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 March 31, 2012

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 336.5 million Common Shares outstanding as of March 31, 2012.

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 March 31
(In millions except for per share data)	2012		2011
Net sales	$	3,960	$	3,803
Cost of products sold	2,754		2,682
Selling and administrative expense	702		665
Research and development expense	105		105
Interest expense-net	28		32
Other expense (income)-net	3		(16		)
Income before income taxes	368		335
Income tax expense	57		49
Net income	311		286
Adjustment for net loss for noncontrolling interests	—		1
Net income attributable to Eaton common shareholders	$	311	$	287
Net income per common share
Diluted	$	0.91	$	0.83
Basic	0.93		0.84
Weighted-average number of common shares outstanding
Diluted	339.8		345.7
Basic	335.4		340.1
Cash dividends paid per common share	$	0.38	$	0.34

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

2

EATON CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Three months ended March 31
(In millions)	2012		2011
Net income	$	311	$	286
Adjustment for net loss for noncontrolling interests	—		1
Net income attributable to Eaton common shareholders	311		287
Other comprehensive income (loss), net of tax
Foreign currency translation and related hedging instruments	172		217
Pensions and other postretirement benefits	38		16
Cash flow hedges	16		(1		)
Other comprehensive income	226		232
Adjustment for other comprehensive income for noncontrolling interests	—		(1		)
Other comprehensive income attributable to Eaton common shareholders	226		231
Total comprehensive income attributable to Eaton common shareholders	$	537	$	518

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

3

EATON CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)	March 31, 2012		December 31, 2011
Assets
Current assets
Cash	$	367	$	385
Short-term investments	444		699
Accounts receivable-net	2,588		2,444
Inventory	1,779		1,701
Other current assets	704		597
Total current assets	5,882		5,826
Property, plant and equipment-net	2,660		2,602
Other noncurrent assets
Goodwill	5,605		5,537
Other intangible assets	2,192		2,192
Deferred income taxes	1,057		1,134
Other assets	597		582
Total assets	$	17,993	$	17,873
Liabilities and shareholders’ equity
Current liabilities
Short-term debt	$	86	$	86
Current portion of long-term debt	319		321
Accounts payable	1,530		1,491
Accrued compensation	297		420
Other current liabilities	1,333		1,319
Total current liabilities	3,565		3,637
Noncurrent liabilities
Long-term debt	3,345		3,366
Pension liabilities	1,511		1,793
Other postretirement benefits liabilities	640		642
Deferred income taxes	450		442
Other noncurrent liabilities	528		501
Total noncurrent liabilities	6,474		6,744
Shareholders’ equity
Eaton shareholders’ equity	7,933		7,469
Noncontrolling interests	21		23
Total equity	7,954		7,492
Total liabilities and equity	$	17,993	$	17,873

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

4

EATON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three months ended March 31
(In millions)	2012			2011
Operating activities
Net income	$	311		$	286
Adjustments to reconcile to net cash used in operating activities
Depreciation and amortization	140			139
Contributions to pension plans	(330		)	(282		)
Contributions to other postretirement benefits plans	(15		)	(16		)
Changes in working capital	(388		)	(418		)
Other-net	184			(13		)
Net cash used in operating activities	(98		)	(304		)
Investing activities
Capital expenditures for property, plant and equipment	(105		)	(88		)
Sales of short-term investments-net	262			348
Other-net	(16		)	6
Net cash provided by investing activities	141			266
Financing activities
Borrowings with original maturities of more than three months
Proceeds	—			5
Payments	(2		)	(17		)
Borrowings with original maturities of less than three months-net (primarily commercial paper)	1			19
Cash dividends paid	(127		)	(116		)
Exercise of equity-based awards	43			53
Repurchase of shares	—			(50		)
Excess tax benefit from equity-based compensation	13			—
Other-net	3			—
Net cash used in financing activities	(69		)	(106		)
Effect of foreign exchange rate changes on cash	8			12
Total decrease in cash	(18		)	(132		)
Cash at the beginning of the period	385			333
Cash at the end of the period	$	367		$	201

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

5

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 2011 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.

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

Note 2. ACQUISITIONS OF BUSINESSES

In 2012 and 2011, 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 and the related annual sales prior to acquisition are summarized below:

Acquired businesses and joint venture	Date of transaction	Business segment	Annual sales
E.A. Pedersen Company	December 29, 2011	Electrical Americas	$37 for 2011
A United States manufacturer of medium voltage switchgear, metal-clad switchgear, power control buildings and relay control panels primarily for the electrical utilities industry.
IE Power, Inc.	August 31, 2011	Electrical Americas	$5 for 2010
A Canadian 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 German 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 African 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 Colombian 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	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.

6

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 based manufacturer of pneumatic and hydraulic quick coupling solutions and leak-free connectors used in industrial, construction, mining, defense, energy and power applications.

On February 20, 2012, Eaton reached an agreement to acquire Polimer Kaucuk Sanayi ve Pazarlama A.S., a Turkish manufacturer of hydraulic and industrial hose. This business sells its products under the SEL brand name and had sales of $335 for 2011. The acquisition is expected to close in the second quarter of 2012 and will be included in the Hydraulics segment. The terms of the agreement are subject to customary closing conditions.

