##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
 For the quarterly period ended June 30, 2007
 Commission file number 1-1396
 EATON CORPORATION
 
  Ohio
    
    34-0196300(State or other jurisdiction of incorporation or organization)
    
    (IRS Employer Identification Number)
 Eaton Center, Cleveland, Ohio
    
    44114-2584(Address of principal executive offices)
    
    (Zip Code)
  
  þ o
 þ o o
 o þ




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TABLE OF CONTENTS  PART I  FINANCIAL INFORMATIONItem 1. Financial StatementsItem 2. Managements Discussion & Analysis of Financial Condition & Results of OperationsItem 3. Quantitative and Qualitative Disclosures about Market RiskItem 4. Controls and ProceduresPART II  OTHER INFORMATIONItem 2. Unregistered Sales of Equity Securities and Use of ProceedsItem 6. ExhibitsSignatureExhibit IndexEX-10EX-12EX-31.1EX-31.2EX-32.1EX-32.2    Table of Contents  
 PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 Eaton Corporation
Statements of Consolidated Income
 Three months
    
    
    Six monthsended June 30
    
    
    ended June 30(Millions except for per share data)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Net sales
    
    $
    3,248
    
    
    $
    3,125
    
    
    $
    6,361
    
    
    $
    6,081Cost of products sold
    
    
    2,346
    
    
    
    2,262
    
    
    
    4,573
    
    
    
    4,386Selling & administrative expense
    
    
    525
    
    
    
    495
    
    
    
    1,030
    
    
    
    973Research & development expense
    
    
    88
    
    
    
    80
    
    
    
    170
    
    
    
    159Interest expense-net
    
    
    41
    
    
    
    28
    
    
    
    71
    
    
    
    56Other income-net
    
    
    (8
    )
    
    
    (9
    )
    
    
    (2
    )
    
    
    (7
    )Income from continuing operations before income taxes
    
    
    256
    
    
    
    269
    
    
    
    519
    
    
    
    514Income taxes
    
    
    16
    
    
    
    21
    
    
    
    50
    
    
    
    64Income from continuing operations
    
    
    240
    
    
    
    248
    
    
    
    469
    
    
    
    450Income from discontinued operations
    
    
    6
    
    
    
    5
    
    
    
    11
    
    
    
    11Net income
    
    $
    246
    
    
    $
    253
    
    
    $
    480
    
    
    $
    461Net income per Common Share assuming dilutionContinuing operations
    
    $
    1.60
    
    
    $
    1.60
    
    
    $
    3.12
    
    
    $
    2.92Discontinued operations
    
    
    .04
    
    
    
    .04
    
    
    
    .08
    
    
    
    .08$
    1.64
    
    
    $
    1.64
    
    
    $
    3.20
    
    
    $
    3.00Average number of Common Shares outstanding assuming dilution
    
    
    150.3
    
    
    
    154.3
    
    
    
    150.1
    
    
    
    153.7Net income per Common Share basicContinuing operations
    
    $
    1.63
    
    
    $
    1.63
    
    
    $
    3.18
    
    
    $
    2.98Discontinued operations
    
    
    .04
    
    
    
    .04
    
    
    
    .08
    
    
    
    .08$
    1.67
    
    
    $
    1.67
    
    
    $
    3.26
    
    
    $
    3.06Average number of Common Shares outstanding basic
    
    
    147.4
    
    
    
    151.7
    
    
    
    147.4
    
    
    
    151.0Cash dividends paid per Common Share
    
    $
    .43
    
    
    $
    .35
    
    
    $
    .86
    
    
    $
    .70
  Page 2




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##### Table of Contents



Eaton Corporation
Condensed Consolidated Balance Sheets
 June 30,
    
    
    Dec. 31,(Millions)
    
    2007
    
    
    2006ASSETSCurrent assetsCash
    
    $
    112
    
    
    $
    114Short-term investments
    
    
    382
    
    
    
    671Accounts receivable
    
    
    2,208
    
    
    
    1,928Inventories
    
    
    1,382
    
    
    
