| þ | Annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934 (Fee required) |
| o | Transition report pursuant to Section 15(d) of the Securities Exchange Act of 1934 (No fee required) |
| A. | Full title of the plan and the address of the plan, if different from that of the issuer named below: |
| B. | Name of issuer of the securities held pursuant to the plan and the address of its principal executive office: |
| (Name of Plan) | ||||||
| EATON PERSONAL INVESTMENT PLAN | ||||||
Date: June 18, 2009
|
By: | Eaton Corporation Pension | ||||
| Administration Committee | ||||||
| By: | /s/ B. K. Rawot | |||||
| Senior Vice President and Controller | ||||||
| Eaton Corporation | ||||||
| Page | ||
Financial Statements: |
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| 2 | ||
| 3 | ||
| 4 - 13 | ||
Supplemental Schedule: |
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| 14 |
| December 31 | ||||||||
| 2008 | 2007 | |||||||
ASSETS |
||||||||
Receivable — Employer contributions |
$ | — | $ | 21,635 | ||||
Receivable — Employee contributions |
— | 90,217 | ||||||
Receivable — Interest |
— | 3,867 | ||||||
Total Receivables |
— | 115,719 | ||||||
Investments: |
||||||||
Plan interest in Eaton Employee
Savings Trust |
58,723,816 | 91,548,526 | ||||||
Plan interest in Eaton Employee
Savings Trust — Eaton Stable Value Fund |
8,256,608 | 4,693,963 | ||||||
Total Master Trust Investments |
66,980,424 | 96,242,489 | ||||||
Participant Loans |
2,453,492 | 2,654,649 | ||||||
Total Investments |
69,433,916 | 98,897,138 | ||||||
Net Assets Available for Benefits at Fair Value |
69,433,916 | 99,012,857 | ||||||
Adjustment from fair value to contract value for
fully benefit-responsive investment contract |
99,563 | (28,916 | ) | |||||
Net Assets Available for Benefits |
$ | 69,533,479 | $ | 98,983,941 | ||||
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| Year Ended December 31 | ||||||||
| 2008 | 2007 | |||||||
Additions to Net Assets Attributed to: |
||||||||
Contributions: |
||||||||
Employer |
$ | 546,351 | $ | 548,236 | ||||
Employee |
4,738,073 | 4,858,160 | ||||||
Rollover |
651,232 | 667,249 | ||||||
| 5,935,656 | 6,073,645 | |||||||
Plan interest in Eaton Employee Savings
Trust investment gain |
— | 9,125,640 | ||||||
Interest and dividend income |
205,740 | 211,163 | ||||||
Total Additions before Transfers |
6,141,396 | 15,410,448 | ||||||
Transfers from other plans |
23,899 | 6,355,356 | ||||||
Total Additions |
6,165,295 | 21,765,804 | ||||||
Deductions from Net Assets Attributed to: |
||||||||
Plan interest in Eaton Employee Savings
Trust investment loss |
23,228,220 | — | ||||||
Benefits paid to participants |
12,139,810 | 15,045,272 | ||||||
Administrative expenses |
31,087 | 35,516 | ||||||
Total Deductions before Transfers |
35,399,117 | 15,080,788 | ||||||
Transfers to other plans |
216,640 | 606,443 | ||||||
Total Deductions |
35,615,757 | 15,687,231 | ||||||
Net Increase/(Decrease) |
(29,450,462 | ) | 6,078,573 | |||||
Net Assets Available for Benefits: |
||||||||
Beginning of Year |
98,983,941 | 92,905,368 | ||||||
End of Year |
$ | 69,533,479 | $ | 98,983,941 | ||||
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| 1 | Description of Plan | |
| The following description of The Eaton Personal Investment Plan (“the Plan”) provides only general information. Participants should refer to the Plan document and summary plan description, which is available from the Company’s Human Resources Department upon request, for a complete description of the Plan’s provisions. | ||
| General: | ||
| Effective July 1, 1996, Eaton Corporation (the Company, or the 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. | ||
| Eligibility: | ||
| 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; UAW Local 1609, Winamac, Indiana; UPIU Local 7171 & Local 7565, Omaha, Nebraska; 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; IUE Local 792, Jackson, Mississippi; IAMAW Local 2528, Hohenwald, Tennessee; PACE — Local 7433, Saginaw, Michigan; UAW Local 1404, Columbia City, Indiana; IAM Lodge 1165, Lincoln, Illinois; United Employees Union, Elizabeth, New Jersey; Eagle American Shop Union, Warwick, RI; International Association of Machinists and Aerospace Workers, AFL-CIO, Portage, MI; and UAW Local 2262, Euclid, OH, 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. | ||
| Contributions: | ||
| Employee Contributions — Employees may make before-tax or after-tax contributions with maximum employee contribution percentages determined by the applicable collective bargaining agreement. Catch-up contributions are permitted in the Plan, allowing participants age 50 and older to defer an additional amount of their compensation as prescribed by the Internal Revenue Code. |
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| 1 | Description of Plan, Continued | |
| Contributions, Continued: | ||