On April 5, 2012, Eaton reached an agreement to acquire substantially all the shares of Jeil Hydraulics Co., Ltd., a Korean manufacturer of hydraulic motors and valves with sales of $189 for 2011. The acquisition is expected to close early in the third quarter of 2012 and will be included in the Hydraulics segment. The terms of the agreement are subject to customary closing conditions.

Note 3. ACQUISITION INTEGRATION CHARGES

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

	Three months ended March 31
	2012		2011
Business segment
Electrical Americas	$	1	$	3
Electrical Rest of World	1		—
Hydraulics	1		—
Total integration charges before income taxes	$	3	$	3
After-tax integration charges	$	2	$	2
Per common share	$	0.01	$	0.01

Charges in 2012 were related primarily to ACTOM Low Voltage, E. Begerow GmbH & Co. KG, Tuthill Coupling Group and Internormen Technology Group. Charges in 2011 were related primarily to CopperLogic, Wright Line Holding and EMC Engineers. These charges were included in Cost of products sold or Selling and administrative expense, as appropriate. In Note 12. Business Segment Information, the charges reduced Operating profit of the related business segment. See Note 2 for additional information about business acquisitions.

Note 4. GOODWILL

A summary of goodwill follows:

	March 31, 2012		December 31, 2011
Electrical Americas	$	2,074	$	2,043
Electrical Rest of World	1,000		981
Hydraulics	1,129		1,116
Aerospace	1,044		1,040
Truck	150		150
Automotive	208		207
Total goodwill	$	5,605	$	5,537

The increase in goodwill in 2012 was primarily due to foreign currency translation. For additional information regarding acquired businesses, see Note 2.

7

Note 5. RETIREMENT BENEFITS PLANS

The components of retirement benefits expense follow:

	Three months ended March 31
	United States pension benefit expense						Non-United States pension benefit expense						Other postretirement benefits expense
	2012			2011			2012			2011			2012			2011
Service cost	$	29		$	23		$	12		$	13		$	4		$	4
Interest cost	34			33			19			20			9			10
Expected return on plan assets	(45		)	(41		)	(19		)	(18		)	(1		)	—
Amortization	29			19			4			3			4			3
	47			34			16			18			16			17
Settlement loss	4			3			2			—			—			—
Total expense	$	51		$	37		$	18		$	18		$	16		$	17

Note 6. 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 March 31, 2012, the Company has a total accrual of 72 Brazilian Reais related to this matter ($39 based on current exchange rates), comprised of 60 Brazilian Reais recognized in the fourth quarter of 2010 ($33 based on current exchange rates) with an additional 12 Brazilian Reais recognized through March 31, 2012 ($6 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 on November 21, 2011, Eaton's remaining appeal was accepted. These appeals will be heard in due course.

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. Accordingly, an estimate of any potential loss related to this action cannot be made at this time.

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 7. INCOME TAXES

The effective tax rate for the first quarter of 2012 was 15.6% compared to 14.5% for the first quarter of 2011. The higher effective tax rate in the first quarter of 2012 was primarily attributable to greater levels of income in high tax rate jurisdictions and the expiration of the U.S. Research and Experimentation tax credit as of December 31, 2011.

8

At the end of the fourth quarter of 2011, the IRS issued a Notice for Eaton's 2005 and 2006 tax years. The Notice proposes assessments of $75 in additional taxes plus $52 in penalties related primarily to transfer pricing adjustments for products manufactured in the Company's facilities in Puerto Rico and the Dominican Republic and sold to affiliated companies located in the U.S., net of agreed credits and deductions. The Company has set its transfer prices for products sold between these affiliates at the same prices that the Company sells such products to third parties. The Notice was issued despite the IRS having previously recognized the validity of the Company's transfer pricing methodology by entering into two successive binding Advance Pricing Agreements (APAs) that approved and, in fact, required the application of the Company's transfer pricing methodology for the ten year period of 2001 through 2010. For the years 2001 through 2004, the IRS had previously accepted the transfer pricing methodology related to these APAs after a comprehensive review conducted in two separate audit cycles. On December 16, 2011, immediately prior to the Notice being issued, the IRS sent a letter stating that it was canceling the APAs.

The Company firmly believes that the proposed assessments are without merit. The Company also believes that it was in full compliance with the terms of the two APAs and that the IRS's unilateral attempt to retroactively cancel these two binding contracts is also without merit and represents a breach of the two contracts. On February 29, 2012, the Company filed a Petition with the U.S. Tax Court in which it asserted that the transfer pricing established in the two APA contracts meets the arms-length standard set by the U.S. income tax law, that the transfer pricing the Company has used is in full compliance with U.S. income tax laws, and accordingly, that the two APA contracts should be enforced in accordance with their terms. The Company believes that the ultimate resolution of this matter will not have a material impact on its consolidated financial statements.

Note 8. EQUITY

The changes in Shareholders’ equity follow:

	Eaton shareholders’ equity			Noncontrolling interests			Total equity
Balance at December 31, 2011	$	7,469		$	23		$	7,492
Net income	311			—			311
Other comprehensive income	226			—			226
Cash dividends paid	(127		)	(2		)	(129		)
Issuance of shares under equity-based compensation plans-net	54			—			54
Balance at March 31, 2012	$	7,933		$	21		$	7,954

Net Income per Common Share

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

	Three months ended March 31
(Shares in millions)	2012		2011
Net income attributable to Eaton common shareholders	$	311	$	287
Weighted-average number of common shares outstanding-diluted	339.8		345.7
Less dilutive effect of stock options and restricted stock awards	4.4		5.6
Weighted-average number of common shares outstanding-basic	335.4		340.1
Net income per common share
Diluted	$	0.91	$	0.83
Basic	0.93		0.84

For the first quarter of 2012 and 2011, 0.9 million and 0.1 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.

