##### 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 September 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)
 (216) 523-5000(Registrants telephone number, including area code)
 Not applicable(Former name, former address and former fiscal year if changed 
since last report)
 þ o
  Large accelerated filer
    
    þ
    
    
    
    Accelerated filer
    
    oNon-accelerated filer
    
    o
    
    
    
    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 2. Unregistered Sales of Equity Securities and Use of ProceedsITEM 6. EXHIBITSSIGNATUREEX-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
    
    
    Nine months endedSeptember 30
    
    
    September 30(Millions except for per share data)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Net sales
    
    $
    4,114
    
    
    $
    3,298
    
    
    $
    11,889
    
    
    $
    9,659Cost of products sold
    
    
    2,964
    
    
    
    2,381
    
    
    
    8,565
    
    
    
    6,954Selling & administrative expense
    
    
    659
    
    
    
    530
    
    
    
    1,915
    
    
    
    1,565Research & development expense
    
    
    117
    
    
    
    86
    
    
    
    317
    
    
    
    251Interest expense-net
    
    
    37
    
    
    
    37
    
    
    
    119
    
    
    
    108Contribution to Eaton Charitable Fund
    
    
    
    
    
    
    16
    
    
    
    
    
    
    
    16Other (income) expense-net
    
    
    (17
    )
    
    
    (15
    )
    
    
    (21
    )
    
    
    (17
    )Income from continuing operations before income taxes
    
    
    354
    
    
    
    263
    
    
    
    994
    
    
    
    782Income taxes
    
    
    39
    
    
    
    25
    
    
    
    102
    
    
    
    75Income from continuing operations
    
    
    315
    
    
    
    238
    
    
    
    892
    
    
    
    707Income from discontinued operations
    
    
    
    
    
    
    20
    
    
    
    3
    
    
    
    31Net income
    
    $
    315
    
    
    $
    258
    
    
    $
    895
    
    
    $
    738Net income per Common Share assuming dilutionContinuing operations
    
    $
    1.87
    
    
    $
    1.59
    
    
    $
    5.55
    
    
    $
    4.71Discontinued operations
    
    
    
    
    
    
    .12
    
    
    
    .02
    
    
    
    .20$
    1.87
    
    
    $
    1.71
    
    
    $
    5.57
    
    
    $
    4.91Average number of Common Shares outstanding assuming dilution
    
    
    168.4
    
    
    
    150.4
    
    
    
    160.8
    
    
    
    150.2Net income per Common Share basicContinuing operations
    
    $
    1.90
    
    
    $
    1.62
    
    
    $
    5.63
    
    
    $
    4.80Discontinued operations
    
    
    
    
    
    
    .13
    
    
    
    .02
    
    
    
    .21$
    1.90
    
    
    $
    1.75
    
    
    $
    5.65
    
    
    $
    5.01Average number of Common Shares outstanding basic
    
    
    166.2
    
    
    
    147.0
    
    
    
    158.4
    
    
    
    147.3Cash dividends paid per Common Share
    
    $
    .50
    
    
    $
    .43
    
    
    $
    1.50
    
    
    $
    1.29
  Page 2




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##### Table of Contents



EATON
CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
 September 30,
    
    
    December 31,(Millions)
    
    2008
    
    
    2007ASSETSCurrent assetsCash
    
    $
    181
    
    
    $
    142Short-term investments
    
    
    282
    
    
    
    504Accounts receivable
    
    
    2,845
    
    
    
    2,208Inventories
    
    
    1,795
    
    
    
    1,483Deferred income taxes & other current assets
    
    
    484
    
    
    
    4305,587
    
    
    
    4,767Property, plant & equipment-net
    
    
    2,585
    
    
    
    2,333Goodwill
    
    
    5,870
    
    
    
    3,982Other intangible assets
    
    
    1,929
    
    
    
    1,557Deferred income taxes & other assets
    
    
    996
    
    
    
