##### 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, 2008
 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)
  (Registrants telephone number, including area code)
  (Former name, former address and former fiscal year if changed since last report)
 þ o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller Reporting Company o
 o þ




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TABLE OF CONTENTS  PART 1  FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTSITEM 2. MANAGEMENTS DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONSITEM 3. QUANTITATIVE & QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 4. CONTROLS & PROCEDURESPART II  OTHER INFORMATIONITEM 6. EXHIBITSSIGNATUREEXHIBIT INDEXEX-12EX-31.1EX-31.2EX-32.1EX-32.2    Table of Contents  
 PART 1  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 EATON CORPORATION
STATEMENTS OF CONSOLIDATED INCOME
 Three months ended
    
    
    Six months endedJune 30
    
    
    June 30(Millions except for per share data)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Net sales
    
    $
    4,279
    
    
    $
    3,248
    
    
    $
    7,775
    
    
    $
    6,361Cost of products sold
    
    
    3,069
    
    
    
    2,346
    
    
    
    5,601
    
    
    
    4,573Selling & administrative expense
    
    
    704
    
    
    
    528
    
    
    
    1,256
    
    
    
    1,035Research & development expense
    
    
    111
    
    
    
    85
    
    
    
    200
    
    
    
    165Interest expense-net
    
    
    44
    
    
    
    41
    
    
    
    82
    
    
    
    71Other (income) expense-net
    
    
    (3
    )
    
    
    (8
    )
    
    
    (4
    )
    
    
    (2
    )Income from continuing operations before income taxes
    
    
    354
    
    
    
    256
    
    
    
    640
    
    
    
    519Income taxes
    
    
    21
    
    
    
    16
    
    
    
    63
    
    
    
    50Income from continuing operations
    
    
    333
    
    
    
    240
    
    
    
    577
    
    
    
    469Income from discontinued operations
    
    
    
    
    
    
    6
    
    
    
    3
    
    
    
    11Net income
    
    $
    333
    
    
    $
    246
    
    
    $
    580
    
    
    $
    480Net income per Common Share assuming dilutionContinuing operations
    
    $
    2.03
    
    
    $
    1.60
    
    
    $
    3.68
    
    
    $
    3.12Discontinued operations
    
    
    
    
    
    
    .04
    
    
    
    .01
    
    
    
    .08$
    2.03
    
    
    $
    1.64
    
    
    $
    3.69
    
    
    $
    3.20Average number of Common Shares outstanding assuming
dilution
    
    
    163.6
    
    
    
    150.3
    
    
    
    157.1
    
    
    
    150.1Net income per Common Share basicContinuing operations
    
    $
    2.07
    
    
    $
    1.63
    
    
    $
    3.74
    
    
    $
    3.18Discontinued operations
    
    
    
    
    
    
    .04
    
    
    
    .01
    
    
    
    .08$
    2.07
    
    
    $
    1.67
    
    
    $
    3.75
    
    
    $
    3.26Average number of Common Shares outstanding basic
    
    
    161.2
    
    
    
    147.4
    
    
    
    154.5
    
    
    
    147.4Cash dividends paid per Common Share
    
    $
    .50
    
    
    $
    .43
    
    
    $
    1.00
    
    
    $
    .86
  Page 2




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EATON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
 June 30,
    
    
    December 31,(Millions)
    
    2008
    
    
    2007ASSETSCurrent assetsCash
    
    $
    219
    
    
    $
    142Short-term investments
    
    
    499
    
    
    
    504Accounts receivable
    
    
    3,029
    
    
    
    2,208Inventories
    
    
    1,844
    
    
    
    1,483Deferred income taxes & other current assets
    
    
    472
    
    
    
    4306,063
    
    
    
    4,767Property, plant & equipment-net
    
    
    2,699
    
    
    
    2,333Goodwill
    
    
    6,181
    
    
    
    3,982Other intangible assets
    
    
    2,047
    
    
    
    1,557Deferred income taxes & other assets
    
    
    933
    
    
    