9

Note 9. 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 should be 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)
March 31, 2012
Cash	$	367	$	367	$	—	$	—
Short-term investments	444		444		—		—
Net derivative contracts	46		—		46		—
Long-term debt converted to floating interest rates by    interest rate swaps - net	56		—		56		—
December 31, 2011
Cash	$	385	$	385	$	—	$	—
Short-term investments	699		699		—		—
Net derivative contracts	46		—		46		—
Long-term debt converted to floating interest rates by    interest rate swaps - net	66		—		66		—

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 $3,664 and fair value of $4,212 at March 31, 2012 compared to $3,687 and $4,273, respectively, at December 31, 2011. The fair value of debt is determined based on trade information in the financial markets of the Company's public debt and is considered a Level 2 fair value measurement.

Note 10. 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 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.

10

• 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. Gains and losses associated with commodity hedge contracts are reported in Cost of products sold.

Eaton uses certain of its debt denominated in foreign currency to hedge portions of its net investments in foreign operations against foreign currency exposure (net investment hedges). Debt denominated in foreign currency and designated as non-derivative net investment hedging instruments was $122 at March 31, 2012 and $129 at December 31, 2011.

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		Other long-term liabilities		Type of hedge	Term
March 31, 2012
Derivatives designated as hedges
Fixed-to-floating interest rate swaps	$	1,290	$	—	$	61	$	—	$	5	Fair value	1 to 22 years
Floating-to-fixed interest rate swaps	300		—		—		—		1		Cash flow	2 years
Foreign currency exchange contracts	408		6		—		1		—		Cash flow	12 to 36 months
Commodity contracts	51		—		—		2		—		Cash flow	12 months
Total			$	6	$	61	$	3	$	6
Derivatives not designated as hedges
Foreign currency exchange contracts	$	3,086	$	9			$	18				12 months
Commodity contracts	64		1				4					12 months
Total			$	10			$	22
December 31, 2011
Derivatives designated as hedges
Fixed-to-floating interest rate swaps	$	940	$	—	$	68	$	—	$	2	Fair value	1 to 22 years
Floating-to-fixed interest rate swaps	300		—		—		—		—		Cash flow	2 years
Foreign currency exchange contracts	308		4		—		9		—		Cash flow	12 to 36 months
Commodity contracts	47		—		—		7		—		Cash flow	12 months
Total			$	4	$	68	$	16	$	2
Derivatives not designated as hedges
Foreign currency exchange contracts	$	2,954	$	18			$	14				12 months
Commodity contracts	61		—				12					12 months
Total			$	18			$	26

11

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 March 31
	2012						2011
	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	$	9		$	(2	)	$	1	$	—
Commodity contracts	4			(2		)	—		2
Floating-to-fixed interest rate swaps	(1		)	—			—		—
Total	$	12		$	(4	)	$	1	$	2

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 March 31
	2012			2011
Derivatives designated as fair value hedges
Fixed-to-floating interest rate swaps	$	(10	)	$	(6	)
Related long-term debt converted to floating interest rates by interest rate swaps	10			6
	$	—		$	—

Gains and losses described above were recognized in Interest expense.

Note 11. INVENTORY

The components of inventory follow:

	March 31, 2012			December 31, 2011
Raw materials	$	747		$	706
Work-in-process	291			272
Finished goods	890			867
Inventory at FIFO	1,928			1,845
Excess of FIFO over LIFO cost	(149		)	(144		)
Total inventory	$	1,779		$	1,701

12

Note 12. 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 2011 Form 10-K.

	Three months ended March 31
	2012			2011
Net sales
Electrical Americas	$	1,087		$	964
Electrical Rest of World	651			743
Hydraulics	735			685
Aerospace	430			389
Truck	631			576
Automotive	426			446
Total net sales	$	3,960		$	3,803
Segment operating profit
Electrical Americas	$	162		$	132
Electrical Rest of World	53			70
Hydraulics	109			106
Aerospace	60			45
Truck	116			90
Automotive	44			50
Total segment operating profit	544			493
Corporate
Amortization of intangible assets	(42		)	(48		)
Interest expense-net	(28		)	(32		)
Pension and other postretirement benefits expense	(41		)	(33		)
Other corporate expense-net	(65		)	(45		)
Income before income taxes	368			335
Income tax expense	57			49
Net income	311			286
Adjustment for net loss for noncontrolling interests	—			1
Net income attributable to Eaton common shareholders	$	311		$	287

13

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).

COMPANY OVERVIEW

Eaton Corporation (Eaton or Company) is a diversified power management company with 2011 net sales of $16.0 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 72,000 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 March 31
	2012		2011
Net sales	$	3,960	$	3,803
Net income attributable to Eaton common shareholders	311		287
Net income per common share-diluted	$	0.91	$	0.83

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.

