plan Notes to Financial Statements--Continued H. TRANSACTIONS WITH PARTIES-IN-INTEREST Party-in-interest transactions included the investment in the special funds of the trustee and the payment of administrative expenses by the Company. Such transactions are exempt from being prohibited transactions. I. YEAR 2000 (UNAUDITED) The Plan Sponsor has determined that it will be necessary to take certain steps in order to ensure that the Plan's information systems are prepared to handle year 2000 dates. The Plan Sponsor is taking a two phase approach. The first phase addresses internal systems that must be modified or replaced to function properly. Both internal and external resources are being utilized to replace or modify existing software applications, and test the software and equipment for the year 2000 modifications. The Plan Sponsor anticipates substantially completing this phase of the project by mid-1999. Costs associated with modifying software and equipment are not estimated to be significant and will be paid by the Plan Sponsor. For the second phase of the project, Plan management established communications with its third party service providers to determine that they have developed plans to address their own year 2000 problems as they relate to the Plan's operations. All third party service providers have indicated they will be year 2000 compliant by mid-1999. If modification of data processing systems of either the Plan, the Plan Sponsor, or its service providers are not completed timely, the year 2000 problem could have an impact on the operations of the Plan. Plan management has not developed a contingency plan, because they are confident that all systems will be year 2000 ready. 12 16 Eaton Corporation Share Purchase and Investment Plan Notes to Financial Statements--Continued J. 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, 1997 ---------------- Net assets available for benefits per the financial statements $ 1,282,297,984 Amounts allocated to withdrawn participants (1,186,995) ---------------- NET ASSETS AVAILABLE FOR BENEFITS PER FORM 5500 $ 1,281,110,989 ================
K. RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500 The following is a reconciliation of benefits paid to participants per the financial statements to the Form 5500:
YEAR ENDED DECEMBER 30, 1998 ------------- Benefits paid to participants per the financial statements $ 148,717,233 Less: Amounts allocated to withdrawn participants at December 30, 1997 1,186,995 ------------- BENEFITS PAID TO PARTICIPANTS PER FORM 5500 $ 147,530,238 =============
Amounts allocated to withdrawing participants were recorded on the Form 5500 for benefit claims that were processed and approved for payment prior to December 30, 1997, but paid in 1998. 13 17 Eaton Corporation Share Purchase and Investment Plan EIN 34-0196300 Plan Number 055 Form 5500 Line 27(a)--Schedule of Assets Held for Investment Purposes December 30, 1998
Description of Investment Including Maturity Date, Identity of Issue, Borrower Rate of Interest, Collateral, or Similar Party Par or Maturity Value Cost Current Value - --------------------------------------------------------------------------------------------------------- Guaranteed Investment Contracts: Life of Virginia Insurance Co. 8.07% due 12/31/98 $ 1,142,123 $ 1,142,123 New York Life Insurance Co. 6.25% due 12/31/99 601,301 601,301 ----------------------------------- 1,743,424 1,743,424 Corporate Debt Instruments: Ameritech 5.65% due 1/15/01 1,299,233 1,311,752 Associates Corp. 6.00% due 12/01/02 4,997,650 5,081,250 Bay View Auto Trust 6.59% due 12/15/04 4,999,609 5,026,550 Capital Equipment 6.28% due 6/15/00 6,492,350 6,581,525 Case Equipment Loan Trust 6.15% due 9/15/02 1,011,143 1,012,249 Chase Manhattan Grantor Trust 6.00% due 9/17/01 473,393 474,504 E.I. Dupont 6.50% due 9/01/02 1,993,600 2,089,000 Fingerhut Master Trust 6.23% due 2/15/07 4,998,576 5,192,188 Ford Motor Credit Corp. 6.125% due 4/28/03 3,992,360 4,076,680 General Motors 5.75% due 11/10/03 1,264,800 1,250,887 MBNA Master Credit Card 6.60% due 11/15/04 4,991,504 5,182,800 McKesson Corp. 6.60% due 3/01/00 4,998,500 5,057,350 Merrill Lynch & Co. Inc. 6.00% due 1/15/01 642,850 657,052 Merrill Lynch & Co. Inc. 6.00% due 2/12/03 6,322,027 6,411,463 Nationsbank Corp. 5.75% due 3/15/01 4,983,200 5,035,300 Norwest Auto Trust 6.10% due 3/15/01 9,997,360 10,046,800 Premier Auto 6.05% due 4/06/00 3,911,025 3,915,452 Premier Auto 6.75% due 11/06/00 2,992,957 3,028,110 Premier Auto 6.35% due 4/06/02 349,560 355,029 Premier Auto 5.07% due 7/08/02 1,999,992 1,990,000 Railcar Trust 7.75% due 6/01/04 1,907,606 1,915,567 Sony Corp. 6.125% due 03/04/03 5,002,975 5,115,850 Toyota Auto 6.45% due 4/15/02 885,790 891,011 USAA Auto 6.00% due 5/15/04 2,532,903 2,542,733 ----------------------------------- 83,040,963 84,241,102 U.S. Government Securities: U.S. Treasury Notes 5.25% due 1/31/01 5,085,938 5,061,700 U.S. Treasury Notes 6.25% due 5/31/99 16,101,250 16,100,000 U.S. Treasury Notes 5.25% due 8/15/03 1,510,664 1,537,965