    1,293Deferred income taxes & other current assets
    
    
    451
    
    
    
    4024,535
    
    
    
    4,408Property, plant & equipment-net
    
    
    2,270
    
    
    
    2,271Goodwill
    
    
    3,478
    
    
    
    3,034Other intangible assets
    
    
    1,386
    
    
    
    969Deferred income taxes & other assets
    
    
    750
    
    
    
    735$
    12,419
    
    
    $
    11,417LIABILITIES & SHAREHOLDERS EQUITYCurrent liabilitiesShort-term debt, primarily commercial paper
    
    $
    721
    
    
    $
    490Current portion of long-term debt
    
    
    38
    
    
    
    322Accounts payable
    
    
    1,081
    
    
    
    1,050Accrued compensation
    
    
    278
    
    
    
    305Other current liabilities
    
    
    1,051
    
    
    
    1,1233,169
    
    
    
    3,290Long-term debt
    
    
    2,518
    
    
    
    1,774Pension liabilities
    
    
    841
    
    
    
    942Other postretirement liabilities
    
    
    778
    
    
    
    766Other long-term liabilities
    
    
    666
    
    
    
    539Shareholders equity
    
    
    4,447
    
    
    
    4,106$
    12,419
    
    
    $
    11,417
  Page 3




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##### Table of Contents



Eaton Corporation  Condensed Statements of Consolidated Cash Flows
 Six monthsended June 30(Millions)
    
    2007
    
    
    2006Net cash provided by (used in) operating activitiesNet income
    
    $
    480
    
    
    $
    461Adjustments to reconcile to net cash provided by operating activitiesDepreciation & amortization
    
    
    227
    
    
    
    214Pension liabilities
    
    
    106
    
    
    
    100Changes in working capital, excluding acquisitions of businesses
    
    
    (389
    )
    
    
    (108
    )Voluntary contributions to United States & United Kingdom qualified pension plans
    
    
    (163
    )
    
    
    (107
    )Other-net
    
    
    (23
    )
    
    
    8238
    
    
    
    568Net cash provided by (used in) investing activitiesExpenditures for property, plant & equipment
    
    
    (143
    )
    
    
    (139
    )Cash paid for acquisitions of businesses
    
    
    (794
    )
    
    
    (144
    )Sales (purchases) of short-term investments-net
    
    
    322
    
    
    
    (121
    )Other-net
    
    
    (6
    )
    
    
    (42
    )(621
    )
    
    
    (446
    )Net cash provided by (used in) financing activitiesBorrowings with original maturities of more than three monthsProceeds
    
    
    1,222
    
    
    
    292Payments
    
    
    (765
    )
    
    
    (187
    )Borrowings (payments) with original maturities of less than three months-net,
primarily commercial paper
    
    
    216
    
    
    
    (148
    )Cash dividends paid
    
    
    (126
    )
    
    
    (104
    )Proceeds from exercise of employee stock options
    
    
    111
    
    
    
    82Income tax benefit from exercise of employee stock options
    
    
    32
    
    
    
    21Purchase of Common Shares
    
    
    (309
    )
    
    
    (63
    )381
    
    
    
    (107
    )Total (decrease) increase in cash
    
    
    (2
    )
    
    
    15Cash at beginning of year
    
    
    114
    
    
    
    110Cash at end of period
    
    $
    112
    
    
    $
    125
  Page 4




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Notes to Condensed Consolidated Financial Statements
 Preparation of Financial Statements
 Discontinued Automotive Operations
 Financial Presentation Changes
 Acquisitions of Businesses
 Date of
    
    Business
    
    AnnualAcquired business
    
    acquisition
    
    segment
    
    salesPulizzi EngineeringA U.S. manufacturer of alternating current (AC) power distribution,
AC power sequencing, redundant power and remote-reboot power
management systems
    
    June 19, 2007
    
    Electrical
    
    $12 for 2006Technology and related assets of SMC Electrical Products, Inc.s
industrial medium-voltage adjustable frequency drive business
    
