10-Q

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, 2011

Commission file number 1-1396

EATON CORPORATION

(Exact name of registrant as specified in its charter)

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)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

There were 334.2 million Common Shares outstanding as of September 30, 2011.

TABLE OF CONTENTS

EX-12

EX-31.1

EX-31.2

EX-32.1

EX-32.2

EX-101 INSTANCE DOCUMENT

EX-101 SCHEMA DOCUMENT

EX-101 CALCULATION LINKBASE DOCUMENT

EX-101 DEFINITION LINKBASE DOCUMENT

EX-101 LABELS LINKBASE DOCUMENT

EX-101 PRESENTATION LINKBASE DOCUMENT

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

EATON CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

	Three months ended September 30						Nine months ended September 30
(In millions except for per share data)	2011			2010			2011			2010
Net sales	$	4,123		$	3,571		$	12,016		$	10,052
Cost of products sold	2,900			2,480			8,444			7,068
Selling and administrative expense	668			651			2,031			1,842
Research and development expense	104			104			316			308
Interest expense-net	29			33			92			102
Other income-net	(10		)	(2		)	(30		)	(11		)
Income before income taxes	432			305			1,163			743
Income tax expense	65			36			172			89
Net income	367			269			991			654
Less net income for noncontrolling interests	(2		)	(1		)	(3		)	(5		)
Net income attributable to Eaton common shareholders	$	365		$	268		$	988		$	649
Net income per common share
Diluted	$	1.07		$	0.78		$	2.86		$	1.90
Basic	1.07			0.80			2.90			1.93
Weighted-average number of common shares outstanding
Diluted	341.9			340.6			344.4			340.1
Basic	338.1			335.2			339.7			334.7
Cash dividends paid per common share	$	0.34		$	0.29		$	1.02		$	0.79

Net income per common share, weighted-average number of common shares outstanding and cash dividends paid per common share have been restated to give effect to the two-for-one stock split. See Note 1 for additional information.

The accompanying notes are an integral part of these condensed consolidated financial statements.

2

EATON CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)	September 30, 2011		December 31, 2010
Assets
Current assets
Cash	$	278	$	333
Short-term investments	536		838
Accounts receivable-net	2,549		2,239
Inventory	1,769		1,564
Other current assets	601		532
Total current assets	5,733		5,506
Property, plant and equipment-net	2,537		2,477
Other noncurrent assets
Goodwill	5,571		5,454
Other intangible assets	2,253		2,272
Deferred income taxes	971		1,001
Other assets	562		542
Total assets	$	17,627	$	17,252
Liabilities and shareholders’ equity
Current liabilities
Short-term debt	$	86	$	72
Current portion of long-term debt	321		4
Accounts payable	1,527		1,408
Accrued compensation	401		465
Other current liabilities	1,445		1,284
Total current liabilities	3,780		3,233
Noncurrent liabilities
Long-term debt	3,368		3,382
Pension liabilities	1,182		1,429
Other postretirement benefits liabilities	634		743
Deferred income taxes	456		487
Other noncurrent liabilities	461		575
Total noncurrent liabilities	6,101		6,616
Shareholders’ equity
Eaton shareholders’ equity	7,723		7,362
Noncontrolling interests	23		41
Total equity	7,746		7,403
Total liabilities and equity	$	17,627	$	17,252

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

EATON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Nine months ended September 30
(In millions)	2011			2010
Operating activities
Net income	$	991		$	654
Adjustments to reconcile to net cash provided by operating activities
Depreciation and amortization	419			413
Contributions to pension plans	(341		)	(378		)
Contributions to other postretirement benefits plans	(150		)	(61		)
Changes in working capital	(290		)	(70		)
Other-net	60			169
Net cash provided by operating activities	689			727
Investing activities
Cash paid for acquisitions of businesses	(298		)	(172		)
Capital expenditures for property, plant and equipment	(384		)	(207		)
Sales (purchases) of short-term investments-net	272			(47		)
Other-net	1			(6		)
Net cash used in investing activities	(409		)	(432		)
Financing activities
Borrowings with original maturities of more than three months
Proceeds	352			55
Payments	(14		)	(59		)
Payments with original maturities of less than three months-net    (primarily commercial paper)	(38		)	(19		)
Cash dividends paid	(348		)	(265		)
Exercise of employee stock options	66			60
Repurchase of shares	(343		)	—
Other-net	(4		)	2
Net cash used in financing activities	(329		)	(226		)
Effect of foreign exchange rate changes on cash	(6		)	(14		)
Total (decrease) increase in cash	(55		)	55
Cash at the beginning of the period	333			340
Cash at the end of the period	$	278		$	395

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

EATON CORPORATION

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Amounts are in millions unless indicated otherwise (per share data assume dilution).

Note 1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of Eaton Corporation (Eaton or Company) have been prepared in accordance with generally accepted accounting principles for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. However, in the opinion of management, all adjustments (consisting of normal recurring accruals) have been made that are necessary for a fair presentation of the condensed consolidated financial statements for the interim periods.

This Form 10-Q should be read in conjunction with the consolidated financial statements and related notes included in Eaton’s 2010 Form 10-K. The interim period results are not necessarily indicative of the results to be expected for the full year. Management has evaluated subsequent events through the date this Form 10-Q was filed with the SEC.

On January 27, 2011, Eaton’s Board of Directors announced a two-for-one stock split of the Company’s common shares effective in the form of a 100% stock dividend. The record date for the stock split was February 7, 2011, and the additional shares were distributed on February 28, 2011. Accordingly, all per share amounts, weighted-average shares outstanding, and equity-based compensation presented in the condensed consolidated financial statements and notes have been adjusted retroactively to reflect the stock split.

Certain prior year amounts have been reclassified to conform to the current year presentation.

Note 2. ACQUISITIONS OF BUSINESSES

In 2011 and 2010, Eaton acquired businesses and entered into a joint venture in separate transactions. The Consolidated Statements of Income include the results of these businesses from the dates of the transactions or formation. These transactions are summarized below:

Acquired businesses and joint venture	Date of transaction	Business segment	Annual sales
IE Power, Inc.	August 31, 2011	Electrical Americas	$5 for 2010
A Canada-based provider of high power inverters for a variety of mission-critical applications including solar, wind and battery energy storage.
E. Begerow GmbH & Co. KG	August 15, 2011	Hydraulics	$84 for 2010
A Germany-based system provider of advanced liquid filtration solutions. This business develops and produces technologically innovative filter media and filtration systems for food and beverage, chemical, pharmaceutical and industrial applications.
ACTOM Low Voltage	June 30, 2011	Electrical Rest of World	$65 for the year ended May 31, 2011
A South Africa manufacturer and supplier of motor control components, engineered electrical distribution systems and uninterruptible power supply (UPS) systems.
C.I. ESI de Colombia S.A.	June 2, 2011	Electrical Americas	$8 for 2010
A Colombia-based distributor of industrial electrical equipment and engineering services in the Colombian market, focused on oil and gas, mining, and industrial and commercial construction.
Internormen Technology Group	May 12, 2011	Hydraulics	$55 for 2010
A Germany-based manufacturer of hydraulic filtration and instrumentation with sales and distribution subsidiaries in China, the United States, India and Brazil.
Eaton-SAMC (Shanghai) Aircraft Conveyance System Manufacturing Co., Ltd.	March 8, 2011	Aerospace	New joint venture
A 49%-owned joint venture in China focusing on the design, development, manufacturing and support of fuel and hydraulic conveyance systems for the global civil aviation market.

5

Acquired businesses and joint venture	Date of transaction	Business segment	Annual sales
Tuthill Coupling Group	January 1, 2011	Hydraulics	$35 for the year ended November 30, 2010
A United States and France-based manufacturer of pneumatic and hydraulic quick coupling solutions and leak-free connectors used in industrial, construction, mining, defense, energy and power applications.
Chloride Phoenixtec Electronics	October 12, 2010	Electrical Rest of World	$25 for the year ended September 30, 2010
A China manufacturer of UPS systems. Eaton acquired the remaining shares to increase its ownership from 50% to 100%.
CopperLogic, Inc.	October 1, 2010	Electrical Americas	$35 for the year ended September 30, 2010
A United States-based manufacturer of electrical and electromechanical systems.
Wright Line Holding, Inc.	August 25, 2010	Electrical Americas	$101 for the year ended June 30, 2010
A United States provider of customized enclosures, rack systems, and air-flow management systems to store, power, and secure mission-critical IT data center electronics.
EMC Engineers, Inc.	July 15, 2010	Electrical Americas	$24 for 2009
A United States energy engineering and energy services company that delivers energy efficiency solutions for a wide range of governmental, educational, commercial and industrial facilities.

Note 3. ACQUISITION INTEGRATION AND RESTRUCTURING CHARGES

Acquisition Integration Charges

Eaton incurs charges related to the integration of acquired businesses. A summary of these charges follows:

	Three months ended September 30				Nine months ended September 30
	2011		2010		2011		2010
Business segment
Electrical Americas	$	3	$	—	$	7	$	2
Electrical Rest of World	—		6		1		20
Hydraulics	1		—		1		—
Aerospace	—		1		—		3
Total integration charges before income taxes	$	4	$	7	$	9	$	25
After-tax integration charges	$	2	$	4	$	6	$	16
Per common share	$	0.01	$	0.01	$	0.02	$	0.05

Charges in 2011 were related primarily to CopperLogic, Wright Line Holding and EMC Engineers. Charges in 2010 were related primarily to Moeller and Phoenixtec. These charges were included in Cost of products sold or Selling and administrative expense, as appropriate. In Note 13. Business Segment Information, the charges reduced Operating profit of the related business segment.

6

Workforce Reduction and Plant Closing Liabilities

The following table summarizes the liabilities related to acquisition integration, plant closing charges, and other workforce reduction actions:

	Workforce reductions					Plant closing and other
	Employees		Dollars						Total
Balance at January 1, 2011	327		$	11		$	5		$	16
Liabilities recognized	79		2			7			9
Utilized	(258	)	(7		)	(10		)	(17		)
Balance at September 30, 2011	148		$	6		$	2		$	8

Note 4. GOODWILL

A summary of goodwill follows:

	September 30, 2011		December 31, 2010
Electrical Americas	$	2,059	$	2,061
Electrical Rest of World	1,001		985
Hydraulics	1,111		1,007
Aerospace	1,041		1,037
Truck	150		151
Automotive	209		213
Total goodwill	$	5,571	$	5,454

The increase in goodwill in 2011 was primarily due to businesses acquired during 2011, partially offset by the impact of foreign currency translation. For additional information regarding acquired businesses, see Note 2.

Assessing Goodwill for Impairment

In September 2011, the Financial Accounting Standards Board issued a revised standard on testing goodwill for impairment. The revised standard allows an entity to first assess the carrying value of goodwill based on qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than the reporting unit's carrying amount. If, based on a qualitative assessment, the fair value of a reporting unit is more likely than not lower than its carrying value, the entity must then test goodwill from a quantitative perspective similar to prior guidance. This standard is effective for 2012, with early adoption permitted. Eaton elected to adopt this standard for its 2011 annual impairment testing.

Goodwill is tested for impairment annually as of July 1 at the reporting unit level, which is equivalent to Eaton's operating segments. As disclosed in Eaton's 2010 Form 10-K, impairment testing for 2010 was performed from a quantitative perspective using a discounted cash flow model to estimate the fair value of each operating segment. For 2010, the fair value of Eaton's reporting units substantially exceeded the respective carrying values.

Impairment testing for 2011 was performed by assessing certain qualitative trends and factors, including projected market outlook and growth rates, forecasted and actual sales and operating profit margins, discount rates, industry data and other relevant qualitative factors. These trends and factors were compared to and based on the assumptions used in the quantitative assessment performed in 2010. For 2011, it is more likely than not that the fair value of Eaton's reporting units continues to substantially exceed the respective carrying amount.

Note 5. DEBT

On June 16, 2011, Eaton issued $300 floating rate senior unsecured Notes due June 16, 2014 (the Notes). The Notes bear interest annually at a floating rate, reset quarterly, equal to the three-month LIBOR rate for U.S. dollars plus .33% (33 basis points). Interest is payable quarterly in arrears. The Notes contain a provision which requires the Company to make an offer to purchase all or any part of the Notes at a purchase price of 101% of the principal amount plus accrued and unpaid interest if certain change of control events occur. The Notes are subject to customary non-financial covenants.

7

Eaton refinanced a $500, five-year revolving credit facility in June 2011 (the Facility). This refinancing maintains long-term revolving credit facilities at a total of $1.5 billion. The revolving credit facility is used to support commercial paper borrowings. The Facility will expire June 16, 2016, replacing a $500 facility that had been set to expire on September 1, 2011.

Note 6. RETIREMENT BENEFITS PLANS

The components of retirement benefits expense follow:

	Three months ended September 30
	United States pension benefit expense						Non-United States pension benefit expense						Other postretirement benefits expense
	2011			2010			2011			2010			2011		2010
Service cost	$	23		$	20		$	12		$	10		$	4	$	4
Interest cost	33			33			19			17			10		11
Expected return on plan assets	(41		)	(39		)	(17		)	(15		)	—		—
Amortization	19			13			3			2			3		3
	34			27			17			14			17		18
Curtailment loss	—			—			1			—			—		—
Settlement loss	5			4			—			—			—		—
Total expense	$	39		$	31		$	18		$	14		$	17	$	18

	Nine months ended September 30
	United States pension benefit expense						Non-United States pension benefit expense						Other postretirement benefits expense
	2011			2010			2011			2010			2011		2010
Service cost	$	69		$	60		$	37		$	29		$	12	$	12
Interest cost	99			99			59			51			30		34
Expected return on plan assets	(123		)	(117		)	(53		)	(46		)	—		—
Amortization	57			39			9			6			9		8
	102			81			52			40			51		54
Curtailment loss	—			—			1			—			—		—
Settlement loss	12			13			3			—			—		—
Total expense	$	114		$	94		$	56		$	40		$	51	$	54

During the second quarter of 2011, Eaton contributed $100 into a Voluntary Employee Benefit Association trust for the pre-funding of postretirement Medicare Part D prescription drug benefits for the Company's eligible United States employees and retirees. The contribution was made as part of the Company's strategy to improve the funding of its pension and postretirement obligations. As part of that strategy, in the first quarter of 2011, the Company contributed $250 to its United States qualified pension plans.

Note 7. LEGAL CONTINGENCIES

In December 2010, a Brazilian court held that a judgment obtained by a Brazilian company, Raysul, against another Brazilian company, Saturnia, which was sold by Eaton in 2006, could be enforced against Eaton Ltda. This judgment is based on an alleged violation of an agency agreement between Raysul and Saturnia. At September 30, 2011, the Company has a total accrual of 67 Brazilian Reais related to this matter, comprised of 60 Brazilian Reais recognized in the fourth quarter of 2010 ($32 based on current exchange rates) with an additional 7 Brazilian Reais recognized in 2011 ($4 based on current exchange rates) due to subsequent accruals for interest and inflation. The Company expects that any sum it may be required to pay in connection with this matter will not exceed the amount of the recorded liability. In 2010, Eaton filed motions for clarification with the Brazilian court of appeals which were denied on April 6, 2011. Eaton Holding and Eaton Ltda. filed appeals on various issues to the Superior Court of Justice in Brasilia. On September 27, 2011, the Superior Court of Justice accepted two of the appeals and will hear those appeals in due course. Another appeal remains pending in the lower appellate court.

8

On October 5, 2006, ZF Meritor LLC and Meritor Transmission Corporation (collectively, Meritor) filed an action against Eaton in the United States District Court for Delaware. The action sought damages, which would be trebled under United States antitrust laws, as well as injunctive relief and costs. The suit alleged that Eaton engaged in anti-competitive conduct against Meritor in the sale of heavy-duty truck transmissions in North America. Following a four week trial on liability only, on October 8, 2009, the jury returned a verdict in favor of Meritor. Eaton firmly believes that it competes fairly and honestly for business in the marketplace, and that at no time did it act in an anti-competitive manner. During an earlier stage in the case, the judge concluded that damage estimates contained in a report filed by Meritor were not based on reliable data and the report was specifically excluded from the case. On November 3, 2009, Eaton filed a motion for judgment as a matter of law and to set aside the verdict. That motion was denied on March 10, 2011. On March 14, 2011, Eaton filed a motion for entry of final judgment of liability, zero damages and no injunctive relief. That motion was denied on June 9, 2011. On August 19, 2011, the Court entered final judgment of liability but awarded zero damages to plaintiffs. The Court also entered an injunction prohibiting Eaton from offering rebates or other incentives based on purchasing targets but stayed the injunction pending appeal. Eaton has appealed the liability finding and the injunction to the Third Circuit Court of Appeals. Meritor has cross-appealed the finding of zero damages.

