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, 2002
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 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 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 Corporation
AUDITED FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE
Eaton Savings Plan (formerly known as
Eaton Corporation Share Purchase and Investment Plan)
December 31, 2002 and 2001 and Year ended December 31, 2002
with Report of Independent Auditors
Eaton Savings Plan (formerly known as
Eaton Corporation Share Purchase and Investment Plan)
Audited Financial Statements and Supplemental Schedule
December 31, 2002 and 2001 and
Year ended December 31, 2002
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)........12
Report of Independent Auditors
Eaton Corporation -- Plan Sponsor
We have audited the accompanying statements of net assets available for benefits
of the Eaton Savings Plan (formerly known as Eaton Corporation Share Purchase
and Investment Plan) as of December 31, 2002 and 2001, and the related statement
of changes in net assets available for benefits for the year ended December 31,
2002. 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, 2002 and 2001, and the changes in its net assets available for
benefits for the year ended December 31, 2002, 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, 2002, 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, 2003
1
Eaton Savings Plan (formerly known as
Eaton Corporation Share Purchase and Investment Plan)
Statements of Net Assets Available for Benefits
DECEMBER 31
2002 2001
-------------- --------------
Assets
Investments, at fair value:
Plan interest in Eaton Employee
Savings Trust $1,569,154,366 $ --
Participant notes receivable 42,662,067 29,910,808
Common stock -- 592,711,440
Mutual funds -- 359,453,516
U.S. Government securities -- 62,053,392
Corporate debt instruments -- 51,420,310
Money market fund -- 70,996,600
-------------- --------------
Total investments 1,611,816,433 1,166,546,066
Receivables:
Interest and dividends -- 1,348,360
Accrued sales of investments -- 39,105
-------------- --------------
Total receivables -- 1,387,465
-------------- --------------
Net assets available for benefits $1,611,816,433 $1,167,933,531
============== ==============
See notes to financial statements.
2
Eaton Savings Plan (formerly known as
Eaton Corporation Share Purchase and Investment Plan)
Statement of Changes in Net Assets Available for Benefits
Year ended December 31, 2002
Additions
Investment income:
Interest $ 3,321,857
Net appreciation in fair value of investments 16,271,830
---------------
19,593,687
Contributions:
Participants 73,747,350
Rollovers 3,745,283
Employer 31,858,962
---------------
109,351,595
Transfer from Aeroquip-Vickers Savings
and Profit Sharing Plan 617,399,597
---------------
746,344,879
Deductions
Benefits paid to participants 187,125,851
Administrative expenses 279,089
---------------
187,404,940
Plan interest in Eaton Employee Savings
Trust investment loss (115,057,037)
---------------
Net increase 443,882,902
Net assets available for benefits at beginning of year 1,167,933,531
---------------
Net assets available for benefits at end of year $ 1,611,816,433
===============
See notes to financial statements.
3
Eaton Savings Plan (formerly known as
Eaton Corporation Share Purchase and Investment Plan)
Notes to Financial Statements
December 31, 2002 and 2001 and
Year ended December 31, 2002
1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The financial statements of the Eaton Savings Plan (formerly known as Eaton
Corporation Share Purchase and Investment Plan) (the Plan) are prepared under
the accrual method 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 Personal Investment 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 Aeroquip Vickers Fixed Income 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 Aeroquip Vickers Fixed Income Fund invests primarily in investment
contracts issued by insurance companies. The investment contracts within the
Aeroquip Vickers Fixed Income Fund are stated at contract value, which
approximates fair value.
Purchases of sales and securities are recorded on a trade-date basis.
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 are not expected to differ from these estimates.
4
Eaton Savings Plan (formerly known as
Eaton Corporation Share Purchase and Investment Plan)
Notes to Financial Statements (continued)
2. DESCRIPTION OF PLAN
Effective July 1, 1974, Eaton Corporation (Eaton, the Company, or the Plan
Sponsor) established the Plan. The Plan was established to encourage eligible
employees to make systematic savings payroll deductions, to provide additional
security at retirement and to acquire a proprietary interest in the Company.
