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
For the fiscal year ended December 31, 2001
Or
[ ] Transition report pursuant to Section 15(d) of the Securities Exchange
Act of 1934
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:
AEROQUIP-VICKERS SAVINGS AND PROFIT SHARING 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)
AEROQUIP-VICKERS SAVINGS AND
PROFIT SHARING 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
SCHEDULES
Aeroquip-Vickers Savings and Profit Sharing Plan
December 31, 2001 and 2000 and Year ended December 31, 2001
Aeroquip-Vickers Savings and Profit Sharing Plan
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).........11
Schedule H, Line 4(j)--Schedule of Reportable Transactions..............12
Report of Independent Auditors
Corporate Compensation and Organization
Committee of Eaton Corporation
Aeroquip-Vickers Savings and Profit Sharing Plan
We have audited the accompanying statements of net assets available for benefits
of the Aeroquip-Vickers Savings and Profit Sharing Plan 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
Aeroquip-Vickers Savings and Profit Sharing Plan
Statements of Net Assets Available for Benefits
DECEMBER 31
2001 2000
-----------------------------
ASSETS
Investments:
At fair value:
Registered investment companies $531,716,060 $531,867,095
Common stock 27,276,209 32,428,213
Participant loans 17,042,772 20,719,739
At contract value:
Investment contracts 99,860,051 174,522,404
-----------------------------
Total investments 675,895,092 759,537,451
Receivables:
Contributions--Employer 19,704,464 19,676,014
Contributions--Participants 101,566 124,880
Fixed income fund units receivable, net 560,917 -
Stock dividend - 5,216,122
-----------------------------
Total receivables 20,366,947 25,017,016
-----------------------------
Net assets available for benefits $696,262,039 $784,554,467
=============================
See accompanying notes.
2
Aeroquip-Vickers Savings and Profit Sharing Plan
Statement of Changes in Net Assets Available for Benefits
Year ended December 31, 2001
ADDITIONS
Investment income:
Interest and dividends $ 28,703,189
Contributions:
Participants 14,788,248
Employer 25,321,535
-------------
68,812,972
DEDUCTIONS
Distributions to participants 117,582,821
Investment management fees 100,926
-------------
117,683,747
Net depreciation in fair value of investments 39,421,653
-------------
Net decrease (88,292,428)
Net assets available for benefits at beginning of year 784,554,467
-------------
Net assets available for benefits at end of year $ 696,262,039
=============
See accompanying notes.
3
Aeroquip-Vickers Savings and Profit Sharing Plan
Notes to Financial Statements
December 31, 2001 and 2000 and
Year ended December 31, 2001
1. DESCRIPTION OF THE PLAN
The Aeroquip-Vickers Savings and Profit Sharing Plan (the Plan) is a defined
contribution plan. Eligible participants include all U. S. regular full-time
salaried employees and non-bargaining hourly employees of Aeroquip-Vickers, Inc.
(Company) and its subsidiaries, Aeroquip Corporation (Aeroquip) and Vickers,
Incorporated (Vickers). Eaton Corporation (Eaton) is the parent of the Company
and its subsidiaries. Effective January 1, 2000, covered employees are eligible
for participation in the Plan after one hour of service. Bargaining unit
employees are eligible to participate only if the bargaining agreement permits
participation. Interns are not eligible to participate in the Plan.
Participants may contribute to the Plan on a pretax basis by salary reduction up
to 15% of their annual compensation (in increments of 1%) subject to an annual
limit imposed by the Internal Revenue Service. Each participant individually
directs his or her contributions and the Company's contributions into the
investment funds offered by the Plan (in multiples of 1%), except for 25% of the
Company's profit sharing contribution.
The contribution receivable amount primarily consists of the profit sharing
contributions for the year. Profit sharing contributions to the Plan by the
Company are based on the level of return on net assets of the Company. These
contributions are paid to the Plan by the Company during the first quarter of
the following year.
The Company matches 50% to 100% of participant contributions not exceeding 1% to
5% of the total compensation of the participant, depending on the location and
contribution level of the participant.
A participant is entitled to the distributions provided by the contributions and
income thereon (including realized and unrealized gains and losses) allocated to
the participant's account.
Upon termination of employment due to retirement, total and permanent disability
or death, a participant or his or her spousal beneficiary will be entitled to
receive a distribution of the participant's entire account without regard to the
Plan's vesting rules: (i) in one lump sum amount; or (ii) in monthly
installments of a fixed amount or over a specified period of time in an amount
of at least $100 per month. Distribution payments to non-spousal beneficiaries
will be made in a lump sum only. If the value of a participant's account is less
than $5,000, the plan administrator will distribute the participant's entire
interest in one lump sum payment.