    791$
    17,923
    
    
    $
    13,430LIABILITIES & SHAREHOLDERS EQUITYCurrent liabilitiesShort-term debt
    
    $
    1,341
    
    
    $
    825Current portion of long-term debt
    
    
    148
    
    
    
    160Accounts payable
    
    
    1,468
    
    
    
    1,170Accrued compensation
    
    
    378
    
    
    
    355Other current liabilities
    
    
    1,340
    
    
    
    1,1494,675
    
    
    
    3,659Long-term debt
    
    
    3,155
    
    
    
    2,432Pension liabilities
    
    
    946
    
    
    
    681Other postretirement liabilities
    
    
    767
    
    
    
    772Other long-term liabilities & deferred income taxes
    
    
    986
    
    
    
    714Shareholders equity
    
    
    7,394
    
    
    
    5,172$
    17,923
    
    
    $
    13,430
  Page 3




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EATON CORPORATION
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
 Six months endedJune 30(Millions)
    
    2008
    
    
    2007Net cash provided by (used in) operating activitiesNet income
    
    $
    580
    
    
    $
    480Adjustments to reconcile to net cash provided by (used in) operating activitiesDepreciation & amortization
    
    
    280
    
    
    
    227Pension liabilities
    
    
    57
    
    
    
    106Changes in working capital, excluding acquisitions & sales of businesses
    
    
    (459
    )
    
    
    (389
    )Voluntary contributions to United States & United Kingdom qualified
pension plans
    
    
    (8
    )
    
    
    (163
    )Other-net
    
    
    (91
    )
    
    
    (23
    )359
    
    
    
    238Net cash provided by (used in) investing activitiesExpenditures for property, plant & equipment
    
    
    (217
    )
    
    
    (143
    )Cash paid for acquisitions of businesses
    
    
    (2,694
    )
    
    
    (794
    )Sales of short-term investments-net
    
    
    28
    
    
    
    322Other-net
    
    
    (8
    )
    
    
    (6
    )(2,891
    )
    
    
    (621
    )Net cash provided by (used in) financing activitiesBorrowings with original maturities of more than three monthsProceeds
    
    
    1,112
    
    
    
    1,222Payments
    
    
    (731
    )
    
    
    (765
    )Borrowings with original maturities of less than three months-net,
primarily commercial paper
    
    
    808
    
    
    
    216Cash dividends paid
    
    
    (156
    )
    
    
    (126
    )Proceeds from issuance of Common Shares
    
    
    1,522Proceeds from exercise of employee stock options
    
    
    42
    
    
    
    111Income tax benefit from exercise of employee stock options
    
    
    12
    
    
    
    32Purchase of Common Shares
    
    
    
    
    
    
    (309
    )2,609
    
    
    
    381Total increase (decrease) in cash
    
    
    77
    
    
    
    (2
    )Cash at the beginning of the year
    
    
    142
    
    
    
    114Cash at the end of the period
    
    $
    219
    
    
    $
    112
  Page 4




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  PREPARATION OF FINANCIAL STATEMENTS
  ACQUISITIONS OF BUSINESSES
  Date of
    
    BusinessAcquired business
    
    acquisition
    
    segment
    
    Annual salesThe Moeller Group
    
    April 4, 2008
    
    Electrical
    
    1.02 billion forA Germany-based supplier of electrical
components for commercial and residential
building applications, and industrial controls for
industrial equipment applications
    
    
    
    
    
    
    2007Balmen Electronic, S.L.
    
    March 31, 2008
    
    Electrical
    
    $6 for 2007A Spain-based distributor and service provider
of uninterruptible power supply (UPS) systemsPhoenixtec Power Company Ltd.
    
    February 26, 2008
    
    Electrical
    
    $515 for 2007A Taiwan-based manufacturer of single and
three-phase uninterruptible power supply (UPS)
systemsArrow Hose & Tubing Inc.
    