    791$
    16,967
    
    
    $
    13,430LIABILITIES & SHAREHOLDERS EQUITYCurrent liabilitiesShort-term debt
    
    $
    1,096
    
    
    $
    825Current portion of long-term debt
    
    
    345
    
    
    
    160Accounts payable
    
    
    1,424
    
    
    
    1,170Accrued compensation
    
    
    365
    
    
    
    355Other current liabilities
    
    
    1,272
    
    
    
    1,1494,502
    
    
    
    3,659Long-term debt
    
    
    2,921
    
    
    
    2,432Pension liabilities
    
    
    875
    
    
    
    681Other postretirement liabilities
    
    
    764
    
    
    
    772Other long-term liabilities & deferred income taxes
    
    
    926
    
    
    
    714Shareholders equity
    
    
    6,979
    
    
    
    5,172$
    16,967
    
    
    $
    13,430
  Page 3




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##### Table of Contents



EATON CORPORATION
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
 Nine months endedSeptember 30(Millions)
    
    2008
    
    
    2007Net cash provided by (used in) operating activitiesNet income
    
    $
    895
    
    
    $
    738Adjustments to reconcile to net cash provided by (used in) operating activitiesDepreciation & amortization
    
    
    435
    
    
    
    344Pension liabilities
    
    
    47
    
    
    
    150Gain on sales of businesses
    
    
    (14
    )
    
    
    (41
    )Changes in working capital, excluding acquisitions & sales of businesses
    
    
    (364
    )
    
    
    (185
    )Voluntary contributions to United States & United Kingdom qualified pension plans
    
    
    (8
    )
    
    
    (171
    )Other-net
    
    
    (199
    )
    
    
    (102
    )792
    
    
    
    733Net cash provided by (used in) investing activitiesExpenditures for property, plant & equipment
    
    
    (338
    )
    
    
    (228
    )Cash paid for acquisitions of businesses
    
    
    (2,707
    )
    
    
    (794
    )Proceeds from sales of businesses
    
    
    18
    
    
    
    119Sales (purchases) of short-term investments-net
    
    
    181
    
    
    
    162Other-net
    
    
    (63
    )
    
    
    (30
    )(2,909
    )
    
    
    (771
    )Net cash provided by (used in) financing activitiesBorrowings with original maturities of more than three monthsProceeds
    
    
    1,347
    
    
    
    1,311Payments
    
    
    (792
    )
    
    
    (888
    )Borrowings with original maturities of less than three months-net,
primarily commercial paper
    
    
    359
    
    
    
    31Cash dividends paid
    
    
    (238
    )
    
    
    (188
    )Proceeds from issuance of Common Shares
    
    
    1,522Proceeds from exercise of employee stock options
    
    
    44
    
    
    
    130Income tax benefit from exercise of employee stock options
    
    
    13
    
    
    
    39Purchase of Common Shares
    
    
    (99
    )
    
    
    (340
    )2,156
    
    
    
    95Total increase (decrease) in cash
    
    
    39
    
    
    
    57Cash at the beginning of the year
    
    
    142
    
    
    
    114Cash at the end of the period
    
    $
    181
    
    
    $
    171
  Page 4




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  PREPARATION OF FINANCIAL STATEMENTS
   DISCONTINUED OPERATIONS
  ACQUISITIONS OF BUSINESSES
  Date of
    
    BusinessAcquired business
    
    acquisition
    
    segment
    
    Annual salesEngine Valves Business of Kirloskar Oil Engines Ltd.An India-based designer, manufacturer and
distributor of intake and exhaust valves for diesel
and gasoline engines
    
    July 31, 2008
    
    Automotive
    
    $5 for 2007The Moeller GroupA Germany-based supplier of electrical
components for commercial and residential
building applications and industrial controls for
industrial equipment applications
    
    April 4, 2008
    
    Electrical
    
    1.02 billion for
2007Balmen Electronic, S.L.A Spain-based distributor and service provider
of uninterruptible power supply (UPS) systems
    
