<PAGE> 1
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, 1998
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 CORPORATION SHARE PURCHASE AND 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
Exhibit
The following exhibit is filed herewith:
Exhibit No.
(23) Consent of Independent Auditors 17
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 CORPORATION SHARE
PURCHASE AND INVESTMENT PLAN
<PAGE> 2
Date: June 28, 1999 By: Eaton Corporation Pension
Administration Committee
By: /s/ S. J. Cook
------------------------
(Signature)
S. J. Cook
Vice President-Human Resources
Eaton Corporation
<PAGE> 3
Audited Financial Statements and
Supplemental Schedules
EATON CORPORATION SHARE PURCHASE
AND INVESTMENT PLAN
December 30, 1998 and 1997
<PAGE> 4
Report of Independent Auditors
Corporate Compensation Committee of Eaton Corporation
Eaton Corporation Share Purchase and Investment Plan
We have audited the accompanying statements of net assets available for benefits
of the Eaton Corporation Share Purchase and Investment Plan as of December 30,
1998 and 1997, and the related statement of changes in net assets available for
benefits for the year ended December 30, 1998. 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 generally accepted auditing
standards. 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 30, 1998 and 1997, and the changes in its net assets available for
benefits for the year ended December 30, 1998, in conformity with generally
accepted accounting principles.
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 for investment purposes as of December 30, 1998 and reportable transactions
for the year then ended, are presented for purpose 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 Fund Information in the statements of net assets available for
benefits and the statement of changes in net assets available for benefits is
presented for purposes of additional analysis rather than to present the net
assets available for benefits and the changes in net assets available for
benefits of each fund. The supplemental schedules and Fund Information 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 11, 1999
1
<PAGE> 5
Eaton Corporation Share Purchase and Investment Plan
Statement of Net Assets Available for Benefits, with Fund Information
December 30, 1998
<TABLE>
<CAPTION>
EB Money Fidelity Vanguard Vanguard Templeton
Fixed Income Market Contra Wellesley Windsor Foreign
Fund Fund Fund Fund Fund Fund
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments:
At fair value:
Eaton Corporation Common Shares
Mutual funds $ 97,255,100 $ 36,721,498 $ 129,109,418 $ 21,538,856
Government securities $ 53,871,768
Corporate debt instruments 84,241,102
Participant notes receivable
Short-term investments 4,191,222 $ 16,628,639
At contract value:
Guaranteed investment contracts
---------------------------------------------------------------------------------------------
Total investments 142,304,092 16,628,639 97,255,100 36,721,498 129,109,418 21,538,856
Receivables:
Interest and dividends receivable 1,353,608 75,170
Accrued sales of investments 161,046
---------------------------------------------------------------------------------------------
Total receivables 1,353,608 75,170 161,046
---------------------------------------------------------------------------------------------
Total assets 143,657,700 16,703,809 97,255,100 36,721,498 129,270,464 21,538,856
LIABILITIES
Accrued purchases of investments 357,367 204,126 17,899
Notes payable
Other payables
---------------------------------------------------------------------------------------------
Total liabilities 357,367 204,126 17,899
---------------------------------------------------------------------------------------------
NET ASSETS AVAILABLE FOR BENEFITS $ 143,657,700 $ 16,703,809 $ 96,897,733 $ 36,517,372 $ 129,270,464 $ 21,520,957
=============================================================================================
</TABLE>
<TABLE>
<CAPTION>
Eaton Common Shares Fund
Vanguard Oppenheimer ----------------------------- Life of
Institutional Value Equity Participant Non-Participant Loan Virginia 1998
Index Fund Fund Directed Directed Fund GIC Fund
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments:
At fair value:
Eaton Corporation Common Shares $ 229,523,287 $ 345,494,106
Mutual funds $ 82,934,661 $ 4,128,021
Government securities
Corporate debt instruments
Participant notes receivable $ 25,448,042
Short-term investments 2,058,118 7,332,294
At contract value:
Guaranteed investment contracts
$ 1,142,123
---------------------------------------------------------------------------------------------
Total investments 82,934,661 4,128,021 231,581,405 352,826,400 25,448,042 1,142,123
Receivables:
Interest and dividends receivable 8,941 21,657 1,363 7,268
Accrued sales of investments 258,068 426,487
---------------------------------------------------------------------------------------------
Total receivables 267,009 448,144 1,363 7,268
---------------------------------------------------------------------------------------------
Total assets 82,934,661 4,128,021 231,848,414 353,274,544 25,449,405 1,149,391
LIABILITIES
Accrued purchases of investments 526,682 84,300 66,131
Notes payable 9,556,621
Other payables 24,950 6,306
---------------------------------------------------------------------------------------------
Total liabilities 526,682 84,300 66,131 9,556,621 24,950 6,306
---------------------------------------------------------------------------------------------
NET ASSETS AVAILABLE FOR BENEFITS $ 82,407,979 $ 4,043,721 $ 231,782,283 $ 343,717,923 $ 25,424,455 $ 1,143,085
=============================================================================================
</TABLE>
<TABLE>
<CAPTION>
New York
Life 1999
GIC Fund Total
----------------------------
<S> <C> <C>
ASSETS
Investments:
At fair value:
Eaton Corporation Common Shares $ 575,017,393
Mutual funds 371,687,554
Government securities 53,871,768
Corporate debt instruments 84,241,102
Participant notes receivable 25,448,042
Short-term investments $ 19,362 30,229,635
At contract value:
Guaranteed investment contracts
601,301 1,743,424
----------------------------
Total investments 620,663 1,142,238,918
Receivables:
Interest and dividends receivable 2,906 1,470,913
Accrued sales of investments 845,601
----------------------------
Total receivables 2,906 2,316,514
----------------------------
Total assets 623,569 1,144,555,432
LIABILITIES
Accrued purchases of investments 1,256,505
Notes payable 9,556,621
Other payables 31,256
----------------------------
Total liabilities 10,844,382
----------------------------
NET ASSETS AVAILABLE FOR BENEFITS $ 623,569 $1,133,711,050
============================
</TABLE>
See notes to financial statements.