    November 8, 2007
    
    Hydraulics
    
    $12 for 2006A Canada-based manufacturer of thermoplastic
hose and tubing for the industrial, food and
beverage, and agricultural marketsMGE small systems UPS business from Schneider Electric
    
    October 31, 2007
    
    Electrical
    
    $245 for theA France-based global provider of power quality
solutions including uninterruptible power supply
(UPS) systems, power distribution units, static
transfer switches and surge suppressors
    
    
    
    
    
    year endedSept. 30, 2007Babco Electric Group
    
    October 19, 2007
    
    Electrical
    
    $11 for theA Canada-based manufacturer of specialty low- and medium-voltage switchgear and electrical housings for use in the Canadian oil and gas
industry and other harsh environments
    
    
    
    
    
    year ended April 30, 2007
 Page 5




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Date of
    
    BusinessAcquired business
    
    acquisition
    
    segment
    
    Annual salesPulizzi Engineering
    
    June 19, 2007
    
    Electrical
    
    $12 for 2006A U.S. manufacturer of alternating current (AC)
power distribution, AC power sequencing,
redundant power and remote-reboot power
management systemsTechnology and related assets of SMC Electrical
    
    May 18, 2007
    
    Electrical
    
    NoneProducts, Inc.s industrial medium-voltage adjustable
frequency drive businessFuel components division of Saturn Electronics & Engineering, Inc.
    
    May 2, 2007
    
    Automotive
    
    $28 for 2006A U.S. designer and manufacturer of fuel
containment and shutoff valves, emissions control
valves and specialty actuatorsAphel Technologies Limited
    
    April 5, 2007
    
    Electrical
    
    $12 for 2006A U.K.-based global supplier of high density,
fault-tolerant power distribution solutions for
datacenters, technical offices, laboratories and
retail environmentsArgo-Tech Corporation
    
    March 16, 2007
    
    Aerospace
    
    $206 for 2006A 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 marketsPower Protection Business of Power Products Ltd.
    
    February 7, 2007
    
    Electrical
    
    $3 for 2006A Czech Republic distributor and
service provider of Powerware®products and other uninterruptible power supply (UPS) systems
  Pro
Forma Results of Continuing Operations
  Three months ended
    
    Six months endedJune 30
    
    June 30(Millions except for per share data)
    
    2008
    
    2007
    
    2008
    
    2007Net sales
    
    $
    4,279
    
    
    $
    3,749
    
    
    $
    8,252
    
    
    $
    7,370Income from continuing operations
    
    
    333
    
    
    
    234
    
    
    
    591
    
    
    
    456Net income from continuing operations per Common ShareAssuming dilution
    
    $
    2.04
    
    
    $
    1.56
    
    
    $
    3.76
    
    
    $
    3.04Basic
    
    $
    2.07
    
    
    $
    1.59
    
    
    $
    3.82
    
    
    $
    3.09
 Page 6




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Subsequent
Event
  Restructuring
Liabilities
  PlantWorkforce reductions
    
    
    closingEmployees
    
    
    Dollars
    
    
    & other
    
    
    TotalBalance at January 1, 2008
    
    
    659
    
    
    $
    27
    
    
    $
    12
    
    
    $
    39Liabilities recorded in 2008
    
    
    7
    
    
    
    
    
    
    
    4
    
    
    
    4Utilized in 2008
    
    
    (334
    )
    
    
    (13
    )
    
    
    (2
    )
    
    
    (15
    )Balance at June 30, 2008
    
    
    332
    
    
    $
    14
    
    
    $
    14
    
    
    $
    28
 ACQUISITION INTEGRATION CHARGES
  Three months ended
    
    
    Six months endedJune 30
    
    
    June 302008
    
    
    2007
    
    
    2008
    
    
    2007Electrical
    
    $
    7
    
    
    $
    2
    
    
    $
    10
    
    
    $
    4Hydraulics
    
    
    1
    
    
    
    3
    
    
    
    3
    
    
    
    7Aerospace
    
    
    6
    
    
    
    9
    
    
    
    13
    
    
    
    16Automotive
    
    
    1
    
    
    
    
    
    
    
    2Corporate
    
    
    2
    
    
    
    
    
    
    
