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, 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 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 27, 2003 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 Personal Investment Plan (formerly known as
Eaton Corporation 401(k) Savings Plan and Trust)
December 31, 2002 and 2001 and Year ended December 31, 2002 with Report of
Independent Auditors
Eaton Personal Investment Plan (formerly known as
Eaton Corporation 401(k) Savings Plan and Trust)
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 Personal Investment Plan (formerly known as Eaton Corporation
401(k) Savings Plan and Trust) 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 Personal Investment Plan (formerly known as
Eaton Corporation 401(k) Savings Plan and Trust)
Statements of Net Assets Available for Benefits
DECEMBER 31
2002 2001
----------- -----------
ASSETS
Investments at fair value:
Plan interest in Eaton Employee
Savings Trust $57,774,037 $ --
Participant notes receivable 2,094,382 1,735,437
Mutual funds -- 22,817,349
Common/collective trust fund -- 12,761,074
Money market fund -- 2,883,743
Common stock -- 8,769,507
----------- -----------
Total investments 59,868,419 48,967,110
Receivables:
Contributions--Participants -- 41,664
Interest -- 8,144
----------- -----------
Total receivables -- 49,808
----------- -----------
Net assets available for benefits $59,868,419 $49,016,918
=========== ===========
See notes to financial statements.
2
Eaton Personal Investment Plan (formerly known as
Eaton Corporation 401(k) Savings Plan and Trust)
Statement of Changes in Net Assets Available for Benefits
Year ended December 31, 2002
ADDITIONS
Investment income:
Interest $ 159,395
Net appreciation in fair value of investments 389,188
------------
548,583
Contributions:
Participants 5,657,314
Employer 487,456
------------
6,144,770
Transfer from Aeroquip-Vickers Savings and
Profit Sharing Plan 16,847,419
------------
23,540,772
DEDUCTIONS
Distributions to participants 7,422,604
Administrative expenses 17,758
------------
7,440,362
Plan interest in Eaton Employee Savings Trust
investment loss (5,248,909)
------------
Net increase 10,851,501
Net assets available for benefits at beginning of year 49,016,918
------------
Net assets available for benefits at end of year $ 59,868,419
============
See notes to financial statements.
3
Eaton Personal Investment Plan (formerly known as
Eaton Corporation 401(k) Savings Plan and Trust)
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 Personal Investment Plan (formerly known
as Eaton Corporation 401(k) Savings Plan and Trust) (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 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 and sales of securities are recorded on a trade-date basis.
4
Eaton Personal Investment Plan (formerly known as
Eaton Corporation 401(k) Savings Plan and Trust)
Notes to Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. Effective January 1, 2002, the Plan was amended and restated and renamed
the Eaton Personal Investment 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
primarily to Aeroquip Plan participants belonging to UAW Local 1966, Jackson,
Michigan and IUE Local 792, Jackson, Mississippi, were transferred to the 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, and IUE Local 792, Jackson, Mississippi 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.
5
Eaton Personal Investment Plan (formerly known as
Eaton Corporation 401(k) Savings Plan and Trust)
Notes to Financial Statements (continued)
2. DESCRIPTION OF THE PLAN (CONTINUED)
Eligible employees may elect to make before-tax or after-tax contributions from
1% to 17% of their compensation. For certain locations, eligible employees
receive a Company matching contribution of 50% up to 6% of their compensation,
or 100% of the first 2% and 50% of the next 2% of their compensation, depending
on the location. Eligible employees are 100% vested, subject to certain
provisions as defined by each location. Contributions are allocated by the
employee among the investment funds offered by the Plan.
25% of the Aeroquip-Vickers, Inc. profit sharing contribution made under the
Aeroquip Plan was invested and held in the Eaton Common Shares Fund. Employees
may elect to transfer the account balances related to these profit-sharing
contributions to other investment funds offered by the Plan, in gradual phases,
such that as of January 1, 2005, the entire account balance related to such
profit-sharing contributions will be eligible to be transferred.
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.
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.
6
Eaton Personal Investment Plan (formerly known as
Eaton Corporation 401(k) Savings Plan and Trust)
Notes to Financial Statements (continued)
2. DESCRIPTION OF THE PLAN (CONTINUED)
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
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 3.6% interest in the investments of the Master Trust as of
December 31, 2002.
7
Eaton Personal Investment Plan (formerly known as
Eaton Corporation 401(k) Savings Plan and Trust)
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
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 (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)
=============
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 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 $ (22,099)
Shares of registered investment companies 196,464
Common stock 214,823
---------
$ 389,188
=========
8
Eaton Personal Investment Plan (formerly known as
Eaton Corporation 401(k) Savings Plan and Trust)
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
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:
Key Bank Prism Reserve Fund $12,761,074
Vanguard Institutional Index Fund 9,279,577
Eaton Corporation Common Shares* 7,518,610
American Balanced Fund 4,922,148
Vanguard Windsor Fund 3,680,976
Fidelity Contra Fund 3,638,860
Employee Benefits Money Market Fund* 2,883,743
*Includes nonparticipant-directed contributions
The Eaton Common Shares Fund contained participant account balances that are
both participant--directed and nonparticipant-directed. Because the fund
contained 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
2002 2001
---------- ----------
Net assets:
Investment in Eaton Common Shares Master
Trust investment account $7,508,250 $ --
Eaton Corporation common shares -- 7,518,610
Key Trust EB Money Market Fund -- 270,096
Receivables:
Employee contribution -- 6,129
Interest -- 419
---------- ----------
$7,508,250 $7,795,254
========== ==========
9
Eaton Personal Investment Plan (formerly known as
Eaton Corporation 401(k) Savings Plan and Trust)
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
YEAR ENDED
DECEMBER 31,
2002
------------
Changes in net assets:
Contributions $ 609,250
Net appreciation in fair value of common stock 33,344
Net investment gain from Eaton Common Shares
Master Trust investment account 577,197
Transfer from Aeroquip-Vickers Savings
and Profit Sharing Plan 718,909
Net transfers to participant-directed funds (1,186,363)
Distributions to participants (1,034,595)
Administrative expenses (4,746)
-----------
Net decrease $ (287,004)
===========
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. 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.
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 2002, the Master Trust received $10,862,142 in common stock dividends
from the Company.
10
Eaton Personal Investment Plan (formerly known as
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.
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.
Eaton Personal Investment Plan (formerly known as
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, 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%;
variable maturities $ 2,094,382
*Indicates a party-in-interest to the Plan.