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 period ended December 31, 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 SCHEDULE
Eaton Corporation Share Purchase and Investment Plan
December 31 and 30, 2001 and One Day Period ended December 31, 2001
Eaton Corporation Share Purchase and Investment Plan
Audited Financial Statements and Supplemental Schedule
December 31 and 30, 2001 and
One Day Period ended December 31, 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 Schedule
Schedule H, Line 4(i)--Schedule of Assets (Held at End of Year)............11
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 31
and 30, 2001, and the related statement of changes in net assets available for
benefits for the one day period ended December 31, 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 31 and 30, 2001, and the changes in its net assets available for
benefits for the one day period ended December 31, 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 schedule of assets
(held at end of year) as of December 31, 2001, is presented for purposes of
additional analysis and is not a required part of the financial statements but
is 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. This supplemental schedule is the responsibility of the
Plan's management. The supplemental schedule has been subjected to the auditing
procedures applied in our audits of the financial statements and, in our
opinion, is 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
Eaton Corporation Share Purchase and Investment Plan
Statements of Net Assets Available for Benefits
DECEMBER 31 DECEMBER 30
2001 2001
---------------------------------
ASSETS
Investments, at fair value:
Common stock $ 592,711,440 $ 598,534,120
Mutual funds 359,453,516 361,093,690
U.S. Government securities 62,053,392 61,982,374
Corporate debt instruments 51,420,310 51,296,419
Participant notes receivable 29,910,808 29,910,808
Money market fund 70,996,600 71,468,687
---------------------------------
Total investments 1,166,546,066 1,174,286,098
Receivables:
Interest and dividends 1,348,360 1,763,766
Accrued sales of investments 39,105 179,375
---------------------------------
Total receivables 1,387,465 1,943,141
---------------------------------
Total assets 1,167,933,531 1,176,229,239
LIABILITIES
Accrued purchases of investments -- 501,411
---------------------------------
Net assets available for benefits $1,167,933,531 $1,175,727,828
=================================
See notes to financial statements.
2
Eaton Corporation Share Purchase and Investment Plan
Statement of Changes in Net Assets Available for Benefits
One Day Period ended December 31, 2001
ADDITIONS
Interest income $ 50,665
DEDUCTIONS
Distributions to participants 561,090
Net depreciation in fair value of investments 7,283,872
---------------
7,844,962
---------------
Net decrease (7,794,297)
Net assets available for benefits at beginning of one day period 1,175,727,828
---------------
Net assets available for benefits at end of one day period $ 1,167,933,531
===============
See notes to financial statements.
3
Eaton Corporation Share Purchase and Investment Plan
Notes to Financial Statements
December 31 and 30, 2001 and
One Day Period ended December 31, 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 government 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.
Purchases of sales and 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 December 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 31, DECEMBER 30,
2001 2001
---------------------------------------------
Fidelity Contra Fund $ 92,220,367 $ 92,222,784
Vanguard Windsor Fund 117,050,860 117,948,948
Vanguard Institutional Index Fund 81,383,535 82,299,090
Eaton Common Shares* 506,150,437 510,562,890
Axcelis Common Shares 86,561,003 87,971,230
Key Trust EB Money Market Fund* 70,996,600 71,468,687
* Includes nonparticipant-directed contributions
During the one day period ended December 31, 2001, the Plan's investments
(including investments bought, sold, and held during the year) appreciated
(depreciated) in fair value as follows:
Common stock $ (5,366,664)
Mutual funds (2,112,118)
Government securities 123,892
Corporate debt instruments 71,018
-----------------------
$ (7,283,872)
=======================
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 31, DECEMBER 30,
2001 2001
------------------------------------------------
Net assets:
Eaton Corporation Common Shares $ 506,150,437 $ 510,562,890
Key Trust EB Money Market Fund 7,007,960 7,039,337
Accrued sales of investments 39,113 106,385
Interest and dividends receivable 11,359 11,359
------------------------------------------------
$ 513,208,869 $ 517,719,971
================================================
ONE DAY PERIOD
ENDED
DECEMBER 30,
2001
------------------------
Changes in net assets:
Interest and dividends $ 2,221
Net depreciation in fair value of investments (3,956,438)
Distributions to participants (556,885)
------------------------
$ (4,511,102)
========================
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 31, DECEMBER 30,
2001 2001
----------------------------------
Net assets available for benefits per the
financial statements $ 1,167,933,531 $ 1,175,727,828
Amounts allocated to withdrawing
participants (1,467,706) (1,945,706)
----------------------------------
Net assets available for benefits per
Form 5500 $ 1,166,465,825 $ 1,173,782,122
==================================
The following is a reconciliation of benefits paid to participants per the
financial statements to the Form 5500:
ONE DAY PERIOD
ENDED
DECEMBER 31,
2001
------------------
Benefits paid to participants per the
financial statements $ 561,090
Add: Amounts allocated to withdrawing participants at
December 31, 2001 1,467,706
Deduct: Amounts allocated to withdrawing participants at
December 30, 2001 (1,945,706)
-----------------
Benefits paid to participants per Form 5500 $ 83,090
=================
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. 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.
