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:
CUTLER-HAMMER DE PUERTO RICO COMPANY RETIREMENT 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)
CUTLER-HAMMER DE PUERTO RICO COMPANY
RETIREMENT 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
Cutler-Hammer de Puerto Rico Company Retirement Savings Plan
December 31, 2001 and 2000 and Year ended December 31, 2001
Cutler-Hammer de Puerto Rico Company
Retirement Savings Plan
Financial Statements and Supplemental Schedule
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 Schedule
Schedule H, Line 4(i)--Schedule of Assets (Held at End of Year)..............9
Report of Independent Auditors
Corporate Compensation and Organization
Committee of Eaton Corporation
Cutler-Hammer de Puerto Rico Company
Retirement Savings Plan
We have audited the accompanying statements of net assets available for benefits
of the Cutler-Hammer de Puerto Rico Company Retirement Savings 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 schedule of assets
(held at end of year) as of December 31, 2001, 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, 2002
1
Cutler-Hammer de Puerto Rico Company
Retirement Savings Plan
Statements of Net Assets Available for Benefits
DECEMBER 31
2001 2000
-----------------------------
ASSETS
Investments:
Common stock at fair value $ 1,469,874 $ 1,162,448
Mutual funds 4,738,731 7,080,450
Common/collective trust fund 10,969,493 7,422,998
Money market fund 1,944 3,125
-----------------------------
Total investments 17,180,042 15,669,021
Receivables:
Contributions-Employer 92,017 86,523
Contributions-Participants 223,720 235,272
Interest 31 173
Stock dividend -- 187,928
-----------------------------
Total receivables 315,768 509,896
-----------------------------
Net assets available for benefits $17,495,810 $16,178,917
=============================
See notes to financial statements.
2
Cutler-Hammer de Puerto Rico Company
Retirement Savings Plan
Statement of Changes in Net Assets Available for Benefits
Year ended December 31, 2001
ADDITIONS
Investment income:
Interest and dividends $ 496,729
Contributions:
Participants 2,364,325
Employer 987,769
-----------
3,352,094
-----------
3,848,823
DEDUCTIONS
Distributions to participants 1,959,282
-----------
1,889,541
Net depreciation in fair value of investments 572,648
-----------
Net increase 1,316,893
Net assets available for benefits at beginning of year 16,178,917
-----------
Net assets available for benefits at end of year $17,495,810
===========
See notes to financial statements.
3
Cutler-Hammer de Puerto Rico Company
Retirement Savings Plan
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 Cutler-Hammer de Puerto Rico Company Retirement
Savings Plan (the Plan) are prepared under the accrual method 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. 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 6).
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.
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 PLAN
Effective February 1, 1994, Cutler-Hammer de Puerto Rico Company (the Company or
the Plan Sponsor), a wholly-owned subsidiary of Eaton Corporation (Eaton),
established the Plan. The Plan provides that all employees of the Company are
eligible immediately upon employment.
Eligible employees may elect to make before-tax contributions to the Plan up to
a maximum of 10% of their compensation. The Company has agreed to voluntarily
contribute 50% of the employee contributions not exceeding 3% of the total
compensation of the employee.
4
Cutler-Hammer de Puerto Rico Company
Retirement Savings Plan
Notes to Financial Statements (continued)
2. DESCRIPTION OF PLAN (CONTINUED)
Contributions are allocated by the employee to any of the five investment funds
offered by the Plan.
Substantially all administrative, management fees and other expenses of the Plan
shall be paid by the Company. Certain transaction costs are borne by the
participants.
Each participant's account is credited with the participant's contributions and
allocations of Company contributions, Plan earnings and transaction costs.
Allocations are based on participant earnings or account balances, as defined.
The benefit to which a participant is entitled is the benefit that can be
provided from the participant's account. On termination of service, a
participant may receive a lump-sum amount equal to the vested value of his or
her account.
Participants are immediately vested in their contributions plus actual earnings
thereon. Vesting in the Company contribution portion of their accounts plus
actual earnings thereon is based on years of continuous service. Participants
are 100% vested after three years of credited service or upon the death of the
participant. Forfeitures of non-vested amounts shall be used to reduce future
Company contributions.