<PAGE> 6
Eaton Corporation Share Purchase and Investment Plan
Statement of Net Assets Available for Benefits, with Fund Information
December 30, 1997
<TABLE>
<CAPTION>
EB Money Fidelity Vanguard Vanguard Templeton
Fixed Income Market Contra Wellesley Windsor Foreign
Fund Fund Fund Fund Fund Fund
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments:
At fair value:
Eaton Corporation Common
Shares
Mutual funds $ 71,706,167 $ 28,135,378 $ 155,848,084 $ 30,359,256
Government securities $ 62,948,560
Corporate debt instruments 75,298,231
Participant notes receivable
Short-term investments 14,892,646 $ 15,481,400 2,818 1,121 6,151 1,207
At contract value:
Guaranteed investment contracts
--------------------------------------------------------------------------------------------
Total investments 153,139,437 15,481,400 71,708,985 28,136,499 155,854,235 30,360,463
Receivables:
Interest and dividends receivable 1,863,276 18,006 6,053,287 1,988,692 94,626 15,797
Other (payables) receivables (138,990)
--------------------------------------------------------------------------------------------
Total receivables 1,724,286 18,006 6,053,287 1,988,692 94,626 15,797
--------------------------------------------------------------------------------------------
Total assets 154,863,723 15,499,406 77,762,272 30,125,191 155,948,861 30,376,260
LIABILITIES
Accrued purchases of investments 18,625 6,056,104 1,989,813 100,777 17,004
Notes payable
Total liabilities 18,625 6,056,104 1,989,813 100,777 17,004
NET ASSETS AVAILABLE FOR BENEFITS $ 154,863,723 $ 15,480,781 $ 71,706,168 $ 28,135,378 $ 155,848,084 $ 30,359,256
============================================================================================
</TABLE>
<TABLE>
<CAPTION>
Eaton Common Shares Fund
Victory ----------------------------- Life of Life of
Stock Index Participant Non-Participant Loan Virginia 1997 Virginia 1998
Fund Directed Directed Fund GIC Fund GIC Fund
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments:
At fair value:
Eaton Corporation Common
Shares $ 270,551,738 $ 495,807,903
Mutual funds $ 51,810,811
Government securities
Corporate debt instruments
Participant notes receivable $ 20,119,485
Short-term investments 2,030 293,374 7,956,000 14,696 $ 11,794 $ 36,136
At contract value:
Guaranteed investment contracts 649,233 1,371,892
--------------------------------------------------------------------------------------------
Total investments 51,812,841 270,845,112 503,763,903 20,134,181 661,027 1,408,028
Receivables:
Interest and dividends receivable 98,675 4,081 17,081 72 179
Other (payables) receivables 1,994 59,178 (13,504) (1,100) (868)
--------------------------------------------------------------------------------------------
Total receivables 98,675 6,075 76,259 (13,504) (1,028) (689)
--------------------------------------------------------------------------------------------
Total assets 51,911,516 270,851,187 503,840,162 20,120,677 659,999 1,407,339
LIABILITIES
Accrued purchases of investments 100,705
Notes payable 23,509,170
Total liabilities 100,705 23,509,170
NET ASSETS AVAILABLE FOR BENEFITS $ 51,810,811 $ 270,851,187 $ 480,330,992 $ 20,120,677 $ 659,999 $ 1,407,339
============================================================================================
</TABLE>
<TABLE>
<CAPTION>
New York
Life 1999
GIC Fund Total
---------------------------
<S> <C> <C>
ASSETS
Investments:
At fair value:
Eaton Corporation Common
Shares $ 766,359,641
Mutual funds 337,859,696
Government securities 62,948,560
Corporate debt instruments 75,298,231
Participant notes receivable 20,119,485
Short-term investments $ 9,329 38,708,702
At contract value:
Guaranteed investment contracts 714,561 2,735,686
----------------------------
Total investments 723,890 1,304,030,001
Receivables:
Interest and dividends receivable 70 10,153,842
Other (payables) receivables (371) (93,661)
----------------------------
Total receivables (301) 10,060,181
----------------------------
Total assets 723,589 1,314,090,182
LIABILITIES
Accrued purchases of investments 8,283,028
Notes payable 23,509,170
Total liabilities 31,792,198
NET ASSETS AVAILABLE FOR BENEFITS $ 723,589 $ 1,282,297,984
============================
</TABLE>
See notes to financial statements.