14

Consolidated Financial Results

	Three months ended March 31
	2012			2011			Increase
Net sales	$	3,960		$	3,803		4	%
Gross profit	1,206			1,121			8	%
Percent of net sales	30.5		%	29.5		%
Income before income taxes	368			335			10	%
Net income	$	311		$	286		9	%
Adjustment for net loss for noncontrolling interests	—			1
Net income attributable to Eaton common shareholders	311			287			8	%
Excluding acquisition integration charges (after-tax)	2			2
Operating earnings	$	313		$	289		8	%
Net income per common share-diluted	$	0.91		$	0.83		10	%
Excluding per share impact of acquisition integration    charges (after-tax)	0.01			0.01
Operating earnings per common share	$	0.92		$	0.84		10	%

Net Sales

Net sales in the first quarter of 2012 increased 4% compared to the first quarter of 2011. The sales increase was due to an increase of 4% in core sales and 1% from acquisitions of businesses, partially offset by a 1% decrease from the impact of foreign exchange. The increase in core sales in the first quarter of 2012 reflects modest growth of the Company's markets, which increased 4% in the first quarter of 2012 compared to the same period in 2011. Eaton now anticipates its revenues will grow by 7 ¹/₂ % for all of 2012.

Gross Profit

Gross profit increased 8% in the first quarter of 2012 compared to the first quarter of 2011. Gross profit margin increased 1.0 percentage points from 29.5% in the first quarter of 2011 to 30.5% in the first quarter of 2012. The gross profit margin was positively impacted by benefits from higher sales volumes.

Income Taxes

The effective tax rate for the first quarter of 2012 was 15.6% compared to 14.5% for the first quarter of 2011. The higher effective tax rate in the first quarter of 2012 was primarily attributable to greater levels of income in high tax rate jurisdictions and the expiration of the U.S. Research and Experimentation tax credit as of December 31, 2011.

Net Income

Net income attributable to Eaton common shareholders of $311 in the first quarter of 2012 increased 8% compared to Net income attributable to Eaton common shareholders of $287 in the first quarter of 2011, and Net income per common share of $0.91 in the first quarter of 2012 increased 10% over Net income per common share of $0.83 in the first quarter of 2011. The percentage increase in Net income per common share was higher than the percentage increase in Net income attributable to Eaton common shareholders due to fewer shares outstanding at March 31, 2012 compared to March 31, 2011 as a result of shares repurchased in the second half of 2011.

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 acquired businesses and acquisition integration charges, see Note 2 and Note 3 to the Condensed Consolidated Financial Statements, respectively.

15

Electrical Americas

	Three months ended March 31
	2012			2011			Increase
Net sales	$	1,087		$	964		13	%
Operating profit	162			132			23	%
Operating margin	14.9		%	13.7		%
Acquisition integration charges	$	1		$	3
Before acquisition integration charges
Operating profit	$	163		$	135		21	%
Operating margin	15.0		%	14.0		%

Net sales increased 13% in the first quarter of 2012 compared to the first quarter of 2011 due to an increase of 13% in core sales and an increase of 1% from the acquisition of businesses, partially offset by a decrease of 1% from the impact of foreign exchange. The increase in net sales was due to continued growth in markets served by the Electrical Americas segment, with particularly strong growth in nonresidential construction markets. End markets grew 7% in the first quarter of 2012 compared to the first quarter of 2011. Eaton now anticipates its Electrical Americas markets will grow by 6% for all of 2012.

Operating profit before acquisition integration charges in the first quarter of 2012 increased 21% from the first quarter of 2011. Operating margin before acquisition integration charges increased 1.0 percentage point from 14.0% in the first quarter of 2011 to 15.0% in the first quarter of 2012. The increase in operating margin was largely due to benefits from higher sales volumes.

Electrical Rest of World

	Three months ended March 31						Decrease
	2012			2011
Net sales	$	651		$	743		(12	)%
Operating profit	53			70			(24	)%
Operating margin	8.1		%	9.4		%
Acquisition integration charges	$	1		$	—
Before acquisition integration charges
Operating profit	$	54		$	70		(23	)%
Operating margin	8.3		%	9.4		%

Net sales decreased 12% in the first quarter of 2012 compared to the first quarter of 2011 due to a decrease of 13% in core sales and a decrease of 2% from the impact of foreign exchange, partially offset by an increase of 3% from the acquisition of a business. The decrease in net sales was primarily due to a 7% decline in Electrical Rest of World markets, reflecting a broad regional recession in Europe and weakness in the China market. Eaton now anticipates its Electrical Rest of World markets will decline 1% for all of 2012.

Operating profit before acquisition integration charges in the first quarter of 2012 decreased 23% from the first quarter of 2011. Operating margin before acquisition integration charges decreased 1.1 percentage points from 9.4% in the first quarter of 2011 to 8.3% in the first quarter of 2012. The decrease in operating margin was largely due to the factors impacting net sales as noted above.

16

Hydraulics

	Three months ended March 31
	2012			2011			Increase
Net sales	$	735		$	685		7	%
Operating profit	109			106			3	%
Operating margin	14.8		%	15.5		%
Acquisition integration charges	$	1		$	—
Before acquisition integration charges
Operating profit	$	110		$	106		4	%
Operating margin	15.0		%	15.5		%

Net sales in the first quarter of 2012 increased 7% compared to the first quarter of 2011 due to an increase of 4% from the acquisition of businesses and an increase in core sales of 3%. The increase in core sales was due to growth in hydraulics markets of 4% compared to the first quarter of 2011, with U.S. markets up 9% due to strength in the mobile equipment market. Markets outside the U.S. were flat. Eaton now anticipates its Hydraulics markets will grow by 5% for all of 2012.

