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 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 401(K) SAVINGS 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 401(k) SAVINGS 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 Corporatio
AUDITED FINANCIAL STATEMENTS AND SUPPLEMENTAL
SCHEDULES
Eaton Corporation 401(k) Savings Plan and Trust
December 31, 2001 and 2000 and Year ended December 31, 2001
Eaton Corporation 401(k) Savings Plan and Trust
Audited Financial Statements and Supplemental Schedules
December 31, 2001 and 2000 and
Year 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 Schedules
Schedule H, Line 4(i)--Schedule of Assets (Held at End of Year)..............10
Schedule H, Line 4(j)--Schedule of Reportable Transactions...................11
Report of Independent Auditors
Corporate Compensation and Organization
Committee of Eaton Corporation
Eaton Corporation 401(k) Savings Plan and Trust
We have audited the accompanying statements of net assets available for benefits
of the Eaton Corporation 401(k) Savings Plan and Trust as of December 31, 2001
and 2000, and the related statement of changes in net assets available for
benefits for the year 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, 2001 and 2000, and the changes in its net assets available for
benefits for the year 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 schedules of assets
(held at end of year) as of December 31, 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 401(k) Savings Plan and Trust
Statements of Net Assets Available for Benefits
DECEMBER 31
2001 2000
-------------------------------------
ASSETS
Investments at fair value:
Mutual funds $22,817,349 $23,514,386
Common/collective trust fund 12,761,074 11,637,810
Money market fund 2,883,743 2,336,134
Common stock 8,769,507 6,597,270
Participant notes receivable 1,735,437 1,531,043
-------------------------------------
Total investments 48,967,110 45,616,643
RECEIVABLES:
Contributions-Participants 41,664 61,344
Interest 8,144 518,185
Stock dividend - 1,066,568
-------------------------------------
Total receivables 49,808 1,646,097
-------------------------------------
Net assets available for benefits $49,016,918 $47,262,740
=====================================
See notes to financial statements.
2
Eaton Corporation 401(k) Savings Plan and Trust
Statement of Changes in Net Assets Available for Benefits
Year ended December 31, 2001
ADDITIONS
Investment income:
Interest and dividends $ 1,137,693
Contributions:
Participants 5,048,980
Employer 433,106
------------------
5,482,086
------------------
6,619,779
Deductions
Distributions to participants 5,016,889
------------------
1,602,890
Net appreciation in fair value of investments 151,288
------------------
Net increase 1,754,178
Net assets available for benefits at beginning of year 47,262,740
------------------
Net assets available for benefits at end of year $49,016,918
==================
See notes to financial statements.
3
Eaton Corporation 401(k) Savings Plan and Trust
Notes to Financial Statements
December 31, 2001 and 2000 and
Year ended December 31, 2001
1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The financial statements of the Eaton Corporation 401(k) Savings Plan and Trust
(the Plan) have been prepared under the accrual basis of accounting.
INVESTMENT VALUATION AND INCOME RECOGNITION
Investments are stated at fair value as measured by quoted prices in active
markets except for the Prism Reserve Fund which is stated at fair value as
determined by the trustee. The participant notes receivable are valued at their
outstanding balances, which approximate fair value. At December 31, 2000, the
Eaton Corporation Common Shares are valued at the ex-dividend price to reflect
the spin-off and stock dividend related to Axcelis Technologies, Inc. (see Note
5).
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 mutual funds, Eaton Common Shares Fund, and Axcelis
Technologies Shares Fund 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 THE PLAN
Effective July 1, 1996, Eaton Corporation (the Company or Plan Sponsor)
established the Plan. On May 1, 1998, the Company amended the Plan and restated
certain articles therein to qualify the Plan as a profit-sharing plan under
Section 401(a) of the Internal Revenue Code (the Code), and include a cash or
deferred arrangement that is intended to qualify under Section 401(k) of the
Code.