    2Pretax charges
    
    $
    17
    
    
    $
    14
    
    
    $
    30
    
    
    $
    27After-tax charges
    
    $
    11
    
    
    $
    9
    
    
    $
    20
    
    
    $
    18Per Common Share
    
    $
    .07
    
    
    $
    .06
    
    
    $
    .13
    
    
    $
    .12
    Summary
of Acquisition Integration & Plant Closing Charges
  PlantWorkforce reductions
    
    closingEmployees
    
    Dollars
    
    & other
    
    TotalBalance at January 1, 2008
    
    
    563
    
    
    $
    14
    
    
    $
    1
    
    
    $
    15Liabilities recorded in 2008
    
    
    
    
    
    
    
    
    
    
    32
    
    
    
    32Utilized in 2008
    
    
    (113
    )
    
    
    (6
    )
    
    
    (32
    )
    
    
    (38
    )Balance at June 30, 2008
    
    
    450
    
    
    $
    8
    
    
    $
    1
    
    
    $
    9
 Page 7




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FINANCING OF THE ACQUISITIONS OF PHOENIXTEC & THE MOELLER GROUP
   LONG-TERM DEBT
   RETIREMENT BENEFIT PLANS EXPENSE
  Three months ended June 30OtherpostretirementPension benefits
    
    
    benefits2008
    
    
    2007
    
    
    2008
    
    
    2007Service cost
    
    $
    (40
    )
    
    $
    (39
    )
    
    $
    (4
    )
    
    $
    (4
    )Interest cost
    
    
    (35
    )
    
    
    (40
    )
    
    
    (12
    )
    
    
    (11
    )Expected return on plan assets
    
    
    34
    
    
    
    44Amortization
    
    
    (7
    )
    
    
    (18
    )
    
    
    (3
    )
    
    
    (4
    )(48
    )
    
    
    (53
    )
    
    
    (19
    )
    
    
    (19
    )Curtailment loss
    
    
    
    
    
    
    (1
    )Settlement loss
    
    
    (7
    )
    
    
    (13
    )$
    (55
    )
    
    $
    (67
    )
    
    $
    (19
    )
    
    $
    (19
    )
 Six months ended June 30OtherpostretirementPension benefits
    
    
    benefits2008
    
    
    2007
    
    
    2008
    
    
    2007Service cost
    
    $
    (75
    )
    
    $
    (75
    )
    
    $
    (8
    )
    
    $
    (7
    )Interest cost
    
    
    (79
    )
    
    
    (81
    )
    
    
    (24
    )
    
    
    (23
    )Expected return on plan assets
    
    
    82
    
    
    
    89Amortization
    
    
    (19
    )
    
    
    (37
    )
    
    
    (6
    )
    
    
    (7
    )(91
    )
    
    
    (104
    )
    
    
    (38
    )
    
    
    (37
    )Curtailment loss
    
    
    
    
    
    
    (1
    )Settlement loss
    
    
    (20
    )
    
    
    (20
    )$
    (111
    )
    
    $
    (125
    )
    
    $
    (38
    )
    
    $
    (37
    )
 Page 8




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INCOME TAXES
    COMPREHENSIVE INCOME (LOSS)
  Three months ended
    
    
    Six months endedJune 30
    
    
    June 302008
    
    
    2007
    
    
    2008
    
    
    2007Net income
    
    $
    333
    
    
    $
    246
    
    
    $
    580
    
    
    $
    480Foreign currency translation
    
    
    59
    
    
    
    53
    
    
    
    152
    
    
    
    80Pensions & other postretirement benefits
    
    
    14
    
    
    
    22
    
    
    
    33
    
    
    
    32Other
    
    
    11
    
    
    
    2
    
    
    
    11
    
    
    
    7Comprehensive income
    
    $
    417
    
    
    $
    323
    
    
    $
    776
    
    
    $
    599
 INVENTORIES
  June 30,
    
    
    December 31,2008
    
    
    2007Raw materials
    
    $
    777
    
    
    $
    674Work-in-process & finished goods
    
    
    1,181
    
    
    
    917Inventories at FIFO
    
    
    1,958
    
    
    
    1,591Excess of FIFO over LIFO cost
    
    
    (114
    )
    