    March 31,
2008
    
    Electrical
    
    $6 for 2007Phoenixtec Power Company Ltd.A Taiwan-based manufacturer of single and
three-phase uninterruptible power supply (UPS)
systems
    
    February 26,
2008
    
    Electrical
    
    $515 for 2007Arrow Hose & Tubing Inc.A Canada-based manufacturer of thermoplastic
hose and tubing for the industrial, food and
beverage, and agricultural markets
    
    November 8,
2007
    
    Hydraulics
    
    $12 for 2006
 Page 5




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##### Table of Contents



Date of
    
    BusinessAcquired business
    
    acquisition
    
    segment
    
    Annual salesMGE small systems UPS business from
Schneider ElectricA France-based global provider of power quality
solutions including uninterruptible power supply
(UPS) systems, power distribution units, static
transfer switches and surge suppressors
    
    October 31,
2007
    
    Electrical
    
    $245 for the
year ended
Sept. 30, 2007Babco Electric GroupA 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
    
    October 19,
2007
    
    Electrical
    
    $11 for the
year ended
April 30, 2007Pulizzi 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 and 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-Tech CorporationA 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
    
    Aerospace
    
    $206 for 2006Power Protection Business of Power Products Ltd.A Czech Republic distributor and service provider
of Powerware® products and other uninterruptible
power supply (UPS) systems
    
    February 7,
2007
    
    Electrical
    
    $3 for 2006
   Pro Forma Results of Continuing Operations
  Page 6




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Three months ended
    
    
    Nine months endedSeptember 30
    
    
    September 302008
    
    
    2007
    
    
    2008
    
    
    2007Net sales
    
    $
    4,114
    
    
    $
    3,834
    
    
    $
    12,366
    
    
    $
    11,204Income from continuing operations
    
    
    315
    
    
    
    240
    
    
    
    909
    
    
    
    700Net income from continuing operations per Common ShareAssuming dilution
    
    $
    1.87
    
    
    $
    1.60
    
    
    $
    5.65
    
    
    $
    4.66Basic
    
    $
    1.90
    
    
    $
    1.64
    
    
    $
    5.74
    
    
    $
    4.75
 Restructuring Liabilities
  PlantWorkforce reductions
    
    closingEmployees
    
    Dollars
    
    & other
    
    TotalBalance at January 1, 2008
    
    
    659
    
    
    $
    27
    
    
    $
    12
    
    
    $
    39Liabilities recorded in 2008
    
    
    50
    
    
    
    1
    
    
    
    1
    
    
    
    2Utilized in 2008
    
    
    (404
    )
    
    
    (13
    )
    
    
    (3
    )
    
    
    (16
    )Balance at September 30, 2008
    
    
    305
    
    
    $
    15
    
    
    $
    10
    
    
    $
    25
 ACQUISITION INTEGRATION CHARGES & PLANT CLOSINGS
 Acquisition Charges
  Three months ended
    
    
    Nine months endedSeptember 30
    
    
    September 302008
    
    
    2007
    
    
    2008
    
    
    2007Electrical
    
    $
    14
    
    
    $
    4
    
    
    $
    24
    
    
    $
    8Hydraulics
    
    
    1
    
    
    
    2
    
    
    
    4
    
    
    
    9Aerospace
    
    
    4
    
    
    
    11
    
    
    
    17
    
    
    
    27Automotive
    
    
    1
    
    
    
    1
    
    
    
    3
    
    
    
    1Corporate
    
    
    1
    
    
    
    
    
    
    
    3Pretax charges
    
    $
    21
    
    
    $
    18
    
    
    $
    51
    
    
    $
    45After-tax charges
    
    $
    14
    
    
    $
    11
    
    
    $
    34
    
    
    $
    29Per Common Share
    
    $
    .08
    
    
    $
    .08
    
    
    $
    .21
    
    
    $
    .20
  Page 7




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Summary of Acquisition Integration & Plant Closing Charges
  PlantWorkforce reductions
    
    closingEmployees
    
    Dollars
    
    & other
    
    TotalBalance at January 1, 2008
    
    
    563
    
    
    $
    14
    
    
    $
    1
    
    
    $
    15Liabilities recorded in 2008
    
    
    48
    
    
    