| Employer Contributions — Certain eligible participants of the Plan may receive a Company matching contribution of 50% up to 6% of their compensation or 25% up to 6% of their compensation, depending on the location. Eligible participants may also receive a profit-sharing contribution, depending on the location. The Company matching contribution will be suspended for the Beaver, Pennsylvania, and Horseheads, New York locations effective with the first full pay period beginning after July 17, 2009. | ||
| Contributions are subject to limitations on annual additions and other limitations imposed by the Internal Revenue Code as defined in the Plan agreement. | ||
| Rollover contributions from other Plans are also accepted, providing certain specified conditions are met. | ||
| Participants’ Accounts: | ||
| Each participant’s account is credited with the participant’s contributions, Company matching contributions, and an allocation of the Plan’s earnings and is charged with an allocation of administrative expenses. Allocations are based on participant account balances. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s account. | ||
| Vesting: | ||
| All participants are 100% vested, subject to certain provisions as defined by the Plan, in elective deferrals, company contributions, and rollover contributions made to the Plan, and actual earnings thereon. | ||
| Participants’ Loans: | ||
| Participants may borrow from their fund accounts up to a maximum equal to the lesser of $50,000 or 50% of their 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 rate as determined by the Trustee. Principal and interest are paid through payroll deduction. | ||
| Hardship Withdrawals: | ||
| Hardship withdrawals are permitted in accordance with Internal Revenue Service guidelines. |
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| 1 | Description of Plan, Continued | |
| Investment Options: | ||
| Employee contributions may be invested in any of the fund options available under the Plan. | ||
| 2 | Summary of Significant Accounting Policies | |
| Basis of Accounting: | ||
| The financial statements of the Eaton Personal Investment Plan (the Plan) are prepared on the accrual basis of accounting. | ||
| Investment Valuation and Income Recognition: | ||
| The Plan’s trustee is 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 January 1, 2002 plus actual contributions and allocated investment income (loss) less actual distributions. | ||
| 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 the units held at year-end. Participant loans are valued at cost, which approximates fair value. The Eaton Stable Value Fund invests primarily in investment contracts issued by insurance companies, banks or other financial institution, including investment contracts backed by high-quality fixed income securities. | ||
| As described in Financial Accounting Standards Board Staff Position, FSP AAG INV-1 and SOP 94-4-1, Reporting of Fully Benefit-Responsive Investment Contracts Held by Certain Investment Companies Subject to the AICPA Investment Company Guide and Defined-Contribution Health and Welfare and Pension Plans (the FSP), investment contracts held by a defined-contribution plan are required to be reported at fair value. However, contract value is the relevant measurement attribute for that portion of the net assets available for benefits of a defined-contribution plan attributable to fully benefit-responsive investment contracts because contract value is the amount participants would receive if they were to initiate permitted transactions under the terms of the Plan. As required by the FSP, the Statement of Net Assets Available for Benefits presents the fair value of the investment contracts as well as the adjustment of the fully benefit-responsive investment contracts from fair value to contract value. The Statement of Changes in Net Assets Available for Benefits is prepared on a contract value basis. |
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| 2 | Summary of Significant Accounting Policies, Continued | |
| Investment Valuation and Income Recognition, Continued: | ||
| Purchases and sales of securities are recorded on a trade-date basis. | ||
| Use of Estimates: | ||
| The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. | ||
| Administrative Fees: | ||
| All administrative costs, management fees and expenses of the Plan are paid by the trustee from the Master Trust unless such costs, fees and expenses are paid by the Company. The Company elected to pay certain administrative costs during 2008 and 2007 on behalf of the Plan. Certain transaction costs are paid by employees. | ||
| Payment of Benefits: | ||
| Upon termination of service, retirement, death or total and permanent disability, a participant is eligible to receive a lump sum amount equal to the value of his or her account. A participant may choose to take partial withdrawals. | ||