    
    (108
    )$
    1,844
    
    
    $
    1,483
 Page 9




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NET INCOME PER COMMON SHARE
  Three months ended
    
    
    Six months endedJune 30
    
    
    June 30(Shares in millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Income from continuing operations
    
    $
    333
    
    
    $
    240
    
    
    $
    577
    
    
    $
    469Income from discontinued operations
    
    
    
    
    
    
    6
    
    
    
    3
    
    
    
    11Net income
    
    $
    333
    
    
    $
    246
    
    
    $
    580
    
    
    $
    480Average number of Common Shares outstanding assuming dilution
    
    
    163.6
    
    
    
    150.3
    
    
    
    157.1
    
    
    
    150.1Less dilutive effect of stock options
    
    
    2.4
    
    
    
    2.9
    
    
    
    2.6
    
    
    
    2.7Average number of Common Shares outstanding basic
    
    
    161.2
    
    
    
    147.4
    
    
    
    154.5
    
    
    
    147.4Net income per Common Share assuming dilutionContinuing operations
    
    $
    2.03
    
    
    $
    1.60
    
    
    $
    3.68
    
    
    $
    3.12Discontinued operations
    
    
    
    
    
    
    .04
    
    
    
    .01
    
    
    
    .08$
    2.03
    
    
    $
    1.64
    
    
    $
    3.69
    
    
    $
    3.20Net income per Common Share basicContinuing operations
    
    $
    2.07
    
    
    $
    1.63
    
    
    $
    3.74
    
    
    $
    3.18Discontinued operations
    
    
    
    
    
    
    .04
    
    
    
    .01
    
    
    
    .08$
    2.07
    
    
    $
    1.67
    
    
    $
    3.75
    
    
    $
    3.26
 FINANCIAL ASSETS & LIABILITIES MEASURED AT FAIR VALUE
  Fair value measurement usedQuoted prices
    
    
    Quoted pricesin active
    
    
    in activemarkets for
    
    
    markets for
    
    
    Otheridentical
    
    
    similar
    
    
    unobservableRecorded
    
    
    instruments
    
    
    instruments
    
    
    inputsvalue
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Short-term investments
    
    $
    499
    
    
    $
    499Foreign currency forward exchange
contracts
    
    
    8
    
    
    
    
    
    
    $
    8Commodity contracts
    
    
    4
    
    
    
    
    
    
    
    4Fixed-to-floating interest rate swaps
    
    
    (4
    )
    
    
    
    
    
    
    (4
    )Long-term debt converted to floating
interest rates by interest rate swaps
    
    
    4
    
    
    
    
    
    
    
    4$
    511
    
    
    $
    499
    
    
    $
    12
    
    
    $
    0
 Page 10




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BUSINESS SEGMENT INFORMATION
  Three months ended
    
    
    Six months endedJune 30
    
    
    June 302008
    
    
    2007
    
    
    2008
    
    
    2007Net salesElectrical
    
    $
    1,939
    
    
    $
    1,158
    
    
    $
    3,243
    
    
    $
    2,242Hydraulics
    
    
    695
    
    
    
    619
    
    
    
    1,352
    
    
    
    1,193Aerospace
    
    
    466
    
    
    
    407
    
    
    
    896
    
    
    
    757Truck
    
    
    625
    
    
    
    498
    
    
    
    1,192
    
    
    
    1,074Automotive
    
    
    554
    
    
    
    566
    
    
    
    1,092
    
    
    
    1,095$
    4,279
    
    
    $
    3,248
    
    
    $
    7,775
    
    
    $
    6,361Operating profitElectrical
    
    $
    250
    
    
    $
    139
    
    
    $
    410
    
    
    $
    259Hydraulics
    
    
    92
    
    
    
    68
    
    
    
    170
    
    
    
    134Aerospace
    
    
    69
    
    
    
    55
    
    
    
    132
    
    
    
    100Truck
    
    
    94
    
    
    
    75
    
    
    
    179
    
    
    
    182Automotive
    
    
    51
    
    
    
    69
    
    
    
    97
    
    
    