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. 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.
The Plan 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.
10
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 31, 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 $ 1,022,996
Allstate Corp. 7.875% due 5/01/05 108,219
Allstate Corp. 5.375% due 12/01/06 1,006,884
Associates Corp. 6.00% due 12/01/02 4,113,169
Bank One Corp. 6.5% due 2/01/06 2,397,284
Bell Telephone Co. PA 6.625% due 9/15/02 666,973
Bristol-Myers Squibb Co. 4.750% due 10/01/06 2,729,084
CIT Equipment Collateral 4.840% due 9/20/12 2,109,187
Caterpillar Financial Asset 4.850% due 04/25/07 3,060,937
Citibank Credit Card Master 5.500% due 02/15/06 501,509
DVI Receivables Corp. 5.137% due 11/11/04 3,074,062
DVI Receivables Corp. 4.613% due 11/11/09 2,172,500
John Deere B V 5.875% due 04/06/06 2,536,787
E.I. Dupont 6.5% due 09/01/02 2,061,435
Electronic Data Systems 6.850% due 10/15/04 259,673
General Electric 6.520% due 10/08/02 447,820
General Electric 7.25% due 02/01/05 619,226
Honda Auto Receivables Owner TR 5.560% due 06/19/06 2,066,783
Household Fin Corp. 6.70% due 6/15/02 101,892
Household Fin Corp. 6.50% due 1/24/06 1,027,471
IBM Corp. 4.875% due 10/10/06 1,492,673
Lehman Bros Holdings Inc. 6.625% due 4/01/04 251,689
Merrill Lynch & Co. Inc. 5.35% due 6/15/04 3,810,939
Morgan Stanley Dean Witter 6.10% due 4/15/06 3,094,023
National Rural Utils Coop Fin 5.25% due 7/15/04 2,041,323
Norwest Financial Inc. 6.625% due 7/15/04 159,096
TCI Communications Inc. 6.375% due 5/01/03 511,816
Telefonica Europe BV 7.35% due 9/15/05 632,922
Unilever Capital Corp. 6.75% due 11/01/03 4,230,591
Wells Fargo Co. 7.25% due 8/24/05 537,652
Wells Fargo Financial Inc. 7.00% due 11/01/05 532,231
Wisconsin Energy Corp. 5.875% due 4/01/06 2,041,464
-----------
51,420,310
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) (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 1,741,491
U.S. Treasury Notes 5.75% due 4/30/03 6,431,359
U.S. Treasury Notes 5.25% due 8/15/03 6,233,275
U.S. Treasury Notes 4.625% due 5/15/06 1,318,047
Federal Home Loan Banks 6.75% due 2/15/02 1,005,304
Federal Home Loan Banks 4.75% due 6/28/04 5,110,577
Federal Home Loan Banks 2.50% due 11/14/03 4,427,656
Federal Home Loan Banks 3.625% due 10/15/04 9,852,283
Fannie Mae 5.125% due 2/13/04 7,975,453
Fannie Mae 6.50% due 8/15/04 1,063,067
Fannie Mae 5.75% due 3/27/06 251,822
Fannie Mae 5.50% due 5/02/06 3,073,408
Fannie Mae 3.375% due 11/22/04 5,482,345
Freddie MAC 5.70% due 7/26/06 1,011,528
Freddie MAC 4.15% due 9/04/03 2,012,009
Freddie MAC 2.50% due 12/27/02 4,506,092
Freddie MAC 5.25% due 1/15/06 51,165
Freddie MAC 4.50% due 8/15/04 506,511
----------------
62,053,392
Interest in Registered Investment
Companies:
Vanguard Windsor Fund 7,484,070 shares 117,050,860
Vanguard Wellesley Fund 2,168,052 shares 43,165,905
Fidelity Contra Fund 2,156,193 shares 92,220,367
Templeton Foreign Fund 2,771,119 shares 25,632,849
Vanguard Institutional Index Fund 775,894 shares 81,383,535
-----------------
359,453,516
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
-------------------------------------------------------------------------------------------------------------------
Key Trust Company of Ohio, N.A.
Employee Benefits Money Market
Fund* 70,996,600 shares $ 70,996,600 70,996,600
Common Stock:
Eaton Corporation* 6,802,183 shares 328,373,081 506,150,437
Axcelis Stock 6,715,361 shares 37,523,178 86,561,003
-------------------
592,711,440
Participant notes receivable* 6-11%; variable maturities 29,910,808
-------------------
Total investments $ 1,166,546,066
===================
*Indicates party-in-interest to the Plan.
13
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
23 Consent of Ernst & Young LLP.