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, 2003
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 28, 2004 By: Eaton Corporation Pension
Administration Committee
By: /s/ B. K. Rawot
--------------------------
Signature)
B. K. Rawot
Vice President and Controller
Eaton Corporation
AUDITED FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE
Cutler-Hammer de Puerto Rico, Inc. Retirement Savings Plan
December 31, 2003 and 2002 and Year ended December 31, 2003
With Report of Independent Registered Public Accounting Firm
Cutler-Hammer de Puerto Rico, Inc.
Retirement Savings Plan
Financial Statements and Supplemental Schedule
December 31, 2003 and 2002
and Year ended December 31, 2003
CONTENTS
Report of Independent Registered Public Accounting Firm.................. 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 4i--Schedule of Assets (Held at End of Year)............ 9
Report of Independent Registered Public Accounting Firm
Corporate Compensation and Organization
Committee of Eaton Corporation
Eaton Electrical de Puerto Rico, Inc.--Plan Sponsor
Retirement Savings Plan
We have audited the accompanying statements of net assets available for benefits
of the Cutler-Hammer de Puerto Rico, Inc. Retirement Savings Plan as of December
31, 2003 and 2002 and the related statement of changes in net assets available
for benefits for the year ended December 31, 2003. 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 the standards of the Public Company
Accounting Oversight Board (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, 2003 and 2002, and the changes in its net assets available for
benefits for the year ended December 31, 2003, in conformity with U.S. 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 schedule of assets
(held at end of year) as of December 31, 2003, 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.
Cleveland, Ohio
June 4, 2004
1
Cutler-Hammer de Puerto Rico, Inc.
Retirement Savings Plan
Statements of Net Assets Available for Benefits
DECEMBER 31
2003 2002
------------ ------------
ASSETS
Investments, at fair value:
Common stock $ 1,721,201 $ 1,299,829
Mutual funds 3,994,102 3,490,366
Common/collective trust funds 16,467,851 13,250,369
Money market funds 1,397 1,340
------------ ------------
Total investments 22,184,551 18,041,904
Receivables:
Contributions--Employer 94,700 95,677
Contributions--Participants 211,932 214,296
Interest 3,797 3,124
Net pending (purchase) sale (3,770) 42,076
------------ ------------
Total receivables 306,659 355,173
------------ ------------
Net assets available for benefits $ 22,491,210 $ 18,397,077
============ ============
See notes to financial statements.
2
Cutler-Hammer de Puerto Rico, Inc.
Retirement Savings Plan
Statement of Changes in Net Assets Available for Benefits
Year ended December 31, 2003
ADDITIONS
Investment income:
Interest and dividends $ 86,618
Net appreciation in fair value of investments 2,109,300
-----------
2,195,918
Contributions:
Participants 2,302,509
Employer 959,893
-----------
3,262,402
-----------
5,458,320
DEDUCTIONS
Benefits paid to participants 1,364,187
-----------
Net increase 4,094,133
Net assets available for benefits at beginning of year 18,397,077
-----------
Net assets available for benefits at end of year $22,491,210
===========
See notes to financial statements.
3
Cutler-Hammer de Puerto Rico, Inc.
Retirement Savings Plan
Notes to Financial Statements
December 31, 2003 and 2002 and
Year ended December 31, 2003
1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The financial statements of the Cutler-Hammer de Puerto Rico, Inc. 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.
Purchases and sales of securities are recorded on a trade-date basis. 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. Dividends are recorded on the ex-dividend date.
ESTIMATES
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates that affect
the amounts reported in the financial statements and accompanying notes. Actual
results are not expected to differ from these estimates.
2. DESCRIPTION OF PLAN
Effective February 1, 1994, Eaton Electrical de Puerto Rico, Inc (the Company or
the Plan Sponsor), which was formerly known as Cutler-Hammer de Puerto Rico,
Inc., a wholly owned subsidiary of Eaton Corporation, 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, Inc.
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. As of December 31, 2003, forfeitures held in a suspense
account totaled $218,727 and will 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 Key Bank National
Association (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
The Trustee of the Plan holds the Plan's investment assets and executes
investment transactions.
5
Cutler-Hammer de Puerto Rico, Inc.
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
2003 2002
----------- -----------
KeyBank EB Managed Guaranteed Investment
Contract Fund $16,467,851 $13,250,369
KeyBank Victory Stock Index Fund 3,249,192 3,012,411
Eaton Corporation Common Shares 1,721,201 1,299,829
During 2003, the Plan's investments (including investments purchased, sold as
well as held during the year) appreciated in fair value as follows:
Common stock $ 483,222
Mutual funds 752,297
Common/collective trust funds 873,781
----------
$2,109,300
==========
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
2003 2002
------------ ------------
Net assets available for benefits per the financial statements $ 22,491,210 $ 18,397,077
Amounts allocated to withdrawing participants (186,514) (319,313)
------------ ------------
Net assets available for benefits per Form 5500 $ 22,304,696 $ 18,077,764
============ ============
6
Cutler-Hammer de Puerto Rico, Inc.
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,
2003
------------
Benefits paid to participants per the financial statements $ 1,364,187
Add amounts allocated to withdrawing participants
at December 31, 2003 186,514
Deduct amounts allocated to withdrawing participants
at December 31, 2002 (319,313)
------------
Benefits paid to participants per Form 5500 $ 1,231,388
============
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 determination 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, Inc.
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 special funds of the trustee and the payment of
administrative expenses by the Company. Such transactions are exempt from being
prohibited transactions.
During 2003, the Plan received $30,577 in common stock dividends from the Eaton
Corporation.
7. RISKS AND UNCERTAINTIES
The Plan invests in various investment securities. Investment securities are
exposed to various risks such as interest rate, market and credit risks. Due to
the level of risk associated with certain investment securities, it is at least
reasonably possible that changes in the values of investment securities will
occur in the near term and that such changes could materially affect
participants' account balances and the amounts reported in the statements of net
assets available for benefits.
8
Cutler-Hammer de Puerto Rico, Inc.
Retirement Savings Plan
EIN: 34-1756466 Plan Number: 002
Schedule H, line 4i--Schedule of Assets
(Held at End of Year)
December 31, 2003
DESCRIPTION OF CURRENT
IDENTITY OF ISSUE INVESTMENT VALUE
------------------------------------------ -------------- ------------
COMMON STOCK
Eaton Corporation Common Shares* 15,940 shares $ 1,721,201
MUTUAL FUNDS
Key Bank Victory Stock Index Fund* 197,160 shares 3,249,192
Vanguard Developed Markets Index
Open-End Fund 31,901 shares 249,149
Vanguard Balanced Index Fund
Open-End Fund 27,135 shares 495,761
------------
3,994,102
COMMON/COLLECTIVE TRUST FUNDS
Key Bank EB Managed Guaranteed Investment*
Contract Fund 933,758 units 16,467,851
MONEY MARKET FUND
Key Bank EB Money Market Fund* 1,397 units 1,397
------------
$ 22,184,551
============
* Indicates a party-in-interest to the Plan.
9