Operating profit before acquisition integration charges in the first quarter of 2012 increased 4% from the first quarter of 2011. Operating margin before acquisition integration charges decreased 0.5 percentage points from 15.5% in the first quarter of 2011 to 15.0% in the first quarter of 2012. The decrease in operating margin was primarily due to unfavorable product mix.

Aerospace

	Three months ended March 31
	2012			2011			Increase
Net sales	$	430		$	389		11	%
Operating profit	60			45			33	%
Operating margin	14.0		%	11.6		%

Net sales in the first quarter of 2012 increased 11% compared to the first quarter of 2011 due to an increase in core sales of 11%, with end markets up 6% compared to the first quarter of 2011. Growth was primarily driven by higher customer demand in the commercial OEM markets and commercial aftermarkets. Eaton continues to believe that its Aerospace markets will grow by 5% for all of 2012.

Operating profit in the first quarter of 2012 increased 33% from the first quarter of 2011. Operating margin increased 2.4 percentage points from 11.6% in the first quarter of 2011 to 14.0% in the first quarter of 2012. The increase in operating margin in the first quarter of 2012 was primarily due to the absence of expenses stemming from program delays and changes in scope on new customer programs that occurred in the first quarter of 2011.

17

Truck

	Three months ended March 31
	2012			2011			Increase
Net sales	$	631		$	576		10	%
Operating profit	116			90			29	%
Operating margin	18.4		%	15.6		%

Net sales increased 10% in the first quarter of 2012 compared to the first quarter of 2011 due to an increase in core sales of 12%, partially offset by a decrease of 2% from the impact of foreign exchange. Market growth was 11% in the first quarter of 2012 compared to the first quarter of 2011, primarily due to continuing strong growth in the NAFTA Class 8 truck market, which grew by 50% compared to the first quarter of 2011. This strength was partially offset by a 7% decline in non-U.S. markets, primarily related to Brazil. Eaton now anticipates its Truck markets will grow by 7% for all of 2012.

Operating profit in the first quarter of 2012 increased 29% from the first quarter of 2011. Operating margin increased 2.8 percentage points from 15.6% in the first quarter of 2011 to 18.4% in the first quarter of 2012. The increase in operating margin was primarily due to benefits from higher U.S. sales volumes.

Automotive

	Three months ended March 31
	2012			2011			Decrease
Net sales	$	426		$	446		(4	)%
Operating profit	44			50			(12	)%
Operating margin	10.3		%	11.2		%

Net sales decreased 4% in the first quarter of 2012 compared to the first quarter of 2011 due to a decrease of 4% related to a business divestiture in 2011 and a decrease of 3% from the impact of foreign exchange, partially offset by an increase in core sales of 3%. Global automotive markets grew 4% in the first quarter of 2012 compared to the first quarter of 2011, with U.S. markets up 16% and markets outside the U.S. flat. Eaton now anticipates its Automotive markets will grow by 4% for all of 2012.

Operating profit in the first quarter of 2012 decreased 12% from the first quarter of 2011. Operating margin decreased 0.9 percentage points from 11.2% in the first quarter of 2011 to 10.3% in the first quarter of 2012. The decrease in operating margin was due to the factors impacting net sales as noted above.

Corporate Expense

	Three months ended March 31				(Decrease) Increase
	2012		2011
Amortization of intangible assets	$	42	$	48	(13	)%
Interest expense-net	28		32		(13	)%
Pension and other postretirement benefits expense	41		33		24	%
Other corporate expense-net	65		45		44	%
Total corporate expense	$	176	$	158	11	%

Total Corporate expense increased 11% in the first quarter of 2012 to $176 from $158 in the first quarter of 2011 principally due to a 44% increase in Other corporate expense-net as a result of higher variable corporate expense and a 24% increase in Pension and other postretirement benefits expense primarily related to changes in the discount rate for 2012.

18

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 March 31, 2012. 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.

Eaton was in compliance with each of its debt covenants as of March 31, 2012 and for all periods presented.

Undistributed Assets of Non-U.S. Subsidiaries

At March 31, 2012, approximately 72% 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 used in operating activities was $98 in the first quarter of 2012, a decrease of $206 compared to $304 net cash used in the first quarter of 2011. The change in net cash used in operating activities in 2012 was primarily due to changes in deferred income taxes and lower liquidity requirements for working capital.

Investing Cash Flow

Net cash provided by investing activities was $141 in the first quarter of 2012, a decrease of $125 compared to $266 in the first quarter of 2011. Investing cash flows in 2012 were primarily impacted by decreased sales of short-term investments, from $348 in the first quarter of 2011 to $262 in the first quarter of 2012, related to lower operating and liquidity needs, partially offset by increased capital expenditures from $88 in the first quarter of 2011 to $105 in the first quarter of 2012.

Financing Cash Flow

Net cash used in financing activities was $69 in the first quarter of 2012, a decrease of $37 compared to $106 in the first quarter of 2011. The decrease was primarily due to common share repurchases of $50 during the first quarter of 2011, partially offset by an increase in the quarterly cash dividend to $0.38 in the first quarter of 2012 from $0.34 in the first quarter of 2011. No common shares were repurchased during the first quarter of 2012.