Eaton is subject to a broad range of claims, administrative and legal proceedings such as lawsuits that relate to contractual allegations, tax audits, patent infringement, personal injuries (including asbestos claims), antitrust matters and employment-related matters. Although it is not possible to predict with certainty the outcome or cost of these matters, the Company believes they will not have a material adverse effect on the consolidated financial statements.

Note 8. INCOME TAXES

The effective income tax rate for the third quarter of 2011 was 15.2% compared to 11.7% for the third quarter of 2010 and 14.8% for the first nine months of 2011 compared to 12.0% for the first nine months of 2010. Higher effective tax rates in both the third quarter and first nine months of 2011 were primarily attributable to greater levels of income in high tax jurisdictions, particularly in the United States and Brazil, due to improved economic and market conditions. The effective income tax rate for the third quarter of 2011 was also favorably impacted by positive adjustments to the tax provision for 2010 tax returns filed during the third quarter in the United States and international tax jurisdictions.

Note 9. EQUITY

Eaton has a common share repurchase program (2007 Program) that authorizes the repurchase of 10 million common shares. During the first nine months of 2011, 8.3 million common shares were repurchased under the 2007 Program in the open market at a total cost of $343. On September 28, 2011, Eaton's Board of Directors approved a common share repurchase program (2011 Program) which replaced the 2007 Program and authorizes the purchase of up to 20 million shares, not to exceed an aggregate purchase price of $1.25 billion. The common shares are expected to be repurchased over time, depending on market conditions, the market price of common shares, capital levels and other considerations. No common shares were repurchased in the open market in the first nine months of 2010.

The changes in Shareholders’ equity follow:

	Eaton shareholders’ equity			Noncontrolling interests			Total equity
Balance at December 31, 2010	$	7,362		$	41		$	7,403
Net income	988			3			991
Other comprehensive loss	(67		)	—			(67		)
Total comprehensive income	921			3			924
Cash dividends paid	(348		)	(7		)	(355		)
Issuance of shares under equity-based compensation plans-net	131			—			131
Business divestiture	—			(14		)	(14		)
Repurchase of shares	(343		)	—			(343		)
Balance at September 30, 2011	$	7,723		$	23		$	7,746

9

Comprehensive (Loss) Income

Comprehensive (loss) income consists primarily of net income, foreign currency translation and related hedging instruments, changes in unrecognized costs of pension and other postretirement benefits, and changes in the effective portion of open derivative contracts designated as cash flow hedges. The following table summarizes the components of Comprehensive (loss) income:

	Three months ended September 30						Nine months ended September 30
	2011			2010			2011			2010
Net income	$	367		$	269		$	991		$	654
Foreign currency translation and related hedging instruments	(449		)	419			(111		)	(64		)
Pensions and other postretirement benefits	34			4			69			51
Cash flow hedges	(20		)	7			(25		)	(2		)
Other comprehensive (loss) income	(435		)	430			(67		)	(15		)
Total comprehensive (loss) income	(68		)	699			924			639
Adjustment for comprehensive income attributable to noncontrolling interests	(2		)	(1		)	(3		)	(5		)
Total Comprehensive (loss) income attributable to Eaton common shareholders	$	(70	)	$	698		$	921		$	634

Net Income per Common Share

A summary of the calculation of net income per common share attributable to common shareholders follows:

	Three months ended September 30				Nine months ended September 30
(Shares in millions)	2011		2010		2011		2010
Net income attributable to Eaton common shareholders	$	365	$	268	$	988	$	649
Weighted-average number of common shares outstanding-diluted	341.9		340.6		344.4		340.1
Less dilutive effect of stock options and restricted stock awards	3.8		5.4		4.7		5.4
Weighted-average number of common shares outstanding-basic	338.1		335.2		339.7		334.7
Net income per common share
Diluted	$	1.07	$	0.78	$	2.86	$	1.90
Basic	1.07		0.80		2.90		1.93

For the third quarter and first nine months of 2011, 2.7 million and 1.1 million stock options, respectively, were excluded from the calculation of diluted net income per common share because the exercise price of the options exceeded the average market price of the common shares during the period and their effect, accordingly, would have been antidilutive. For the third quarter and first nine months of 2010, 7.0 million and 8.8 million stock options, respectively, were excluded from the calculation of diluted net income per common share because the exercise price of the options exceeded the average market price of the common shares during the period and their effect, accordingly, would have been antidilutive.

Note 10. FAIR VALUE MEASUREMENTS

Fair value is measured based on an exit price, representing the amount that would be received to sell an asset or paid to satisfy a liability in an orderly transaction between market participants. Fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, a fair value hierarchy is established, which categorizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

10

A summary of financial instruments recognized at fair value, and the fair value measurements used, follows:

	Total		Quoted prices in active markets for identical assets (Level 1)		Other observable inputs (Level 2)		Unobservable inputs (Level 3)
September 30, 2011
Cash	$	278	$	278	$	—	$	—
Short-term investments	536		536		—		—
Net derivative contracts	25		—		25		—
Long-term debt converted to floating interest rates by    interest rate swaps	67		—		67		—
December 31, 2010
Cash	$	333	$	333	$	—	$	—
Short-term investments	838		838		—		—
Net derivative contracts	69		—		69		—
Long-term debt converted to floating interest rates by    interest rate swaps	42		—		42		—

Eaton values its financial instruments using an industry standard market approach, in which prices and other relevant information is generated by market transactions involving identical or comparable assets or liabilities. No financial instruments were recognized using unobservable inputs.

Other Fair Value Measurements

Long-term debt and the current portion of long-term debt had a carrying value of $3,689 and fair value of $4,324 at September 30, 2011 compared to $3,386 and $3,787, respectively, at December 31, 2010.

Note 11. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

In the normal course of business, Eaton is exposed to certain risks related to fluctuations in interest rates, foreign currency exchange rates and commodity prices. The Company uses various derivative and non-derivative financial instruments, primarily interest rate swaps, foreign currency forward exchange contracts, foreign currency swaps and, to a lesser extent, commodity contracts, to manage risks from these market fluctuations. The instruments used by Eaton are straightforward, non-leveraged instruments. The counterparties to these instruments are financial institutions with strong credit ratings. Eaton maintains control over the size of positions entered into with any one counterparty and regularly monitors the credit rating of these institutions. Such instruments are not purchased and sold for trading purposes.

Derivative financial instruments are accounted for at fair value and recognized as assets or liabilities in the Condensed Consolidated Balance Sheets. Accounting for the gain or loss resulting from the change in the fair value of the derivative financial instrument depends on whether it has been designated, and is effective, as part of a hedging relationship and, if so, as to the nature of the hedging activity. Eaton formally documents all relationships between derivative financial instruments accounted for as hedges and the hedged item, as well as its risk-management objective and strategy for undertaking the hedge transaction. This process includes linking all derivative financial instruments to a recognized asset or liability, specific firm commitment, forecasted transaction, or net investment in a foreign operation. These financial instruments can be designated as:

• Hedges of the change in the fair value of a recognized fixed-rate asset or liability, or the firm commitment to acquire such an asset or liability (a fair value hedge); for these hedges, the gain or loss from the derivative financial instrument, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk, are recognized in income during the period of change in fair value.

• Hedges of the variable cash flows of a recognized variable-rate asset or liability, or the forecasted acquisition of such an asset or liability (a cash flow hedge); for these hedges, the effective portion of the gain or loss from the derivative financial instrument is recognized in Accumulated other comprehensive income (loss) and reclassified to income in the same period when the gain or loss on the hedged item is included in income.

11

• Hedges of the foreign currency exposure related to a net investment in a foreign operation (a net investment hedge); for these hedges, the effective portion of the gain or loss from the derivative financial instrument is recognized in Accumulated other comprehensive income (loss) and reclassified to income in the same period when the gain or loss related to the net investment in the foreign operation is included in income.

The gain or loss from a derivative financial instrument designated as a hedge that is effective is classified in the same line of the Consolidated Statements of Income as the offsetting loss or gain on the hedged item. The change in fair value of a derivative financial instrument that is not effective as a hedge is immediately recognized in income.

For derivatives that are not designated as a hedge, any gain or loss is immediately recognized in income. The majority of derivatives used in this manner relate to risks resulting from assets or liabilities denominated in a foreign currency and certain commodity contracts that arise in the normal course of business. During the third quarter and first nine months of 2011, Eaton incurred losses associated with commodity hedge contracts of $23 and $19, respectively. These losses were incurred due to significant declines in metal prices during primarily the last two weeks in September. Gains and losses associated with commodity hedge contracts are reported in Cost of products sold.

Derivative Financial Statement Impacts

The fair value of derivative financial instruments recognized in the Condensed Consolidated Balance Sheets follows:

	Notional amount		Other  current assets		Other long-term assets		Other current liabilities		Type of hedge	Term
September 30, 2011
Derivatives designated as hedges
Fixed-to-floating interest rate swaps	$	540	$	—	$	67	$	—	Fair value	2 to 23 years
Foreign currency exchange contracts	331		5		—		12		Cash flow	12 to 36 months
Commodity contracts	50		—		—		12		Cash flow	12 months
Total			$	5	$	67	$	24
Derivatives not designated as hedges
Foreign currency exchange contracts	$	2,845	$	24			$	25		12 months
Commodity contracts	114		—				22			12 months
Total			$	24			$	47
December 31, 2010
Derivatives designated as hedges
Fixed-to-floating interest rate swaps	$	540	$	—	$	42	$	—	Fair value	2 to 23 years
Foreign currency exchange contracts	227		4		—		5		Cash flow	12 to 36 months
Commodity contracts	39		8		—		—		Cash flow	12 months
Cross currency swaps	75		2		—		—		Net investment	12 months
Total			$	14	$	42	$	5
Derivatives not designated as hedges
Foreign currency exchange contracts	$	2,777	$	20			$	19		12 months
Commodity contracts	102		17				—			12 months
Total			$	37			$	19

The foreign currency exchange contracts shown in the table above as derivatives not designated as hedges are primarily contracts entered into to manage foreign currency volatility or exposure on intercompany sales and loans. While Eaton does not elect hedge accounting treatment for these derivatives, Eaton targets managing 100% of the intercompany balance sheet exposure to minimize the effect of currency volatility related to the movement of goods and services in the normal course of its operations. This activity represents the great majority of these foreign currency exchange contracts.

12

Amounts recognized in Accumulated other comprehensive income (loss) follow:

	Three months ended September 30
	2011						2010
	Gain (loss) recognized in Accumulated other comprehensive income (loss)			Gain (loss) reclassified from Accumulated other comprehensive income (loss)			Gain (loss) recognized in Accumulated other comprehensive income (loss)			Gain (loss) reclassified from Accumulated other comprehensive income (loss)
Derivatives designated as cash flow hedges
Foreign currency exchange contracts	$	(7	)	$	(1	)	$	3		$	1
Commodity contracts	(12		)	2			5			—
Derivatives designated as net investment hedges
Cross currency swaps	—			—			(16		)	—
Total	$	(19	)	$	1		$	(8	)	$	1

	Nine months ended September 30
	2011						2010
	Gain (loss) recognized in Accumulated other comprehensive income (loss)			Gain (loss) reclassified from Accumulated other comprehensive income (loss)			Gain (loss) recognized in Accumulated other comprehensive income (loss)			Gain (loss) reclassified from Accumulated other comprehensive income (loss)
Derivatives designated as cash flow hedges
Foreign currency exchange contracts	$	(6	)	$	(1	)	$	2		$	1
Commodity contracts	(13		)	7			2			5
Derivatives designated as net investment hedges
Cross currency swaps	1			—			(12		)	—
Total	$	(18	)	$	6		$	(8	)	$	6

Gains and losses reclassified from Accumulated other comprehensive income (loss) to the Consolidated Statements of Income were recognized in Cost of products sold.

Amounts recognized in net income follow:

	Three months ended September 30						Nine months ended September 30
	2011			2010			2011			2010
Derivatives designated as fair value hedges
Fixed-to-floating interest rate swaps	$	23		$	13		$	25		$	49
Related long-term debt converted to floating interest    rates by interest rate swaps	(23		)	(13		)	(25		)	(49		)
	$	—		$	—		$	—		$	—

Gains and losses described above were recognized in Interest expense.

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Note 12. INVENTORY

The components of inventory follow:

	September 30, 2011			December 31, 2010
Raw materials	$	747		$	651
Work-in-process	243			229
Finished goods	907			800
Inventory at FIFO	1,897			1,680
Excess of FIFO over LIFO cost	(128		)	(116		)
Total inventory	$	1,769		$	1,564

Note 13. BUSINESS SEGMENT INFORMATION

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated on a regular basis by the chief operating decision maker, or decision making group, in deciding how to allocate resources to an individual segment and in assessing performance. Eaton’s operating segments are Electrical Americas, Electrical Rest of World, Hydraulics, Aerospace, Truck and Automotive. For additional information regarding Eaton’s business segments, see Note 14 to the Consolidated Financial Statements contained in the 2010 Form 10-K.

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EATON CORPORATION BUSINESS SEGMENT INFORMATION
	Three months ended September 30						Nine months ended September 30
	2011			2010			2011			2010
Net sales
Electrical Americas	$	1,074		$	967		$	3,071		$	2,663
Electrical Rest of World	755			707			2,285			1,980
Hydraulics	717			583			2,130			1,641
Aerospace	420			390			1,218			1,136
Truck	715			534			1,964			1,479
Automotive	442			390			1,348			1,153
Total net sales	$	4,123		$	3,571		$	12,016		$	10,052
Segment operating profit
Electrical Americas	$	156		$	141		$	432		$	366
Electrical Rest of World	62			81			209			183
Hydraulics	109			76			335			207
Aerospace	71			60			166			157
Truck	139			74			349			179
Automotive	62			39			167			120
Total segment operating profit	599			471			1,658			1,212
Corporate
Amortization of intangible assets	(47		)	(46		)	(143		)	(134		)
Interest expense-net	(29		)	(33		)	(92		)	(102		)
Pension and other postretirement benefits expense	(35		)	(30		)	(105		)	(91		)
Other corporate expense-net	(56		)	(57		)	(155		)	(142		)
Income before income taxes	432			305			1,163			743
Income tax expense	65			36			172			89
Net income	367			269			991			654
Less net income for noncontrolling interests	(2		)	(1		)	(3		)	(5		)
Net income attributable to Eaton common shareholders	$	365		$	268		$	988		$	649

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Amounts are in millions of dollars or shares unless indicated otherwise (per share data assume dilution).

TWO-FOR-ONE STOCK SPLIT

On January 27, 2011, Eaton’s Board of Directors announced a two-for-one split of the Company’s common shares effective in the form of a 100% stock dividend. The record date for the stock split was February 7, 2011, and the additional shares were distributed on February 28, 2011. Accordingly, all share and per share data have been adjusted retroactively to reflect the stock split.

COMPANY OVERVIEW

Eaton Corporation is a diversified power management company with 2010 sales of $13.7 billion. The Company is a global technology leader in electrical components and systems for power quality, distribution and control; hydraulics components, systems and services for industrial and mobile equipment; aerospace fuel, hydraulics and pneumatic systems for commercial and military use; and truck and automotive drivetrain and powertrain systems for performance, fuel economy and safety. Eaton has approximately 73,000 employees in over 50 countries, and sells products to customers in more than 150 countries.

Eaton acquired certain businesses that affect comparability on a year over year basis. The Consolidated Statements of Income include the results of these businesses from the dates of the transactions or formation. For a list of business acquisitions and joint ventures impacting the comparative periods, see Note 2 to the Condensed Consolidated Financial Statements.

A summary of Eaton’s Net sales, Net income attributable to Eaton common shareholders, and Net income per common share-diluted follows:

	Three months ended September 30				Nine months ended September 30
	2011		2010		2011		2010
Net sales	$	4,123	$	3,571	$	12,016	$	10,052
Net income attributable to Eaton common shareholders	365		268		988		649
Net income per common share-diluted	$	1.07	$	0.78	$	2.86	$	1.90

RESULTS OF OPERATIONS

The following discussion of Consolidated Financial Results and Business Segment Results of Operations includes certain non-GAAP financial measures. These financial measures include operating earnings, operating earnings per common share, and operating profit before acquisition integration charges for each business segment, each of which excludes amounts that differ from the most directly comparable measure calculated in accordance with generally accepted accounting principles (GAAP). A reconciliation of each of these financial measures to the most directly comparable GAAP measure is included in the table below and in the discussion of the operating results of each business segment. Management believes that these financial measures are useful to investors because they exclude transactions of an unusual nature, allowing investors to more easily compare Eaton’s financial performance period to period. Management uses this information in monitoring and evaluating the on-going performance of Eaton and each business segment.