<PAGE> 7
Eaton Corporation Share Purchase and Investment Plan
Statement of Changes in Net Assets Available for Benefits, with Fund Information
Year Ended December 30, 1998
<TABLE>
<CAPTION>
EB Money Fidelity Vanguard Vanguard Templeton
Fixed Income Market Contra Wellesley Windsor Foreign
Fund Fund Fund Fund Fund Fund
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Additions to net assets
attributed to:
Investment income:
Net realized and unrealized
appreciation (depreciation)
in fair value of investments $ 1,194,357 $ 262,466 $ 22,433,944 $ 2,094,606 $ (1,093,474) $(1,838,878)
Dividends--shares allocated
to participants 1,596,342 2,028,829 610,452
Dividends--unallocated
shares
Interest 8,415,511 557,743 37,608 4,027 22,324 4,307
----------------------------------------------------------------------------------------------------
9,609,868 820,209 22,471,552 3,694,975 957,679 (1,224,119)
Contributions:
Employer contributions--
allocated to participants
Employee contributions 8,098,835 491,087 6,548,121 2,591,360 8,232,388 2,142,032
Rollover contributions 853,853 227,313 1,204,758 911,042 1,121,869 365,758
----------------------------------------------------------------------------------------------------
Total additions 18,562,556 1,538,609 30,224,431 7,197,377 10,311,936 1,283,671
----------------------------------------------------------------------------------------------------
Deductions from net assets
attributed to:
Distributions to participants 24,431,603 5,050,583 6,750,437 3,479,110 14,684,573 2,060,317
Interest expense
----------------------------------------------------------------------------------------------------
Total deductions 24,431,603 5,050,583 6,750,437 3,479,110 14,684,573 2,060,317
----------------------------------------------------------------------------------------------------
Net (decrease) increase prior to
transfers (5,869,047) (3,511,974) 23,473,994 3,718,267 (4,372,637) (776,646)
Net interfund transfers (2,651,974) 4,530,381 (233,397) 4,298,345 (19,100,452) (7,612,825)
Transfer from other plans 940,572 587,347 3,078,845 946,394 951,296
Transfer to other plan (3,625,574) (382,726) (1,127,877) (581,012) (4,055,827) (448,828)
----------------------------------------------------------------------------------------------------
Net (decrease) increase (11,206,023) 1,223,028 25,191,565 8,381,994 (26,577,620) (8,838,299)
Net assets available for benefits
at beginning of year 154,863,723 15,480,781 71,706,168 28,135,378 155,848,084 30,359,256
----------------------------------------------------------------------------------------------------
NET ASSETS AVAILABLE FOR BENEFITS
AT END OF YEAR $ 143,657,700 $ 16,703,809 $ 96,897,733 $36,517,372 $ 129,270,464 $21,520,957
====================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Eaton Common Shares Fund
Victory Vanguard Oppenheimer ------------------------------
Stock Index Institutional Value Equity Participant Non-Participant Loan
Fund Index Fund Fund Directed Directed Fund
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Additions to net assets
attributed to:
Investment income:
Net realized and unrealized
appreciation (depreciation)
in fair value of investments$ 7,725,158 $ 7,799,833 $ 18,088 $ (50,682,579) $ (93,206,076)
Dividends--shares allocated
to participants 206,504 762,502 5,401,223 8,234,710
Dividends--unallocated
shares 862,328
Interest 107,543 150,101 160,619 $ 2,050,006
---------------------------------------------------------------------------------------------
8,039,205 8,562,335 18,088 (45,131,255) (83,948,419) 2,050,006
Contributions:
Employer contributions--
allocated to participants 8,824,353
Employee contributions 965,536 2,722,274 218,671 34,182,735
Rollover contributions 517,469 845,708 228,422 1,895,854
---------------------------------------------------------------------------------------------
Total additions 9,522,210 12,130,317 465,181 (9,052,666) (75,124,066) 2,050,006
---------------------------------------------------------------------------------------------
Deductions from net assets
attributed to:
Distributions to participants 1,584,196 4,102,960 71,055 28,249,486 56,522,009 1,641,717
Interest expense 1,325,259
---------------------------------------------------------------------------------------------
Total deductions 1,584,196 4,102,960 71,055 28,249,486 57,847,268 1,641,717
---------------------------------------------------------------------------------------------
Net (decrease) increase prior to
transfers 7,938,014 8,027,357 394,126 (37,302,152) (132,971,334) 408,289
Net interfund transfers (58,664,014) 72,762,581 3,649,595 2,858,223 (3,641,735) 4,895,489