    2
    
    
    
    52
    
    
    
    54Utilized in 2008
    
    
    (341
    )
    
    
    (8
    )
    
    
    (52
    )
    
    
    (60
    )Balance at September 30, 2008
    
    
    270
    
    
    $
    8
    
    
    $
    1
    
    
    $
    9
 Subsequent Event  Plant Closing
  FINANCING OF THE ACQUISITIONS OF PHOENIXTEC & THE MOELLER GROUP
 
  LONG-TERM DEBT
   Page 8




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RETIREMENT BENEFIT PLANS EXPENSE
  Three months ended September 30OtherpostretirementPension benefits
    
    
    benefits2008
    
    
    2007
    
    
    2008
    
    
    2007Service cost
    
    $
    (34
    )
    
    $
    (37
    )
    
    $
    (3
    )
    
    $
    (3
    )Interest cost
    
    
    (50
    )
    
    
    (41
    )
    
    
    (13
    )
    
    
    (12
    )Expected return on plan assets
    
    
    51
    
    
    
    45Amortization
    
    
    (12
    )
    
    
    (19
    )
    
    
    (2
    )
    
    
    (3
    )(45
    )
    
    
    (52
    )
    
    
    (18
    )
    
    
    (18
    )Settlement loss
    
    
    (7
    )
    
    
    (11
    )$
    (52
    )
    
    $
    (63
    )
    
    $
    (18
    )
    
    $
    (18
    )
 Nine months ended September 30OtherpostretirementPension benefits
    
    
    benefits2008
    
    
    2007
    
    
    2008
    
    
    2007Service cost
    
    $
    (109
    )
    
    $
    (112
    )
    
    $
    (11
    )
    
    $
    (10
    )Interest cost
    
    
    (129
    )
    
    
    (122
    )
    
    
    (37
    )
    
    
    (35
    )Expected return on plan assets
    
    
    133
    
    
    
    134Amortization
    
    
    (31
    )
    
    
    (56
    )
    
    
    (8
    )
    
    
    (10
    )(136
    )
    
    
    (156
    )
    
    
    (56
    )
    
    
    (55
    )Curtailment loss
    
    
    
    
    
    
    (1
    )Settlement loss
    
    
    (27
    )
    
    
    (31
    )$
    (163
    )
    
    $
    (188
    )
    
    $
    (56
    )
    
    $
    (55
    )
 Income Taxes
   COMPREHENSIVE INCOME (LOSS)
  Three months ended
    
    
    Nine months endedSeptember 30
    
    
    September 302008
    
    
    2007
    
    
    2008
    
    
    2007Net income
    
    $
    315
    
    
    $
    258
    
    
    $
    895
    
    
    $
    738Foreign currency translation
    
    
    (561
    )
    
    
    86
    
    
    
    (409
    )
    
    
    166Pensions & other postretirement benefits
    
    
    20
    
    
    
    12
    
    
    
    53
    
    
    
    44Other
    
    
    (20
    )
    
    
    (1
    )
    
    
    (9
    )
    
    
    6Comprehensive income (loss)
    
    $
    (246
    )
    
    $
    355
    
    
    $
    530
    
    
    $
    954
 Page 9




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INVENTORIES
  September 30,
    
    
    December 31,2008
    
    
    2007Raw materials
    
    $
    741
    
    
    $
    674Work-in-process & finished goods
    
    
    1,172
    
    
    
    917Inventories at FIFO
    
    
    1,913
    
    
    
    1,591Excess of FIFO over LIFO cost
    
    
    (118
    )
    
    
    (108
    )$
    1,795
    
    
    $
    1,483
 NET INCOME PER COMMON SHARE
  Three months ended
    
    
    Nine months endedSeptember 30
    
    
    September 30(Shares in millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Income from continuing operations
    