| Plan Termination: | ||
| The Company 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. | ||
| Risks and Uncertainties: | ||
| The Master Trust’s investments include investments, as listed in Footnote 4, with varying degrees of risk, such as interest rate, credit and overall market volatility risks. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term and such changes could materially affect the amounts reported in the statement of net assets available for Plan benefits. |
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| 3 | Tax Status | |
| On May 16, 2003, the Internal Revenue Service stated that the Plan, as then designed, was in compliance with the applicable requirements of the Internal Revenue Code. The Plan has been amended; however, the Plan Administrator and the Plan’s tax counsel believe that the Plan is currently designed and being operated in compliance with the applicable requirements of the Internal Revenue Code. Therefore, they believe that the Plan was qualified and the related trust was tax-exempt as of the financial statement date. | ||
| 4 | Investments | |
| 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 assets of the Master Trust is as follows: |
| 2008 | 2007 | |||||||
Registered investment companies |
$ | 947,981,290 | $ | 1,590,817,582 | ||||
Eaton common shares |
458,101,411 | 734,478,885 | ||||||
Guaranteed investment contracts |
119,563,824 | 89,991,700 | ||||||
Common collective trusts |
201,747,771 | 198,648,938 | ||||||
U.S. government securities |
96,371,693 | 86,483,398 | ||||||
Corporate debt instruments |
54,137,923 | 84,501,583 | ||||||
Interest-bearing cash |
45,304,644 | 45,756,058 | ||||||
Non interest-bearing cash |
— | 170,187 | ||||||
Receivables |
11,755,944 | 17,426,800 | ||||||
Adjustment from fair value to contract value
for fully benefit-responsive investment contract |
1,632,175 | (642,584 | ) | |||||
Total Investments |
$ | 1,936,596,675 | $ | 2,847,632,547 | ||||
| The Plan had a 3.5% and 3.4% interest in the assets of the Master Trust as of December 31, 2008 and 2007, respectively. | ||
| 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 allocated to the participating Plans for the year ended December 31, 2008 and 2007, is as follows: |
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| 4 | Investments, Continued |
| 2008 | 2007 | |||||||
Interest and dividend income |
$ | 64,413,793 | $ | 121,364,611 | ||||
Net Appreciation in Fair Value of Investments: |
||||||||
Eaton Common Shares Fund |
(382,587,625 | ) | 181,521,540 | |||||
Registered investment companies |
(569,071,173 | ) | 31,336,704 | |||||
Eaton Fixed Income Fund |
3,896,751 | 10,465,809 | ||||||
| $ | (883,348,254 | ) | $ | 344,688,664 | ||||
| At December 31, 2008 and 2007, respectively, the Eaton Fixed Income Fund was comprised of U.S. government securities (57% and 47%), corporate debt instruments (32% and 46%), interest-bearing and non interest-bearing cash (6% and 7%), and other investments (5% and 0%). | ||
| The Master Trust funds are invested in various investments through the Fidelity Management Trust Company. Investments which constitute more than 5% of the Master Trust’s net assets are: |
| 2008 | 2007 | |||||||
Fidelity Contrafund |
$ | 110,825,820 | $ | 186,509,853 | ||||
Eaton Stable Value Fund |
$ | 137,217,538 | N/A | |||||
EB Money Market Fund |
$ | 177,522,862 | $ | 184,288,151 | ||||
Vanguard Institutional Index |
$ | 115,777,490 | $ | 202,601,079 | ||||
Eaton Fixed Income Fund |
$ | 169,955,591 | $ | 184,178,086 | ||||
Eaton Common Shares Fund ( unitized
fund consisting of Eaton Shares and cash) |
$ | 466,831,646 | $ | 751,827,178 | ||||
| 5 | Party-in-Interest Transactions | |
| Party-in-interest transactions included the investments in the common stock of Eaton and the investment funds of the trustee and the payments of administrative expenses by the Company. Such transactions are exempt from being prohibited transactions. | ||
| During 2008 and 2007, the Master Trust received $16,649,395 and $13,855,208, respectively, in common stock dividends from the Company. |
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| 6 | Plan Transfers | |
| On August 31, 2007, the Argo Tech Corporation Hourly Employees’ Savings Plan was merged into the Eaton Personal Investment Plan. As a result, 401(k) balances totaling $6,115,887 were transferred into the Plan. In addition, a total of $239,466 in participant loans were transferred into the Eaton Personal Investment Plan as a result of this merger. The balance of the transfers relate to other Eaton plans. | ||
| 7 | Recently Issued Accounting Pronouncements | |