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Consolidated Financial Results

	Three months ended September 30								Nine months ended September 30
	2011			2010			Increase		2011			2010			Increase
Net sales	$	4,123		$	3,571		15	%	$	12,016		$	10,052		20	%
Gross profit	1,223			1,091			12	%	3,572			2,984			20	%
Percent of net sales	29.7		%	30.6		%			29.7		%	29.7		%
Income before income taxes	432			305			42	%	1,163			743			57	%
Net income	$	367		$	269		36	%	$	991		$	654		52	%
Less net income for noncontrolling interests	(2		)	(1		)			(3		)	(5		)
Net income attributable to Eaton common shareholders	365			268			36	%	988			649			52	%
Excluding acquisition integration charges (after-tax)	2			4					6			16
Operating earnings	$	367		$	272		35	%	$	994		$	665		49	%
Net income per common share-diluted	$	1.07		$	0.78		37	%	$	2.86		$	1.90		51	%
Excluding per share impact of acquisition integration    charges (after-tax)	0.01			0.01					0.02			0.05
Operating earnings per common share	$	1.08		$	0.79		37	%	$	2.88		$	1.95		48	%

Net Sales

Net sales in the third quarter of 2011 increased by 15% compared to the third quarter of 2010. The sales increase was due to an increase of 11% in core sales, 2% from acquisitions of businesses, and 2% from the favorable impact of foreign exchange. Net sales in the first nine months of 2011 increased by 20% compared to the first nine months of 2010. The sales increase was due to and increase of 14% in core sales, 4% from the favorable impact of foreign exchange, and 2% from acquisitions of businesses. The increase in core sales in both the third quarter and first nine months of 2011 reflects the continuing global expansion of the Company's markets, which increased 11% in the third quarter of 2011 compared to the same period in 2010, and the global economic recovery from the depressed levels of 2009. Eaton continues to anticipate that its end markets will grow by 11% for all of 2011.

Gross Profit

Gross profit increased by 12% in the third quarter of 2011 compared to the third quarter of 2010. Gross profit margin decreased 0.9 percentage points from 30.6% in the third quarter of 2010 to 29.7% in the third quarter of 2011. Gross profit increased by 20% in the first nine months of 2011 compared to the first nine months of 2010. Gross profit margin was 29.7% for the first nine months of both 2011 and 2010. The gross profit margin in both the third quarter and first nine months of 2011 was positively impacted by higher sales volumes and the benefits of substantial changes in the Company’s cost structure implemented in the past two years. These benefits were partially offset by higher raw material and commodity costs, including losses incurred of $23 associated with commodity hedge contracts due to significant declines in metal prices primarily during the last two weeks in September. For additional information related to derivatives, see Note 11 to the Condensed Consolidated Financial Statements.

Income Taxes

The effective income tax rate for the third quarter of 2011 was 15.2% compared to 11.7% for the third quarter of 2010 and 14.8% for the first nine months of 2011 compared to 12.0% for the first nine months of 2010. Higher effective tax rates in both the third quarter and first nine months of 2011 were primarily attributable to greater levels of income in high tax jurisdictions, particularly in the United States and Brazil, due to improved economic and market conditions. The effective income tax rate for the third quarter of 2011 was also favorably impacted by positive adjustments to the tax provision for 2010 tax returns filed during the third quarter in the United States and international tax jurisdictions.

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Net Income

Net income attributable to Eaton common shareholders of $365 in the third quarter of 2011 increased 36% compared to net income of $268 in the third quarter of 2010, and Net income per common share of $1.07 in the third quarter of 2011 increased 37% over Net income per common share of $0.78 in the third quarter of 2010. Net income attributable to Eaton common shareholders of $988 in the first nine months of 2011 increased 52% compared to net income of $649 in the first nine months of 2010, and Net income per common share of $2.86 in the first nine months of 2011 increased 51% over Net income per common share of $1.90 in the first nine months of 2010. The increase in both the third quarter and first nine months of 2011 was primarily due to higher sales and the factors noted above that affected gross profit.

Business Segment Results of Operations

The following is a discussion of net sales, operating profit and operating profit margin by business segment which includes a discussion of operating profit and operating profit margin before acquisition integration charges. For additional information related to integration charges see Note 3 to the Condensed Consolidated Financial Statements. For additional information related to acquired businesses see Note 2 to the Condensed Consolidated Financial Statements.

Electrical Americas

	Three months ended September 30								Nine months ended September 30
	2011			2010			Increase		2011			2010			Increase
Net sales	$	1,074		$	967		11	%	$	3,071		$	2,663		15	%
Operating profit	156			141			11	%	432			366			18	%
Operating margin	14.5		%	14.6		%			14.1		%	13.7		%
Acquisition integration charges	$	3		$	—				$	7		$	2
Before acquisition integration charges
Operating profit	$	159		$	141		13	%	$	439		$	368		19	%
Operating margin	14.8		%	14.6		%			14.3		%	13.8		%

Net sales increased 11% in the third quarter of 2011 compared to the third quarter of 2010 due to an increase of 9% in core sales, an increase of 1% from the acquisition of businesses, and an increase of 1% from the favorable impact of foreign exchange. End markets increased 11% in the third quarter of 2011 compared to the same period in 2010. Net sales increased 15% in the first nine months of 2011 compared to the first nine months of 2010 due to an increase of 11% in core sales, an increase of 3% from the acquisition of businesses, and an increase of 1% from the favorable impact of foreign exchange. The increase in net sales in both the third quarter and first nine months of 2011 was due to strong growth in the markets served by the Electrical Americas segment. Eaton now anticipates its Electrical Americas markets will grow by 8% for all of 2011.

Operating profit before acquisition integration charges in the third quarter of 2011 increased 13% from the third quarter of 2010. Operating profit before acquisition integration charges in the first nine months of 2011 increased 19% from the first nine months of 2010. The increase in both the third quarter and first nine months of 2011 was largely due to higher net sales as noted above. This increase was partially offset by higher raw material and commodity costs, including losses associated with commodity hedge contracts due to significant declines in metal prices primarily during the last two weeks in September. These losses reduced operating margin before acquisition integration charges by 1.0 percentage points.

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Electrical Rest of World

	Three months ended September 30						Increase (decrease)		Nine months ended September 30						Increase (decrease)
	2011			2010					2011			2010
Net sales	$	755		$	707		7	%	$	2,285		$	1,980		15	%
Operating profit	62			81			(23	)%	209			183			14	%
Operating margin	8.2		%	11.5		%			9.1		%	9.2		%
Acquisition integration charges	$	—		$	6				$	1		$	20
Before acquisition integration charges
Operating profit	$	62		$	87		(29	)%	$	210		$	203		3	%
Operating margin	8.2		%	12.3		%			9.2		%	10.3		%

Net sales increased 7% in the third quarter of 2011 compared to the third quarter of 2010 due to an increase of 7% from the favorable impact of foreign exchange, an increase of 2% from the acquisition of a business, offset by a decrease in core sales of 2%. End markets grew 1% in the third quarter of 2011 compared to the third quarter of 2010. Net sales increased 15% in the first nine months of 2011 compared to the first nine months of 2010 due to an increase of 8% from the favorable impact of foreign exchange, an increase in core sales of 6%, and an increase of 1% from the acquisition of businesses. Eaton now anticipates its Electrical Rest of World markets will grow by 6% for all of 2011.

Operating profit before acquisition integration charges in the third quarter of 2011 decreased 29% from the third quarter of 2010. Operating profit in the third quarter was negatively impacted by a large decrease in the residential solar market and losses associated with commodity hedge contracts due to significant declines in metal prices primarily during the last two weeks in September. These losses reduced operating margin before acquisition integration charges by 1.5 percentage points. Operating profit before acquisition integration charges in the first nine months of 2011 increased 3% from the first nine months of 2010 primarily due to higher sales.

Hydraulics

	Three months ended September 30								Nine months ended September 30
	2011			2010			Increase		2011			2010			Increase
Net sales	$	717		$	583		23	%	$	2,130		$	1,641		30	%
Operating profit	109			76			43	%	335			207			62	%
Operating margin	15.2		%	13.0		%			15.7		%	12.6		%
Acquisition integration charges	$	1		$	—				$	1		$	—
Before acquisition integration charges
Operating profit	$	110		$	76		45	%	$	336		$	207		62	%
Operating margin	15.3		%	13.0		%			15.8		%	12.6		%

Net sales in the third quarter of 2011 increased 23% compared to the third quarter of 2010 due to an increase of 13% in core sales, an increase of 7% from the acquisition of businesses and an increase of 3% from the favorable impact of foreign exchange. Global hydraulics markets grew 14% over the third quarter of 2010, with U.S. markets up 18% and markets outside the U.S. up 11%. Net sales in the first nine months of 2011 increased 30% compared to the first nine months of 2010 due to an increase in core sales of 22%, an increase of 4% from the acquisition of businesses, and an increase of 4% from the favorable impact of foreign exchange. Eaton now anticipates its Hydraulics markets will grow by 17% for all of 2011.

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Operating profit before acquisition integration charges in the third quarter of 2011 increased 45% from the third quarter of 2010. Operating profit before acquisition integration charges in the first nine months of 2011 increased 62% from the first nine months of 2010. The increase in both the third quarter and first nine months of 2011 was primarily due to higher sales volumes, partially offset by higher raw material and commodity costs.

Aerospace

	Three months ended September 30								Nine months ended September 30
	2011			2010			Increase		2011			2010			Increase
Net sales	$	420		$	390		8	%	$	1,218		$	1,136		7	%
Operating profit	71			60			18	%	166			157			6	%
Operating margin	16.9		%	15.4		%			13.6		%	13.8		%
Acquisition integration charges	$	—		$	1				$	—		$	3
Before acquisition integration charges
Operating profit	$	71		$	61		16	%	$	166		$	160		4	%
Operating margin	16.9		%	15.6		%			13.6		%	14.1		%

Net sales in the third quarter of 2011 increased 8% compared to the third quarter of 2010 due to an increase in core sales of 7% and an increase of 1% from the favorable impact of foreign exchange. End markets grew 7% in the third quarter of 2011 compared to the third quarter of 2010. Net sales in the first nine months of 2011 increased 7% compared to the first nine months of 2010 due to an increase in core sales of 6% and an increase of 1% from the favorable impact of foreign exchange. Growth in both the third quarter and first nine months of 2011 was primarily driven by higher customer demand in the commercial OEM and aftermarket. Eaton now anticipates its Aerospace markets will grow by 5% for all of 2011.

Operating profit before acquisition integration charges in the third quarter of 2011 increased 16% from the third quarter of 2010. Operating margin before acquisition integration charges increased 1.3 percentage points from 15.6% in the third quarter of 2010 to 16.9% in the third quarter of 2011, reflecting the benefits from higher sales volume and growth in the commercial aftermarket. Operating profit before acquisition integration charges in the first nine months of 2011 increased 4% from the first nine months of 2010. Operating margin before acquisition integration charges decreased 0.5 percentage points from 14.1% in the first nine months of 2010 to 13.6% in the first nine months of 2011. The decrease in the first nine months of 2011 was primarily due to increased expenses stemming from changes in scope, program delays, and execution of new customer programs during the first half of 2011, which were partially offset by the benefits from higher sales volume and growth in the commercial aftermarket.

Truck

	Three months ended September 30								Nine months ended September 30
	2011			2010			Increase		2011			2010			Increase
Net sales	$	715		$	534		34	%	$	1,964		$	1,479		33	%
Operating profit	139			74			88	%	349			179			95	%
Operating margin	19.4		%	13.9		%			17.8		%	12.1		%

Net sales increased 34% in the third quarter of 2011 compared to the third quarter of 2010 due to an increase in core sales of 31% and an increase of 3% from the favorable impact of foreign exchange. End markets grew 25% in the third quarter of 2011 compared to the third quarter of 2010. U.S. markets grew 51% while markets outside the U.S. grew 7%. Net sales increased 33% in the first nine months of 2011 compared to the first nine months of 2010 due to an increase in core sales of 28% and an increase of 5% from the favorable impact of foreign exchange. The increase in core sales reflects the continuing rebound in global end markets. Eaton now anticipates its Truck markets will grow by 24% for all of 2011.

20

Operating profit in the third quarter of 2011 increased 88% from the third quarter of 2010. Operating profit in the first nine months of 2011 increased 95% from the first nine months of 2010. The increase in operating profit in both the third quarter and first nine months of 2011 was primarily due to higher sales volumes in 2011.

Automotive

	Three months ended September 30								Nine months ended September 30
	2011			2010			Increase		2011			2010			Increase
Net sales	$	442		$	390		13	%	$	1,348		$	1,153		17	%
Operating profit	62			39			59	%	167			120			39	%
Operating margin	14.0		%	10.0		%			12.4		%	10.4		%

Net sales increased 13% in the third quarter of 2011 compared to the third quarter of 2010 due to an increase in core sales of 11% and an increase of 2% from the favorable impact of foreign exchange. The increase in core sales reflects the strong global automotive markets, which grew 8% in the third quarter of 2011 compared to the third quarter of 2010. U.S. markets grew 13% while markets outside the U.S. grew 6%. Net sales increased 17% in the first nine months of 2011 compared to the first nine months of 2010 due to an increase in core sales of 13% and an increase of 4% from the favorable impact of foreign exchange. The increase in core sales in the first nine months of 2011 is due to the same factors noted above. Eaton now anticipates its Automotive markets will grow by 10% for all of 2011.

Operating profit in the third quarter of 2011 increased 59% from the third quarter of 2010. Operating profit in the first nine months of 2011 increased 39% from the first nine months of 2010. The increase in operating profit in both the third quarter and first nine months of 2011 was primarily due to higher sales volumes and the resulting manufacturing efficiencies.

Corporate Expense

	Three months ended September 30				Increase (decrease)		Nine months ended September 30				Increase (decrease)
	2011		2010				2011		2010
Amortization of intangible assets	$	47	$	46	2	%	$	143	$	134	7	%
Interest expense-net	29		33		(12	)%	92		102		(10	)%
Pension and other postretirement benefits expense	35		30		17	%	105		91		15	%
Other corporate expense-net	56		57		(2	)%	155		142		9	%
Total corporate expense	$	167	$	166	1	%	$	495	$	469	6	%

Total Corporate expense increased 1% in the third quarter of 2011 to $167 from $166 in the third quarter of 2010 principally due to a 17% increase in Pension and other postretirement benefits expense related to changes in the discount rate and asset return assumptions for 2011, partially offset by a 12% decrease in Interest expense-net associated with lower interest rates. Total Corporate expense increased 6% in the first nine months of 2011 to $495 from $469 in the first nine months of 2010 due to the same factors noted above.

LIQUIDITY, CAPITAL RESOURCES AND CHANGES IN FINANCIAL CONDITION

Financial Condition and Liquidity

Eaton’s objective is to finance its business through operating cash flow and an appropriate mix of equity and long-term and short-term debt. By diversifying its debt maturity structure, Eaton reduces liquidity risk. The Company maintains access to the commercial paper markets through credit facilities that support commercial paper borrowings. There were no borrowings outstanding under these revolving credit facilities at September 30, 2011. Over the course of a year, cash, short-term investments and short-term debt may fluctuate in order to manage global liquidity. Eaton believes it has the operating flexibility, cash flow, cash and short-term investment balances, and access to capital markets in excess of the liquidity necessary to meet future operating needs of the business.

21

During the second quarter in 2011, Eaton completed the issuance of $300 floating rate senior unsecured Notes due June 16, 2014. The Company also completed the refinancing of a $500, five-year revolving credit facility which maintains long-term revolving credit facilities at a total of $1.5 billion. For additional information on these financing transactions, see Note 5 to the Condensed Consolidated Financial Statements.

Eaton was in compliance with each of its debt covenants as of September 30, 2011 and for all periods presented.

Undistributed Assets of Non-U.S. Subsidiaries

At September 30, 2011, approximately 79% of the Company's consolidated cash and short-term investments resided in non-U.S. locations. These funds are considered permanently reinvested to be used to expand operations either organically or through acquisitions outside the U.S. The largest growth areas that are expected to require capital are in developing foreign markets such as Africa, Brazil, China, India, the Middle East and Southeast Asia. The Company's U.S. operations generate cash flow sufficient to satisfy U.S. operating requirements. The Company does not intend to repatriate any significant amounts of cash to the U.S. in the foreseeable future.