    May 18, 2007
    
    Electrical
    
    NoneFuel components division of Saturn Electronics & Engineering, Inc.A U.S. designer and manufacturer of fuel containment/shutoff
valves, emissions control valves and specialty actuators
    
    May 2, 2007
    
    Automotive
    
    $28 for 2006Aphel Technologies LimitedA U.K.-based global supplier of high density, fault-tolerant power
distribution solutions for datacenters, technical offices, laboratories
and retail environments
    
    April 5, 2007
    
    Electrical
    
    $12 for 2006Argo-TechA U.S.-based manufacturer of high performance aerospace engine
fuel pumps and systems, airframe fuel pumps and systems, and
ground fueling systems for commercial and military aerospace
markets
    
    March 16, 2007
    
    Fluid Power
    
    $206 for 2006Power Protection Business of Power Products Ltd.A Czech Republic distributor and service provider of Powerware®products and other uninterruptible power systems
    
    February 7, 2007
    
    Electrical
    
    $3 for 2006Schreder-HazemeyerEaton acquired the remaining 50% ownership of the Belgium
manufacturer of low and medium voltage electrical distribution
switchgear
    
    December 1, 2006
    
    Electrical
    
    $9 for 2006
 Page 5




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##### Table of Contents



Date of
    
    Business
    
    AnnualAcquired business
    
    acquisition
    
    segment
    
    salesDiesel fuel processing technology & associated assets of Catalytica
Energy Systems Inc.A U.S. developer of emission control solutions for trucks
    
    October 26, 2006
    
    Truck
    
    NoneSenyuan International Holdings LimitedA China-based manufacturer of vacuum circuit breakers and other
electrical switchgear components
    
    September 14, 2006
    
    Electrical
    
    $47 for 2005Ronningen-Petter business unit of Dover Resources, Inc.A U.S.-based manufacturer of industrial fine filters and components
    
    September 5, 2006
    
    Fluid Power
    
    $30 for 2005Synflex business unit of Saint-Gobain Performance Plastics Corp.A U.S.-based manufacturer of thermoplastic hose and tubing
    
    March 31, 2006
    
    Fluid Power
    
    $121 for 2005Marina Power & LightingA U.S. manufacturer of marine duty electrical distribution products
    
    March 24, 2006
    
    Electrical
    
    $11 for 2005
  
  Workforce Reductions
    
    
    PlantclosingEmployees
    
    
    Dollars
    
    
    & other
    
    
    TotalBalance at January 1, 2007
    
    
    1,076
    
    
    $
    33
    
    
    $
    22
    
    
    $
    55Liabilities recorded in 2007
    
    
    115
    
    
    
    5
    
    
    
    27
    
    
    
    32Utilized in 2007
    
    
    (432
    )
    
    
    (8
    )
    
    
    (30
    )
    
    
    (38
    )Balance at June 30, 2007
    
    
    759
    
    
    $
    30
    
    
    $
    19
    
    
    $
    49
  Acquisition Integration Charges
  Page 6




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Three months
    
    
    Six monthsended June 30
    
    
    ended June 302007
    
    
    2006
    
    
    2007
    
    
    2006Electrical
    
    $
    2
    
    
    $
    3
    
    
    $
    4
    
    
    $
    5Fluid Power
    
    
    12
    
    
    
    3
    
    
    
    23
    
    
    
    6Truck
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    4Automotive
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    3Pretax charges
    
    $
    14
    
    
    $
    9
    
    
    $
    27
    
    
    $
    18After-tax charges
    
    $
    9
    
    
    $
    6
    
    
    $
    18
    
    
    $
    12Per Common Share
    
    $
    .06
    
    
    $
    .04
    
    
    $
    .12
    
    
    $
    .08
  Summary of Acquisition Integration and Excel 07 Plant Closing Charges
  Workforce Reductions
    
    
    PlantclosingEmployees
    
    
    Dollars
    
    
    & other
    
    
    TotalBalance at January 1, 2007
    
    
    1,603
    
    
    $
    49
    
    
    $
    6
    
    
    $
    55Charges recorded in 2007
    
    
    
    
    
    
    2
    
    
    
    27
    
    
    
