Eaton Corporation 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
| |
|
|
|
|
| þ |
|
Annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934 (Fee required) |
|
|
|
|
|
| |
|
For the fiscal year ended December 31, 2005 |
|
|
|
|
|
Or
|
|
|
|
|
|
| o |
|
Transition report pursuant to Section 15(d) of the Securities Exchange Act of 1934 (No 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 Personal 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 PERSONAL INVESTMENT PLAN |
|
|
|
|
|
Date: June 29, 2006
|
|
By:
|
|
Eaton Corporation Pension |
|
|
|
|
Administration Committee |
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ B. K. Rawot |
|
|
|
|
|
|
|
|
|
B. K. Rawot |
|
|
|
|
Vice President and Controller |
|
|
|
|
Eaton Corporation |
Audited Financial Statements and
Supplemental Schedule
Eaton Personal Investment Plan
December 31, 2005 and 2004 and Year Ended December 31, 2005
With Report of Independent Registered Accounting Firm
Eaton Personal Investment Plan
Audited Financial Statements and Supplemental Schedule
December 31, 2005 and 2004 and
Year Ended December 31, 2005
Contents
Report of Independent Registered Public Accounting Firm
The Pension Administration Committee and the
Pension Investment Committee — Eaton Corporation
We have audited the accompanying statement of net assets available for benefits of the Eaton
Personal Investment Plan as of December 31, 2005 and the related statement of changes in net assets
available for benefits for the year ended December 31, 2005. 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 audit. The financial statements of the Eaton Personal Investment
Plan as of December 31, 2004 was audited by other auditors whose report dated June 29, 2005,
expressed an unqualified opinion on the financial statement.
We conducted our audit in accordance with auditing standards of the Public Company Accounting
Oversight Board (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. We were not engaged to perform an audit of the Plan’s internal control over financial
reporting. Our audit included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but not for the purposes
of expressing an opinion on the effectiveness of the Plan’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management and evaluating the overall
financial statement presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the 2005 financial statements referred to above present fairly, in all material
respects, the net assets available for benefits of the Plan at December 31, 2005 and the changes in
its net assets available for benefits for the year ended December 31, 2005, in conformity with U.S.
generally accepted accounting principles.
Our audit was 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,
2005, is presented for purposes of additional analysis and is not a required part of the financial
statements but is supplemental information required by the Department of Labor’s Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974.
The supplemental schedule is the responsibility of the Plan’s management. The supplemental schedule
has been subjected to the auditing procedures applied in our audit 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.
MEADEN &
MOORE, LTD
Cleveland, Ohio
June 14, 2006
1
Report of Independent Registered Public Accounting Firm
The Pension Administration Committee and the
Pension Investment Committee — Eaton Corporation
We have audited the accompanying statement of net assets available for benefits of the Eaton
Personal Investment Plan as of December 31, 2004. This financial statement is the responsibility of
the Plan’s management. Our responsibility is to express an opinion on this financial statement
based on our audit.
We conducted our audit in accordance with auditing standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statement is free of material misstatement.
We were not engaged to perform an audit of the Plan’s internal control over financial reporting.
Our audit included consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not for the purposes of
expressing an opinion on the effectiveness of the Plan’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement. 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly, in all material
respects, the net assets available for benefits of the Plan at December 31, 2004, in conformity
with U.S. generally accepted accounting principles.
ERNST &
YOUNG LLP
Cleveland, Ohio
June 29, 2005
2
Eaton Personal Investment Plan
Statements of Net Assets Available for Benefits
| |
|
|
|
|
|
|
|
|
| |
|
December 31 |
| |
|
2005 |
|
2004 |
Assets |
|
|
|
|
|
|
|
|
Investments at fair value: |
|
|
|
|
|
|
|
|
Plan interest in Eaton
Employee Savings Trust |
|
$ |
84,260,349 |
|
|
$ |
81,004,285 |
|
Participant notes receivable |
|
|
3,193,411 |
|
|
|
2,707,957 |
|
| |
|
|
Total investments |
|
|
87,453,760 |
|
|
|
83,712,242 |
|
|
|
|
|
|
|
|
|
|
Receivables: |
|
|
|
|
|
|
|
|
Contributions: |
|
|
|
|
|
|
|
|
Employer |
|
|
4,559 |
|
|
|
5,785 |
|
Participants |
|
|
69,460 |
|
|
|
85,979 |
|
Interest |
|
|
3,061 |
|
|
|
2,988 |
|
| |
|
|
Total receivables |
|
|
77,080 |
|
|
|
94,752 |
|
| |
|
|
Net assets available for benefits |
|
$ |
87,530,840 |
|
|
$ |
83,806,994 |
|
| |
|
|
See notes to financial statements.