4
Aeroquip-Vickers Savings and Profit Sharing Plan
Notes to Financial Statements (continued)
1. DESCRIPTION OF THE PLAN (CONTINUED)
Profit sharing and matching contributions and their earnings may be withdrawn
prior to age 59-1/2 in an amount not to exceed the value of the pretax
contributions account at December 31, 1993 and only after all after-tax
contributions and their earnings have been withdrawn. Withdrawals of profit
sharing allocations and matching contributions during a participant's employment
are not permitted prior to age 59-1/2, unless the participant can show financial
hardship for which he or she has no other available resources. Such situations
are limited to: (i) certain medical expenses; (ii) payment of tuition and
related educational fees for post-secondary education for the next year; (iii)
costs related to the purchase of a principal residence; or (iv) payments
necessary to avoid eviction from, or a foreclosure on the mortgage of, the
participant's principal residence.
The Eaton Common Shares Fund is invested in Eaton Corporation Common Stock. Cash
dividends paid on shares held by the Trust are used to purchase additional
shares for participant accounts. For each participant's 2001 profit sharing
contribution made by the Company, 25% will be automatically invested in the
Eaton Common Shares Fund until distribution to the participant or until the
participant reaches age 55. Participants can also elect to have additional
amounts over the Company's 25% profit sharing contribution invested in the Eaton
Common Shares Fund.
Participants of the Plan have general purpose and home loans available. Under a
general purpose or home loan, a participant may borrow up to the lesser of
one-half of his or her vested account balance or the total of his or her pretax,
matching and roll-in contributions to the Plan, up to a maximum of $50,000. In
no event may the aggregate amount of loans exceed $50,000. All loans are repaid
to the Plan in equal installments through payroll deductions or direct payment
over a period not to exceed five years for general purpose and twenty years for
home loans. Interest is charged at the prime rate, plus 1% at the loan
origination date.
The Plan Sponsor pays certain administrative costs.
The Company reserves the right to amend, modify or terminate the Plan at any
time.
Information concerning the Plan document, matching and profit sharing
contributions and vesting is contained in the summary plan description (SPD) for
the plan. Copies of the SPD are available from the Human Resource Services
department of the Company.
5
Aeroquip-Vickers Savings and Profit Sharing Plan
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The accounting records of the Plan are maintained on 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 money market funds, which are 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 21, 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
and common shares is based upon the average cost of each participant's shares
sold for purposes of determining realized gains and losses.
Investment contracts consist of fully benefit-responsive insurance company and
bank investment contracts. These investment contracts are stated at contract
value. These contracts pay a negotiated fixed or variable interest rate for a
period of one to five years. At December 31, 2001 and 2000, the investment
contracts had a weighted average crediting interest rate of 5.78% and 6.25%,
respectively. The average yield on these contracts was 5.86% and 6.13% for the
years ended December 31, 2001 and 2000, respectively. The contract value of
these contracts approximates fair value.
Contracts are negotiated with insurance companies or financial institutions
rated AA+ by Standard and Poor's or its equivalent and have a maximum average
contract life of five years.
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 accompanying financial statements and
notes. Actual results could differ from these estimates.
6
Aeroquip-Vickers Savings and Profit Sharing Plan
Notes to Financial Statements (continued)
3. INVESTMENTS
The Vanguard Group, Incorporated, 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
--------------------------------------------
Vanguard 500 Index Fund $ 109,776,213 $ 141,444,965
Vanguard Morgan Growth Fund 49,926,876 63,264,709
Vanguard STAR Fund 91,946,755 101,539,549
Vanguard Windsor II Fund 59,771,263 67,860,353
Vanguard Prime Money Market 146,443,324 73,834,009
During 2001, the Plan's investments (including investments purchased, sold as
well as held during the year) appreciated/(depreciated) in fair value as
determined by quoted market prices as follows:
Common stock $ 6,572,653
Registered investment companies (45,994,306)
-----------------------
$ (39,421,653)
=======================
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
Aeroquip-Vickers Savings and Profit Sharing 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
2001 2000
--------------------------------------------
Net assets:
Eaton Corporation common shares $ 21,534,611 $ 32,264,209
Receivables:
Contributions receivable 5,175,796 5,131,658
Stock dividend receivable - 5,216,122
--------------------------------------------
$ 26,710,407 $ 42,611,989
============================================
YEAR ENDED
DECEMBER 31,
2001
------------------------
Changes in net assets:
Participant contributions $ 348,153
Employer contributions 5,387,297
Net appreciation in fair value of investments 3,643,015
Interest and dividends 637,340
Participant loan repayments 149,093
Interfund transfers, net (23,138,660)
Distributions to participants (2,927,820)
------------------------
Net changes $ (15,901,582)
========================
8
Aeroquip-Vickers Savings and Profit Sharing Plan
Notes to Financial Statements (continued)
4. INCOME TAX STATUS
The Plan has received a determination letter from the Internal Revenue Service
dated July 22, 1995, stating that the Plan is qualified under section 401(a) of
the Internal Revenue Code of 1986 (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
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 $629,838 in common stock dividends from Eaton
Corporation.