| In March 2008, the FASB issued SFAS 161, “Disclosure about Derivative Instruments and Hedging Activities”, which amends the disclosure requirements of SFAS 133. SFAS 161 requires increased disclosures about derivative instruments and hedging activities and their effects on an entity’s financial position, financial performance, and cash flows. SFAS 161 is effective for fiscal years beginning after November 15, 2008, with early adoption permitted. SFAS 161 is not expected to have a material impact on the Plan’s financial statements. | ||
| In May 2008, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Account Standards (“SFAS”) 162, “The hierarchy of Generally Accepted Accounting Principles”, which is intended to improve financial reporting by identifying the sources of accounting principles and a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. GAAP for nongovernmental entities. SFAS 162 will be effected 60 days after U.S. Securities and Exchange Commission approves the Public Company Accounting Oversight Board’s amendments to AU section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles”. SFAS 162 is not expected to have a material impact on the Plan’s financial statements. | ||
| In April 2009, the FASB issued three FASB Staff Positions, which provide additional guidance and enhance disclosures regarding fair value measurements and impairment of securities, FASB Staff Position No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value Financial Instruments, FASB Staff Position No. FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments, and FASB Staff Position No. FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly. These staff positions 1) require that the fair value of all financial instruments be disclosed in both interim and annual reporting periods; 2) modify the criteria used to assess other-than-temporary impairments (OTTI) of debt securities and collectability of cash flows; 3) bifurcate the recognition of OTTI between earnings and other comprehensive income; 4) require expanded and more frequent disclosures about OTTI; 5) permit adjustments to estimated fair values when, due to significant decrease in the volume and level of market activity or evidence that a market is not orderly, the valuation technique does not fairly present the price at which willing market participants would transact at the measurement date; and 6) require disclosure about inputs and valuation techniques used to measure fair value for both interim and annual reporting periods. The staff positions are effective for interim reporting periods ending after June 15, 2009, with early adoption permitted. The sponsor has not determined the effect of adopting the staff positions on the net assets available for benefits and changes in those net assets. |
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| 8 | Benefit-Responsive Investment Contract | |
| The Plan holds an interest in a benefit-responsive investment contract with Vanguard in the Eaton Stable Value Fund. Vanguard maintains the contributions in a general account. The account is credited with earnings on the underlying investments and charged for participant withdrawals and administrative expenses. The guaranteed investment contract issuer is contractually obligated to repay the principal and a specified interest rate that is guaranteed to the Plan. | ||
| As described in Note 2, because the guaranteed investment contracts are fully benefit-responsive, contract value is the relevant measurement attribute for that portion of the net assets available for benefits attributable to the guaranteed investment contract. Contract value, as reported to the Plan by Vanguard, represents contributions made under the contracts, plus earnings, less participant withdrawals and administrative expenses. Participants may ordinarily direct the withdrawal or transfer of all or a portion of their investment at contract value. | ||
| The average market yield of the Fund for 2008 and 2007 was 4.64% and 4.68%, respectively. This yield is calculated based on actual investment income from the underlying investments for the last month of the year, annualized and divided by the fair value of the investment portfolio on the report date. The average yield of the Fund with an adjustment to reflect the actual interest rate credited to participants in the Fund was 3.82% and 4.69%, respectively. | ||
| There are no reserves against contract value for credit risk of the contract issuer or otherwise. The crediting interest rate is based on a formula agreed upon with the issuer, but it may not be less than zero percent. Such interest rates are reviewed on a quarterly basis for resetting. | ||
| The fair value is based on various valuation approaches dependent on the underlying investments of the contract. | ||
| Certain events limit the ability of the Plan to transact at contract value with the issuers. The Plan Administrator does not believe that the occurrence of any such value event, which would limit the Plan’s ability to transact at contract value with participants is probable.