4
Eaton Corporation 401(k) Savings Plan and Trust
Notes to Financial Statements (continued)
2. DESCRIPTION OF THE PLAN (CONTINUED)
The Plan provides that all union employees that belong to IAM Local 78 and IAM
Local 1061, Milwaukee, Wisconsin; USWA Local 7509, Shelbyville, Tennessee; UAW
Local 164, Auburn, Indiana; Metal Processors Union IUAP and NW AFL-CIO Local 16,
Rochelle, Illinois; UAW Local 220, Marshall, Michigan; IAM and Aerospace
Workers, Local 77, Eden Prairie, Minnesota; Beaver Salaried Employees
Association and IBEW, AFL-CIO, Local 201, Beaver, Pennsylvania; and IBEW,
AFL-CIO, Local 1833, Horseheads, New York; IAMAW Local 1165, Lincoln, Illinois;
UAW Local 1609, Winamac, Indiana; IAMAW Local 725, Los Angeles, California; IAM
Local 70, Hutchinson, Kansas; and UPIU Local 7967, Cleveland, Ohio; UAW Local
1966, Jackson, Michigan, will be eligible for membership in the Plan on the date
at which the employee has completed the specified probationary period as stated
in the applicable collective bargaining agreement.
Eligible employees may elect to make before-tax or after-tax contributions from
1% to 17% of their compensation. Contributions are allocated by the employee
among the investment funds offered by the Plan.
Each participant's account is credited with the participant's contributions,
employer matching contributions, if applicable, and allocations of the Plan's
earnings and is charged with an allocation of administrative expenses.
Allocations are based on participant account balances. The benefit to which a
participant is entitled is the benefit that can be provided from the
participant's account. Participants are immediately vested in their
contributions and actual earnings thereon. On termination of service, a
participant is eligible to receive a lump-sum amount equal to the value of his
account.
Participants may borrow from their fund accounts up 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. Loan terms range from 1-5 years except
for loans used for the purchase of a primary residence. The loans are secured by
the balance in the participant's account and bear interest at a rate based on
the prime interest rates as determined daily by the Trustee. Principal and
interest are paid ratably through monthly payroll deductions.
For certain locations, eligible employees receive an employer match of 50% up to
6% of their compensation. Eligible employees are 100% vested provided the
participants are employees on the last day of the plan year in which the
matching contributions are made.
5
Eaton Corporation 401(k) Savings Plan and Trust
Notes to Financial Statements (continued)
2. DESCRIPTION OF THE PLAN (CONTINUED)
All administrative and transaction costs, management fees and expenses of the
Plan are paid by the trustee from the trust unless such costs, fees and expenses
are paid by the Company. The Company elected to pay certain administrative costs
during 2001 on behalf of the Plan.
The Company may amend, modify, suspend or terminate the Plan at any time. 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 Human Resources Department upon request.
Effective January 1, 2002, the Plan was amended and restated. In conjunction
with the amendment and restatement, the Plan was renamed to the Eaton Personal
Investment Plan.
3. INVESTMENTS
Key Trust Company of Ohio, N.A., trustee of the Plan, holds the Plan's
investment assets and executes investment transactions.
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
2001 2000
----------------------------------------
Key Bank Prism Reserve Fund $ 12,761,074 $ 11,637,810
Employee Benefits Money Market Fund* 2,883,743
American Balanced Fund 4,922,148 3,614,097
Vanguard Windsor Fund 3,680,976
Fidelity Contra Fund 3,638,860 4,357,100
Vanguard Institutional Index Fund 9,279,577 11,879,258
Eaton Corporation Common Shares* 7,518,610 6,597,270
6
* Includes nonparticipant-directed contributions
Eaton Corporation 401(k) Savings Plan and Trust
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
During 2001, the Plan's investments (including investments purchased, sold as
well as held during the year) appreciated/(depreciated) in fair value as
follows:
Common/collective trust fund $ 866,865
Shares of registered investment companies (2,234,155)
Common stock 1,518,578
---------------
$ 151,288
===============
The Eaton Common Shares Fund contains participant account balances that are both
participant-directed and nonparticipant-directed. Because the fund contains
balances that are nonparticipant-directed, the entire fund is considered
nonparticipant-directed for disclosure purposes.