14 18 Eaton Corporation Share Purchase and Investment Plan Form 5500 Line 27(a)--Schedule of Assets Held for Investment Purposes--Continued
Description of Investment Including Maturity Date, Identity of Issue, Borrower Rate of Interest, Collateral, or Similar Party Par or Maturity Value Cost Current Value - ---------------------------------------------------------------------------------------------------------------- U.S. Government Securities--Continued: U.S. Treasury Notes 4.50% due 9/30/00 1,008,438 998,130 U.S. Treasury Notes 4.00% due 10/31/00 3,222,259 3,199,609 U.S. Treasury Notes 4.25% due 11/15/03 2,537,250 2,518,125 Federal Home Loan Banks 5.125% due 9/15/03 1,004,050 1,000,310 Federal Home Loan Banks 5.28% due 12/10/03 5,000,000 4,967,200 Federal Home Loan Banks 4.99% due 12/24/01 2,996,719 3,000,000 Federal Farm Credit Banks 5.18% due 11/17/99 3,750,000 3,749,100 Fannie Mae 6.53% due 1/11/01 1,000,900 1,000,470 Fannie Mae 6.45% due 7/25/02 1,200,000 1,223,244 Fannie Mae 6.20% due 5/22/03 5,017,188 5,018,750 Fannie Mae 5.95% due 7/13/01 4,492,890 4,497,165 --------------------------------- 53,927,546 53,871,768 Interest in Registered Investment Companies: Oppenheimer Value Equity Fund 414,043 shares 4,055,449 4,128,021 Vanguard Windsor Fund 8,367,428 shares 127,069,539 129,109,418 Vanguard Wellesley Fund 1,658,604 shares 35,010,664 36,721,498 Fidelity Contra Fund 1,601,434 shares 66,218,450 97,255,100 Templeton Foreign Fund 2,570,269 shares 24,843,001 21,538,856 Vanguard Institutional Index Fund 733,481 shares 75,469,596 82,934,661 --------------------------------- 332,666,699 371,687,554 Key Trust Company of Ohio, N.A.: Employee Benefits Money Market Fund* 30,229,635 units 30,229,635 30,229,635 Common Stock: Eaton Corporation* 8,148,993 shares 349,570,506 575,017,393 Participant notes receivable* 8.75-9.50%, variable maturities 25,448,042 --------------------------------- Total investments $ 851,178,773 $ 1,142,238,918 =================================
*Indicates party-in-interest to the Plan. 15 19 Eaton Corporation Share Purchase and Investment Plan EIN 34-0196300 Plan Number 055 Form 5500 Line 27(d)--Schedule of Reportable Transactions Year Ended December 30, 1998
Current Value Identity of Party Description Purchase of Asset on Net Gain Involved of Assets Price Selling Price Cost of Asset Transaction Date or (Loss) - ------------------------------------------------------------------------------------------------------------------------------------ CATEGORY (i)--SINGLE TRANSACTIONS IN EXCESS OF 5% OF PLAN ASSET Vanguard Institutional Index Fund* $ 65,507,226 $ 65,507,226 $ 65,507,226 Victory Stock Index Fund* $ 65,486,818 47,969,383 65,486,818 $ 17,517,435 CATEGORY (iii)--SERIES OF TRANSACTIONS IN EXCESS OF 5% OF PLAN ASSET Key Trust Company of Ohio, N.A.* Employee Benefits 326,892,914 326,892,914 326,892,914 Money Market Fund 319,969,505 319,969,505 319,969,505 Eaton Corporation* Eaton Corporation 55,319,233 55,319,233 55,319,233 Common Stock 67,645,900 35,415,275 67,645,900 32,230,625 Vanguard Institutional Index Fund Mutual Fund 83,703,017 83,703,017 83,703,017 8,069,368 8,233,421 8,069,368 (164,053) Victory Stock Index Fund* Mutual Fund 8,503,218 8,503,218 8,503,218 68,039,187 49,955,817 68,039,187 18,083,370
There were no category (ii) or (iv) reportable transactions during the fiscal year ended December 30, 1998. * Indicates party-in-interest to the Plan. 16 EX-23 2 EXHIBIT 23 1 Exhibit 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-8 No. 333-77243, Form S-8 No. 333-03599, and Form S-8 No. 33-49777) pertaining to the Eaton Corporation Share Purchase and Investment Plan of our report dated June 11, 1999, with respect to the financial statements and schedules of the Eaton Corporation Share Purchase and Investment Plan included in this Annual Report (Form 11-K) for the year ended December 30, 1998. /s/ Ernst & Young LLP Cleveland, Ohio June 23, 1999 17 -----END PRIVACY-ENHANCED MESSAGE-----