Transfer from other plans 1,618,041
Transfer to other plan (1,084,811) (4,624,975)
---------------------------------------------------------------------------------------------
Net (decrease) increase (51,810,811) 82,407,979 4,043,721 (39,068,904) (136,613,069) 5,303,778
Net assets available for benefits
at beginning of year 51,810,811 270,851,187 480,330,992 20,120,677
---------------------------------------------------------------------------------------------
NET ASSETS AVAILABLE FOR BENEFITS
AT END OF YEAR $ 0 $82,407,979 $ 4,043,721 $ 231,782,283 $ 343,717,923 $ 25,424,455
=============================================================================================
</TABLE>
<TABLE>
<CAPTION>
Life of Life of New York
Virginia 1997 Virginia 1998 Life 1999
GIC Fund GIC Fund GIC Fund Total
---------------------------------------------------------
<S> <C> <C> <C> <C>
Additions to net assets
attributed to:
Investment income:
Net realized and unrealized
appreciation (depreciation)
in fair value of investments$ $ (105,292,555)
Dividends--shares allocated
to participants 18,840,562
Dividends--unallocated
shares 862,328
Interest $ 5,662 $ 118,751 $ 45,516 11,679,718
----------------------------------------------------------
5,662 118,751 45,516 (73,909,947)
Contributions:
Employer contributions--
allocated to participants 8,824,353
Employee contributions 66,193,039
Rollover contributions 8,172,046
----------------------------------------------------------
Total additions 5,662 118,751 45,516 9,279,491
----------------------------------------------------------
Deductions from net assets
attributed to:
Distributions to participants 58,516 30,671 148,717,233
Interest expense 1,325,259
----------------------------------------------------------
Total deductions 58,516 30,671 150,042,492
----------------------------------------------------------
Net (decrease) increase prior to
transfers 5,662 60,235 14,845 (140,763,001)
Net interfund transfers (665,661) (311,455) (113,101) 0
Transfer from other plans 8,122,495
Transfer to other plan (13,034) (1,764) (15,946,428)
----------------------------------------------------------
Net (decrease) increase (659,999) (264,254) (100,020) (148,586,934)
Net assets available for benefits
at beginning of year 659,999 1,407,339 723,589 1,282,297,984
----------------------------------------------------------
NET ASSETS AVAILABLE FOR BENEFITS
AT END OF YEAR $ 0 $ 1,143,085 $ 623,569 $ 1,133,711,050
==========================================================
</TABLE>
See notes to financial statements.
<PAGE> 8
Eaton Corporation Share Purchase and Investment Plan
Notes to Financial Statements
December 30, 1998 and 1997
A. SIGNIFICANT ACCOUNTING POLICIES
The financial statements of the Eaton Corporation Share Purchase and Investment
Plan (Plan) are prepared under the accrual method of accounting.
Investments are stated at fair value as measured by quoted prices in active
markets, except for guaranteed investment contracts, which are recorded at
contract value, and the Fidelity Contra Fund, which is stated at fair value as
determined by the trustee. Contract value, which approximates fair value,
represents contributions made under the contracts plus interest at the rates
specified by the contracts less funds used to pay expenses of the contracts.
Participant notes receivable are valued at their outstanding balances which
approximate fair value.
The cost of shares sold for the mutual funds and the Eaton Common Shares Fund is
based upon the average cost of each participant's shares sold for purposes of
determining realized gains and losses.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates that affect the
amounts reported in the financial statements and accompanying notes. Actual
results could differ from these estimates.
B. DESCRIPTION OF PLAN
The Plan generally provides that an Eaton employee who is in the regular service
of a class 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.
5
<PAGE> 9
Eaton Corporation Share Purchase and Investment Plan
Notes to Financial Statements--Continued
B. DESCRIPTION OF PLAN--CONTINUED
Employees may make a combination of before-tax and after-tax contributions
ranging from 1 to 17% of base pay. Employee contributions up to 6% of eligible
compensation are eligible for employer match. Participants may change their
contributions monthly and accounts are valued daily. Eaton matches regular
employee contributions as determined under a formula. This formula compares
Eaton's earnings per share for the most recently reported calendar quarter with
the average of Eaton's per share earnings for the previous two calendar years.