Information about the net assets and the significant components of the changes
in net assets relating to the nonparticipant-directed investments is as follows:
DECEMBER 31
2001 2000
----------------------------------------
Net assets:
Eaton Corporation Common Shares $ 7,518,610 $ 6,597,270
Key Trust EB Money Market Fund 270,096 222,879
Receivables:
Employee contribution 6,129 9,901
Interest 419 1,295
Stock dividend - 1,066,568
----------------------------------------
$ 7,795,254 $ 7,897,913
========================================
7
Eaton Corporation 401(k) Savings Plan and Trust
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
YEAR ENDED
DECEMBER 31,
2001
--------------------
Changes in net assets:
Contributions $ 1,102,312
Net appreciation in fair value of investments 185,407
Interest and dividends 943,890
Net transfers to participant directed funds (537,772)
Distributions to participants (1,796,496)
--------------------
Net decrease $ (102,659)
====================
4. INCOME TAX STATUS
The Plan has received a determination letter from the Internal Revenue Service
dated November 14, 1997, stating that the Plan is qualified under Section 401(a)
of 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 administrator believes the Plan is being
operated in compliance with the applicable requirements of the Code and,
therefore, believes that the Plan, as amended, is qualified and the related
trust is tax exempt.
5. TRANSACTIONS WITH PARTIES-IN-INTEREST
Party-in-interest transactions include 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 $185,407 in common stock dividends from the
Company.
8
Eaton Corporation 401(k) Savings Plan and Trust
Notes to Financial Statements (continued)
5. TRANSACTIONS WITH PARTIES-IN-INTEREST (CONTINUED)
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
stock shares. On December 29, 2000 Eaton distributed its remaining interest in
Axcelis to Eaton shareholders as a dividend (spin-off) which was tax free to
Eaton and its shareholders for United States income tax purposes. Eaton
shareholders (including the Plan) received 1.179023 shares of Axcelis common
stock per each whole Eaton common share held as of December 6, 2000 and cash
payments for fractional shares. The Axcelis common shares were received by the
Plan on January 5, 2001. As a result of the Axcelis spin-off, the Plan had a
stock dividend receivable from Eaton Corporation of $1,066,568 in Axcelis common
stock at December 31, 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.
9
Eaton Corporation 401(k) Savings Plan and Trust
EIN: 34-0196300 Plan Number: 162
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
-----------------------------------------------------------------------------------------------------------------------------------
MUTUAL FUNDS
American Balanced Fund 310,546 shares $ 4,922,148
Vanguard Windsor Fund 235,357 shares 3,680,976
Vanguard Institutional Index Fund 88,470 shares 9,279,577
Fidelity Contra Fund 85,080 shares 3,638,860
Templeton Foreign Fund 140,085 shares 1,295,788
-------------
22,817,349
COMMON/COLLECTIVE TRUST FUND
* Key Bank Prism Reserve Fund 68,055 shares 12,761,074
MONEY MARKET FUND
* Key Bank Employee Benefits Money Market Fund 2,883,743 units $ 2,883,743 2,883,743
COMMON STOCK FUNDS
* Eaton Corporation Common Shares 101,043 shares 6,721,753 7,518,610
Axcelis Technologies, Inc. Common Shares 97,044 shares 1,250,897
--------------
8,769,507
* PARTICIPANT NOTES 6.5% - 10.5%;
variable maturities 1,735,437
--------------
$ 48,967,110
==============
* Indicates a party-in-interest to the Plan.
10
3
Eaton Corporation 401(k) Savings Plan and Trust
EIN: 34-0196300 Plan Number: 162
Schedule H, Line 4(j)-Schedule of Reportable Transactions
Year ended December 31, 2001
Purchase Selling Cost of Current
Description of Asset Price Price Asset Value Net Gain
-------------------------------------------------------------------------------------------------------------------
CATEGORY (iii)-SERIES OF TRANSACTIONS IN EXCESS OF 5% OF PLAN ASSETS
* Eaton Corporation Common Shares $ 4,925,341 $ 4,925,341 $ 4,925,341
$ 5,004,746 4,566,719 5,004,746 $438,027
* Key Bank Employee Benefits
Money Market Fund 8,074,170 8,074,170 8,074,170
7,964,489 7,964,489 7,964,489 -
* Indicates a party-in-interest to the Plan.
There were no category (i), (ii), or (iv) reportable transactions for the year
ended December 31, 2001.
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
23 Consent of Ernst & Young LLP.