    29Utilized in 2007
    
    
    (704
    )
    
    
    (23
    )
    
    
    (31
    )
    
    
    (54
    )Balance at June 30, 2007
    
    
    899
    
    
    $
    28
    
    
    $
    2
    
    
    $
    30
 Retirement Benefit Plans Expense
  Three months ended June 30OtherpostretirementPension benefits
    
    
    benefits2007
    
    
    2006
    
    
    2007
    
    
    2006Service cost
    
    $
    (39
    )
    
    $
    (39
    )
    
    $
    (4
    )
    
    $
    (3
    )Interest cost
    
    
    (40
    )
    
    
    (37
    )
    
    
    (11
    )
    
    
    (12
    )Expected return on plan assets
    
    
    44
    
    
    
    41Amortization
    
    
    (18
    )
    
    
    (16
    )
    
    
    (4
    )
    
    
    (3
    )(53
    )
    
    
    (51
    )
    
    
    (19
    )
    
    
    (18
    )Curtailment loss
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    (1
    )Settlement loss
    
    
    (13
    )
    
    
    (12
    )$
    (67
    )
    
    $
    (63
    )
    
    $
    (19
    )
    
    $
    (19
    )
 Page 7




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Six months ended June 30OtherpostretirementPension benefits
    
    
    benefits2007
    
    
    2006
    
    
    2007
    
    
    2006Service cost
    
    $
    (75
    )
    
    $
    (73
    )
    
    $
    (7
    )
    
    $
    (7
    )Interest cost
    
    
    (81
    )
    
    
    (73
    )
    
    
    (23
    )
    
    
    (24
    )Expected return on plan assets
    
    
    89
    
    
    
    82Amortization
    
    
    (37
    )
    
    
    (33
    )
    
    
    (7
    )
    
    
    (6
    )(104
    )
    
    
    (97
    )
    
    
    (37
    )
    
    
    (37
    )Curtailment loss
    
    
    (1
    )
    
    
    (2
    )
    
    
    
    
    
    
    (1
    )Settlement loss
    
    
    (20
    )
    
    
    (23
    )$
    (125
    )
    
    $
    (122
    )
    
    $
    (37
    )
    
    $
    (38
    )
  Income Taxes
       Page 8




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Long-term Debt
  Common Shares
  (Shares in millions)
    
    Shares repurchased
    
    
    Cost2007
    
    
    2006
    
    
    2007
    
    
    2006First quarter
    
    
    2.312
    
    
    
    
    
    
    $
    178Second quarter
    
    
    1.437
    
    
    
    0.895
    
    
    
    131
    
    
    $
    63Third quarter
    
    
    
    
    
    
    1.051
    
    
    
    
    
    
    
    69Fourth quarter
    
    
    
    
    
    
    3.340
    
    
    
    
    
    
    
    2543.749
    
    
    
    5.286
    
    
    $
    309
    
    
    $
    386
  
 Net Income per Common Share
  Three months ended June 30
    
    
    Six months ended June 302007
    
    
    2006
    
    
    2007
    
    
    2006Income from continuing operations
    
    $
    240
    
    
    $
    248
    
    
    $
    469
    
    
    $
    450Income from discontinued operations
    
    
    6
    
    
    
    5
    
    
    
    11
    
    
    
    11Net income
    
    $
    246
    
    
    $
    253
    
    
    $
    480
    
    
    $
    461Average number of Common Shares outstanding assuming dilution
    
    
    150.3
    
    
    
    154.3
    
    
    
    150.1
    
    
    
    153.7Less dilutive effect of stock options
    
    
    2.9
    
    
    
    2.6
    
    
    
    2.7
    
    
    
    2.7Average number of Common Shares outstanding basic
    
    
    147.4
    
    
    
    151.7
    
    
    
    147.4
    
    
    
    151.0Net income
per Common Share assuming dilutionContinuing operations
    
    $
    1.60
    
    
    $
    1.60
    
    
    $
    3.12
    
    
    $
    2.92Discontinued operations
    
    
    .04
    
    
    
    .04
    
    
    
    .08
    
    
    