Sources and Uses of Cash Flow

Operating Cash Flow

Net cash provided by operating activities was $689 in the first nine months of 2011, a decrease of $38 compared to $727 in the first nine months of 2010. Operating cash flows in 2011 were primarily impacted by higher working capital requirements compared to 2010 as well as contributions of $100 to other postretirement benefits plans that were not contributed in 2010. Partially offsetting these uses of cash were higher net income in 2011, which resulted from increased sales due to the global economic recovery that continued in 2011 and the positive effect of recent changes in the Company’s cost structure. For additional information on postretirement benefits plans, see Note 6 to the Condensed Consolidated Financial Statements.

Investing Cash Flow

Net cash used in investing activities was $409 in the first nine months of 2011, a decrease of $23 compared to $432 in the first nine months of 2010. During the first nine months of 2011, capital expenditures increased to $384 in 2011 from $207 in the first nine months of 2010 and cash paid for acquisitions of businesses increased to $298 from $172 in the first nine months of 2010. Higher capital expenditures were due to the Company's increased investments in property, plant and equipment to facilitate growth. These uses of cash were more than offset by cash proceeds of $272 from the sale of short-term investments compared to purchases of $47 in the first nine months of 2010. For additional information on business acquisitions see to Note 2 to the Condensed Consolidated Financial Statements.

Financing Cash Flow

Net cash used in financing activities was $329 in the first nine months of 2011, an increase of $103 compared to $226 in the first nine months of 2010. The increase was primarily due to common share repurchases of $343 during 2011 and an increase of $83 in cash dividends paid in 2011 to Eaton common shareholders, partially offset by proceeds received from a $300 debt issuance completed by Eaton during the second quarter of 2011. Higher cash dividends paid was due to an increase in the quarterly cash dividend paid per common share from $0.29 to $0.34, announced during the first quarter of 2011. For additional information on share repurchases see to Note 9 to the Condensed Consolidated Financial Statements and Part II, Item 2, Unregistered Sales of Equity Securities and Use of Proceeds.

OTHER MATTERS

In December 2010, a Brazilian court held that a judgment obtained by a Brazilian company, Raysul, against another Brazilian company, Saturnia, which was sold by Eaton in 2006, could be enforced against Eaton Ltda. This judgment is based on an alleged violation of an agency agreement between Raysul and Saturnia. At September 30, 2011, the Company has a total accrual of 67 Brazilian Reais related to this matter, comprised of 60 Brazilian Reais recognized in the fourth quarter of 2010 ($32 based on current exchange rates) and an additional 7 Brazilian Reais recognized in 2011 ($4 based on current exchange rates) due to subsequent accruals for interest and inflation. The Company expects that any sum it may be required to pay in connection with this matter will not exceed the amount of the recorded liability. In 2010, Eaton filed motions for clarification with the Brazilian court of appeals which were denied on April 6, 2011. Eaton Holding and Eaton Ltda. filed appeals on various issues to the Superior Court of Justice in Brasilia. On September 27, 2011, the Superior Court of Justice accepted two of the appeals and will hear those appeals in due course. Another appeal remains pending in the lower appellate court.

22

On October 5, 2006, ZF Meritor LLC and Meritor Transmission Corporation (collectively, Meritor) filed an action against Eaton in the United States District Court for Delaware. The action sought damages, which would be trebled under United States antitrust laws, as well as injunctive relief and costs. The suit alleged that Eaton engaged in anti-competitive conduct against Meritor in the sale of heavy-duty truck transmissions in North America. Following a four week trial on liability only, on October 8, 2009, the jury returned a verdict in favor of Meritor. Eaton firmly believes that it competes fairly and honestly for business in the marketplace, and that at no time did it act in an anti-competitive manner. During an earlier stage in the case, the judge concluded that damage estimates contained in a report filed by Meritor were not based on reliable data and the report was specifically excluded from the case. On November 3, 2009, Eaton filed a motion for judgment as a matter of law and to set aside the verdict. That motion was denied on March 10, 2011. On March 14, 2011, Eaton filed a motion for entry of final judgment of liability, zero damages and no injunctive relief. That motion was denied on June 9, 2011. On August 19, 2011, the Court entered final judgment of liability but awarded zero damages to plaintiffs. The Court also entered an injunction prohibiting Eaton from offering rebates or other incentives based on purchasing targets but stayed the injunction pending appeal. Eaton has appealed the liability finding and the injunction to the Third Circuit Court of Appeals. Meritor has cross-appealed the finding of zero damages.

CRITICAL ACCOUNTING POLICIES

Goodwill and Indefinite Life Intangible Assets

In September 2011, the Financial Accounting Standards Board issued a revised standard on testing goodwill for impairment. The revised standard allows an entity to first assess the carrying value of goodwill based on qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than the unit's carrying amount. If, based on a qualitative assessment, the fair value of a reporting unit is more likely than not lower than its carrying value, the entity must then test goodwill from a quantitative perspective similar to prior guidance. This standard is effective for 2012, with early adoption permitted. Eaton elected to adopt this standard for its 2011 annual impairment testing.

Goodwill is tested for impairment annually as of July 1 at the reporting unit level, which is equivalent to Eaton's operating segments. As disclosed in Eaton's 2010 Form 10-K, impairment testing for 2010 was performed from a quantitative perspective using a discounted cash flow model to estimate the fair value of each operating segment. For 2010, the fair value of Eaton's reporting units substantially exceeded the respective carrying values.

Impairment testing for 2011 was performed by assessing certain qualitative trends and factors, including projected market outlook and growth rates, forecasted and actual sales and operating profit margins, discount rates, industry data and other relevant qualitative factors. These trends and factors were compared to and based on the assumptions used in the quantitative assessment performed in 2010. For 2011, it is more likely than not that the fair value of Eaton's reporting units continues to substantially exceed the respective carrying amount.

FORWARD-LOOKING STATEMENTS

This Form 10-Q Report contains forward-looking statements concerning the performance in 2011 of Eaton’s worldwide end markets. These statements may discuss goals, intentions and expectations as to future trends, plans, events, results of operations or financial condition, or state other information relating to Eaton, based on current beliefs of management as well as assumptions made by, and information currently available to, management. Forward-looking statements generally will be accompanied by words such as “anticipate”, “believe”, “could”, “estimate”, “expect”, “forecast”, “guidance”, “intend”, “may”, “possible”, “potential”, “predict”, “project” or other similar words, phrases or expressions. These statements should be used with caution and are subject to various risks and uncertainties, many of which are outside Eaton’s control. The following factors could cause actual results to differ materially from those in the forward-looking statements: unanticipated changes in the markets for the company’s business segments; unanticipated downturns in business relationships with customers or their purchases from us; the availability of credit to customers and suppliers; competitive pressures on sales and pricing; increases in the cost of material and other production costs, or unexpected costs that cannot be recouped in product pricing; the introduction of competing technologies; unexpected technical or marketing difficulties; unexpected claims, charges, litigation or dispute resolutions; strikes or other labor unrest; the impact of acquisitions and divestitures; unanticipated difficulties integrating acquisitions; new laws and governmental regulations; interest rate changes; stock and commodity market and currency fluctuations; and unanticipated deterioration of economic and financial conditions in the United States and around the world. Eaton does not assume any obligation to update these forward-looking statements.

23

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

See Note 11 of the Notes to the Condensed Consolidated Financial Statements for changes in exposures to market risk since December 31, 2010.

ITEM 4. CONTROLS AND PROCEDURES.

      Pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 (the Exchange Act), an evaluation was performed, under the supervision and with the participation of Eaton’s management, including Alexander M. Cutler - Chairman, Chief Executive Officer and President; and Richard H. Fearon - Vice Chairman and Chief Financial and Planning Officer, of the effectiveness of the design and operation of Eaton’s disclosure controls and procedures. Based on that evaluation, management concluded that Eaton’s disclosure controls and procedures were effective as of September 30, 2011.

Disclosure controls and procedures are designed to ensure that information required to be disclosed in Eaton’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in Eaton’s reports filed under the Exchange Act is accumulated and communicated to management, including Eaton’s Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

There were no changes in Eaton’s internal control over financial reporting that materially affected, or is reasonably likely to materially affect, Eaton’s internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

(c) Issuer's Purchases of Equity Securities

8.3 million shares were repurchased in 2011 at a total purchase price of $343. During the third quarter of 2011, Eaton repurchased 7.0 million of the 8.3 million common shares in the open market at a total purchase price of $275. These shares were repurchased under the program announced on January 22, 2007 (2007 Program). A summary of the shares repurchased in the third quarter of 2011 follows:

Month	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Maximum number of shares that may yet be purchased under the plans or programs 1
July	103,700	$	48.15	103,700	7,581,870
August	5,175,419	39.62		5,175,419	2,406,451
September	1,731,800	37.73		1,731,800	674,651
Total	7,010,919	$	39.28	7,010,919
1 As adjusted for the two-for-one stock split announced on January 27, 2011

On September 28, 2011, Eaton's Board of Directors approved a 20 million common share repurchase program (2011 Program), replacing the 2007 Program. The 2011 Program authorizes the purchase of up to 20 million shares, not to exceed an aggregate purchase price of $1.25 billion. The common shares are expected to be repurchased over time, depending on market conditions, the market price of common shares, capital levels and other considerations. The 2011 program expires on September 27, 2016. No shares were repurchased under this program in the third quarter of 2011.

ITEM 6. EXHIBITS.

Exhibits — See Exhibit Index attached.

24

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

			EATON CORPORATION
			Registrant
Date:	October 26, 2011	By:	/s/ Richard H. Fearon
			Richard H. Fearon
			Vice Chairman and Chief Financial and Planning Officer
			(On behalf of the Registrant and as Principal Financial Officer)

25

Eaton Corporation

Third Quarter 2011 Report on Form 10-Q

Exhibit Index

3 (a)	Amended Articles of Incorporation (amended and restated as of April 27, 2011) — Incorporated by reference to the Form 10-Q Report for the three months ended March 31, 2011
3 (b)	Amended Regulations (amended and restated as of April 27, 2011) — Incorporated by reference to the Form 10-Q Report for the three months ended March 31, 2011
4	Pursuant to Regulation S-K Item 601(b)(4), Eaton agrees to furnish to the SEC, upon request, a copy of the instruments defining the rights of holders of its other long-term debt
12	Ratio of Earnings to Fixed Charges — Filed in conjunction with this Form 10-Q Report *
31.1	Certification of Chief Executive Officer (Pursuant to Rule 13a-14(a)) — Filed in conjunction with this Form 10-Q Report *
31.2	Certification of Chief Financial Officer (Pursuant to Rule 13a-14(a)) — Filed in conjunction with this Form 10-Q Report *
32.1	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 Report *
32.2	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 *
101.INS	XBRL Instance Document *
101.SCH	XBRL Taxonomy Extension Schema Document *
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document *
101.DEF	XBRL Taxonomy Extension Label Definition Document *
101.LAB	XBRL Taxonomy Extension Label Linkbase Document *
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document *

_______________________________

* Submitted electronically herewith.

Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Statements of Income for the three months ended September 30, 2011 and 2010, (ii) Consolidated Statements of Income for the nine months ended September 30, 2011 and 2010, (iii) Condensed Consolidated Balance Sheets at September 30, 2011 and December 31, 2010, (iv) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010 and (v) Notes to Condensed Consolidated Financial Statements for the nine months ended September 30, 2011.

In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be part of any registration statement or other document filed under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

26

EX-12

Eaton Corporation

Third Quarter 2011 Report on Form 10-Q

Item 6

Exhibit 12

Ratio of Earnings to Fixed Charges

	Nine months ended September 30			Year ended December 31
(Millions of dollars)	2011			2010			2009			2008			2007			2006
Income from continuing operations   before income taxes and noncontrolling interests in   consolidated subsidiaries	$	1,163		$	1,036		$	303		$	1,140		$	1,055		$	979
Adjustments
(Income) losses of equity investees	(2		)	(14		)	(6		)	(11		)	(6		)	1
Distributed income of equity investees	2			15			9			1			1			1
Interest expensed	116			162			170			192			193			139
Amortization of debt issue costs	3			4			5			2			1			1
Estimated portion of rent expense representing interest	42			57			59			58			44			41
Amortization of capitalized interest	8			10			13			13			12			12
Adjusted income from continuing operations before   income taxes	$	1,332		$	1,270		$	553		$	1,395		$	1,300		$	1,174
Fixed charges
Interest expensed	$	116		$	162		$	170		$	192		$	193		$	139
Interest capitalized	13			8			7			13			14			14
Amortization of debt issue costs	3			4			5			2			1			1
Estimated portion of rent expense representing interest	42			57			59			58			44			41
Total fixed charges	$	174		$	231		$	241		$	265		$	252		$	195
Ratio of earnings to fixed charges	7.66			5.50			2.29			5.26			5.16			6.02

EX-31.1

Eaton Corporation

Third Quarter 2011 Report on Form 10-Q

Item 6

Exhibit 31.1

Certification

I, Alexander M. Cutler, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Eaton Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	October 26, 2011	/s/ Alexander M. Cutler
		Alexander M. Cutler
		Chairman and Chief Executive Officer; President

EX-31.2

Eaton Corporation

Third Quarter 2011 Report on Form 10-Q

Item 6

Exhibit 31.2

Certification

I, Richard H. Fearon, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Eaton Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	October 26, 2011	/s/ Richard H. Fearon
		Richard H. Fearon
		Vice Chairman and Chief Financial and Planning Officer

EX-32.1

Eaton Corporation

Third Quarter 2011 Report on Form 10-Q

Item 6

Exhibit 32.1

Certification

This written statement is submitted in accordance with Section 1350 of Chapter 63 of Title 18 of the United States Code adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. It accompanies Eaton Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 (“10-Q Report”).

I hereby certify that, based on my knowledge, the 10-Q Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C 78m), and information contained in the 10-Q Report fairly presents, in all material respects, the financial condition and results of operations of Eaton Corporation and its consolidated subsidiaries.

Date:	October 26, 2011	/s/ Alexander M. Cutler
		Alexander M. Cutler
		Chairman and Chief Executive Officer; President

EX-32.2

Eaton Corporation

Third Quarter 2011 Report on Form 10-Q

Item 6

Exhibit 32.2

Certification

This written statement is submitted in accordance with Section 1350 of Chapter 63 of Title 18 of the United States Code adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. It accompanies Eaton Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 (“10-Q Report”).

I hereby certify that, based on my knowledge, the 10-Q Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C 78m), and information contained in the 10-Q Report fairly presents, in all material respects, the financial condition and results of operations of Eaton Corporation and its consolidated subsidiaries.