    132CorporateAmortization of intangible assets
    
    
    (42
    )
    
    
    (19
    )
    
    
    (67
    )
    
    
    (35
    )Interest expense-net
    
    
    (44
    )
    
    
    (41
    )
    
    
    (82
    )
    
    
    (71
    )Minority interest
    
    
    (4
    )
    
    
    (3
    )
    
    
    (7
    )
    
    
    (5
    )Pension & other postretirement benefit expense
    
    
    (35
    )
    
    
    (43
    )
    
    
    (73
    )
    
    
    (81
    )Stock option expense
    
    
    (8
    )
    
    
    (7
    )
    
    
    (15
    )
    
    
    (14
    )Other corporate expense-net
    
    
    (69
    )
    
    
    (37
    )
    
    
    (104
    )
    
    
    (82
    )Income from continuing operations before income taxes
    
    
    354
    
    
    
    256
    
    
    
    640
    
    
    
    519Income taxes
    
    
    21
    
    
    
    16
    
    
    
    63
    
    
    
    50Income from continuing operations
    
    
    333
    
    
    
    240
    
    
    
    577
    
    
    
    469Income from discontinued operations
    
    
    
    
    
    
    6
    
    
    
    3
    
    
    
    11Net income
    
    $
    333
    
    
    $
    246
    
    
    $
    580
    
    
    $
    480
 .
 Page 11




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ITEM 2. MANAGEMENTS DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS
  OVERVIEW OF EATON
   HIGHLIGHTS OF RESULTS FOR 2008
  Three months ended June 30
    
    
    Six months ended June 302008
    
    
    2007
    
    
    Increase
    
    
    2008
    
    
    2007
    
    
    IncreaseContinuing operationsNet sales
    
    $
    4,279
    
    
    $
    3,248
    
    
    
    32
    %
    
    $
    7,775
    
    
    $
    6,361
    
    
    
    22
    %Gross profit
    
    
    1,210
    
    
    
    902
    
    
    
    34
    %
    
    
    2,174
    
    
    
    1,788
    
    
    
    22
    %Percent of net sales
    
    
    28.3
    %
    
    
    27.8
    %
    
    
    
    
    
    
    28.0
    %
    
    
    28.1
    %Income before income taxes
    
    
    354
    
    
    
    256
    
    
    
    38
    %
    
    
    640
    
    
    
    519
    
    
    
    23
    %Income after income taxes
    
    $
    333
    
    
    $
    240
    
    
    
    39
    %
    
    $
    577
    
    
    $
    469
    
    
    
    23
    %Income from discontinued operations
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    3
    
    
    
    11Net income
    
    $
    333
    
    
    $
    246
    
    
    
    35
    %
    
    $
    580
    
    
    $
    480
    
    
    
    21
    %Net income per Common Share
assuming dilutionContinuing operations
    
    $
    2.03
    
    
    $
    1.60
    
    
    
    27
    %
    
    $
    3.68
    
    
    $
    3.12
    
    
    
    18
    %Discontinued operations
    
    
    
    
    
    
    .04
    
    
    
    
    
    
    
    .01
    
    
    
    .08$
    2.03
    
    
    $
    1.64
    
    
    
    24
    %
    
    $
    3.69
    
    
    $
    3.20
    
    
    
    15
    %
  Page 12




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##### Table of Contents



Date of
    
    BusinessAcquired business
    
    acquisition
    
    segment
    
    Annual salesThe Moeller Group
    
    April 4, 2008
    
    Electrical
    
    1.02 billion forA Germany-based supplier of electrical components for commercial and residential
building applications, and industrial controls for
industrial equipment applications
    
    
    
    
    
    
    2007Balmen Electronic, S.L.
    
    March 31, 2008
    
    Electrical
    
    $6 for 2007A Spain-based distributor and service provider of uninterruptible power supply (UPS) systemsPhoenixtec Power Company Ltd.
    