If the most recently reported calendar quarter's earnings per share are
identical to the two calendar year average, the Company's matching contribution
will be 50% for each dollar contributed by employees. Company matching
contributions will increase or decrease depending on whether the most recently
reported calendar quarter's earnings per share are greater than or less than the
two calendar year average, respectively. For each 2% that the most recently
reported calendar quarter's earnings per share are greater than or less than the
two calendar year average, 1% will be added or subtracted respectively from the
standard Company matching contribution of 50%. Company matching contributions
will not be less than $.25, or more than $1.00 for each dollar of regular
employee contributions, except under special circumstances as defined in the
Plan document. There will be an additional 10 cent match with ESOP shares per
dollar of before-tax and after-tax contributions, up to 17% of eligible
compensation, to match contributions initially invested in the Eaton Common
Shares Fund. This match is reduced to 5 cents for certain highly compensated
employees.
The Plan document requires that quarterly Company contributions and dividend
payments allocated to employees' accounts must equal or exceed the quarterly
principal payments on the notes payable (see Note E). In the event that the
quarterly principal payments exceed the allocated Company matching contributions
plus dividends for the quarter, a supplemental contribution equal to the
difference (none in 1998 and 1997) is required to be allocated to the
participants' accounts. The allocation is based upon the percentage of each
employee's quarterly contribution in relation to total quarterly employee
contributions.
Each participant's account is credited with an allocation of the Plan's earnings
based on participant account balances, as defined.
6
<PAGE> 10
Eaton Corporation Share Purchase and Investment Plan
Notes to Financial Statements--Continued
B. DESCRIPTION OF PLAN--CONTINUED
Eligible employees may borrow from their fund accounts a minimum of $1,000 up to
a maximum equal to the lessor of $50,000 or 50% of their vested account balance
reduced by their highest outstanding loan balance during the preceding 12
months. Loan transactions are treated as a transfer from (to) the investment
fund and the loan fund. The loans are secured by the balance in the
participant's account and bear interest at a published rate, as defined.
Principal and interest is paid ratably through payroll deductions.
Company contributions are provisionally allocated during the year and become
non-forfeitable on the last day of each Plan year or upon other events as
indicated in the Plan document.
All Company matching contributions are invested in the Eaton Common Shares Fund.
Employee contributions may be invested in the Eaton Common Shares Fund, the
Fixed Income Fund, the various Guaranteed Investment Contract Funds, the Stable
Value Fund, the Mutual Funds (all as described in Note D), or a combination of
the funds.
Key Trust Company of Ohio, N.A. is the Trustee of the Plan.
All costs and expenses incurred in administering the Plan are paid by the Plan
unless otherwise determined by Eaton.
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.
Information about the Plan is contained in the Plan document, which is available
from the Company's Human Resources Department upon request.
7
<PAGE> 11
Eaton Corporation Share Purchase and Investment Plan
Notes to Financial Statements--Continued
C. CONTRIBUTIONS
Company matching contributions were made at the following rates per dollar of
regular employee contribution:
<TABLE>
<CAPTION>
Period Rate
----------------------------------- -------
<S> <C>
1 month ended December 30, 1998 .25
3 months ended November 30, 1998 .71
3 months ended August 31, 1998 .49
3 months ended May 31, 1998 1.00
2 months ended February 28, 1998 1.00
</TABLE>
D. INVESTMENT PROGRAMS
The fair value of individual investments that represent 5% or more of the Plan's
net assets available for benefits are as follows:
<TABLE>
<CAPTION>
DECEMBER 30
1998 1997
-----------------------------
<S> <C> <C>
Fidelity Contra Fund $ 97,255,100 $ 71,706,167
Vanguard Windsor Fund 129,109,418 155,848,084
Vanguard Institutional Index Fund 82,934,661
Eaton Common Shares 575,017,393 766,359,641
</TABLE>
The assets in the Fixed Income Fund are invested principally in U.S. Government
securities and corporate debt instruments.
8
<PAGE> 12
Eaton Corporation Share Purchase and Investment Plan
Notes to Financial Statements--Continued
D. INVESTMENT PROGRAMS--CONTINUED
The assets in the EB Money Market Fund are invested in the Employee Benefits
Money Market Fund, which is sponsored by Key Trust Company and invests primarily
in high-grade money market instruments.
The assets in Mutual Funds may be invested in the following funds:
<TABLE>
<CAPTION>
Fund Description Sponsor
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Fidelity Contra Fund Aggressive Growth Fund Fidelity Investment Co.
Vanguard Wellesley Fund Balanced Fund Vanguard Group
Vanguard Windsor Fund Diversified Equity Fund Vanguard Group
Templeton Foreign Fund International Fund Templeton Investment Co.
Victory Stock Index Fund S&P 500 Index Victory Broker Dealer Services
Vanguard Institutional Index Fund S&P 500 Index Vanguard Group
Oppenheimer Value Equity Fund Large Cap Stock Fund Oppenheimer Funds
</TABLE>
Effective May 1, 1998, the Vanguard Institutional Index Fund was added as an
investment election and replaced the Victory Stock Index Fund. All assets of the
Victory Stock Index Fund were transferred to the Vanguard Institutional Index
Fund. Effective June 1, 1998, the Oppenheimer Value Equity Fund was added as an
investment election.