    .08$
    1.64
    
    
    $
    1.64
    
    
    $
    3.20
    
    
    $
    3.00Net income per Common Share basicContinuing operations
    
    $
    1.63
    
    
    $
    1.63
    
    
    $
    3.18
    
    
    $
    2.98Discontinued operations
    
    
    .04
    
    
    
    .04
    
    
    
    .08
    
    
    
    .08$
    1.67
    
    
    $
    1.67
    
    
    $
    3.26
    
    
    $
    3.06
 Page 9




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Comprehensive Income (Loss)
  Three months ended June 30
    
    
    Six months ended June 302007
    
    
    2006
    
    
    2007
    
    
    2006Net income
    
    $
    246
    
    
    $
    253
    
    
    $
    480
    
    
    $
    461Foreign currency translation
    
    
    53
    
    
    
    26
    
    
    
    80
    
    
    
    51Other
    
    
    24
    
    
    
    
    
    
    
    39
    
    
    
    (5
    )Comprehensive income
    
    $
    323
    
    
    $
    279
    
    
    $
    599
    
    
    $
    507
 Inventories
  June 30,
    
    
    Dec. 31,2007
    
    
    2006Raw materials
    
    $
    622
    
    
    $
    570Work-in-process & finished goods
    
    
    865
    
    
    
    825Inventories at FIFO
    
    
    1,487
    
    
    
    1,395Excess of FIFO over LIFO cost
    
    
    (105
    )
    
    
    (102
    )$
    1,382
    
    
    $
    1,293
 Business Segment Information
 Three months ended June 30
    
    

Six months ended June 302007
    
    
    2006
    
    
    2007
    
    
    2006Net salesElectrical
    
    $
    1,158
    
    
    $
    1,040
    
    
    $
    2,242
    
    
    $
    2,005Fluid Power
    
    
    1,150
    
    
    
    1,026
    
    
    
    2,191
    
    
    
    2,000Truck
    
    
    498
    
    
    
    646
    
    
    
    1,074
    
    
    
    1,253Automotive
    
    
    442
    
    
    
    413
    
    
    
    854
    
    
    
    823$
    3,248
    
    
    $
    3,125
    
    
    $
    6,361
    
    
    $
    6,081Operating profitElectrical
    
    $
    139
    
    
    $
    113
    
    
    $
    259
    
    
    $
    216Fluid Power
    
    
    130
    
    
    
    110
    
    
    
    247
    
    
    
    214Truck
    
    
    75
    
    
    
    133
    
    
    
    182
    
    
    
    250Automotive
    
    
    62
    
    
    
    39
    
    
    
    119
    
    
    
    89CorporateAmortization of intangible assets
    
    
    (19
    )
    
    
    (11
    )
    
    
    (35
    )
    
    
    (22
    )Interest expense-net
    
    
    (41
    )
    
    
    (28
    )
    
    
    (71
    )
    
    
    (56
    )Minority interest
    
    
    (3
    )
    
    
    (2
    )
    
    
    (5
    )
    
    
    (3
    )Pension & other postretirement benefit expense
    
    
    (43
    )
    
    
    (40
    )
    
    
    (81
    )
    
    
    (80
    )Stock option expense
    
    
    (7
    )
    
    
    (7
    )
    
    
    (14
    )
    
    
    (13
    )Other
corporate expense-net
    
    
    (37
    )
    
    
    (38
    )
    
    
    (82
    )
    
    
    (81
    )Income from continuing operations before income taxes
    
    
    256
    
    
    
    269
    
    
    
    519
    
    
    
    514Income taxes
    
    
    16
    
    
    
    21
    
    
    
    50
    
    
    
    64Income from continuing operations
    
    
    240
    
    
    
    248
    
    
    
    469
    
    
    
    450Income from discontinued operations
    
    
    6
    
    
    
    5
    
    
    
    11
    
    
    
    11Net income
    
    $
    246
    
    
    $
    253
    
    
    $
    480
    
    
    $
    461
 Page 10




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##### Table of Contents



Item 2. Managements Discussion & Analysis of Financial Condition & Results of Operations
  Overview of the Company
  Highlights of Results for 2007
 Three months ended June 30
    