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 March 31, 2012, the Company has a total accrual of 72 Brazilian Reais related to this matter ($39 based on current exchange rates), comprised of 60 Brazilian Reais recognized in the fourth quarter of 2010 ($33 based on current exchange rates) with an additional 12 Brazilian Reais recognized through March 31, 2012 ($6 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 on November 21, 2011, Eaton's remaining appeal was accepted. These appeals will be heard in due course.

19

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. Accordingly, an estimate of any potential loss related to this action cannot be made at this time.

At the end of the fourth quarter of 2011, the IRS issued a Notice for Eaton's 2005 and 2006 tax years. The Notice proposes assessments of $75 in additional taxes plus $52 in penalties related primarily to transfer pricing adjustments for products manufactured in the Company's facilities in Puerto Rico and the Dominican Republic and sold to affiliated companies located in the U.S., net of agreed credits and deductions. The Company has set its transfer prices for products sold between these affiliates at the same prices that the Company sells such products to third parties. The Notice was issued despite the IRS having previously recognized the validity of the Company's transfer pricing methodology by entering into two successive binding Advance Pricing Agreements (APAs) that approved and, in fact, required the application of the Company's transfer pricing methodology for the ten year period of 2001 through 2010. For the years 2001 through 2004, the IRS had previously accepted the transfer pricing methodology related to these APAs after a comprehensive review conducted in two separate audit cycles. On December 16, 2011, immediately prior to the Notice being issued, the IRS sent a letter stating that it was canceling the APAs.

The Company firmly believes that the proposed assessments are without merit. The Company also believes that it was in full compliance with the terms of the two APAs and that the IRS's unilateral attempt to retroactively cancel these two binding contracts is also without merit and represents a breach of the two contracts. On February 29, 2012, the Company filed a Petition with the U.S. Tax Court in which it asserted that the transfer pricing established in the two APA contracts meets the arms-length standard set by the U.S. income tax law, that the transfer pricing the Company has used is in full compliance with U.S. income tax laws, and accordingly, that the two APA contracts should be enforced in accordance with their terms. The Company believes that the ultimate resolution of this matter will not have a material impact on its consolidated financial statements.

FORWARD-LOOKING STATEMENTS

This Form 10-Q Report contains forward-looking statements concerning the performance in 2012 of Eaton’s worldwide end markets and Eaton's 2012 full-year revenue. 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; tax rate changes or exposure to additional income tax liability; 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.

20

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

There have been no material changes in exposures to market risk since December 31, 2011.

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 March 31, 2012.

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 1. LEGAL PROCEEDINGS.

Information regarding the Company's current legal proceedings is presented in Note 6 and Note 7 of the Notes to the Condensed Consolidated Financial Statements.

ITEM 6. EXHIBITS.

Exhibits — See Exhibit Index attached.

21

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:	April 24, 2012	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)

22

Eaton Corporation

First Quarter 2012 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 March 31, 2012 and 2011, (ii) Consolidated Statements of Comprehensive Income for the three months ended March 31, 2012 and 2011, (iii) Condensed Consolidated Balance Sheets at March 31, 2012 and December 31, 2011, (iv) Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2012 and 2011, and (v) Notes to Condensed Consolidated Financial Statements for the three months ended March 31, 2012.

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.

23

EX-12

Eaton Corporation

First Quarter 2012 Report on Form 10-Q

Item 6

Exhibit 12

Ratio of Earnings to Fixed Charges

	Three months ended March 31			Year ended December 31
(Millions of dollars)	2012			2011			2010			2009			2008			2007
Income from continuing operations   before income taxes and noncontrolling interests in   consolidated subsidiaries	$	368		$	1,553		$	1,036		$	303		$	1,140		$	1,055
Adjustments
Income of equity investees	(1		)	(2		)	(14		)	(6		)	(11		)	(6		)
Distributed income of equity investees	—			3			15			9			1			1
Interest expensed	36			154			162			170			192			193
Amortization of debt issue costs	1			4			4			5			2			1
Estimated portion of rent expense representing interest	16			65			57			59			58			44
Amortization of capitalized interest	3			10			10			13			13			12
Adjusted income from continuing operations before   income taxes	$	423		$	1,787		$	1,270		$	553		$	1,395		$	1,300
Fixed charges
Interest expensed	$	36		$	154		$	162		$	170		$	192		$	193
Interest capitalized	6			18			8			7			13			14
Amortization of debt issue costs	1			4			4			5			2			1
Estimated portion of rent expense representing interest	16			65			57			59			58			44
Total fixed charges	$	59		$	241		$	231		$	241		$	265		$	252
Ratio of earnings to fixed charges	7.17			7.41			5.50			2.29			5.26			5.16

EX-31.1

Eaton Corporation

First Quarter 2012 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:	April 24, 2012	/s/ Alexander M. Cutler
		Alexander M. Cutler
		Chairman and Chief Executive Officer; President

EX-31.2

Eaton Corporation

First Quarter 2012 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:	April 24, 2012	/s/ Richard H. Fearon
		Richard H. Fearon
		Vice Chairman and Chief Financial and Planning Officer

EX-32.1

Eaton Corporation

First Quarter 2012 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 March 31, 2012 (“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:	April 24, 2012	/s/ Alexander M. Cutler
		Alexander M. Cutler
		Chairman and Chief Executive Officer; President