    $
    315
    
    
    $
    238
    
    
    $
    892
    
    
    $
    707Income from discontinued operations
    
    
    
    
    
    
    20
    
    
    
    3
    
    
    
    31Net income
    
    $
    315
    
    
    $
    258
    
    
    $
    895
    
    
    $
    738Average number of Common Shares outstanding assuming dilution
    
    
    168.4
    
    
    
    150.4
    
    
    
    160.8
    
    
    
    150.2Less dilutive effect of stock options
    
    
    2.2
    
    
    
    3.4
    
    
    
    2.4
    
    
    
    2.9Average number of Common Shares outstanding basic
    
    
    166.2
    
    
    
    147.0
    
    
    
    158.4
    
    
    
    147.3Net income per Common Share assuming dilutionContinuing operations
    
    $
    1.87
    
    
    $
    1.59
    
    
    $
    5.55
    
    
    $
    4.71Discontinued operations
    
    
    
    
    
    
    .12
    
    
    
    .02
    
    
    
    .20$
    1.87
    
    
    $
    1.71
    
    
    $
    5.57
    
    
    $
    4.91Net income per Common Share basicContinuing operations
    
    $
    1.90
    
    
    $
    1.62
    
    
    $
    5.63
    
    
    $
    4.80Discontinued operations
    
    
    
    
    
    
    .13
    
    
    
    .02
    
    
    
    .21$
    1.90
    
    
    $
    1.75
    
    
    $
    5.65
    
    
    $
    5.01
  FINANCIAL ASSETS & LIABILITIES MEASURED AT FAIR VALUE
  Page 10




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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
    
    $
    282
    
    
    $
    282Foreign currency forward exchange
contracts
    
    
    35
    
    
    
    
    
    
    $
    35Commodity contracts
    
    
    (18
    )
    
    
    
    
    
    
    (18
    )Cross currency interest rate swaps
    
    
    (2
    )
    
    
    
    
    
    
    (2
    )Fixed-to-floating interest rate swaps
    
    
    16
    
    
    
    
    
    
    
    16Long-term debt converted to floating
interest rates by interest rate swaps
    
    
    (16
    )
    
    
    
    
    
    
    (16
    )$
    297
    
    
    $
    282
    
    
    $
    15
    
    
    $
    0
 Page 11




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##### Table of Contents



BUSINESS SEGMENT INFORMATION
  Three months ended
    
    
    Nine months endedSeptember 30
    
    
    September 302008
    
    
    2007
    
    
    2008
    
    
    2007Net salesElectrical
    
    $
    1,941
    
    
    $
    1,221
    
    
    $
    5,184
    
    
    $
    3,463Hydraulics
    
    
    638
    
    
    
    597
    
    
    
    1,990
    
    
    
    1,790Aerospace
    
    
    469
    
    
    
    418
    
    
    
    1,365
    
    
    
    1,175Truck
    
    
    620
    
    
    
    541
    
    
    
    1,812
    
    
    
    1,615Automotive
    
    
    446
    
    
    
    521
    
    
    
    1,538
    
    
    
    1,616$
    4,114
    
    
    $
    3,298
    
    
    $
    11,889
    
    
    $
    9,659Operating profitElectrical
    
    $
    259
    
    
    $
    156
    
    
    $
    669
    
    
    $
    415Hydraulics
    
    
    71
    
    
    
    61
    
    
    
    241
    
    
    
    195Aerospace
    
    
    75
    
    
    
    61
    
    
    
    207
    
    
    
    161Truck
    
    
    95
    
    
    
    95
    
    
    
    274
    
    
    
    277Automotive
    
    
    18
    
    
    
    51
    
    
    
    115
    
    
    
    183CorporateAmortization of intangible assets
    
    
    (42
    )
    
    
    (19
    )
    
    
    (109
    )
    
    
    (54
    )Interest expense-net
    
    
    (37
    )
    
    
    (37
    )
    
    
    (119
    )
    
    
    (108
    )Minority interest
    
    
    (3
    )
    
    
    (4
    )
    