    
    Six months ended June 30Increase2007
    
    
    2006
    
    
    (Decrease)
    
    
    2007
    
    
    2006
    
    
    IncreaseContinuing operationsNet sales
    
    $
    3,248
    
    
    $
    3,125
    
    
    4
    %
    
    
    $
    6,361
    
    
    $
    6,081
    
    
    
    5%Gross profit
    
    
    902
    
    
    
    863
    
    
    5
    %
    
    
    
    1,788
    
    
    
    1,695
    
    
    
    5%Percent of net sales
    
    
    27.8
    %
    
    
    27.6
    %
    
    
    
    
    
    
    28.1
    %
    
    
    27.9
    %Income before income taxes
    
    
    256
    
    
    
    269
    
    
    (5
    %)
    
    
    
    519
    
    
    
    514
    
    
    
    1%Income after income taxes
    
    $
    240
    
    
    $
    248
    
    
    (3
    %)
    
    
    $
    469
    
    
    $
    450
    
    
    
    4%Income from discontinued operations
    
    
    6
    
    
    
    5
    
    
    
    
    
    
    
    11
    
    
    
    11Net income
    
    $
    246
    
    
    $
    253
    
    
    (3
    %)
    
    
    $
    480
    
    
    $
    461
    
    
    
    4%Net income per Common Share
assuming dilutionContinuing operations
    
    $
    1.60
    
    
    $
    1.60
    
    
    
    
    
    
    $
    3.12
    
    
    $
    2.92
    
    
    
    7%Discontinued operations
    
    
    .04
    
    
    
    .04
    
    
    
    
    
    
    
    .08
    
    
    
    .08$
    1.64
    
    
    $
    1.64
    
    
    
    
    
    
    $
    3.20
    
    
    $
    3.00
    
    
    
    7%
   Page 11




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##### Table of Contents



Date of
    
    Business
    
    AnnualAcquired business
    
    acquisition
    
    segment
    
    salesPulizzi
EngineeringA U.S. manufacturer of alternating current (AC) power distribution,
AC power sequencing, redundant power and remote-reboot power
management systems
    
    June 19, 2007
    
    Electrical
    
    $12 for 2006Technology and related assets of SMC Electrical Products, Inc.s
industrial medium-voltage adjustable frequency drive business
    
    May 18, 2007
    
    Electrical
    
    NoneFuel components division of Saturn Electronics & Engineering, Inc.A U.S. designer and manufacturer of fuel containment/shutoff
valves, emissions control valves and specialty actuators
    
    May 2, 2007
    
    Automotive
    
    $28 for 2006Aphel Technologies LimitedA U.K.-based global supplier of high density, fault-tolerant power
distribution solutions for datacenters, technical offices, laboratories
and retail environments
    
    April 5, 2007
    
    Electrical
    
    $12 for 2006Argo-TechA U.S.-based manufacturer of high performance aerospace engine
fuel pumps and systems, airframe fuel pumps and systems, and
ground fueling systems for commercial and military aerospace
markets
    
    March 16, 2007
    
    Fluid Power
    
    $206 for 2006Power Protection Business of Power Products Ltd.A Czech Republic distributor and service provider of Powerware®products and other uninterruptible power systems
    
    February 7, 2007
    
    Electrical
    
    $3 for 2006
  
 Page 12




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##### Table of Contents




   Page 13




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##### Table of Contents



Results of Operations  2007 Compared to 2006
 Three months ended June 30
    
    
    Six months ended June 30Increase2007
    
    
    2006
    
    
    (Decrease)
    
    
    2007
    
    
    2006
    
    
    IncreaseContinuing operationsNet sales
    
    $
    3,248
    
    
    $
    3,125
    
    
    4
    %
    
    
    $
    6,361
    
    
    $
    6,081
    
    
    
    5%Gross profit
    
    
    902
    
    
    
    863
    
    
    5
    %
    
    
    
    1,788
    
    
    
    1,695
    
    
    