Date:	October 26, 2011	/s/ Richard H. Fearon
		Richard H. Fearon
		Vice Chairman and Chief Financial and Planning Officer

XML

Condensed Consolidated Balance Sheets (USD $) In Millions	Sep. 30, 2011	Dec. 31, 2010
Current assets
Cash	$ 278	$ 333
Short-term investments	536	838
Accounts receivable-net	2,549	2,239
Inventory	1,769	1,564
Other current assets	601	532
Total current assets	5,733	5,506
Property, plant and equipment-net	2,537	2,477
Other noncurrent assets
Goodwill	5,571	5,454
Other intangible assets	2,253	2,272
Deferred income taxes	971	1,001
Other assets	562	542
Total assets	17,627	17,252
Current liabilities
Short-term debt	86	72
Current portion of long-term debt	321	4
Accounts payable	1,527	1,408
Accrued compensation	401	465
Other current liabilities	1,445	1,284
Total current liabilities	3,780	3,233
Noncurrent liabilities
Long-term debt	3,368	3,382
Pension liabilities	1,182	1,429
Other postretirement benefits liabilities	634	743
Deferred income taxes	456	487
Other noncurrent liabilities	461	575
Total noncurrent liabilities	6,101	6,616
Shareholders' equity
Eaton shareholders' equity	7,723	7,362
Noncontrolling interests	23	41
Total equity	7,746	7,403
Total liabilities and equity	$ 17,627	$ 17,252

XML

Condensed Consolidated Statements of Cash Flows (USD $) In Millions	9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010
Operating activities
Net income	$ 991	$ 654
Adjustments to reconcile to net cash provided by operating activities
Depreciation and amortization	419	413
Contributions to pension plans	(341)	(378)
Contributions to other postretirement benefits plans	(150)	(61)
Changes in working capital	(290)	(70)
Other-net	60	169
Net cash provided by operating activities	689	727
Investing activities
Cash paid for acquisitions of businesses	(298)	(172)
Capital expenditures for property, plant and equipment	(384)	(207)
Sales (purchases) of short-term investments-net	272	(47)
Other-net	1	(6)
Net cash used in investing activities	(409)	(432)
Borrowings with original maturities of more than three months
Proceeds	352	55
Payments	(14)	(59)
Payments with original maturities of less than three months-net (primarily commercial paper)	(38)	(19)
Cash dividends paid	(348)	(265)
Exercise of employee stock options	66	60
Repurchase of shares	(343)	0
Other-net	(4)	2
Net cash used in financing activities	(329)	(226)
Effect of foreign exchange rate changes on cash	(6)	(14)
Total (decrease) increase in cash	(55)	55
Cash at the beginning of the period	333	340
Cash at the end of the period	$ 278	$ 395

XML

Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2011

Fair Value Measurements (Tables) [Abstract]

Summary of financial instruments recognized at fair value and fair value measurement used

A summary of financial instruments recognized at fair value, and the fair value measurements used, follows:

	Total		Quoted prices in active markets for identical assets (Level 1)		Other observable inputs (Level 2)		Unobservable inputs (Level 3)
September 30, 2011
Cash	$	278	$	278	$	—	$	—
Short-term investments	536		536		—		—
Net derivative contracts	25		—		25		—
Long-term debt converted to floating interest rates by    interest rate swaps	67		—		67		—
December 31, 2010
Cash	$	333	$	333	$	—	$	—
Short-term investments	838		838		—		—
Net derivative contracts	69		—		69		—
Long-term debt converted to floating interest rates by    interest rate swaps	42		—		42		—

XML

Document and Entity Information Document (USD $) In Billions, except Share data in Millions	9 Months Ended
	Sep. 30, 2011	Jun. 30, 2010
Entity Information [Line Items]
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Public Float		$ 11.0
Document Period End Date	Sep. 30, 2011
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	Yes
Amendment Flag	false
Entity Common Stock, Shares Outstanding	334.2
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q3
Entity Registrant Name	EATON CORP
Entity Central Index Key	0000031277
Document Type	10-Q

XML

Business Segment Information (Tables)

9 Months Ended

Sep. 30, 2011

Segment Reporting [Abstract]

Business Segment Information

EATON CORPORATION BUSINESS SEGMENT INFORMATION
	Three months ended September 30						Nine months ended September 30
	2011			2010			2011			2010
Net sales
Electrical Americas	$	1,074		$	967		$	3,071		$	2,663
Electrical Rest of World	755			707			2,285			1,980
Hydraulics	717			583			2,130			1,641
Aerospace	420			390			1,218			1,136
Truck	715			534			1,964			1,479
Automotive	442			390			1,348			1,153
Total net sales	$	4,123		$	3,571		$	12,016		$	10,052
Segment operating profit
Electrical Americas	$	156		$	141		$	432		$	366
Electrical Rest of World	62			81			209			183
Hydraulics	109			76			335			207
Aerospace	71			60			166			157
Truck	139			74			349			179
Automotive	62			39			167			120
Total segment operating profit	599			471			1,658			1,212
Corporate
Amortization of intangible assets	(47		)	(46		)	(143		)	(134		)
Interest expense-net	(29		)	(33		)	(92		)	(102		)
Pension and other postretirement benefits expense	(35		)	(30		)	(105		)	(91		)
Other corporate expense-net	(56		)	(57		)	(155		)	(142		)
Income before income taxes	432			305			1,163			743
Income tax expense	65			36			172			89
Net income	367			269			991			654
Less net income for noncontrolling interests	(2		)	(1		)	(3		)	(5		)
Net income attributable to Eaton common shareholders	$	365		$	268		$	988		$	649

XML

Income Taxes

9 Months Ended

Sep. 30, 2011

Income Tax Expense (Benefit) [Abstract]

INCOME TAXES

INCOME TAXES

The effective income tax rate for the third quarter of 2011 was 15.2% compared to 11.7% for the third quarter of 2010 and 14.8% for the first nine months of 2011 compared to 12.0% for the first nine months of 2010. Higher effective tax rates in both the third quarter and first nine months of 2011 were primarily attributable to greater levels of income in high tax jurisdictions, particularly in the United States and Brazil, due to improved economic and market conditions.

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Basis of Presentation (Details)	3 Months Ended
	Mar. 31, 2011	Jan. 27, 2011
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Common shares Stock Split	two-for-one stock split of the Company’s common shares effective in the form of a 100% stock dividend
Stock Dividend Percentage		100.00%

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Fair Value Measurements (Details) (USD $) In Millions	Sep. 30, 2011	Dec. 31, 2010
Fair Value, Assets Measured on Recurring Basis, Financial Statement Captions [Line Items]
Cash	$ 278	$ 333
Summary of financial instruments recognized at fair value and fair value measurement used
Short-term investments	536	838
Net derivative contracts	25	69
Long-term debt converted to floating interest rates by interest rate swaps	67	42
Carrying value of long-term debt and current portion of long-term debt	3,689	3,386
Fair value of long-term debt and current portion of long-term debt	4,324	3,787
Quoted prices in active markets for identical assets (Level 1) [Member]
Fair Value, Assets Measured on Recurring Basis, Financial Statement Captions [Line Items]
Cash	278	333
Summary of financial instruments recognized at fair value and fair value measurement used
Short-term investments	536	838
Net derivative contracts	0	0
Long-term debt converted to floating interest rates by interest rate swaps	0	0
Other Observable inputs Level 2) [Member]
Fair Value, Assets Measured on Recurring Basis, Financial Statement Captions [Line Items]
Cash	0	0
Summary of financial instruments recognized at fair value and fair value measurement used
Short-term investments	0	0
Net derivative contracts	25	69
Long-term debt converted to floating interest rates by interest rate swaps	67	42
Unobservable inputs (Level 3) [Member]
Fair Value, Assets Measured on Recurring Basis, Financial Statement Captions [Line Items]
Cash	0	0
Summary of financial instruments recognized at fair value and fair value measurement used
Short-term investments	0	0
Net derivative contracts	0	0
Long-term debt converted to floating interest rates by interest rate swaps	$ 0	$ 0

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Inventory (Tables)

9 Months Ended

Sep. 30, 2011

Inventory Disclosure [Abstract]

Components of inventories

The components of inventory follow:

	September 30, 2011			December 31, 2010
Raw materials	$	747		$	651
Work-in-process	243			229
Finished goods	907			800
Inventory at FIFO	1,897			1,680
Excess of FIFO over LIFO cost	(128		)	(116		)
Total inventory	$	1,769		$	1,564

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Business Segment Information

9 Months Ended

Sep. 30, 2011

Segment Reporting [Abstract]

BUSINESS SEGMENT INFORMATION

BUSINESS SEGMENT INFORMATION

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated on a regular basis by the chief operating decision maker, or decision making group, in deciding how to allocate resources to an individual segment and in assessing performance. Eaton’s operating segments are Electrical Americas, Electrical Rest of World, Hydraulics, Aerospace, Truck and Automotive. For additional information regarding Eaton’s business segments, see Note 14 to the Consolidated Financial Statements contained in the 2010 Form 10-K.

EATON CORPORATION BUSINESS SEGMENT INFORMATION
	Three months ended September 30						Nine months ended September 30
	2011			2010			2011			2010
Net sales
Electrical Americas	$	1,074		$	967		$	3,071		$	2,663
Electrical Rest of World	755			707			2,285			1,980
Hydraulics	717			583			2,130			1,641
Aerospace	420			390			1,218			1,136
Truck	715			534			1,964			1,479
Automotive	442			390			1,348			1,153
Total net sales	$	4,123		$	3,571		$	12,016		$	10,052
Segment operating profit
Electrical Americas	$	156		$	141		$	432		$	366
Electrical Rest of World	62			81			209			183
Hydraulics	109			76			335			207
Aerospace	71			60			166			157
Truck	139			74			349			179
Automotive	62			39			167			120
Total segment operating profit	599			471			1,658			1,212
Corporate
Amortization of intangible assets	(47		)	(46		)	(143		)	(134		)
Interest expense-net	(29		)	(33		)	(92		)	(102		)
Pension and other postretirement benefits expense	(35		)	(30		)	(105		)	(91		)
Other corporate expense-net	(56		)	(57		)	(155		)	(142		)
Income before income taxes	432			305			1,163			743
Income tax expense	65			36			172			89
Net income	367			269			991			654
Less net income for noncontrolling interests	(2		)	(1		)	(3		)	(5		)
Net income attributable to Eaton common shareholders	$	365		$	268		$	988		$	649

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Goodwill

3 Months Ended

Sep. 30, 2011

Goodwill and Intangible Assets Disclosure [Abstract]

GOODWILL

GOODWILL

A summary of goodwill follows:

	September 30, 2011		December 31, 2010
Electrical Americas	$	2,059	$	2,061
Electrical Rest of World	1,001		985
Hydraulics	1,111		1,007
Aerospace	1,041		1,037
Truck	150		151
Automotive	209		213
Total goodwill	$	5,571	$	5,454

The increase in goodwill in 2011 was primarily due to businesses acquired during 2011, partially offset by the impact of foreign currency translation. For additional information regarding acquired businesses, see Note 2.

Assessing Goodwill for Impairment

In September 2011, the Financial Accounting Standards Board issued a revised standard on testing goodwill for impairment. The revised standard allows an entity to first assess the carrying value of goodwill based on qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than the reporting unit's carrying amount. If, based on a qualitative assessment, the fair value of a reporting unit is more likely than not lower than its carrying value, the entity must then test goodwill from a quantitative perspective similar to prior guidance. This standard is effective for 2012, with early adoption permitted. Eaton elected to adopt this standard for its 2011 annual impairment testing.

Goodwill is tested for impairment annually as of July 1 at the reporting unit level, which is equivalent to Eaton's operating segments. As disclosed in Eaton's 2010 Form 10-K, impairment testing for 2010 was performed from a quantitative perspective using a discounted cash flow model to estimate the fair value of each operating segment. For 2010, the fair value of Eaton's reporting units substantially exceeded the respective carrying values.

Impairment testing for 2011 was performed by assessing certain qualitative trends and factors, including projected market outlook and growth rates, forecasted and actual sales and operating profit margins, discount rates, industry data and other relevant qualitative factors. These trends and factors were compared to and based on the assumptions used in the quantitative assessment performed in 2010. For 2011, it is more likely than not that the fair value of Eaton's reporting units continues to substantially exceed the respective carrying amount.

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Income Taxes (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Income Tax Contingency [Line Items]
Effective tax rate	15.20%	11.70%	14.80%	12.00%

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Fair Value Measurements

9 Months Ended

Sep. 30, 2011

Fair Value Measurements [Abstract]

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

Fair value is measured based on an exit price, representing the amount that would be received to sell an asset or paid to satisfy a liability in an orderly transaction between market participants. Fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, a fair value hierarchy is established, which categorizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

A summary of financial instruments recognized at fair value, and the fair value measurements used, follows:

	Total		Quoted prices in active markets for identical assets (Level 1)		Other observable inputs (Level 2)		Unobservable inputs (Level 3)
September 30, 2011
Cash	$	278	$	278	$	—	$	—
Short-term investments	536		536		—		—
Net derivative contracts	25		—		25		—
Long-term debt converted to floating interest rates by    interest rate swaps	67		—		67		—
December 31, 2010
Cash	$	333	$	333	$	—	$	—
Short-term investments	838		838		—		—
Net derivative contracts	69		—		69		—
Long-term debt converted to floating interest rates by    interest rate swaps	42		—		42		—

Eaton values its financial instruments using an industry standard market approach, in which prices and other relevant information is generated by market transactions involving identical or comparable assets or liabilities. No financial instruments were recognized using unobservable inputs.

Other Fair Value Measurements

Long-term debt and the current portion of long-term debt had a carrying value of $3,689 and fair value of $4,324 at September 30, 2011 compared to $3,386 and $3,787, respectively, at December 31, 2010.

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Acquisition Integration and Restructuring Charges (Tables)

9 Months Ended

Sep. 30, 2011

Acquisition Integration and Restructuring Charges (Tables) [Abstract]

Acquisition Integration Charges

Eaton incurs charges related to the integration of acquired businesses. A summary of these charges follows:

	Three months ended September 30				Nine months ended September 30
	2011		2010		2011		2010
Business segment
Electrical Americas	$	3	$	—	$	7	$	2
Electrical Rest of World	—		6		1		20
Hydraulics	1		—		1		—
Aerospace	—		1		—		3
Total integration charges before income taxes	$	4	$	7	$	9	$	25
After-tax integration charges	$	2	$	4	$	6	$	16
Per common share	$	0.01	$	0.01	$	0.02	$	0.05

Summary of Acquisition Integration, Workforce Reduction & Plant Closing Liabilities

The following table summarizes the liabilities related to acquisition integration, plant closing charges, and other workforce reduction actions:

	Workforce reductions					Plant closing and other
	Employees		Dollars						Total
Balance at January 1, 2011	327		$	11		$	5		$	16
Liabilities recognized	79		2			7			9
Utilized	(258	)	(7		)	(10		)	(17		)
Balance at September 30, 2011	148		$	6		$	2		$	8

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Derivative Financial Instruments and Hedging Activities

9 Months Ended

Sep. 30, 2011

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

In the normal course of business, Eaton is exposed to certain risks related to fluctuations in interest rates, foreign currency exchange rates and commodity prices. The Company uses various derivative and non-derivative financial instruments, primarily interest rate swaps, foreign currency forward exchange contracts, foreign currency swaps and, to a lesser extent, commodity contracts, to manage risks from these market fluctuations. The instruments used by Eaton are straightforward, non-leveraged instruments. The counterparties to these instruments are financial institutions with strong credit ratings. Eaton maintains control over the size of positions entered into with any one counterparty and regularly monitors the credit rating of these institutions. Such instruments are not purchased and sold for trading purposes.

Derivative financial instruments are accounted for at fair value and recognized as assets or liabilities in the Condensed Consolidated Balance Sheets. Accounting for the gain or loss resulting from the change in the fair value of the derivative financial instrument depends on whether it has been designated, and is effective, as part of a hedging relationship and, if so, as to the nature of the hedging activity. Eaton formally documents all relationships between derivative financial instruments accounted for as hedges and the hedged item, as well as its risk-management objective and strategy for undertaking the hedge transaction. This process includes linking all derivative financial instruments to a recognized asset or liability, specific firm commitment, forecasted transaction, or net investment in a foreign operation. These financial instruments can be designated as:

• Hedges of the change in the fair value of a recognized fixed-rate asset or liability, or the firm commitment to acquire such an asset or liability (a fair value hedge); for these hedges, the gain or loss from the derivative financial instrument, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk, are recognized in income during the period of change in fair value.

• Hedges of the variable cash flows of a recognized variable-rate asset or liability, or the forecasted acquisition of such an asset or liability (a cash flow hedge); for these hedges, the effective portion of the gain or loss from the derivative financial instrument is recognized in Accumulated other comprehensive income (loss) and reclassified to income in the same period when the gain or loss on the hedged item is included in income.

• Hedges of the foreign currency exposure related to a net investment in a foreign operation (a net investment hedge); for these hedges, the effective portion of the gain or loss from the derivative financial instrument is recognized in Accumulated other comprehensive income (loss) and reclassified to income in the same period when the gain or loss related to the net investment in the foreign operation is included in income.

The gain or loss from a derivative financial instrument designated as a hedge that is effective is classified in the same line of the Consolidated Statements of Income as the offsetting loss or gain on the hedged item. The change in fair value of a derivative financial instrument that is not effective as a hedge is immediately recognized in income.

For derivatives that are not designated as a hedge, any gain or loss is immediately recognized in income. The majority of derivatives used in this manner relate to risks resulting from assets or liabilities denominated in a foreign currency and certain commodity contracts that arise in the normal course of business. During the third quarter and first nine months of 2011, Eaton incurred losses associated with commodity hedge contracts of $23 and $19, respectively. These losses were incurred due to significant declines in metal prices during primarily the last two weeks in September. Gains and losses associated with commodity hedge contracts are reported in Cost of products sold.