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 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. 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 money market 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
Aeroquip-Vickers Savings and Profit Sharing Plan
Notes to Financial Statements (continued)
6. SUBSEQUENT EVENTS
The Company changed the type of retirement benefit plan available to employees
hired after January 1, 2002, from the current retirement plan to a "cash
balance" retirement plan, and to make such a cash balance plan available to
employees of the Company who formerly were employed by the Company or its
subsidiaries, effective as of January 1, 2002 (January 1, 2003 for employees at
the Memphis (Summa) location), except in all such cases for employees covered by
a collective bargaining agreement.
Effective April 1, 2002, the Plan merged with, and all the assets were
transferred into, the Eaton Savings Plan.
10
Aeroquip-Vickers Savings and Profit Sharing Plan
EIN: 34-4288310 Plan Number: 15
Schedule H, Line 4(i)--Schedule of Assets
(Held at End of Year)
December 31, 2001
DESCRIPTION OF INVESTMENT
INCLUDING MATURITY
DATE, RATE OF
IDENTITY OF ISSUE, BORROWER, INTEREST, COLLATERAL
LESSOR, OR SIMILAR PARTY PAR OR MATURITY VALUE COST CURRENT VALUE
-------------------------------------------------------------------------------------------------------------------
SHARES OF REGISTERED INVESTMENT COMPANIES
* Vanguard 500 Index Fund 1,036,700 shares $ 109,776,213
* Vanguard International Growth Fund 1,069,318 shares 16,050,462
* Vanguard LifeStrategy Conservative Growth Fund 367,126 shares 5,161,796
* Vanguard LifeStrategy Growth Fund 560,038 shares 9,761,468
* Vanguard LT Corporate Fund 976,031 shares 8,471,953
* Vanguard Morgan Growth Fund 3,412,637 shares 49,926,876
* Vanguard STAR Fund 5,592,868 shares 91,946,755
* Vanguard Treasury Money Market 34,405,950 shares 34,405,950
* Vanguard Windsor II Fund 2,335,727 shares 59,771,263
* Vanguard Prime Money Market Fund 146,443,324 shares 146,443,324
----------------
531,716,060
COMMON STOCK
* Eaton Corporation Common Stock 289,405 shares $ 19,281,632 21,534,611
* Axcelis Common Stock Fund 445,430 shares 5,741,598
---------------
27,276,209
UNALLOCATED INSURANCE CONTRACTS
American International Life Assurance 18293 1/31/02, 6.37% 9,601,474
American International Life Assurance 995 3/3102, 6.21% 9,991,970
Allstate Life Insurance 6080 2/14/03 6.10% 3,588,540
Allstate Life Insurance GA-6139 10/15/03, 5.64% 10,540,207
CDC Financial Products 394-01 2/22/04, 4.44% 8,037,220
CDC Financial Products 394-02 1/25/04, 5.66% 20,203,149
CDC Financial Products 394-03 5/25/04, 5.88% 5,832,777
Principal Life 4-18623-02 3/31/02, 6.85% 3,050,521
Security Life of Denver 0120 2/21/02, 5.63% 22,326,623
UBS Warbug 2303 3/7/02, 6.18% 6,687,570
---------------
99,860,051
* PARTICIPANT LOANS 7-10% variable maturities 17,042,772
---------------
Total investments $ 675,895,092
===============
* Indicates party-in-interest to the Plan.
11
Aeroquip-Vickers Savings and Profit Sharing Plan
EIN: 34-4288310 Plan Number: 15
Schedule H, Line 4(j)--Schedule of Reportable Transactions
Year ended December 31, 2001
CURRENT VALUE
OF ASSET ON
IDENTITY DESCRIPTION PURCHASE SELLING COST OF TRANSACTION NET
OF ISSUE OF ASSET PRICE PRICE ASSET DATE GAIN
---------------------------------------------------------------------------------------------------------------------------
CATEGORY (III)--SERIES OF TRANSACTIONS IN EXCESS OF 5% OF PLAN ASSETS
Eaton Corporation* Eaton Corporation $ 19,214,242 $ 19,214,242 $ 19,214,242
Common Stock $ 34,060,013 31,106,950 34,060,013 $ 2,953,063
*Indicates party-in-interest to the Plan.
There were no category (i), (ii) or (iv) reportable transactions during the year
ended December 31, 2001.
12
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
23 Consent of Ernst & Young LLP.