The assets of the Eaton Common Shares Fund are invested principally in Eaton
Common Shares, which can be purchased in the open market, from Eaton, or from
private sources at Eaton's discretion. Effective May 1, 1998, the plan began
assigning units of the Eaton Common Shares Fund to its participants. At December
30, 1998 participants owned 7,865,622 units at $71.73 per unit.
Participants may reallocate their accumulated contributions daily among the
various funds consistent with the ratios specified in the Plan.
9
<PAGE> 13
Eaton Corporation Share Purchase and Investment Plan
Notes to Financial Statements--Continued
D. INVESTMENT PROGRAMS--CONTINUED
During 1998, the Plan's investments (including investments bought, sold, and
held during the year) appreciated (depreciated) in fair value as follows:
<TABLE>
<CAPTION>
<S> <C>
Eaton Common Shares $ (143,888,655)
Mutual funds 37,139,277
Money Market funds 262,466
Government Securities 682,929
Corporate Debt Instruments 511,428
---------------
$ (105,292,555)
===============
</TABLE>
E. EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
An Employee Stock Ownership Plan (ESOP), established to prefund a portion of
anticipated Company contributions to the Plan, is contained within the Eaton
Common Shares Fund. The ESOP was funded by proceeds from bank notes.
The Plan is obligated to pay all principal and interest on the notes and all
other monetary obligations using Company contributions made to the Plan for that
purpose and dividends on the unallocated Eaton Common Shares acquired with the
bank note proceeds.
The ESOP notes payable to banks and insurance companies bear interest at a fixed
rate of 7.2% as to $2.3 million of notes payable, a fixed interest rate of 7.7%
per annum as to $5 million of notes payable, and a floating rate (4.3% at
December 30, 1998) based on LIBOR as to $2.2 million of notes payable. The Plan
entered into interest rate swaps that effectively convert the $5 million of
notes payable to a combination of new fixed rates (.6% for $3.0 million and 7.1%
for $1.4 million) and a floating rate (5.4% for $.6 million) based on LIBOR. The
Plan has also entered into an interest rate swap which effectively converts the
$2.3 million of fixed rate notes payable to a floating rate (4.5% at December
30, 1998) based on LIBOR. The interest rate differential to be received or paid
is determined quarterly and recognized as an adjustment to interest expense. The
Plan is exposed to market risk as a result of potential increases in LIBOR. The
notes payable are due through 1999 and are guaranteed by the Company.
Annual principal payments are payable in quarterly installments, and the notes
are anticipated to be paid in full by December 30, 1999.
10
<PAGE> 14
Eaton Corporation Share Purchase and Investment Plan
Notes to Financial Statements--Continued
E. EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)--CONTINUED
Unallocated Eaton Common Shares acquired by the ESOP are held in a suspense
account and are pledged as security for the notes. These Common Shares are
released from the suspense account and allocated to the participants' accounts
based on the market value at the time of allocation on a monthly basis in an
amount equal to the Company contributions for the period. The market value of
the unallocated Eaton Common Shares was $14,950,465 at December 30, 1998
($66,020,592 at December 30, 1997).
F. INCOME TAX STATUS
The Plan has received a determination letter from the Internal Revenue Service
dated April 2, 1996, stating that the Plan is qualified under Section 401(a) of
the Internal Revenue Code (IRC) and, therefore, the related trust is exempt from
taxation. Once qualified, the Plan is required to operate in conformity with the
IRC to maintain its qualification. The Plan Administrator believes the Plan is
being operated in compliance with the applicable requirements of the IRC and,
therefore, believes that the Plan is qualified and the related trust is tax
exempt.
G. TRANSFERS TO/FROM PLAN
During the first quarter of 1998, total assets of approximately $16 million were
transferred from the Plan to Siebe in connection with the Plan Sponsor's sale of
the Appliance Controls division.
Effective January 1, 1998, both employee and employer contributions to the
Fusion Systems Corporation 401(k) Savings Plan (Fusion 401(k) Plan) were frozen.
On that same date, all participants of the Fusion 401(k) Plan became eligible
for the Plan. Effective November 1, 1998, the Fusion 401(k) Plan was merged with
the Plan and total assets of approximately $6.6 million were transferred into
the Plan.
Effective January 1, 1998, both employee and employer contributions to the
IKU-USA Inc. Employees' Retirement Plan (IKU Plan) were frozen. On that same
date, all participants of the IKU Plan became eligible for the Plan. Effective
November 1, 1998, the IKU Plan was merged with the Plan and total assets of
approximately $1.5 million were transferred into the Plan.
11
<PAGE> 15
Eaton Corporation Share Purchase and Investment Plan
Notes to Financial Statements--Continued
H. TRANSACTIONS WITH PARTIES-IN-INTEREST
Party-in-interest transactions included the investment in the special funds of
the trustee and the payment of administrative expenses by the Company. Such
transactions are exempt from being prohibited transactions.