EX-32.2

Eaton Corporation

First Quarter 2012 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 March 31, 2012 (“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:	April 24, 2012	/s/ Richard H. Fearon
		Richard H. Fearon
		Vice Chairman and Chief Financial and Planning Officer

XML

Business Segment Information (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Business Segment Information
Net sales	$ 3,960	$ 3,803
Segment operating profit	544	493
Amortization of intangible assets	(42)	(48)
Interest expense-net	(28)	(32)
Pension and other postretirement benefits expense	(41)	(33)
Other corporate expense-net	(65)	(45)
Income before income taxes	368	335
Income tax expense	57	49
Net income	311	286
Adjustment for net loss for noncontrolling interests	0	1
Net income attributable to Eaton common shareholders	311	287
Electrical Americas [Member]
Business Segment Information
Net sales	1,087	964
Segment operating profit	162	132
Electrical Rest of World [Member]
Business Segment Information
Net sales	651	743
Segment operating profit	53	70
Hydraulics [Member]
Business Segment Information
Net sales	735	685
Segment operating profit	109	106
Aerospace [Member]
Business Segment Information
Net sales	430	389
Segment operating profit	60	45
Truck [Member]
Business Segment Information
Net sales	631	576
Segment operating profit	116	90
Automotive [Member]
Business Segment Information
Net sales	426	446
Segment operating profit	$ 44	$ 50

XML

Equity (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Stock options excluded from calculation of diluted net income per common share	0.9	0.1
Changes in Total equity
Beginning Balance	$ 7,492
Net income	311	286
Other comprehensive loss	226	232
Cash dividends paid	(129)
Issuance of shares under equity-based compensation plans-net	54
Ending Balance	7,954
Eaton Shareholders' Equity [Member]
Changes in Total equity
Beginning Balance	7,469
Net income	311
Other comprehensive loss	226
Cash dividends paid	(127)
Issuance of shares under equity-based compensation plans-net	54
Ending Balance	7,933
Noncontrolling Interest [Member]
Changes in Total equity
Beginning Balance	23
Net income	0
Other comprehensive loss	0
Cash dividends paid	(2)
Issuance of shares under equity-based compensation plans-net	0
Ending Balance	$ 21

XML

Inventory (Tables)

3 Months Ended

Mar. 31, 2012

Inventory Disclosure [Abstract]

Components of inventories

The components of inventory follow:

	March 31, 2012			December 31, 2011
Raw materials	$	747		$	706
Work-in-process	291			272
Finished goods	890			867
Inventory at FIFO	1,928			1,845
Excess of FIFO over LIFO cost	(149		)	(144		)
Total inventory	$	1,779		$	1,701

XML

Amounts Recognized in Accumulated Other Comprehensive Income Loss) (Details) (USD $)	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Interest Expense [Member] | Fair Value Hedging [Member]
Derivatives designated as fair value hedges [Abstract]
Gain (loss) recognized in net income	$ 0	$ 0
Cost of Sales [Member] | Net Investment Hedging [Member]
Derivatives designated as cash flow hedges [Abstract]
Gain (loss) recognized in Accumulated other comprehensive income (loss)	12	1
Gain (loss) reclassified from Accumulated other comprehensive Income (loss)	(4)	2
Foreign Currency Exchange Contracts [Member] | Cost of Sales [Member] | Cash Flow Hedging [Member]
Derivatives designated as cash flow hedges [Abstract]
Gain (loss) recognized in Accumulated other comprehensive income (loss)	9	1
Gain (loss) reclassified from Accumulated other comprehensive Income (loss)	(2)	0
Commodity Contract [Member] | Cost of Sales [Member] | Cash Flow Hedging [Member]
Derivatives designated as cash flow hedges [Abstract]
Gain (loss) recognized in Accumulated other comprehensive income (loss)	4	0
Gain (loss) reclassified from Accumulated other comprehensive Income (loss)	(2)	2
Floating to Fixed Interest Rate Swap [Domain] | Cost of Sales [Member] | Cash Flow Hedging [Member]
Derivatives designated as cash flow hedges [Abstract]
Gain (loss) recognized in Accumulated other comprehensive income (loss)	(1)	0
Gain (loss) reclassified from Accumulated other comprehensive Income (loss)	0	0
Related long term debt converted to floating interest rates by interest rate swaps [Member] | Interest Expense [Member] | Fair Value Hedging [Member]
Derivatives designated as fair value hedges [Abstract]
Gain (loss) recognized in net income	10	6
Fixed-to-floating interest rate swaps (fair value hedges) [Member] | Interest Expense [Member] | Fair Value Hedging [Member]
Derivatives designated as fair value hedges [Abstract]
Gain (loss) recognized in net income	$ (10)	$ (6)

XML

Goodwill

3 Months Ended

Mar. 31, 2012

Goodwill and Intangible Assets Disclosure [Abstract]

GOODWILL

GOODWILL

A summary of goodwill follows:

	March 31, 2012		December 31, 2011
Electrical Americas	$	2,074	$	2,043
Electrical Rest of World	1,000		981
Hydraulics	1,129		1,116
Aerospace	1,044		1,040
Truck	150		150
Automotive	208		207
Total goodwill	$	5,605	$	5,537

The increase in goodwill in 2012 was primarily due to foreign currency translation. For additional information regarding acquired businesses, see Note 2.