3
Eaton Personal Investment Plan
Statement of Changes in Net Assets Available for Benefits
Year Ended December 31, 2005
| |
|
|
|
|
Additions |
|
|
|
|
Investment income: |
|
|
|
|
Plan interest in Eaton Employee Savings Trust
investment gain |
|
$ |
3,160,499 |
|
Interest |
|
|
163,232 |
|
|
|
|
|
Total investment income |
|
|
3,323,731 |
|
|
|
|
|
|
Contributions: |
|
|
|
|
Participants |
|
|
5,357,738 |
|
Employer |
|
|
364,337 |
|
Rollovers |
|
|
86,193 |
|
|
|
|
|
Total contributions |
|
|
5,808,268 |
|
|
|
|
|
|
Transfer from other plan |
|
|
3,016,617 |
|
|
|
|
|
Total additions |
|
|
12,148,616 |
|
|
|
|
|
|
Deductions |
|
|
|
|
Benefits paid to participants |
|
|
8,357,695 |
|
Administrative expenses |
|
|
32,635 |
|
|
|
|
|
|
|
|
8,390,330 |
|
|
|
|
|
|
Transfer to other plans |
|
|
34,440 |
|
|
|
|
|
Total deductions |
|
|
8,424,770 |
|
|
|
|
|
|
|
|
|
|
Net increase |
|
|
3,723,846 |
|
Net assets available for benefits at beginning of
year |
|
|
83,806,994 |
|
|
|
|
|
Net assets available for benefits at end of year |
|
$ |
87,530,840 |
|
|
|
|
|
See notes to financial statements.
4
Eaton Personal Investment Plan
Notes to Financial Statements
December 31, 2005 and 2004 and
Year Ended December 31, 2005
1. Significant Accounting Policies
Basis of Accounting
The financial statements of the Eaton Personal Investment Plan (the Plan) have been prepared under
the accrual basis of accounting.
Investment Valuation and Income Recognition
Effective January 3, 2002, trustee responsibilities for the Plan were transferred from Key Trust
Company of Ohio, N.A., to Fidelity Management Trust Company and the Plan’s investments, excluding
participant loans, were invested in the Eaton Employee Savings Trust (Master Trust), which was
established for the investment of assets of the Plan and the Eaton Savings Plan. The fair value of
the Plan’s interest in the individual funds of the Master Trust is based on the value of the Plan’s
interest in the fund as of the transfer date plus actual contributions and allocated investment
income (loss) less actual distributions.
The investments of the Plan, except for the Eaton Stable Value Fund in the Master Trust, are stated
at fair value. Securities traded on a national securities exchange are valued at the last reported
sales price on the last business day of the Plan year. Investments traded in the over-the-counter
market and listed securities for which no sale was reported on that date are valued at the average
of the last reported bid and asked prices. Common/collective trust funds and pooled separate
accounts are valued at the redemption value of units held at year-end. Participant loans are valued
at cost, which approximates fair value. The Eaton Stable Value Fund invests primarily in investment
contracts issued by insurance companies. The investment contracts within the Eaton Stable Value
Fund are stated at contract value, which approximates fair value.
Purchases and sales of securities are recorded on a trade-date basis.
Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting
principles requires management to make estimates that affect the amounts reported in the financial
statements and accompanying notes. Actual results are not expected to differ from these estimates.
5
Eaton Personal Investment Plan
Notes to Financial Statements (continued)
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.
Effective January 1, 2002, the Plan was amended and restated and renamed the Eaton Personal
Investment Plan.
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; 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; UPIU Local 7967, Cleveland,
Ohio; UAW Local 1966 and UAW Local 475, Jackson, Michigan; IUE Local 792, Jackson, Mississippi;
IAMAW Local 2528, Hohenwald, Tennessee; PACE — Local 7433, Saginaw, Michigan; UAW Local 1404,
Columbia City, Indiana; and United Employees Union, Elizabeth, New Jersey 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. For certain locations, the maximum employee contributions are 30% and eligible
employees may receive a Company matching contribution of 50% up to 6% of their compensation,
depending on the location. Eligible employees are 100% vested, subject to certain provisions as
defined by each location. All contributions are allocated by the employee among the investment
funds offered by the Plan. Effective May 1, 2003, catch-up contributions were permitted in the
Plan, allowing participants age 50 and older to defer an additional amount of their compensation,
as prescribed by the Internal Revenue Code.
6
Eaton Personal Investment Plan
Notes to Financial Statements (continued)
2. Description of the Plan (continued)
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
through payroll deductions.
All administrative and transaction costs, management fees and expenses of the Plan are paid by the
trustee from the Master Trust unless such costs, fees and expenses are paid by the Company. The
Company elected to pay certain administrative costs during 2005 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.
3. Investments
Effective January 3, 2002, Fidelity Management Trust Company, trustee and record keeper of the Plan
holds the Plan’s investment assets and executes investment transactions and all investment assets
of the Plan, except for participant loans, are pooled for investment purposes in the Master Trust.