I. YEAR 2000 (UNAUDITED)
The Plan Sponsor has determined that it will be necessary to take certain steps
in order to ensure that the Plan's information systems are prepared to handle
year 2000 dates. The Plan Sponsor is taking a two phase approach. The first
phase addresses internal systems that must be modified or replaced to function
properly. Both internal and external resources are being utilized to replace or
modify existing software applications, and test the software and equipment for
the year 2000 modifications. The Plan Sponsor anticipates substantially
completing this phase of the project by mid-1999. Costs associated with
modifying software and equipment are not estimated to be significant and will be
paid by the Plan Sponsor.
For the second phase of the project, Plan management established communications
with its third party service providers to determine that they have developed
plans to address their own year 2000 problems as they relate to the Plan's
operations. All third party service providers have indicated they will be year
2000 compliant by mid-1999. If modification of data processing systems of either
the Plan, the Plan Sponsor, or its service providers are not completed timely,
the year 2000 problem could have an impact on the operations of the Plan. Plan
management has not developed a contingency plan, because they are confident that
all systems will be year 2000 ready.
12
<PAGE> 16
Eaton Corporation Share Purchase and Investment Plan
Notes to Financial Statements--Continued
J. 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:
<TABLE>
<CAPTION>
DECEMBER 30,
1997
----------------
<S> <C>
Net assets available for benefits per the financial
statements $ 1,282,297,984
Amounts allocated to withdrawn participants (1,186,995)
----------------
NET ASSETS AVAILABLE FOR BENEFITS PER FORM 5500 $ 1,281,110,989
================
</TABLE>
K. RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500
The following is a reconciliation of benefits paid to participants per the
financial statements to the Form 5500:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 30,
1998
-------------
<S> <C>
Benefits paid to participants per the financial
statements $ 148,717,233
Less: Amounts allocated to withdrawn
participants at December 30, 1997 1,186,995
-------------
BENEFITS PAID TO PARTICIPANTS PER FORM 5500 $ 147,530,238
=============
</TABLE>
Amounts allocated to withdrawing participants were recorded on the Form 5500 for
benefit claims that were processed and approved for payment prior to December
30, 1997, but paid in 1998.
13
<PAGE> 17
Eaton Corporation Share Purchase and Investment Plan
EIN 34-0196300 Plan Number 055
Form 5500 Line 27(a)--Schedule of Assets Held for Investment Purposes
December 30, 1998
<TABLE>
<CAPTION>
Description of Investment
Including Maturity Date,
Identity of Issue, Borrower Rate of Interest, Collateral,
or Similar Party Par or Maturity Value Cost Current Value
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Guaranteed Investment Contracts:
Life of Virginia Insurance Co. 8.07% due 12/31/98 $ 1,142,123 $ 1,142,123
New York Life Insurance Co. 6.25% due 12/31/99 601,301 601,301
-----------------------------------
1,743,424 1,743,424
Corporate Debt Instruments:
Ameritech 5.65% due 1/15/01 1,299,233 1,311,752
Associates Corp. 6.00% due 12/01/02 4,997,650 5,081,250
Bay View Auto Trust 6.59% due 12/15/04 4,999,609 5,026,550
Capital Equipment 6.28% due 6/15/00 6,492,350 6,581,525
Case Equipment Loan Trust 6.15% due 9/15/02 1,011,143 1,012,249
Chase Manhattan Grantor Trust 6.00% due 9/17/01 473,393 474,504
E.I. Dupont 6.50% due 9/01/02 1,993,600 2,089,000
Fingerhut Master Trust 6.23% due 2/15/07 4,998,576 5,192,188
Ford Motor Credit Corp. 6.125% due 4/28/03 3,992,360 4,076,680
General Motors 5.75% due 11/10/03 1,264,800 1,250,887
MBNA Master Credit Card 6.60% due 11/15/04 4,991,504 5,182,800
McKesson Corp. 6.60% due 3/01/00 4,998,500 5,057,350
Merrill Lynch & Co. Inc. 6.00% due 1/15/01 642,850 657,052
Merrill Lynch & Co. Inc. 6.00% due 2/12/03 6,322,027 6,411,463
Nationsbank Corp. 5.75% due 3/15/01 4,983,200 5,035,300
Norwest Auto Trust 6.10% due 3/15/01 9,997,360 10,046,800
Premier Auto 6.05% due 4/06/00 3,911,025 3,915,452
Premier Auto 6.75% due 11/06/00 2,992,957 3,028,110
Premier Auto 6.35% due 4/06/02 349,560 355,029