Effective July 5, 1989, the portion of the Plan attributable to Company
contributions was designed to be invested primarily in Eaton Common Shares and
constitute an employee stock ownership plan within the meaning of Code Section
4975(e)(7). 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.
Effective at the close of business on April 1, 2002, the net assets of the
Aeroquip-Vickers Savings and Profit Sharing Plan (Aeroquip Plan), which related
to accounts of participants of the Aeroquip Plan who were not covered by a
collective bargaining agreement, were transferred to the Plan.
The Plan generally provides that an Eaton employee who is in the regular service
of a class of an employee 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 30% of their compensation. Participants of the Plan receive a
Company matching contribution of 100% of the first 3% of their compensation,
plus 50% of the next 2% of compensation. Employees are 100% vested in their
matching contributions.
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.
5
Eaton Savings Plan (formerly known as
Eaton Corporation Share Purchase and Investment Plan)
Notes to Financial Statements (continued)
2. DESCRIPTION OF PLAN (CONTINUED)
Company contributions made prior to January 1, 2002 were invested and held in
the Eaton Common Shares Fund. Matching contributions made on or after January 1,
2002 are invested in the same manner as participants' before or after tax
contributions. Employees may elect to transfer the account balances related to
Company matching contributions made prior to January 1, 2002 to other investment
funds offered by the Plan, in gradual phases, such that as of January 1, 2005,
the entire account balance related to pre-January 1, 2002 Company matching
contributions will be eligible to be transferred.
Each participant's account is credited with the participant's contributions and
Company matching contributions and allocation 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 (excluding any contributions made under a
Savings Plan Individual Retirement Account or Company contributions made in the
previous 24 months), 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.
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 2002 on behalf of the Plan.
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.
6
Eaton Savings Plan (formerly known as
Eaton Corporation Share Purchase and Investment Plan)
Notes to Financial Statements (continued)
2. DESCRIPTION OF PLAN (CONTINUED)
Information about the Plan is contained in the Plan document, which is available
from the Company's Human Resources Department upon request.
3. INVESTMENTS
Effective January 3, 2002, Fidelity Management Trust Company, trustee and
recordkeeper 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.
A summary of the investments of the Master Trust as of December 31, 2002 is as
follows:
Registered investment companies $ 661,423,979
Eaton common shares 492,065,122
Insurance company general accounts 272,326,947
U.S. Government securities 92,586,380
Corporate debt instruments 56,633,963
Interest-bearing cash 31,414,358
Axcelis common shares 19,003,919
Pooled separate accounts 1,473,735
--------------
Total investments $1,626,928,403
==============
The Plan had a 96.4% interest in the investments of the Master Trust as of
December 31, 2002.
Investment income and administrative expenses relating to the 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 (loss) allocated to the participating plans
for the year ended December 31, 2002 is as follows:
Interest and dividend income $ 27,440,174
Net appreciation (depreciation) in fair value of investments:
Common stock (26,650,823)
Registered investment companies (130,559,870)
Eaton Fixed Income Fund 9,464,573
-------------
$(120,305,946)
=============
7
Eaton Savings Plan (formerly known as
Eaton Corporation Share Purchase and Investment Plan)
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
At December 31, 2002, the Eaton Fixed Income Fund was comprised of U.S.
Government securities (54%), corporate debt instruments (33%), interest-bearing
cash (12%), and pooled separate accounts (1%).
Prior to January 3, 2002, Key Trust Company of Ohio, N.A. was the trustee
for the Plan, and held the Plan's investments and executed investment
transactions.
During 2002, the Plan's investments held prior to the transfer to the Master
Trust (including investments purchased, sold, as well as held during the year)
appreciated (depreciated) in fair value as follows:
Common/collective trust fund $ (156,613)
Shares of registered investment companies 1,965,579
Common stock 14,462,864
------------
$ 16,271,830
============
At December 31, 2001, the fair value of individual investments that represent 5%
or more of the Plan's net assets available for benefits are as follows:
Eaton Corporation Common Shares* $506,150,437
Vanguard Windsor Fund 117,050,860
Fidelity Contra Fund 92,220,367
Axcelis Common Shares 86,561,003
Vanguard Institutional Index Fund 81,383,535
Key Trust EB Money Market Fund* 70,996,600
* Includes nonparticipant-directed contributions
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.