Derivative Financial Statement Impacts

The fair value of derivative financial instruments recognized in the Condensed Consolidated Balance Sheets follows:

	Notional amount		Other  current assets		Other long-term assets		Other current liabilities		Type of hedge	Term
September 30, 2011
Derivatives designated as hedges
Fixed-to-floating interest rate swaps	$	540	$	—	$	67	$	—	Fair value	2 to 23 years
Foreign currency exchange contracts	331		5		—		12		Cash flow	12 to 36 months
Commodity contracts	50		—		—		12		Cash flow	12 months
Total			$	5	$	67	$	24
Derivatives not designated as hedges
Foreign currency exchange contracts	$	2,845	$	24			$	25		12 months
Commodity contracts	114		—				22			12 months
Total			$	24			$	47
December 31, 2010
Derivatives designated as hedges
Fixed-to-floating interest rate swaps	$	540	$	—	$	42	$	—	Fair value	2 to 23 years
Foreign currency exchange contracts	227		4		—		5		Cash flow	12 to 36 months
Commodity contracts	39		8		—		—		Cash flow	12 months
Cross currency swaps	75		2		—		—		Net investment	12 months
Total			$	14	$	42	$	5
Derivatives not designated as hedges
Foreign currency exchange contracts	$	2,777	$	20			$	19		12 months
Commodity contracts	102		17				—			12 months
Total			$	37			$	19

The foreign currency exchange contracts shown in the table above as derivatives not designated as hedges are primarily contracts entered into to manage foreign currency volatility or exposure on intercompany sales and loans. While Eaton does not elect hedge accounting treatment for these derivatives, Eaton targets managing 100% of the intercompany balance sheet exposure to minimize the effect of currency volatility related to the movement of goods and services in the normal course of its operations. This activity represents the great majority of these foreign currency exchange contracts.

Amounts recognized in Accumulated other comprehensive income (loss) follow:

	Three months ended September 30
	2011						2010
	Gain (loss) recognized in Accumulated other comprehensive income (loss)			Gain (loss) reclassified from Accumulated other comprehensive income (loss)			Gain (loss) recognized in Accumulated other comprehensive income (loss)			Gain (loss) reclassified from Accumulated other comprehensive income (loss)
Derivatives designated as cash flow hedges
Foreign currency exchange contracts	$	(7	)	$	(1	)	$	3		$	1
Commodity contracts	(12		)	2			5			—
Derivatives designated as net investment hedges
Cross currency swaps	—			—			(16		)	—
Total	$	(19	)	$	1		$	(8	)	$	1

	Nine months ended September 30
	2011						2010
	Gain (loss) recognized in Accumulated other comprehensive income (loss)			Gain (loss) reclassified from Accumulated other comprehensive income (loss)			Gain (loss) recognized in Accumulated other comprehensive income (loss)			Gain (loss) reclassified from Accumulated other comprehensive income (loss)
Derivatives designated as cash flow hedges
Foreign currency exchange contracts	$	(6	)	$	(1	)	$	2		$	1
Commodity contracts	(13		)	7			2			5
Derivatives designated as net investment hedges
Cross currency swaps	1			—			(12		)	—
Total	$	(18	)	$	6		$	(8	)	$	6

Gains and losses reclassified from Accumulated other comprehensive income (loss) to the Consolidated Statements of Income were recognized in Cost of products sold.

Amounts recognized in net income follow:

	Three months ended September 30						Nine months ended September 30
	2011			2010			2011			2010
Derivatives designated as fair value hedges
Fixed-to-floating interest rate swaps	$	23		$	13		$	25		$	49
Related long-term debt converted to floating interest    rates by interest rate swaps	(23		)	(13		)	(25		)	(49		)
	$	—		$	—		$	—		$	—

Gains and losses described above were recognized in Interest expense.

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Debt (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Sep. 30, 2011	Sep. 01, 2011	Jun. 16, 2011
Debt Instrument [Line Items]
Issuance of floating rate senior unsecured notes			$ 300
Debt instrument, basis spread on variable rate	.33%
Percentage of principal company must offer to purchase all or part of the note if certain change of control events occur			101.00%
Long-term line of credit	500
Revolving credit due to expire		500
Line of credit facility, maximum borrowing capacity	$ 1,500

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Equity

9 Months Ended

Sep. 30, 2011

Stockholders' Equity Note [Abstract]

EQUITY

EQUITY

Eaton has a common share repurchase program (2007 Program) that authorizes the repurchase of 10 million common shares. During the first nine months of 2011, 8.3 million common shares were repurchased under the 2007 Program in the open market at a total cost of $343. On September 28, 2011, Eaton's Board of Directors approved a common share repurchase program (2011 Program) which replaced the 2007 Program and authorizes the purchase of up to 20 million shares, not to exceed an aggregate purchase price of $1.25 billion. The common shares are expected to be repurchased over time, depending on market conditions, the market price of common shares, capital levels and other considerations. No common shares were repurchased in the open market in the first nine months of 2010.

The changes in Shareholders’ equity follow:

	Eaton shareholders’ equity			Noncontrolling interests			Total equity
Balance at December 31, 2010	$	7,362		$	41		$	7,403
Net income	988			3			991
Other comprehensive loss	(67		)	—			(67		)
Total comprehensive income	921			3			924
Cash dividends paid	(348		)	(7		)	(355		)
Issuance of shares under equity-based compensation plans-net	131			—			131
Business divestiture	—			(14		)	(14		)
Repurchase of shares	(343		)	—			(343		)
Balance at September 30, 2011	$	7,723		$	23		$	7,746

Comprehensive (Loss) Income

Comprehensive (loss) income consists primarily of net income, foreign currency translation and related hedging instruments, changes in unrecognized costs of pension and other postretirement benefits, and changes in the effective portion of open derivative contracts designated as cash flow hedges. The following table summarizes the components of Comprehensive (loss) income:

	Three months ended September 30						Nine months ended September 30
	2011			2010			2011			2010
Net income	$	367		$	269		$	991		$	654
Foreign currency translation and related hedging instruments	(449		)	419			(111		)	(64		)
Pensions and other postretirement benefits	34			4			69			51
Cash flow hedges	(20		)	7			(25		)	(2		)
Other comprehensive (loss) income	(435		)	430			(67		)	(15		)
Total comprehensive (loss) income	(68		)	699			924			639
Adjustment for comprehensive income attributable to noncontrolling interests	(2		)	(1		)	(3		)	(5		)
Total Comprehensive (loss) income attributable to Eaton common shareholders	$	(70	)	$	698		$	921		$	634

Net Income per Common Share

A summary of the calculation of net income per common share attributable to common shareholders follows:

	Three months ended September 30				Nine months ended September 30
(Shares in millions)	2011		2010		2011		2010
Net income attributable to Eaton common shareholders	$	365	$	268	$	988	$	649
Weighted-average number of common shares outstanding-diluted	341.9		340.6		344.4		340.1
Less dilutive effect of stock options and restricted stock awards	3.8		5.4		4.7		5.4
Weighted-average number of common shares outstanding-basic	338.1		335.2		339.7		334.7
Net income per common share
Diluted	$	1.07	$	0.78	$	2.86	$	1.90
Basic	1.07		0.80		2.90		1.93

For the third quarter and first nine months of 2011, 2.7 million and 1.1 million stock options, respectively, were excluded from the calculation of diluted net income per common share because the exercise price of the options exceeded the average market price of the common shares during the period and their effect, accordingly, would have been antidilutive. For the third quarter and first nine months of 2010, 7.0 million and 8.8 million stock options, respectively, were excluded from the calculation of diluted net income per common share because the exercise price of the options exceeded the average market price of the common shares during the period and their effect, accordingly, would have been antidilutive

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Acquisitions of Businesses

9 Months Ended

Sep. 30, 2011

Business Combinations [Abstract]

ACQUISITIONS OF BUSINESSES

ACQUISITIONS OF BUSINESSES

In 2011 and 2010, Eaton acquired businesses and entered into a joint venture in separate transactions. The Consolidated Statements of Income include the results of these businesses from the dates of the transactions or formation. These transactions are summarized below:

Acquired businesses and joint venture	Date of transaction	Business segment	Annual sales
IE Power, Inc.	August 31, 2011	Electrical Americas	$5 for 2010
A Canada-based provider of high power inverters for a variety of mission-critical applications including solar, wind and battery energy storage.
E. Begerow GmbH & Co. KG	August 15, 2011	Hydraulics	$84 for 2010
A Germany-based system provider of advanced liquid filtration solutions. This business develops and produces technologically innovative filter media and filtration systems for food and beverage, chemical, pharmaceutical and industrial applications.
ACTOM Low Voltage	June 30, 2011	Electrical Rest of World	$65 for the year ended May 31, 2011
A South Africa manufacturer and supplier of motor control components, engineered electrical distribution systems and uninterruptible power supply (UPS) systems.
C.I. ESI de Colombia S.A.	June 2, 2011	Electrical Americas	$8 for 2010
A Colombia-based distributor of industrial electrical equipment and engineering services in the Colombian market, focused on oil and gas, mining, and industrial and commercial construction.
Internormen Technology Group	May 12, 2011	Hydraulics	$55 for 2010
A Germany-based manufacturer of hydraulic filtration and instrumentation with sales and distribution subsidiaries in China, the United States, India and Brazil.
Eaton-SAMC (Shanghai) Aircraft Conveyance System Manufacturing Co., Ltd.	March 8, 2011	Aerospace	New joint venture
A 49%-owned joint venture in China focusing on the design, development, manufacturing and support of fuel and hydraulic conveyance systems for the global civil aviation market.

Acquired businesses and joint venture	Date of transaction	Business segment	Annual sales
Tuthill Coupling Group	January 1, 2011	Hydraulics	$35 for the year ended November 30, 2010
A United States and France-based manufacturer of pneumatic and hydraulic quick coupling solutions and leak-free connectors used in industrial, construction, mining, defense, energy and power applications.
Chloride Phoenixtec Electronics	October 12, 2010	Electrical Rest of World	$25 for the year ended September 30, 2010
A China manufacturer of UPS systems. Eaton acquired the remaining shares to increase its ownership from 50% to 100%.
CopperLogic, Inc.	October 1, 2010	Electrical Americas	$35 for the year ended September 30, 2010
A United States-based manufacturer of electrical and electromechanical systems.
Wright Line Holding, Inc.	August 25, 2010	Electrical Americas	$101 for the year ended June 30, 2010
A United States provider of customized enclosures, rack systems, and air-flow management systems to store, power, and secure mission-critical IT data center electronics.
EMC Engineers, Inc.	July 15, 2010	Electrical Americas	$24 for 2009
A United States energy engineering and energy services company that delivers energy efficiency solutions for a wide range of governmental, educational, commercial and industrial facilities.

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Debt

9 Months Ended

Sep. 30, 2011

Debt Disclosure [Abstract]

DEBT

DEBT

On June 16, 2011, Eaton issued $300 floating rate senior unsecured Notes due June 16, 2014 (the Notes). The Notes bear interest annually at a floating rate, reset quarterly, equal to the three-month LIBOR rate for U.S. dollars plus .33% (33 basis points). Interest is payable quarterly in arrears. The Notes contain a provision which requires the Company to make an offer to purchase all or any part of the Notes at a purchase price of 101% of the principal amount plus accrued and unpaid interest if certain change of control events occur. The Notes are subject to customary non-financial covenants.

Eaton refinanced a $500, five-year revolving credit facility in June 2011 (the Facility). This refinancing maintains long-term revolving credit facilities at a total of $1.5 billion. The revolving credit facility is used to support commercial paper borrowings. The Facility will expire June 16, 2016, replacing a $500 facility that had been set to expire on September 1, 2011.

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Amounts Recognized in Accumulated Other Comprehensive Income (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Fair Value Hedging [Member] | Interest Rate Contract [Member] | Interest Expense [Member]
Amounts recognized in net income
Gain (loss) recognized in net income	$ 23	$ 13	$ 25	$ 49
Cash Flow Hedging [Member] | Foreign Exchange Contract [Member] | Cost of Sales [Member]
Amounts recognized in accumulated other comprehensive income
Gain (loss) recognized in accumulated other comprehensive loss	(7)	3	(6)	2
Gain (loss) reclassified from accumulated other comprehensive loss	(1)	1	(1)	1
Cash Flow Hedging [Member] | Commodity Contract [Member] | Cost of Sales [Member]
Amounts recognized in accumulated other comprehensive income
Gain (loss) recognized in accumulated other comprehensive loss	(12)	5	(13)	2
Gain (loss) reclassified from accumulated other comprehensive loss	2	0	7	5
Net Investment Hedging [Member] | Cross Currency Interest Rate Contract [Member] | Cost of Sales [Member]
Amounts recognized in accumulated other comprehensive income
Gain (loss) recognized in accumulated other comprehensive loss	0	(16)	1	(12)
Gain (loss) reclassified from accumulated other comprehensive loss	0	0	0	0
Fair Value Hedging [Member] | Related long term debt converted to floating interest rates by interest rate swaps [Member] | Interest Expense [Member]
Amounts recognized in net income
Gain (loss) recognized in net income	(23)	(13)	(25)	(49)
Net Investment Hedging [Member] | Cost of Sales [Member]
Amounts recognized in accumulated other comprehensive income
Gain (loss) recognized in accumulated other comprehensive loss	(19)	(8)	(18)	(8)
Gain (loss) reclassified from accumulated other comprehensive loss	1	1	6	6
Fair Value Hedging [Member] | Interest Expense [Member]
Amounts recognized in net income
Gain (loss) recognized in net income	$ 0	$ 0	$ 0	$ 0

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Goodwill (Details) (USD $) In Millions	Sep. 30, 2011	Dec. 31, 2010
Goodwill [Line Items]
Goodwill	$ 5,571	$ 5,454
Electrical Americas [Member]
Goodwill [Line Items]
Goodwill	2,059	2,061
Electrical Rest of World [Member]
Goodwill [Line Items]
Goodwill	1,001	985
Hydraulics [Member]
Goodwill [Line Items]
Goodwill	1,111	1,007
Aerospace [Member]
Goodwill [Line Items]
Goodwill	1,041	1,037
Truck [Member]
Goodwill [Line Items]
Goodwill	150	151
Automotive [Member]
Goodwill [Line Items]
Goodwill	$ 209	$ 213

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Retirement Benefit Plans

9 Months Ended

Sep. 30, 2011

Compensation and Retirement Disclosure [Abstract]

RETIREMENT BENEFIT PLANS

RETIREMENT BENEFITS PLANS

The components of retirement benefits expense follow:

	Three months ended September 30
	United States pension benefit expense						Non-United States pension benefit expense						Other postretirement benefits expense
	2011			2010			2011			2010			2011		2010
Service cost	$	23		$	20		$	12		$	10		$	4	$	4
Interest cost	33			33			19			17			10		11
Expected return on plan assets	(41		)	(39		)	(17		)	(15		)	—		—
Amortization	19			13			3			2			3		3
	34			27			17			14			17		18
Curtailment loss	—			—			1			—			—		—
Settlement loss	5			4			—			—			—		—
Total expense	$	39		$	31		$	18		$	14		$	17	$	18

	Nine months ended September 30
	United States pension benefit expense						Non-United States pension benefit expense						Other postretirement benefits expense
	2011			2010			2011			2010			2011		2010
Service cost	$	69		$	60		$	37		$	29		$	12	$	12
Interest cost	99			99			59			51			30		34
Expected return on plan assets	(123		)	(117		)	(53		)	(46		)	—		—
Amortization	57			39			9			6			9		8
	102			81			52			40			51		54
Curtailment loss	—			—			1			—			—		—
Settlement loss	12			13			3			—			—		—
Total expense	$	114		$	94		$	56		$	40		$	51	$	54

During the second quarter of 2011, Eaton contributed $100 into a Voluntary Employee Benefit Association trust for the pre-funding of postretirement Medicare Part D prescription drug benefits for the Company's eligible United States employees and retirees. The contribution was made as part of the Company's strategy to improve the funding of its pension and postretirement obligations. As part of that strategy, in the first quarter of 2011, the Company contributed $250 to its United States qualified pension plans.