    5%Percent of net sales
    
    
    27.8
    %
    
    
    27.6
    %
    
    
    
    
    
    
    28.1
    %
    
    
    27.9
    %Income before income taxes
    
    
    256
    
    
    
    269
    
    
    (5
    %)
    
    
    
    519
    
    
    
    514
    
    
    
    1%Income after income taxes
    
    $
    240
    
    
    $
    248
    
    
    (3
    %)
    
    
    $
    469
    
    
    $
    450
    
    
    
    4%Income from discontinued operations
    
    
    6
    
    
    
    5
    
    
    
    
    
    
    
    11
    
    
    
    11Net income
    
    $
    246
    
    
    $
    253
    
    
    (3
    %)
    
    
    $
    480
    
    
    $
    461
    
    
    
    4%Net income per Common Share
assuming dilutionContinuing operations
    
    $
    1.60
    
    
    $
    1.60
    
    
    
    
    
    
    $
    3.12
    
    
    $
    2.92
    
    
    
    7%Discontinued operations
    
    
    .04
    
    
    
    .04
    
    
    
    
    
    
    
    .08
    
    
    
    .08$
    1.64
    
    
    $
    1.64
    
    
    
    
    
    
    $
    3.20
    
    
    $
    3.00
    
    
    
    7%
    Three months
    
    
    Six monthsended June 30
    
    
    ended June 302007
    
    
    2006
    
    
    2007
    
    
    2006Electrical
    
    $
    2
    
    
    $
    3
    
    
    $
    4
    
    
    $
    5Fluid Power
    
    
    12
    
    
    
    3
    
    
    
    23
    
    
    
    6Truck
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    4Automotive
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    3Pretax charges
    
    $
    14
    
    
    $
    9
    
    
    $
    27
    
    
    $
    18After-tax charges
    
    $
    9
    
    
    $
    6
    
    
    $
    18
    
    
    $
    12Per Common Share
    
    $
    .06
    
    
    $
    .04
    
    
    $
    .12
    
    
    $
    .08
 Page 14




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##### Table of Contents



Three months ended
    
    
    Six months endedJune 30, 2006
    
    
    June 30, 2006Electrical
    
    $
    (4
    )
    
    $
    (1
    )Fluid Power
    
    
    7
    
    
    
    13Truck
    
    
    7
    
    
    
    9Automotive
    
    
    12
    
    
    
    18Pretax charges
    
    $
    22
    
    
    $
    39
      Page 15




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##### Table of Contents



Results by Business Segment
 Electrical
 Three months ended June 30
    
    
    Six months ended June 302007
    
    
    2006
    
    
    Increase
    
    
    2007
    
    
    2006
    
    
    IncreaseNet sales
    
    $
    1,158
    
    
    $
    1,040
    
    
    
    11%
    
    
    $
    2,242
    
    
    $
    2,005
    
    
    
    12%Operating profit
    
    
    139
    
    
    
    113
    
    
    
    23%
    
    
    
    259
    
    
    
    216
    
    
    
    20%Operating margin
    
    
    12.0
    %
    
    
    10.9
    %
    
    
    
    
    
    
    11.6
    %
    
    
    10.8
    %
     
    ®
 Page 16




---



##### Table of Contents



Fluid Power
 Three months ended June 30
    
    
    Six months ended June 302007
    
    
    2006
    
    
    Increase
    
    
    2007
    
    
    2006
    
    
    IncreaseNet sales
    
    $
    1,150
    
    
    $
    1,026
    
    
    
    12%
    
    
    $
    2,191
    
    
    $
    2,000
    
    
    
    10%Operating profit
    
    
    130
    
    
    
    110
    
    
    
    18%
    
    
    
    247
    
    
    
    214
    
    
    
    15%Operating margin
    
    
    11.3
    %
    
    
    10.7
    %
    
    
    
    
    
    
    11.3
    %
    
    
    10.7
    %
     
  Truck
 Three months ended June 30
    
    
    Six months ended June 302007
    
    
    2006
    
    
    (Decrease)
    