    
    (10
    )
    
    
    (9
    )Pension & other postretirement benefit expense
    
    
    (36
    )
    
    
    (42
    )
    
    
    (109
    )
    
    
    (123
    )Stock option expense
    
    
    (7
    )
    
    
    (8
    )
    
    
    (22
    )
    
    
    (22
    )Contribution to Eaton Charitable Fund
    
    
    
    
    
    
    (16
    )
    
    
    
    
    
    
    (16
    )Other corporate expensenet
    
    
    (39
    )
    
    
    (35
    )
    
    
    (143
    )
    
    
    (117
    )Income from continuing operations before income taxes
    
    
    354
    
    
    
    263
    
    
    
    994
    
    
    
    782Income taxes
    
    
    39
    
    
    
    25
    
    
    
    102
    
    
    
    75Income from continuing operations
    
    
    315
    
    
    
    238
    
    
    
    892
    
    
    
    707Income from discontinued operations
    
    
    
    
    
    
    20
    
    
    
    3
    
    
    
    31Net income
    
    $
    315
    
    
    $
    258
    
    
    $
    895
    
    
    $
    738
 .
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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 September 30
    
    
    Nine months ended September 302008
    
    
    2007
    
    
    Increase
    
    
    2008
    
    
    2007
    
    
    IncreaseContinuing operationsNet sales
    
    $
    4,114
    
    
    $
    3,298
    
    
    
    25
    %
    
    $
    11,889
    
    
    $
    9,659
    
    
    
    23
    %Gross profit
    
    
    1,150
    
    
    
    917
    
    
    
    25
    %
    
    
    3,324
    
    
    
    2,705
    
    
    
    23
    %Percent of net sales
    
    
    28.0
    %
    
    
    27.8
    %
    
    
    
    
    
    
    28.0
    %
    
    
    28.0
    %Income before income taxes
    
    
    354
    
    
    
    263
    
    
    
    35
    %
    
    
    994
    
    
    
    782
    
    
    
    27
    %Income after income taxes
    
    $
    315
    
    
    $
    238
    
    
    
    32
    %
    
    $
    892
    
    
    $
    707
    
    
    
    26
    %Income from discontinued operations
    
    
    
    
    
    
    20
    
    
    
    
    
    
    
    3
    
    
    
    31Net income
    
    $
    315
    
    
    $
    258
    
    
    
    22
    %
    
    $
    895
    
    
    $
    738
    
    
    
    21
    %Net income per Common Share
assuming dilutionContinuing operations
    
    $
    1.87
    
    
    $
    1.59
    
    
    
    18
    %
    
    $
    5.55
    
    
    $
    4.71
    
    
    
    18
    %Discontinued operations
    
    
    
    
    
    
    .12
    
    
    
    
    
    
    
    .02
    
    
    
    .20$
    1.87
    
    
    $
    1.71
    
    
    
    9
    %
    
    $
    5.57
    
    
    $
    4.91
    
    
    
    13
    %
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##### Table of Contents



Date of
    
    BusinessAcquired business
    
    acquisition
    
    segment
    
    Annual salesEngine Valves Business of Kirloskar Oil Engines Ltd.An India-based designer, manufacturer and
distributor of intake and exhaust valves for diesel
and gasoline engines
    
    July 31, 2008
    
    Automotive
    
    $5 for 2007The Moeller GroupA Germany-based supplier of electrical
components for commercial and residential
building applications and industrial controls for
industrial equipment applications
    
    April 4, 2008
    
    Electrical
    
    1.02 billion for
2007Balmen Electronic, S.L.A Spain-based distributor and service provider
of uninterruptible power supply (UPS) systems
    
    March 31,
2008
    
    Electrical
    
    $6 for 2007Phoenixtec Power Company Ltd.A Taiwan-based manufacturer of single and
three-phase uninterruptible power supply (UPS)
Systems
    
    February 26,
2008
    
    Electrical
    
    $515 for 2007
  Page 14




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
      Page 15




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RESULTS OF OPERATIONS  2008 COMPARED TO 2007
 Three months ended September 30
    