    February 26, 2008
    
    Electrical
    
    $515 for 2007A Taiwan-based manufacturer of single and
three-phase uninterruptible power supply (UPS)
systems
   Page 13




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Page 14




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##### Table of Contents



RESULTS
OF OPERATIONS  2008 COMPARED TO 2007
 Three months ended June 30
    
    
    Six months ended June 302008
    
    
    2007
    
    
    Increase
    
    
    2008
    
    
    2007
    
    
    IncreaseContinuing operationsNet sales
    
    $
    4,279
    
    
    $
    3,248
    
    
    
    32
    %
    
    $
    7,775
    
    
    $
    6,361
    
    
    
    22
    %Gross profit
    
    
    1,210
    
    
    
    902
    
    
    
    34
    %
    
    
    2,174
    
    
    
    1,788
    
    
    
    22
    %Percent of net sales
    
    
    28.3
    %
    
    
    27.8
    %
    
    
    
    
    
    
    28.0
    %
    
    
    28.1
    %Income before income taxes
    
    
    354
    
    
    
    256
    
    
    
    38
    %
    
    
    640
    
    
    
    519
    
    
    
    23
    %Income after income taxes
    
    $
    333
    
    
    $
    240
    
    
    
    39
    %
    
    $
    577
    
    
    $
    469
    
    
    
    23
    %Income from discontinued operations
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    3
    
    
    
    11Net income
    
    $
    333
    
    
    $
    246
    
    
    
    35
    %
    
    $
    580
    
    
    $
    480
    
    
    
    21
    %Net income per Common Share
assuming dilutionContinuing operations
    
    $
    2.03
    
    
    $
    1.60
    
    
    
    27
    %
    
    $
    3.68
    
    
    $
    3.12
    
    
    
    18
    %Discontinued operations
    
    
    
    
    
    
    .04
    
    
    
    
    
    
    
    .01
    
    
    
    .08$
    2.03
    
    
    $
    1.64
    
    
    
    24
    %
    
    $
    3.69
    
    
    $
    3.20
    
    
    
    15
    %
    Page 15




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##### Table of Contents



OTHER RESULTS OF OPERATIONS
  Three months ended
    
    
    Six months endedJune 30
    
    
    June 302008
    
    
    2007
    
    
    2008
    
    
    2007Electrical
    
    $
    7
    
    
    $
    2
    
    
    $
    10
    
    
    $
    4Hydraulics
    
    
    1
    
    
    
    3
    
    
    
    3
    
    
    
    7Aerospace
    
    
    6
    
    
    
    9
    
    
    
    13
    
    
    
    16Automotive
    
    
    1
    
    
    
    
    
    
    
    2Corporate
    
    
    2
    
    
    
    
    
    
    
    2Pretax charges
    
    $
    17
    
    
    $
    14
    
    
    $
    30
    
    
    $
    27After-tax charges
    
    $
    11
    
    
    $
    9
    
    
    $
    20
    
    
    $
    18Per Common Share
    
    $
    .07
    
    
    $
    .06
    
    
    $
    .13
    
    
    $
    .12
    Page 16




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RESULTS BY BUSINESS SEGMENT
 Electrical
 Three months ended June 30
    
    Six months ended June 302008
    
    2007
    
    Increase
    
    2008
    
    2007
    
    IncreaseNet sales
    
    $
    1,939
    
    
    $
    1,158
    
    
    
    67
    %
    
    $
    3,243
    
    
    $
    2,242
    
    
    
    45
    %Operating profit
    
    
    250
    
    
    
    139
    
    
    
    80
    %
    
    
    410
    
    
    
    259
    
    
    
    58
    %Operating margin
    
    
    12.9
    %
    
    
    12.0
    %
    
    
    
    
    
    
    12.6
    %
    
    
    11.6
    %
    
   Page 17




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##### Table of Contents



Hydraulics
 Three months ended June 30
    
    Six months ended June 302008
    
    2007
    
    Increase
    
    2008
    
    2007
    
    IncreaseNet sales
    
    $
    695
    
    
    $
    619
    
    
    
    12
    %
    
    $
    1,352
    
    
    $
    1,193
    
    
    
    13
    %Operating profit
    
    
    92
    
    
    
    68
    
    
    
    35
    %
    
    
    170
    
    
    