The Company may amend, modify, suspend or terminate the Plan, provided that no
assets held by the Plan or income thereon received by the Trustee for the
purposes of the Plan shall be used for, or diverted to, purposes other than for
the exclusive benefit of participating employees 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
Key Trust Company of Ohio, N.A., trustee of the Plan, holds the Plan's
investment assets and executes investment transactions.
5
Cutler-Hammer de Puerto Rico Company
Retirement Savings Plan
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
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
----------------------------------------
EB Managed Guaranteed Investment Contract Fund $ 10,969,493 $ 7,422,998
Victory Stock Index Fund 4,221,929 7,080,450
Eaton Corporation Common Shares 1,322,787 1,162,448
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 stock $ 240,060
Mutual funds (1,369,580)
Common/collective trust fund 556,872
---------------------
$ (572,648)
=====================
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
2001 2000
---------------------------------------
Net assets available for benefits per the financial statements $ 17,495,810 $ 16,178,917
Amounts allocated to withdrawing participants (700,316) (209,765)
---------------------------------------
Net assets available for benefits per Form 5500 $ 16,795,494 $ 15,969,152
=======================================
6
Cutler-Hammer de Puerto Rico Company
Retirement Savings Plan
Notes to Financial Statements (continued)
4. RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500 (CONTINUED)
The following is a reconciliation of benefits paid to participants per the
financial statements to the Form 5500:
YEAR ENDED
DECEMBER 31,
2001
-----------
Benefits paid to participants per the financial statements $ 1,959,282
Add: Amounts allocated to withdrawing participants
at December 31, 2001 700,316
Deduct: Amounts allocated to withdrawing participants
at December 31, 2000 (209,765)
-----------
Benefits paid to participants per Form 5500 $ 2,449,833
===========
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.
5. INCOME TAX STATUS
The Plan has received a determination letter from the Puerto Rico Treasury
Department dated August 24, 1999, stating that the Plan meets the requirements
for qualification under Puerto Rico income tax laws and that the related trust
is exempt from income taxes. Subsequent to this issuance of the determination
letter, the Plan was amended. Once qualified, the Plan is required to operate in
conformity with the income tax laws of Puerto Rico to maintain its
qualification. The plan administrator believes the Plan is being operated in
compliance with the applicable requirements of the income tax laws of Puerto
Rico and, therefore, believes that the Plan, as amended, is qualified and the
related trust is tax exempt.
7
Cutler-Hammer de Puerto Rico Company
Retirement Savings Plan
Notes to Financial Statements (continued)
6. TRANSACTIONS WITH PARTIES-IN-INTEREST
Party-in-interest transactions include the investment 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 $30,671 in common stock dividends from the 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. As a result of the Axcelis spin-off, the Plan had a
stock dividend receivable of $187,928 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.
8
Cutler-Hammer de Puerto Rico Company
Retirement Savings Plan
EIN: 34-1756466 Plan Number: 002
Schedule H, Line 4(i)-Schedule of Assets
(Held at End of Year)
December 31, 2001
DESCRIPTION OF CURRENT
IDENTITY OF ISSUE INVESTMENT VALUE
----------------------------------------------------------------------------------------------------------------
COMMON STOCK
Eaton Corporation Common Shares* 17,777 shares $ 1,322,787
Axcelis Technologies Incorporated Common Shares 11,411 shares 147,087
-------------------
1,469,874
MUTUAL FUNDS
Key Bank Victory Stock Index Fund* 248,203 units 4,221,929
Vanguard Developed Markets Index
Open-End Fund 19,466 units 135,292
Vanguard Balanced Index Fund
Open-End Fund 21,361 units 381,510
-------------------
4,738,731
COMMON/COLLECTIVE TRUST FUND
Key Bank EB Managed Guaranteed Investment
Contract Fund* 696,290 units 10,969,493
MONEY MARKET FUND
Key Bank EB Money Market Fund* 1,944 units 1,944
-------------------
$17,180,042
===================
* Indicates a party-in-interest to the Plan.
9
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
23 Consent of Ernst & Young LLP.