Premier Auto 5.07% due 7/08/02 1,999,992 1,990,000
Railcar Trust 7.75% due 6/01/04 1,907,606 1,915,567
Sony Corp. 6.125% due 03/04/03 5,002,975 5,115,850
Toyota Auto 6.45% due 4/15/02 885,790 891,011
USAA Auto 6.00% due 5/15/04 2,532,903 2,542,733
-----------------------------------
83,040,963 84,241,102
U.S. Government Securities:
U.S. Treasury Notes 5.25% due 1/31/01 5,085,938 5,061,700
U.S. Treasury Notes 6.25% due 5/31/99 16,101,250 16,100,000
U.S. Treasury Notes 5.25% due 8/15/03 1,510,664 1,537,965
</TABLE>
14
<PAGE> 18
Eaton Corporation Share Purchase and Investment Plan
Form 5500 Line 27(a)--Schedule of Assets Held
for Investment Purposes--Continued
<TABLE>
<CAPTION>
Description of Investment
Including Maturity Date,
Identity of Issue, Borrower Rate of Interest, Collateral,
or Similar Party Par or Maturity Value Cost Current Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Government Securities--Continued:
U.S. Treasury Notes 4.50% due 9/30/00 1,008,438 998,130
U.S. Treasury Notes 4.00% due 10/31/00 3,222,259 3,199,609
U.S. Treasury Notes 4.25% due 11/15/03 2,537,250 2,518,125
Federal Home Loan Banks 5.125% due 9/15/03 1,004,050 1,000,310
Federal Home Loan Banks 5.28% due 12/10/03 5,000,000 4,967,200
Federal Home Loan Banks 4.99% due 12/24/01 2,996,719 3,000,000
Federal Farm Credit Banks 5.18% due 11/17/99 3,750,000 3,749,100
Fannie Mae 6.53% due 1/11/01 1,000,900 1,000,470
Fannie Mae 6.45% due 7/25/02 1,200,000 1,223,244
Fannie Mae 6.20% due 5/22/03 5,017,188 5,018,750
Fannie Mae 5.95% due 7/13/01 4,492,890 4,497,165
---------------------------------
53,927,546 53,871,768
Interest in Registered Investment
Companies:
Oppenheimer Value Equity Fund 414,043 shares 4,055,449 4,128,021
Vanguard Windsor Fund 8,367,428 shares 127,069,539 129,109,418
Vanguard Wellesley Fund 1,658,604 shares 35,010,664 36,721,498
Fidelity Contra Fund 1,601,434 shares 66,218,450 97,255,100
Templeton Foreign Fund 2,570,269 shares 24,843,001 21,538,856
Vanguard Institutional Index
Fund
733,481 shares 75,469,596 82,934,661
---------------------------------
332,666,699 371,687,554
Key Trust Company of Ohio, N.A.:
Employee Benefits Money Market
Fund*
30,229,635 units 30,229,635 30,229,635
Common Stock:
Eaton Corporation* 8,148,993 shares 349,570,506 575,017,393
Participant notes receivable* 8.75-9.50%, variable maturities 25,448,042
---------------------------------
Total investments $ 851,178,773 $ 1,142,238,918
=================================
</TABLE>
*Indicates party-in-interest to the Plan.
15
<PAGE> 19
Eaton Corporation Share Purchase and Investment Plan
EIN 34-0196300 Plan Number 055
Form 5500 Line 27(d)--Schedule of Reportable Transactions
Year Ended December 30, 1998
<TABLE>
<CAPTION>
Current Value
Identity of Party Description Purchase of Asset on Net Gain
Involved of Assets Price Selling Price Cost of Asset Transaction Date or (Loss)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CATEGORY (i)--SINGLE TRANSACTIONS IN EXCESS OF 5% OF PLAN ASSET
Vanguard Institutional Index Fund* $ 65,507,226 $ 65,507,226 $ 65,507,226
Victory Stock Index Fund* $ 65,486,818 47,969,383 65,486,818 $ 17,517,435
CATEGORY (iii)--SERIES OF TRANSACTIONS IN EXCESS OF 5% OF PLAN ASSET
Key Trust Company of Ohio, N.A.* Employee Benefits 326,892,914 326,892,914 326,892,914
Money Market
Fund
319,969,505 319,969,505 319,969,505
Eaton Corporation* Eaton Corporation 55,319,233 55,319,233 55,319,233
Common Stock 67,645,900 35,415,275 67,645,900 32,230,625
Vanguard Institutional Index Fund Mutual Fund 83,703,017 83,703,017 83,703,017
8,069,368 8,233,421 8,069,368 (164,053)
Victory Stock Index Fund* Mutual Fund 8,503,218 8,503,218 8,503,218
68,039,187 49,955,817 68,039,187 18,083,370
</TABLE>
There were no category (ii) or (iv) reportable transactions during the fiscal
year ended December 30, 1998.
* Indicates party-in-interest to the Plan.
16
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 333-77243, Form S-8 No. 333-03599, and Form S-8 No. 33-49777)
pertaining to the Eaton Corporation Share Purchase and Investment Plan of our
report dated June 11, 1999, with respect to the financial statements and
schedules of the Eaton Corporation Share Purchase and Investment Plan included
in this Annual Report (Form 11-K) for the year ended December 30, 1998.
/s/ Ernst & Young LLP
Cleveland, Ohio
June 23, 1999
17