    
    Nine months ended September 302008
    
    
    2007
    
    
    Increase
    
    
    2008
    
    
    2007
    
    
    IncreaseContinuing operationsNet sales
    
    $
    4,114
    
    
    $
    3,298
    
    
    
    25
    %
    
    $
    11,889
    
    
    $
    9,659
    
    
    
    23
    %Gross profit
    
    
    1,150
    
    
    
    917
    
    
    
    25
    %
    
    
    3,324
    
    
    
    2,705
    
    
    
    23
    %Percent of net sales
    
    
    28.0
    %
    
    
    27.8
    %
    
    
    
    
    
    
    28.0
    %
    
    
    28.0
    %Income before income taxes
    
    
    354
    
    
    
    263
    
    
    
    35
    %
    
    
    994
    
    
    
    782
    
    
    
    27
    %Income after income taxes
    
    $
    315
    
    
    $
    238
    
    
    
    32
    %
    
    $
    892
    
    
    $
    707
    
    
    
    26
    %Income from discontinued operations
    
    
    
    
    
    
    20
    
    
    
    
    
    
    
    3
    
    
    
    31Net income
    
    $
    315
    
    
    $
    258
    
    
    
    22
    %
    
    $
    895
    
    
    $
    738
    
    
    
    21
    %Net income per Common Share
assuming dilutionContinuing operations
    
    $
    1.87
    
    
    $
    1.59
    
    
    
    18
    %
    
    $
    5.55
    
    
    $
    4.71
    
    
    
    18
    %Discontinued operations
    
    
    
    
    
    
    .12
    
    
    
    
    
    
    
    .02
    
    
    
    .20$
    1.87
    
    
    $
    1.71
    
    
    
    9
    %
    
    $
    5.57
    
    
    $
    4.91
    
    
    
    13
    %
    OTHER RESULTS OF OPERATIONS
  Three months ended
    
    
    Nine months endedSeptember 30
    
    
    September 302008
    
    
    2007
    
    
    2008
    
    
    2007Electrical
    
    $
    14
    
    
    $
    4
    
    
    $
    24
    
    
    $
    8Hydraulics
    
    
    1
    
    
    
    2
    
    
    
    4
    
    
    
    9Aerospace
    
    
    4
    
    
    
    11
    
    
    
    17
    
    
    
    27Automotive
    
    
    1
    
    
    
    1
    
    
    
    3
    
    
    
    1Corporate
    
    
    1
    
    
    
    
    
    
    
    3Pretax charges
    
    $
    21
    
    
    $
    18
    
    
    $
    51
    
    
    $
    45After-tax charges
    
    $
    14
    
    
    $
    11
    
    
    $
    34
    
    
    $
    29Per Common Share
    
    $
    .08
    
    
    $
    .08
    
    
    $
    .21
    
    
    $
    .20
 Page 16




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RESULTS BY BUSINESS SEGMENT
 Electrical
 Three months ended September 30
    
    
    Nine months ended September 302008
    
    
    2007
    
    
    Increase
    
    
    2008
    
    
    2007
    
    
    IncreaseNet sales
    
    $
    1,941
    
    
    $
    1,221
    
    
    
    59
    %
    
    $
    5,184
    
    
    $
    3,463
    
    
    
    50
    %Operating profit
    
    
    259
    
    
    
    156
    
    
    
    66
    %
    
    
    669
    
    
    
    415
    
    
    
    61
    %Operating margin
    
    
    13.3
    %
    
    
    12.8
    %
    
    
    
    
    
    
    12.9
    %
    
    
    12.0
    %
    Page 17




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
   Hydraulics
 Three months ended September 30
    
    
    Nine months ended September 302008
    
    
    2007
    
    
    Increase
    
    
    2008
    
    
    2007
    
    
    IncreaseNet sales
    
    $
    638
    
    
    $
    597
    
    
    
    7
    %
    
    $
    1,990
    
    
    $
    1,790
    
    
    