    134
    
    
    
    27
    %Operating margin
    
    
    13.2
    %
    
    
    11.0
    %
    
    
    
    
    
    
    12.6
    %
    
    
    11.2
    %
    Aerospace
 Three months ended June 30
    
    Six months ended June 302008
    
    2007
    
    Increase
    
    2008
    
    2007
    
    IncreaseNet sales
    
    $
    466
    
    
    $
    407
    
    
    
    15
    %
    
    $
    896
    
    
    $
    757
    
    
    
    18
    %Operating profit
    
    
    69
    
    
    
    55
    
    
    
    25
    %
    
    
    132
    
    
    
    100
    
    
    
    32
    %Operating margin
    
    
    14.8
    %
    
    
    13.5
    %
    
    
    
    
    
    
    14.7
    %
    
    
    13.2
    %
   Page 18




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Truck
 Three months ended June 30
    
    Six months ended June 30Increase2008
    
    2007
    
    Increase
    
    2008
    
    2007
    
    (Decrease)Net sales
    
    $
    625
    
    
    $
    498
    
    
    
    26
    %
    
    $
    1,192
    
    
    $
    1,074
    
    
    
    11
    %Operating profit
    
    
    94
    
    
    
    75
    
    
    
    25
    %
    
    
    179
    
    
    
    182
    
    
    
    (2
    )%Operating margin
    
    
    15.0
    %
    
    
    15.1
    %
    
    
    
    
    
    
    15.0
    %
    
    
    16.9
    %
    Automotive
 Three months ended June 30
    
    Six months ended June 302008
    
    2007
    
    (Decrease)
    
    2008
    
    2007
    
    (Decrease)Net sales
    
    $
    554
    
    
    $
    566
    
    
    
    (2
    )%
    
    $
    1,092
    
    
    $
    1,095
    
    
    
    Operating profit
    
    
    51
    
    
    
    69
    
    
    
    (26
    )%
    
    
    97
    
    
    
    132
    
    
    
    (27
    )%Operating margin
    
    
    9.2
    %
    
    
    12.2
    %
    
    
    
    
    
    
    8.9
    %
    
    
    12.1
    %
     Page 19




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##### Table of Contents



Corporate
    CHANGES IN FINANCIAL CONDITION DURING 2008
   
   Page 20




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##### Table of Contents



CONTRACTUAL OBLIGATIONS
  FORWARD-LOOKING STATEMENTS
  
 ITEM 3. QUANTITATIVE & QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS & PROCEDURES
   Page 21




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##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 6. EXHIBITS
  Page 22




---



##### Table of Contents



SIGNATURE
  EATON CORPORATIONRegistrantDate: August 5, 2008
    
    /s/ Richard H. FearonRichard H. FearonExecutive Vice President -Chief Financial and Planning Officer
 Page 23




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##### Table of Contents



EATON CORPORATION
SECOND QUARTER 2008 REPORT ON FORM 10-Q
 
 EXHIBIT INDEX
 3 (a)
    
    Amended Articles of Incorporation (amended and restated as of April 24, 2008)  Incorporated by
reference to the Form 10-Q Report for the quarter ended March 31, 20083 (b)
    
    Amended Regulations (amended and restated as of April 23, 2008)  Incorporated by reference
to the Form 10-Q Report for the quarter ended March 31, 20084
    
    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)12
    
    Ratio of Earnings to Fixed Charges  Filed in conjunction with this Form 10-Q Report31.1
    
    Certification of Chief Executive Officer (Pursuant to Rule 13a-14(a))  Filed in conjunction with
this Form 10-Q Report31.2
    
    Certification of Chief Financial Officer (Pursuant to Rule 13a-14(a))  Filed in conjunction with
this Form 10-Q Report32.1
    
    Certification of Chief Executive Officer (Pursuant to Rule 13a-14(b) as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act)  Filed in conjunction with this Form 10-Q Report32.2
    
    Certification of Chief Financial Officer (Pursuant to Rule 13a-14(b) as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act)  Filed in conjunction with this Form 10-Q Report
 Page 24