    
    2007
    
    
    2006
    
    
    (Decrease)Net sales
    
    $
    498
    
    
    $
    646
    
    
    
    (23%)
    
    
    $
    1,074
    
    
    $
    1,253
    
    
    
    (14%)Operating profit
    
    
    75
    
    
    
    133
    
    
    
    (44%)
    
    
    
    182
    
    
    
    250
    
    
    
    (27%)Operating margin
    
    
    15.1
    %
    
    
    20.6
    %
    
    
    
    
    
    
    16.9
    %
    
    
    20.0
    %
 Page 17




---



##### Table of Contents



Automotive
 Three months ended June 30
    
    
    Six months ended June 302007
    
    
    2006
    
    
    Increase
    
    
    2007
    
    
    2006
    
    
    IncreaseNet sales
    
    $
    442
    
    
    $
    413
    
    
    
    7%
    
    
    $
    854
    
    
    $
    823
    
    
    
    4%Operating profit
    
    
    62
    
    
    
    39
    
    
    
    59%
    
    
    
    119
    
    
    
    89
    
    
    
    34%Operating margin
    
    
    14.0
    %
    
    
    9.4
    %
    
    
    
    
    
    
    13.9
    %
    
    
    10.8
    %
      Page 18




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##### Table of Contents



Changes in Financial Condition During 2007
     
  Contractual Obligations
  Page 19




---



##### Table of Contents



Forward-Looking Statements
  
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
  
 Item 4. Controls and Procedures
    
  Page 20




---



##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
   Total number of
    
    Maximum numbershares
    
    (or approximatepurchased as
    
    dollar value ) ofTotal
    
    
    
    
    
    part of publicly
    
    shares that may yetnumber of
    
    Average
    
    announced
    
    be purchasedshares
    
    price paid
    
    plans or
    
    under the plans orMonth
    
    purchased
    
    per share
    
    programs
    
    programsApril
    
    
    170,800
    
    
    
    $89.40
    
    
    
    170,800
    
    
    
    7,517,500May
    
    
    972,500
    
    
    
    $91.40
    
    
    
    972,500
    
    
    
    6,545,000June
    
    
    294,000
    
    
    
    $90.67
    
    
    
    294,000
    
    
    
    6,251,000Total
    
    
    1,437,300
    
    
    
    $91.01
    
    
    
    1,437,300
 
 
 Item 6. Exhibits
  Page 21




---



##### Table of Contents



Signature
  EATON CORPORATION
Registrant Date: August 7, 2007
    /s/ Richard H. FearonRichard H. FearonExecutive Vice President -
Chief Financial and Planning Officer Page 22




---



##### Table of Contents



Eaton Corporation
Second Quarter 2007 Report on Form 10-Q  Exhibit Index
 3 (i)
    
    Amended Articles of Incorporation (amended and restated as of April
27, 1994) filed as Exhibit 3(a) to the Form 10-K Report for the year
ended December 31, 2002 and incorporated herein by reference3 (ii)
    
    Amended Regulations (amended and restated as of April 26, 2000)
filed as Exhibit 3(b) to the Form 10-Q Report for the quarter ended
June 30, 2000 and incorporated herein by reference4
    
    Instruments defining rights of security holders, including
indentures (Pursuant to Regulation S-K Item 601(b)(4), Eaton agrees
to furnish to the Commission, upon request, a copy of the
instruments defining the rights of holders of long-term debt)10
    
    Stock and Asset Purchase Agreement,
dated as of August 3, 2007, among, Eaton Power Solutions SAS
(Buyer), MGE Finances (Seller 1), and MGE UPS Systems (Seller 2)12
    
    Ratio of Earnings to Fixed Charges31.1
    
    Certification of Chief Executive Officer (Pursuant to Rule 13a-14(a))31.2
    
    Certification of Chief Financial Officer (Pursuant to Rule 13a-14(a))32.1
    
    Certification of Chief Executive Officer (Pursuant to Rule
13a-14(b) as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act)32.2
    
    Certification of Chief Financial Officer (Pursuant to Rule
13a-14(b) as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act)
 Page 23