    11
    %Operating profit
    
    
    71
    
    
    
    61
    
    
    
    16
    %
    
    
    241
    
    
    
    195
    
    
    
    24
    %Operating margin
    
    
    11.1
    %
    
    
    10.2
    %
    
    
    
    
    
    
    12.1
    %
    
    
    10.9
    %
     Aerospace
 Three months ended September 30
    
    
    Nine months ended September 302008
    
    
    2007
    
    
    Increase
    
    
    2008
    
    
    2007
    
    
    IncreaseNet sales
    
    $
    469
    
    
    $
    418
    
    
    
    12
    %
    
    $
    1,365
    
    
    $
    1,175
    
    
    
    16
    %Operating profit
    
    
    75
    
    
    
    61
    
    
    
    23
    %
    
    
    207
    
    
    
    161
    
    
    
    29
    %Operating margin
    
    
    16.0
    %
    
    
    14.6
    %
    
    
    
    
    
    
    15.2
    %
    
    
    13.7
    %
  Page 18




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Truck
 Three months ended September 30
    
    
    Nine months ended September 30Increase2008
    
    
    2007
    
    
    Increase
    
    
    2008
    
    
    2007
    
    
    (Decrease)Net sales
    
    $
    620
    
    
    $
    541
    
    
    
    15
    %
    
    $
    1,812
    
    
    $
    1,615
    
    
    
    12
    %Operating profit
    
    
    95
    
    
    
    95
    
    
    
    0
    %
    
    
    274
    
    
    
    277
    
    
    
    (1
    )%Operating margin
    
    
    15.3
    %
    
    
    17.6
    %
    
    
    
    
    
    
    15.1
    %
    
    
    17.2
    %
   Automotive
 Three months ended September 30
    
    
    Nine months ended September 302008
    
    
    2007
    
    
    (Decrease)
    
    
    2008
    
    
    2007
    
    
    (Decrease)Net sales
    
    $
    446
    
    
    $
    521
    
    
    
    (14
    )%
    
    $
    1,538
    
    
    $
    1,616
    
    
    
    (5
    )%Operating profit
    
    
    18
    
    
    
    51
    
    
    
    (65
    )%
    
    
    115
    
    
    
    183
    
    
    
    (37
    )%Operating margin
    
    
    4.0
    %
    
    
    9.8
    %
    
    
    
    
    
    
    7.5
    %
    
    
    11.3
    %
  Page 19




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Corporate
    CHANGES IN FINANCIAL CONDITION DURING 2008
   Page 20




---



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
        CONTRACTUAL OBLIGATIONS
  Page 21




---



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FORWARD-LOOKING STATEMENTS
  
 ITEM 3. QUANTITATIVE & QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS & PROCEDURES
    Page 22




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PART II  OTHER INFORMATION
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
   Maximum number (orTotal number of
    
    
    approximate dollarshares purchased as
    
    
    value) of sharespart of publicly
    
    
    that may yet beTotal number of
    
    
    Average price paid
    
    
    announced plans or
    
    
    purchased under theMonth
    
    shares purchased
    
    
    per share
    
    
    programs
    
    
    plans or programsJuly
    
    
    985,200
    
    
    $
    71.73
    
    
    
    985,200
    
    
    
    4,922,600August
    
    
    62,500
    
    
    $
    69.21
    
    
    
    62,500
    
    
    
    4,860,100September
    
    
    372,600
    
    
    $
    66.37
    
    
    
    372,600
    
    
    
    4,487,500Total
    
    
    1,420,300
    
    
    $
    70.21
    
    
    
    1,420,300
  Page 23




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ITEM 6. EXHIBITS
  Page 24




---



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SIGNATURE
  EATON CORPORATIONRegistrantDate: November 4, 2008/s/ Richard H. FearonRichard H. Fearon
Executive Vice President -
Chief Financial and Planning Officer
 Page 25




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##### Table of Contents



EATON CORPORATION
THIRD 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 26