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Business Segment Information (Details) (USD $) In Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Business Segment Information
Net sales	$ 4,123	$ 3,571	$ 12,016	$ 10,052
Segment operating profit	599	471	1,658	1,212
Amortization of intangible assets	(47)	(46)	(143)	(134)
Interest expense-net	(29)	(33)	(92)	(102)
Pension and other postretirement benefits expense	(35)	(30)	(105)	(91)
Other corporate expense-net	(56)	(57)	(155)	(142)
Income before income taxes	432	305	1,163	743
Income tax expense	65	36	172	89
Net income	367	269	991	654
Less net income for noncontrolling interests	(2)	(1)	(3)	(5)
Net income attributable to Eaton common shareholders	365	268	988	649
Electrical Americas [Member]
Business Segment Information
Net sales	1,074	967	3,071	2,663
Segment operating profit	156	141	432	366
Electrical Rest of World [Member]
Business Segment Information
Net sales	755	707	2,285	1,980
Segment operating profit	62	81	209	183
Hydraulics [Member]
Business Segment Information
Net sales	717	583	2,130	1,641
Segment operating profit	109	76	335	207
Aerospace [Member]
Business Segment Information
Net sales	420	390	1,218	1,136
Segment operating profit	71	60	166	157
Truck [Member]
Business Segment Information
Net sales	715	534	1,964	1,479
Segment operating profit	139	74	349	179
Automotive [Member]
Business Segment Information
Net sales	442	390	1,348	1,153
Segment operating profit	$ 62	$ 39	$ 167	$ 120

XML

Acquisitions of Businesses (Details) (USD $) In Millions	12 Months Ended					6 Months Ended	12 Months Ended
	Nov. 30, 2010 IE Power, Inc. [Member] Electrical Americas [Member]	Dec. 31, 2010 E. Begerow GmbH & Co. KG [Member] Hydraulics [Member]	May 31, 2011 ACTOM Low Voltage [Member] Electrical Rest of World [Member]	Dec. 31, 2010 C.I. ESI de Colombia S.A. [Member] Electrical Americas [Member]	Dec. 31, 2010 Internormen Technology Group [Member] Hydraulics [Member]	Jun. 30, 2011 Eaton-SAMC (Shanghai) Aircraft Conveyance System Manufacturing Co., Ltd [Member] Aerospace [Member]	Nov. 30, 2010 Tuthill Coupling Group [Member] Hydraulics [Member]	Sep. 30, 2010 Chloride Phoenixtec Electronics [Member] Electrical Rest of World [Member]	Sep. 30, 2010 CopperLogic, Inc. [Member] Electrical Americas [Member]	Jun. 30, 2010 Wright Line Holding, Inc. [Member] Electrical Americas [Member]	Dec. 31, 2009 EMC Engineers, Inc. [Member] Electrical Americas [Member]
Description of annual sales from acquired entity from previous periods
Revenue reported for last annual period of acquired entity	$ 5	$ 84	$ 65	$ 8	$ 55	$ 0	$ 35	$ 25	$ 35	$ 101	$ 24

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Retirement Benefit Plans (Details) (USD $) In Millions	3 Months Ended		9 Months Ended		3 Months Ended		9 Months Ended		3 Months Ended		9 Months Ended		3 Months Ended		9 Months Ended
	Jun. 30, 2011	Mar. 31, 2011	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011 United States pension benefit expense [Member]	Sep. 30, 2010 United States pension benefit expense [Member]	Sep. 30, 2011 United States pension benefit expense [Member]	Sep. 30, 2010 United States pension benefit expense [Member]	Sep. 30, 2011 Non-United States pension benefit expense [Member]	Sep. 30, 2010 Non-United States pension benefit expense [Member]	Sep. 30, 2011 Non-United States pension benefit expense [Member]	Sep. 30, 2010 Non-United States pension benefit expense [Member]	Sep. 30, 2011 Other postretirement benefit expense [Member]	Sep. 30, 2010 Other postretirement benefit expense [Member]	Sep. 30, 2011 Other postretirement benefit expense [Member]	Sep. 30, 2010 Other postretirement benefit expense [Member]
Defined Benefit Plan Disclosure [Line Items]
Funding postretirement Medicare Part D prescription drug benefits	$ 100
Pension contributions		250	341	378
Retirement benefit plans expense
Service cost					23	20	69	60	12	10	37	29	4	4	12	12
Interest cost					33	33	99	99	19	17	59	51	10	11	30	34
Expected return on plan assets					(41)	(39)	(123)	(117)	(17)	(15)	(53)	(46)	0	0	0	0
Amortization					19	13	57	39	3	2	9	6	3	3	9	8
Total benefit plans					34	27	102	81	17	14	52	40	17	18	51	54
Curtailment loss					0	0	0	0	1	0	1	0	0	0	0	0
Settlement loss					5	4	12	13	0	0	3	0	0	0	0	0
Total expense					$ 39	$ 31	$ 114	$ 94	$ 18	$ 14	$ 56	$ 40	$ 17	$ 18	$ 51	$ 54

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Inventory (Details) (USD $) In Millions	Sep. 30, 2011	Dec. 31, 2010
Inventory Disclosure [Abstract]
Raw materials	$ 747	$ 651
Work-in-process	243	229
Finished goods	907	800
Inventories at FIFO	1,897	1,680
Excess of FIFO over LIFO cost	(128)	(116)
Total inventory	$ 1,769	$ 1,564

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Acquisition Integration and Restructuring Charges Workforce Reduction (Details) (USD $) In Millions, unless otherwise specified	9 Months Ended
	Sep. 30, 2011
Restructuring Cost and Reserve [Line Items]
Beginning Balance	$ 16
Liabilities recognized	9
Utiliized	(17)
Ending Balance	8
Employee Severance [Member]
Restructuring Cost and Reserve [Line Items]
Beginning Balance, employees	327
Liabilities recognized employees	79
Utilized employees	(258)
Ending Balance, employees	148
Beginning Balance	11
Liabilities recognized	2
Utiliized	(7)
Ending Balance	6
Plant Closing [Member]
Restructuring Cost and Reserve [Line Items]
Beginning Balance	5
Liabilities recognized	7
Utiliized	(10)
Ending Balance	$ 2

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Acquisitions of Businesses (Tables)

9 Months Ended

Sep. 30, 2011

Business Combinations [Abstract]

Description of annual sales from acquired entity from previous periods

In 2011 and 2010, Eaton acquired businesses and entered into a joint venture in separate transactions. The Consolidated Statements of Income include the results of these businesses from the dates of the transactions or formation. These transactions are summarized below:

Acquired businesses and joint venture	Date of transaction	Business segment	Annual sales
IE Power, Inc.	August 31, 2011	Electrical Americas	$5 for 2010
A Canada-based provider of high power inverters for a variety of mission-critical applications including solar, wind and battery energy storage.
E. Begerow GmbH & Co. KG	August 15, 2011	Hydraulics	$84 for 2010
A Germany-based system provider of advanced liquid filtration solutions. This business develops and produces technologically innovative filter media and filtration systems for food and beverage, chemical, pharmaceutical and industrial applications.
ACTOM Low Voltage	June 30, 2011	Electrical Rest of World	$65 for the year ended May 31, 2011
A South Africa manufacturer and supplier of motor control components, engineered electrical distribution systems and uninterruptible power supply (UPS) systems.
C.I. ESI de Colombia S.A.	June 2, 2011	Electrical Americas	$8 for 2010
A Colombia-based distributor of industrial electrical equipment and engineering services in the Colombian market, focused on oil and gas, mining, and industrial and commercial construction.
Internormen Technology Group	May 12, 2011	Hydraulics	$55 for 2010
A Germany-based manufacturer of hydraulic filtration and instrumentation with sales and distribution subsidiaries in China, the United States, India and Brazil.
Eaton-SAMC (Shanghai) Aircraft Conveyance System Manufacturing Co., Ltd.	March 8, 2011	Aerospace	New joint venture
A 49%-owned joint venture in China focusing on the design, development, manufacturing and support of fuel and hydraulic conveyance systems for the global civil aviation market.

Acquired businesses and joint venture	Date of transaction	Business segment	Annual sales
Tuthill Coupling Group	January 1, 2011	Hydraulics	$35 for the year ended November 30, 2010
A United States and France-based manufacturer of pneumatic and hydraulic quick coupling solutions and leak-free connectors used in industrial, construction, mining, defense, energy and power applications.
Chloride Phoenixtec Electronics	October 12, 2010	Electrical Rest of World	$25 for the year ended September 30, 2010
A China manufacturer of UPS systems. Eaton acquired the remaining shares to increase its ownership from 50% to 100%.
CopperLogic, Inc.	October 1, 2010	Electrical Americas	$35 for the year ended September 30, 2010
A United States-based manufacturer of electrical and electromechanical systems.
Wright Line Holding, Inc.	August 25, 2010	Electrical Americas	$101 for the year ended June 30, 2010
A United States provider of customized enclosures, rack systems, and air-flow management systems to store, power, and secure mission-critical IT data center electronics.
EMC Engineers, Inc.	July 15, 2010	Electrical Americas	$24 for 2009
A United States energy engineering and energy services company that delivers energy efficiency solutions for a wide range of governmental, educational, commercial and industrial facilities.

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Legal Contingencies

9 Months Ended

Sep. 30, 2011

Commitments and Contingencies Disclosure [Abstract]

LEGAL CONTINGENCIES

LEGAL CONTINGENCIES

In December 2010, a Brazilian court held that a judgment obtained by a Brazilian company, Raysul, against another Brazilian company, Saturnia, which was sold by Eaton in 2006, could be enforced against Eaton Ltda. This judgment is based on an alleged violation of an agency agreement between Raysul and Saturnia. At September 30, 2011, the Company has a total accrual of 67 Brazilian Reais related to this matter, comprised of 60 Brazilian Reais recognized in the fourth quarter of 2010 ($32 based on current exchange rates) with an additional 7 Brazilian Reais recognized in 2011 ($4 based on current exchange rates) due to subsequent accruals for interest and inflation. The Company expects that any sum it may be required to pay in connection with this matter will not exceed the amount of the recorded liability. In 2010, Eaton filed motions for clarification with the Brazilian court of appeals which were denied on April 6, 2011. Eaton Holding and Eaton Ltda. filed appeals on various issues to the Superior Court of Justice in Brasilia. On September 27, 2011, the Superior Court of Justice accepted two of the appeals and will hear those appeals in due course. Another appeal remains pending in the lower appellate court.

On October 5, 2006, ZF Meritor LLC and Meritor Transmission Corporation (collectively, Meritor) filed an action against Eaton in the United States District Court for Delaware. The action sought damages, which would be trebled under United States antitrust laws, as well as injunctive relief and costs. The suit alleged that Eaton engaged in anti-competitive conduct against Meritor in the sale of heavy-duty truck transmissions in North America. Following a four week trial on liability only, on October 8, 2009, the jury returned a verdict in favor of Meritor. Eaton firmly believes that it competes fairly and honestly for business in the marketplace, and that at no time did it act in an anti-competitive manner. During an earlier stage in the case, the judge concluded that damage estimates contained in a report filed by Meritor were not based on reliable data and the report was specifically excluded from the case. On November 3, 2009, Eaton filed a motion for judgment as a matter of law and to set aside the verdict. That motion was denied on March 10, 2011. On March 14, 2011, Eaton filed a motion for entry of final judgment of liability, zero damages and no injunctive relief. That motion was denied on June 9, 2011. On August 19, 2011, the Court entered final judgment of liability but awarded zero damages to plaintiffs. The Court also entered an injunction prohibiting Eaton from offering rebates or other incentives based on purchasing targets but stayed the injunction pending appeal. Eaton has appealed the liability finding and the injunction to the Third Circuit Court of Appeals. Meritor has cross-appealed the finding of zero damages.

Eaton is subject to a broad range of claims, administrative and legal proceedings such as lawsuits that relate to contractual allegations, tax audits, patent infringement, personal injuries (including asbestos claims), antitrust matters and employment-related matters. Although it is not possible to predict with certainty the outcome or cost of these matters, the Company believes they will not have a material adverse effect on the consolidated financial statements.

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Retirement Benefit Plans (Tables)

9 Months Ended

Sep. 30, 2011

Compensation and Retirement Disclosure [Abstract]

Retirement benefit plans expense

The components of retirement benefits expense follow:

	Three months ended September 30
	United States pension benefit expense						Non-United States pension benefit expense						Other postretirement benefits expense
	2011			2010			2011			2010			2011		2010
Service cost	$	23		$	20		$	12		$	10		$	4	$	4
Interest cost	33			33			19			17			10		11
Expected return on plan assets	(41		)	(39		)	(17		)	(15		)	—		—
Amortization	19			13			3			2			3		3
	34			27			17			14			17		18
Curtailment loss	—			—			1			—			—		—
Settlement loss	5			4			—			—			—		—
Total expense	$	39		$	31		$	18		$	14		$	17	$	18

	Nine months ended September 30
	United States pension benefit expense						Non-United States pension benefit expense						Other postretirement benefits expense
	2011			2010			2011			2010			2011		2010
Service cost	$	69		$	60		$	37		$	29		$	12	$	12
Interest cost	99			99			59			51			30		34
Expected return on plan assets	(123		)	(117		)	(53		)	(46		)	—		—
Amortization	57			39			9			6			9		8
	102			81			52			40			51		54
Curtailment loss	—			—			1			—			—		—
Settlement loss	12			13			3			—			—		—
Total expense	$	114		$	94		$	56		$	40		$	51	$	54

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Derivative Financial Instruments and Hedging Activities (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended	9 Months Ended
	Sep. 30, 2011	Sep. 30, 2011	Sep. 30, 2011 Fair Value Hedging [Member] Fixed-to-floating interest rate swaps (fair value hedges) [Member]	Dec. 31, 2010 Fair Value Hedging [Member] Fixed-to-floating interest rate swaps (fair value hedges) [Member]	Sep. 30, 2011 Fair Value Hedging [Member] Fixed-to-floating interest rate swaps (fair value hedges) [Member] Other current assets [Member]	Dec. 31, 2010 Fair Value Hedging [Member] Fixed-to-floating interest rate swaps (fair value hedges) [Member] Other current assets [Member]	Sep. 30, 2011 Fair Value Hedging [Member] Fixed-to-floating interest rate swaps (fair value hedges) [Member] Other long-term assets [Member]	Dec. 31, 2010 Fair Value Hedging [Member] Fixed-to-floating interest rate swaps (fair value hedges) [Member] Other long-term assets [Member]	Sep. 30, 2011 Fair Value Hedging [Member] Fixed-to-floating interest rate swaps (fair value hedges) [Member] Other current liabilities [Member]	Dec. 31, 2010 Fair Value Hedging [Member] Fixed-to-floating interest rate swaps (fair value hedges) [Member] Other current liabilities [Member]	Sep. 30, 2011 Cash Flow Hedging [Member] Foreign currency exchange contracts (cash flow hedges) [Member]	Dec. 31, 2010 Cash Flow Hedging [Member] Foreign currency exchange contracts (cash flow hedges) [Member]	Sep. 30, 2011 Cash Flow Hedging [Member] Foreign currency exchange contracts (cash flow hedges) [Member] Other current assets [Member]	Dec. 31, 2010 Cash Flow Hedging [Member] Foreign currency exchange contracts (cash flow hedges) [Member] Other current assets [Member]	Sep. 30, 2011 Cash Flow Hedging [Member] Foreign currency exchange contracts (cash flow hedges) [Member] Other long-term assets [Member]	Dec. 31, 2010 Cash Flow Hedging [Member] Foreign currency exchange contracts (cash flow hedges) [Member] Other long-term assets [Member]	Sep. 30, 2011 Cash Flow Hedging [Member] Foreign currency exchange contracts (cash flow hedges) [Member] Other current liabilities [Member]	Dec. 31, 2010 Cash Flow Hedging [Member] Foreign currency exchange contracts (cash flow hedges) [Member] Other current liabilities [Member]	Sep. 30, 2011 Cash Flow Hedging [Member] Commodity contracts (cash flow hedges) [Member]	Dec. 31, 2010 Cash Flow Hedging [Member] Commodity contracts (cash flow hedges) [Member]	Sep. 30, 2011 Cash Flow Hedging [Member] Commodity contracts (cash flow hedges) [Member] Other current assets [Member]	Dec. 31, 2010 Cash Flow Hedging [Member] Commodity contracts (cash flow hedges) [Member] Other current assets [Member]	Sep. 30, 2011 Cash Flow Hedging [Member] Commodity contracts (cash flow hedges) [Member] Other long-term assets [Member]	Dec. 31, 2010 Cash Flow Hedging [Member] Commodity contracts (cash flow hedges) [Member] Other long-term assets [Member]	Sep. 30, 2011 Cash Flow Hedging [Member] Commodity contracts (cash flow hedges) [Member] Other current liabilities [Member]	Dec. 31, 2010 Cash Flow Hedging [Member] Commodity contracts (cash flow hedges) [Member] Other current liabilities [Member]	Dec. 31, 2010 Net Investment Hedging [Member] Cross currency swaps (net investment hedges) [Member]	Dec. 31, 2010 Net Investment Hedging [Member] Cross currency swaps (net investment hedges) [Member] Other current assets [Member]	Dec. 31, 2010 Net Investment Hedging [Member] Cross currency swaps (net investment hedges) [Member] Other long-term assets [Member]	Dec. 31, 2010 Net Investment Hedging [Member] Cross currency swaps (net investment hedges) [Member] Other current liabilities [Member]	Sep. 30, 2011 Foreign currency exchange contracts (cash flow hedges) [Member]	Dec. 31, 2010 Foreign currency exchange contracts (cash flow hedges) [Member]	Sep. 30, 2011 Foreign currency exchange contracts (cash flow hedges) [Member] Other current assets [Member]	Dec. 31, 2010 Foreign currency exchange contracts (cash flow hedges) [Member] Other current assets [Member]	Sep. 30, 2011 Foreign currency exchange contracts (cash flow hedges) [Member] Other current liabilities [Member]	Dec. 31, 2010 Foreign currency exchange contracts (cash flow hedges) [Member] Other current liabilities [Member]	Sep. 30, 2011 Commodity contracts (cash flow hedges) [Member]	Dec. 31, 2010 Commodity contracts (cash flow hedges) [Member]	Sep. 30, 2011 Commodity contracts (cash flow hedges) [Member] Other current assets [Member]	Dec. 31, 2010 Commodity contracts (cash flow hedges) [Member] Other current assets [Member]	Sep. 30, 2011 Commodity contracts (cash flow hedges) [Member] Other current liabilities [Member]	Dec. 31, 2010 Commodity contracts (cash flow hedges) [Member] Other current liabilities [Member]	Sep. 30, 2011 Other current assets [Member]	Dec. 31, 2010 Other current assets [Member]	Sep. 30, 2011 Other long-term assets [Member]	Dec. 31, 2010 Other long-term assets [Member]	Sep. 30, 2011 Other current liabilities [Member]	Dec. 31, 2010 Other current liabilities [Member]
Derivatives, Fair Value [Line Items]
Percentage of intercompany balance sheet exposure		100.00%
Derivatives designated as hedges
Notional amount			$ 540	$ 540							$ 331	$ 227							$ 50	$ 39							$ 75
Derivative asset designated as hedging instrument					0	0	67	42					5	4	0	0					0	8	0	0				2	0														5	14	67	42
Derivative liability designated as hedging instrument									0	0							12	5							12	0				0																	24	5
Period of derivatives designated as hedges			2 to 23 years	2 to 23 years							12 to 36 months	12 to 36 months							12 months	12 months							12 months
Derivatives not designated as hedges
Notional amount																															2,845	2,777					114	102
Derivative asset designated as hedging instrument					0	0	67	42					5	4	0	0					0	8	0	0				2	0														5	14	67	42
Derivative instruments not designated as hedging instruments, asset, at fair value																																	24	20					0	17			24	37
Derivative liability designated as hedging instrument									0	0							12	5							12	0				0																	24	5
Derivative instruments not designated as hedging instruments, liability, at fair value																																			25	19					22	0					47	19
Period of derivatives not designated as hedges																															12 months	12 months					12 months	12 months
Period of derivatives designated as hedges			2 to 23 years	2 to 23 years							12 to 36 months	12 to 36 months							12 months	12 months							12 months
(Gain) loss on commodity contracts not designated as hedges classified in cost of goods sold	$ 23	$ 19