8
Eaton Savings Plan (formerly known as
Eaton Corporation Share Purchase and Investment Plan)
Notes to Financial Statements (continued)
3. 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
2002 2001
------------ ------------
Net assets:
Investment in Eaton Common Shares
Master Trust investment account $495,202,378 $ --
Eaton Corporation Common Shares -- 506,150,437
Key Trust EB Money Market Fund -- 7,007,960
Accrued sales of investments -- 39,113
Interest and dividends receivable -- 11,359
------------ ------------
$495,202,378 $513,208,869
============ ============
YEAR ENDED
DECEMBER 31,
2002
------------
Changes in net assets:
Contributions $ 35,244,038
Net appreciation in fair value of common stock 2,254,483
Net investment gain from Eaton Common
Shares Master Trust investment account 38,034,804
Transfer from Aeroquip-Vickers Savings and
Profit Sharing Plan 22,914,804
Net transfers to participant-directed funds (63,330,799)
Distributions to participants (52,992,103)
Administrative expenses (131,718)
------------
Net decrease $(18,006,491)
============
9
Eaton Savings Plan (formerly known as
Eaton Corporation Share Purchase and Investment Plan)
Notes to Financial Statements (continued)
4. 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
2002 2001
--------------- ---------------
Net assets available for benefits per the
financial statements $ 1,611,816,433 $ 1,167,933,531
Amounts allocated to withdrawing
participants -- (1,467,706)
--------------- ---------------
Net assets available for benefits per
Form 5500 $ 1,611,816,433 $ 1,166,465,825
=============== ===============
The following is a reconciliation of benefits paid to participants per the
financial statements to the Form 5500:
YEAR ENDED
DECEMBER 31,
2002
-------------
Benefits paid to participants per the
financial statements $ 187,125,851
Deduct amounts allocated to withdrawing participants at
December 31, 2001 (1,467,706)
-------------
Benefits paid to participants per Form 5500 $ 185,658,145
=============
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.
10
Eaton Savings Plan (formerly known as
Eaton Corporation Share Purchase and Investment Plan)
Notes to Financial Statements (continued)
5. 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 Internal Revenue Code (the Code) and, therefore, the related trust is exempt
from taxation. 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 is qualified and the related trust
is tax exempt.
6. TRANSACTIONS WITH PARTIES-IN-INTEREST
Party-in-interest transactions included the investments in the common stock of
Eaton and the investment funds of the trustee and the payment of administrative
expenses by the Company. Such transactions are exempt from being prohibited
transactions.
During 2002, the Master Trust received $10,862,142 in common stock dividends
from the Company.
On June 30, 2000, Eaton reorganized its semiconductor equipment operations into
a wholly owned subsidiary, Axcelis Technologies, Inc. (Axcelis). In July 2000,
Axcelis completed an initial public offering for the sale of 20% of its common
shares. On December 29, 2000, Eaton distributed its remaining interest in
Axcelis to Eaton shareholders as a dividend (spin-off), which was tax free to
Eaton and its shareholders for United States income tax purposes. 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. Participants were not allowed to direct
contributions or transfers to the Axcelis Common Stock Fund, but were permitted
to direct the transfer of amounts in the Axcelis Common Stock Fund to other
funds available under the Plan. The Axcelis Common Stock Fund was terminated
subsequent to the close of the market on December 31, 2002. All remaining shares
were liquidated and the assets were invested in a money market fund.
11
Eaton Savings Plan (formerly known as
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, 2002
DESCRIPTION OF INVESTMENT
INCLUDING MATURITY DATE,
IDENTITY OF ISSUE, BORROWER, RATE OF INTEREST, COLLATERAL, CURRENT
Lessor or Similar Party Par or Maturity Value Value
---------------------------------------------------------------------------------------------
*Participant notes receivable 5.25%-10.5% $42,622,067
*Indicates party-in-interest to the Plan.
12