7
Eaton Personal Investment Plan
Notes to Financial Statements (continued)
3. Investments (continued)
A summary of the investments of the Master Trust is as follows:
| |
|
|
|
|
|
|
|
|
| |
|
December 31 |
| |
|
2005 |
|
2004 |
| |
|
|
Registered investment companies |
|
$ |
1,205,693,957 |
|
|
$ |
1,094,819,401 |
|
Eaton common shares |
|
|
681,419,041 |
|
|
|
762,087,126 |
|
Guaranteed investment contracts |
|
|
121,193,933 |
|
|
|
124,947,892 |
|
Common collective trusts |
|
|
114,671,154 |
|
|
|
115,012,357 |
|
U.S. government securities |
|
|
100,191,289 |
|
|
|
105,110,762 |
|
Corporate debt instruments |
|
|
46,162,926 |
|
|
|
57,353,396 |
|
Interest-bearing cash |
|
|
31,246,681 |
|
|
|
41,114,942 |
|
Non interest-bearing cash |
|
|
2,185,559 |
|
|
|
— |
|
Receivables |
|
|
184,900 |
|
|
|
— |
|
Pooled separate accounts |
|
|
428,491 |
|
|
|
420,748 |
|
| |
|
|
Total investments |
|
$ |
2,303,377,931 |
|
|
$ |
2,300,866,624 |
|
| |
|
|
The Plan had a 3.7% and 3.5% interest in the investments of the Master Trust as of December 31,
2005 and 2004, respectively.
Investment income and administrative expenses relating to the Master Trust are allocated to the
individual Plans based upon the average balance invested by each Plan in each of the individual
funds of the Master Trust. A summary of the Master Trust’s net investment income allocated to the
participating Plans for the year ended December 31, 2005, is as follows:
| |
|
|
|
|
Interest and dividend income |
|
$ |
69,538,718 |
|
Net appreciation in fair value of investments: |
|
|
|
|
Eaton Common Shares Fund |
|
|
(52,986,119 |
) |
Registered investment companies |
|
|
38,669,415 |
|
Eaton Fixed Income Fund |
|
|
3,215,842 |
|
|
|
|
|
|
|
$ |
58,437,856 |
|
|
|
|
|
At December 31, 2005, the Eaton Fixed Income Fund was comprised of U.S. government securities
(63%), corporate debt instruments (29%), interest-bearing and non interest-bearing cash (7%), and
pooled separate accounts (1%).
8
Eaton Personal Investment Plan
Notes to Financial Statements (continued)
4. Income Tax Status
The Plan has received a determination letter from the Internal Revenue Service dated May 16, 2003,
stating that the Plan is qualified under Section 401(a) of the Code and, therefore, the related
trust is exempt from taxation. Subsequent to this determination by the Internal Revenue Service,
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 2005, the Master Trust received $13,305,236 in common stock dividends from the Company.
6. Risks and Uncertainties
The Master Trust invests in various investment securities. Investment securities are exposed to
various risks such as interest rate, market and credit risks. Due to the level of risk associated
with certain investment securities, it is at least reasonably possible that changes in the values
of investment securities will occur in the near term and that such changes could materially affect
participants’ account balances and the amounts reported in the statements of net assets available
for benefits.
7. Transfers In and Transfers Out
On September 23, 2005, a deposit was made to the Plan of $2,463,725. This deposit was the result
of participants electing to rollover their funds from a 401(k) account held with Hayward
Industries, Inc. Eaton acquired Hayward Filtration, a division of Hayward Industries, Inc. during
2005. The balance of the transfers relate to other Eaton Plans.
9
Eaton Personal Investment Plan
Notes to Financial Statements (continued)
8. Recently issued accounting pronouncements
In December 2005, the FASB issued FASB Staff Position AAG-INV-A. The new pronouncement requires
fully benefit-responsive investment contracts be valued at fair value instead of contract value.
The pronouncement will be effective for the year ended December 31, 2006. The effect of this
pronouncement on these financial statements has not been determined.
10
Supplemental Information
Eaton Personal Investment Plan
EIN #34-0196300 Plan #162
Schedule H, Line 4i — Schedule of Assets
(Held at End of Year)
December 31, 2005
| |
|
|
|
|
|
|
| |
|
Description of Investment |
|
|
|
| |
|
Including Maturity Date, |
|
|
|
| Identity of Issue, Borrower, |
|
Rate of Interest, Collateral, |
|
Current |
|
| Lessor or Similar Party |
|
Par or Maturity Value |
|
Value |
|
| |
|
|
|
|
|
|
|
| *Interest in Eaton Employee Saving Trust Master Trust |
|
$ |
84,260,349 |
|
*Participant notes receivable |
|
5% – 10.5%, various maturity dates |
|
|
3,193,411 |
|
|
|
|
|
|
|
|
|
|
|
$ |
87,453,760 |
|
|
|
|
|
|
|
*Indicates a party in interest to the Plan.
11