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Acquisition Integration and Restructuring Charges (Details) (USD $) In Millions, except Per Share data	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Acquisition Integration Charges
Total integration charges before income taxes	$ 4	$ 7	$ 9	$ 25
After-tax integration charges	2	4	6	16
Per common share	$ 0.01	$ 0.01	$ 0.02	$ 0.05
Electrical Americas [Member]
Acquisition Integration Charges
Total integration charges before income taxes	3	0	7	2
Electrical Rest of World [Member]
Acquisition Integration Charges
Total integration charges before income taxes	0	6	1	20
Hydraulics [Member]
Acquisition Integration Charges
Total integration charges before income taxes	1	0	1	0
Aerospace [Member]
Acquisition Integration Charges
Total integration charges before income taxes	$ 0	$ 1	$ 0	$ 3

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Basis of Presentation

9 Months Ended

Sep. 30, 2011

Organization, Consolidation and Presentation of Financial Statements [Abstract]

BASIS OF PRESENTATION

BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of Eaton Corporation (Eaton or Company) have been prepared in accordance with generally accepted accounting principles for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. However, in the opinion of management, all adjustments (consisting of normal recurring accruals) have been made that are necessary for a fair presentation of the condensed consolidated financial statements for the interim periods.

This Form 10-Q should be read in conjunction with the consolidated financial statements and related notes included in Eaton’s 2010 Form 10-K. The interim period results are not necessarily indicative of the results to be expected for the full year. Management has evaluated subsequent events through the date this Form 10-Q was filed with the SEC.

On January 27, 2011, Eaton’s Board of Directors announced a two-for-one stock split of the Company’s common shares effective in the form of a 100% stock dividend. The record date for the stock split was February 7, 2011, and the additional shares were distributed on February 28, 2011. Accordingly, all per share amounts, weighted-average shares outstanding, and equity-based compensation presented in the condensed consolidated financial statements and notes have been adjusted retroactively to reflect the stock split.

Certain prior year amounts have been reclassified to conform to the current year presentation.

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Equity (Tables)

9 Months Ended

Sep. 30, 2011

Stockholders' Equity Note [Abstract]

Change in Total equity

The changes in Shareholders’ equity follow:

	Eaton shareholders’ equity			Noncontrolling interests			Total equity
Balance at December 31, 2010	$	7,362		$	41		$	7,403
Net income	988			3			991
Other comprehensive loss	(67		)	—			(67		)
Total comprehensive income	921			3			924
Cash dividends paid	(348		)	(7		)	(355		)
Issuance of shares under equity-based compensation plans-net	131			—			131
Business divestiture	—			(14		)	(14		)
Repurchase of shares	(343		)	—			(343		)
Balance at September 30, 2011	$	7,723		$	23		$	7,746

Calculation of net income per common share attributable to common shareholders

A summary of the calculation of net income per common share attributable to common shareholders follows:

	Three months ended September 30				Nine months ended September 30
(Shares in millions)	2011		2010		2011		2010
Net income attributable to Eaton common shareholders	$	365	$	268	$	988	$	649
Weighted-average number of common shares outstanding-diluted	341.9		340.6		344.4		340.1
Less dilutive effect of stock options and restricted stock awards	3.8		5.4		4.7		5.4
Weighted-average number of common shares outstanding-basic	338.1		335.2		339.7		334.7
Net income per common share
Diluted	$	1.07	$	0.78	$	2.86	$	1.90
Basic	1.07		0.80		2.90		1.93

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Derivative Financial Instruments and Hedging Activities (Tables)

9 Months Ended

Sep. 30, 2011

Derivative Instruments and Hedging Activities (Textuals) [Abstract]

Percentage of intercompany balance sheet exposure

100.00%

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative financial instruments recognized in the consolidated Balance sheet

The fair value of derivative financial instruments recognized in the Condensed Consolidated Balance Sheets follows:

	Notional amount		Other  current assets		Other long-term assets		Other current liabilities		Type of hedge	Term
September 30, 2011
Derivatives designated as hedges
Fixed-to-floating interest rate swaps	$	540	$	—	$	67	$	—	Fair value	2 to 23 years
Foreign currency exchange contracts	331		5		—		12		Cash flow	12 to 36 months
Commodity contracts	50		—		—		12		Cash flow	12 months
Total			$	5	$	67	$	24
Derivatives not designated as hedges
Foreign currency exchange contracts	$	2,845	$	24			$	25		12 months
Commodity contracts	114		—				22			12 months
Total			$	24			$	47
December 31, 2010
Derivatives designated as hedges
Fixed-to-floating interest rate swaps	$	540	$	—	$	42	$	—	Fair value	2 to 23 years
Foreign currency exchange contracts	227		4		—		5		Cash flow	12 to 36 months
Commodity contracts	39		8		—		—		Cash flow	12 months
Cross currency swaps	75		2		—		—		Net investment	12 months
Total			$	14	$	42	$	5
Derivatives not designated as hedges
Foreign currency exchange contracts	$	2,777	$	20			$	19		12 months
Commodity contracts	102		17				—			12 months
Total			$	37			$	19

Amounts recognized in accumulated other comprehensive income (loss)

Amounts recognized in Accumulated other comprehensive income (loss) follow:

	Three months ended September 30
	2011						2010
	Gain (loss) recognized in Accumulated other comprehensive income (loss)			Gain (loss) reclassified from Accumulated other comprehensive income (loss)			Gain (loss) recognized in Accumulated other comprehensive income (loss)			Gain (loss) reclassified from Accumulated other comprehensive income (loss)
Derivatives designated as cash flow hedges
Foreign currency exchange contracts	$	(7	)	$	(1	)	$	3		$	1
Commodity contracts	(12		)	2			5			—
Derivatives designated as net investment hedges
Cross currency swaps	—			—			(16		)	—
Total	$	(19	)	$	1		$	(8	)	$	1

	Nine months ended September 30
	2011						2010
	Gain (loss) recognized in Accumulated other comprehensive income (loss)			Gain (loss) reclassified from Accumulated other comprehensive income (loss)			Gain (loss) recognized in Accumulated other comprehensive income (loss)			Gain (loss) reclassified from Accumulated other comprehensive income (loss)
Derivatives designated as cash flow hedges
Foreign currency exchange contracts	$	(6	)	$	(1	)	$	2		$	1
Commodity contracts	(13		)	7			2			5
Derivatives designated as net investment hedges
Cross currency swaps	1			—			(12		)	—
Total	$	(18	)	$	6		$	(8	)	$	6

Amounts recognized in net income

Amounts recognized in net income follow:

	Three months ended September 30						Nine months ended September 30
	2011			2010			2011			2010
Derivatives designated as fair value hedges
Fixed-to-floating interest rate swaps	$	23		$	13		$	25		$	49
Related long-term debt converted to floating interest    rates by interest rate swaps	(23		)	(13		)	(25		)	(49		)
	$	—		$	—		$	—		$	—

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Acquisition Integration and Restructuring Charges

9 Months Ended

Sep. 30, 2011

Acquisition Integration and Restructuring Charges [Abstract]

ACQUISITION INTEGRATION AND RESTRUCTURING CHARGES

ACQUISITION INTEGRATION AND RESTRUCTURING CHARGES

Acquisition Integration Charges

Eaton incurs charges related to the integration of acquired businesses. A summary of these charges follows:

	Three months ended September 30				Nine months ended September 30
	2011		2010		2011		2010
Business segment
Electrical Americas	$	3	$	—	$	7	$	2
Electrical Rest of World	—		6		1		20
Hydraulics	1		—		1		—
Aerospace	—		1		—		3
Total integration charges before income taxes	$	4	$	7	$	9	$	25
After-tax integration charges	$	2	$	4	$	6	$	16
Per common share	$	0.01	$	0.01	$	0.02	$	0.05

Charges in 2011 were related primarily to CopperLogic, Wright Line Holding and EMC Engineers. Charges in 2010 were related primarily to Moeller and Phoenixtec. These charges were included in Cost of products sold or Selling and administrative expense, as appropriate. In Note 13. Business Segment Information, the charges reduced Operating profit of the related business segment.

Workforce Reduction and Plant Closing Liabilities

The following table summarizes the liabilities related to acquisition integration, plant closing charges, and other workforce reduction actions:

	Workforce reductions					Plant closing and other
	Employees		Dollars						Total
Balance at January 1, 2011	327		$	11		$	5		$	16
Liabilities recognized	79		2			7			9
Utilized	(258	)	(7		)	(10		)	(17		)
Balance at September 30, 2011	148		$	6		$	2		$	8

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Inventory

9 Months Ended

Sep. 30, 2011

Inventory Disclosure [Abstract]

INVENTORY

INVENTORY

The components of inventory follow:

	September 30, 2011			December 31, 2010
Raw materials	$	747		$	651
Work-in-process	243			229
Finished goods	907			800
Inventory at FIFO	1,897			1,680
Excess of FIFO over LIFO cost	(128		)	(116		)
Total inventory	$	1,769		$	1,564

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Legal Contingencies (Details) In Millions	3 Months Ended		9 Months Ended
	Dec. 31, 2010 USD ($)	Dec. 31, 2010 BRL	Sep. 30, 2011 USD ($)	Sep. 30, 2011 BRL	Aug. 19, 2011 USD ($)	Jun. 09, 2011 USD ($)
Loss Contingency Accrual [Roll Forward]
Loss contingency provision	$ 32	60	$ 4	7
Ending balance, loss contingency				67
Loss Contingencies [Line Items]
Meritor judgment motion denial zero damages and no injuctive relief						0
Final judgment of Eaton's liability by US district court in Meritor lawsuit					$ 0

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Goodwill (Tables)

3 Months Ended

Sep. 30, 2011

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Goodwill

A summary of goodwill follows:

	September 30, 2011		December 31, 2010
Electrical Americas	$	2,059	$	2,061
Electrical Rest of World	1,001		985
Hydraulics	1,111		1,007
Aerospace	1,041		1,037
Truck	150		151
Automotive	209		213
Total goodwill	$	5,571	$	5,454

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Consolidated Statements of Income (USD $) In Millions, except Per Share data	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Income Statement [Abstract]
Net sales	$ 4,123	$ 3,571	$ 12,016	$ 10,052
Cost of products sold	2,900	2,480	8,444	7,068
Selling and administrative expense	668	651	2,031	1,842
Research and development expense	104	104	316	308
Interest expense-net	29	33	92	102
Other income-net	(10)	(2)	(30)	(11)
Income before income taxes	432	305	1,163	743
Income tax expense	65	36	172	89
Net income	367	269	991	654
Less net income for noncontrolling interests	(2)	(1)	(3)	(5)
Net income attributable to Eaton common shareholders	$ 365	$ 268	$ 988	$ 649
Net income per common share
Diluted	$ 1.07	$ 0.78	$ 2.86	$ 1.90
Basic	$ 1.07	$ 0.80	$ 2.90	$ 1.93
Weighted-average number of common shares outstanding
Diluted	341.9	340.6	344.4	340.1
Basic	338.1	335.2	339.7	334.7
Cash dividends paid per common share	$ 0.34	$ 0.29	$ 1.02	$ 0.79

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Equity (Details) (USD $) In Millions	0 Months Ended	3 Months Ended		9 Months Ended
	Sep. 28, 2011	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Stock options excluded from calculation of diluted net income per common share		2.7	7.0	1.1	8.8
Number of shares repurchased in the open market under the retired 2007 share repurchase program				8.3	0
Payments for repurchase of common shares under retired 2007 share repurchase program				$ 343	$ 0
2007 retired stock repurchase program, number of shares authorized to be repurchased		10		10
2011 stock repurchase program, number of shares authorized to be repurchased	20
2011 stock repurchase program, authorized amount	1,250
Changes in Total equity
Beginning Balance				7,403
Net income		367	269	991	654
Other comprehensive loss		(435)	430	(67)	(15)
Total comprehensive income		(68)	699	924	639
Cash dividends paid				(355)
Issuance of shares under equity-based compensation plans-net				131
Business divestiture				(14)
Repurchase of shares				(343)	0
Ending Balance		7,746		7,746
Eaton Shareholders' Equity [Member]
Payments for repurchase of common shares under retired 2007 share repurchase program				343
Changes in Total equity
Beginning Balance				7,362
Net income				988
Other comprehensive loss				(67)
Total comprehensive income				921
Cash dividends paid				(348)
Issuance of shares under equity-based compensation plans-net				131
Business divestiture				0
Repurchase of shares				(343)
Ending Balance		7,723		7,723
Noncontrolling Interest [Member]
Payments for repurchase of common shares under retired 2007 share repurchase program				0
Changes in Total equity
Beginning Balance				41
Net income				3
Other comprehensive loss				0
Total comprehensive income				3
Cash dividends paid				(7)
Issuance of shares under equity-based compensation plans-net				0
Business divestiture				(14)
Repurchase of shares				0
Ending Balance		$ 23		$ 23

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Equity (Details 1) (USD $) In Millions, except Per Share data	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Other Comprehensive Income (Loss), Net of Tax [Abstract]
Net income	$ 367	$ 269	$ 991	$ 654
Foreign currency translation and related hedging instruments	(449)	419	(111)	(64)
Pensions and other postretirement benefits	34	4	69	51
Cash flow hedges	(20)	7	(25)	(2)
Other comprehensive (loss) income	(435)	430	(67)	(15)
Total comprehensive (loss) income	(68)	699	924	639
Adjustment for comprehensive income attributable to noncontrolling interests	(2)	(1)	(3)	(5)
Total Comprehensive (loss) income attributable to Eaton common shareholders	(70)	698	921	634
Calculation of net income per common share attributable to common shareholders
Net income attributable to Eaton common shareholders	$ 365	$ 268	$ 988	$ 649
Weighted-average number of common shares outstanding - diluted	341.9	340.6	344.4	340.1
Less dilutive effect of stock options and restricted stock awards	3.8	5.4	4.7	5.4
Weighted-average number of common shares outstanding - basic	338.1	335.2	339.7	334.7
Net income per common share
Diluted	$ 1.07	$ 0.78	$ 2.86	$ 1.90
Basic	$ 1.07	$ 0.80	$ 2.90	$ 1.93