The issuer may terminate the contract for cause at any time. |
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| 9 | Fair Value Measurements | |
| In the first quarter 2008, we adopted SFAS 157, “Fair Value Measurements,” which became effective on January 1, 2008. SFAS 157, which applies to financial assets and liabilities, establishes a framework for measuring fair value, establishes a fair value hierarchy based on inputs used to measure fair value, and expands disclosure about fair value measurements. Adopting this statement has not had an effect on our financial condition, cash flows, or results of operations. | ||
| In accordance with SFAS 157, we have categorized our financial instruments, based on the degree of subjectivity inherent in the valuation technique, into a fair value hierarchy of three levels, as follows: |
| • | Level 1 — inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. | ||
| • Level 2 — inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. | |||
| • | Level 3 — inputs to the valuation methodology are unobservable and significant to the fair value measurement. | ||
| Following is a description of the valuation methodologies used for assets measured at fair value. There have been no changes in the methodologies used at December 31, 2008 and 2007. | ||
| Registered investment companies (mutual funds), and separate accounts: Valued at the net asset value (NAV) of shares held by the Plan at year end. Separate accounts may include U.S. government securities and corporate debt securities. | ||
| Common collective trusts: Valued at the net unit value of units held by the trust at year end. The unit value determined by the Total Value of fund Assets divided by the Total Number of Units of the Fund owned. | ||
| Participant loans: Valued at amortized cost, which approximates fair value. | ||
| Guaranteed investment contract: Valued at fair value by discounting the related cash flows based on current yields of similar instruments with comparable durations considering the credit-worthiness of the issuer. | ||
| The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. |
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| 9 | Fair Value Measurements, Continued | |
| The following table sets forth by level, within the fair value hierarchy, the Plan’s assets at fair value as of December 31, 2008: |
| Level 1 | Level 2 | Level 3 | ||||||||||||||
| Fair Value | Fair Value | Fair Value | Totals | |||||||||||||
Registered investment companies |
$ | 27,087,422 | $ | — | $ | — | $ | 27,087,422 | ||||||||
Guaranteed investment contracts |
— | 8,256,608 | — | 8,256,608 | ||||||||||||
Common collective trusts |
— | 13,735,992 | — | 13,735,992 | ||||||||||||
Separate accounts |
— | 17,900,402 | — | 17,900,402 | ||||||||||||
Participant loans |
— | — | 2,453,492 | 2,453,492 | ||||||||||||
Totals |
$ | 27,087,422 | $ | 39,893,002 | $ | 2,453,492 | $ | 69,433,916 | ||||||||
| The table below sets forth a summary of changes in the fair value of the Plan’s level 3 assets for the year ended December 31, 2008: |
| Participant | ||||
| Loans | ||||
Balance, beginning of year |
$ | 2,654,649 | ||
Purchases, sales, issuances and settlements (net) |
(201,157 | ) | ||
Balance, end of year |
$ | 2,453,492 | ||
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| (b) | ( c ) | |||||||||
| Identity of Issue, | Description of Investment Including | (e) | ||||||||
| Borrower, Lessor, | Maturity Date, Rate of Interest, | (d) | Current | |||||||
| (a) | or Similar Party | Collateral, Par or Maturity Value | Cost | Value | ||||||
* |
Interest in Eaton Employee Savings Trust Master Trust | Master Trust | N/A | $ | 58,723,816 | |||||
* |
Interest in Eaton Stable Value Fund-Footnote 1 | Guaranteed Investment Contract | N/A | 8,356,171 | ||||||
* |
Participant Loans | 4%-10.5%, various maturity dates | N/A | 2,453,492 | ||||||
| $ | 69,533,479 | |||||||||
| Footnote 1-denotes contract value | ||||||||||
* |
Party-in-interest to the Plan. | |||||||||
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