XML

Goodwill (Details) (USD $) In Millions, unless otherwise specified	Mar. 31, 2012	Dec. 31, 2011
Goodwill [Line Items]
Goodwill	$ 5,605	$ 5,537
Electrical Americas [Member]
Goodwill [Line Items]
Goodwill	2,074	2,043
Electrical Rest of World [Member]
Goodwill [Line Items]
Goodwill	1,000	981
Hydraulics [Member]
Goodwill [Line Items]
Goodwill	1,129	1,116
Aerospace [Member]
Goodwill [Line Items]
Goodwill	1,044	1,040
Truck [Member]
Goodwill [Line Items]
Goodwill	150	150
Automotive [Member]
Goodwill [Line Items]
Goodwill	$ 208	$ 207

XML

Acquisition Integration Charges (Details) (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Acquisition Integration Charges
Total integration charges before income taxes	$ 3	$ 3
After-tax integration charges	2	2
Per common share	$ 0.01	$ 0.01
Electrical Americas [Member]
Acquisition Integration Charges
Total integration charges before income taxes	1	3
Electrical Rest of World [Member]
Acquisition Integration Charges
Total integration charges before income taxes	1	0
Hydraulics [Member]
Acquisition Integration Charges
Total integration charges before income taxes	$ 1	$ 0

XML

Retirement Benefit Plans (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
United States pension benefit expense [Member]
Retirement benefit plans expense
Service cost	$ 29	$ 23
Interest cost	34	33
Expected return on plan assets	(45)	(41)
Amortization	29	19
Total benefit plans	47	34
Settlement loss	4	3
Total expense	51	37
Non-United States pension benefit expense [Member]
Retirement benefit plans expense
Service cost	12	13
Interest cost	19	20
Expected return on plan assets	(19)	(18)
Amortization	4	3
Total benefit plans	16	18
Settlement loss	2	0
Total expense	18	18
Other postretirement benefit expense [Member]
Retirement benefit plans expense
Service cost	4	4
Interest cost	9	10
Expected return on plan assets	(1)	0
Amortization	4	3
Total benefit plans	16	17
Settlement loss	0	0
Total expense	$ 16	$ 17

XML

Legal Contingencies (Details) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012 USD ($)	Mar. 31, 2012 BRL	Dec. 31, 2010 USD ($)	Dec. 31, 2010 BRL	Aug. 19, 2011 USD ($)	Jun. 09, 2011 USD ($)
Loss Contingency Accrual [Roll Forward]
Loss contingency provision	$ 6	12	$ 33	60
Ending balance, loss contingency	39	72
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

XML

Acquisition Integration Charges

3 Months Ended

Mar. 31, 2012

Acquisition Integration and Restructuring Charges [Abstract]

ACQUISITION INTEGRATION CHARGES

ACQUISITION INTEGRATION CHARGES

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

	Three months ended March 31
	2012		2011
Business segment
Electrical Americas	$	1	$	3
Electrical Rest of World	1		—
Hydraulics	1		—
Total integration charges before income taxes	$	3	$	3
After-tax integration charges	$	2	$	2
Per common share	$	0.01	$	0.01

Charges in 2012 were related primarily to ACTOM Low Voltage, E. Begerow GmbH & Co. KG, Tuthill Coupling Group and Internormen Technology Group. Charges in 2011 were related primarily to CopperLogic, Wright Line Holding and EMC Engineers. These charges were included in Cost of products sold or Selling and administrative expense, as appropriate. In Note 12. Business Segment Information, the charges reduced Operating profit of the related business segment. See Note 2 for additional information about business acquisitions.

XML

Income Taxes (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011	Dec. 31, 2011
Income Tax Contingency [Line Items]
Effective tax rate	15.60%	14.50%
IRS Notice proposed assessments for tax years 2005 and 2006			$ 75
Penalties associated with IRS Notice of proposed assessments			$ 52

XML

Consolidated Statements of Income (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Income Statement [Abstract]
Net sales	$ 3,960	$ 3,803
Cost of products sold	2,754	2,682
Selling and administrative expense	702	665
Research and development expense	105	105
Interest expense-net	28	32
Other expense (income)-net	3	(16)
Income before income taxes	368	335
Income tax expense	57	49
Net income	311	286
Adjustment for net loss for noncontrolling interests	0	1
Net income attributable to Eaton common shareholders	$ 311	$ 287
Net income per common share
Diluted	$ 0.91	$ 0.83
Basic	$ 0.93	$ 0.84
Weighted-average number of common shares outstanding
Diluted	339.8	345.7
Basic	335.4	340.1
Cash dividends paid per common share	$ 0.38	$ 0.34

XML

Basis of Presentation

3 Months Ended

Mar. 31, 2012

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 2011 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.

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

XML

Fair Value Measurements (Details) (USD $) In Millions, unless otherwise specified	Mar. 31, 2012	Dec. 31, 2011
Summary of financial instruments recognized at fair value and fair value measurement used
Cash	$ 367	$ 385
Short-term investments	444	699
Net derivative contracts	46	46
Long-term debt converted to floating interest rates by interest rate swaps - net	56	66
Carrying value of long-term debt and current portion of long-term debt	3,664	3,687
Fair value of long-term debt and current portion of long-term debt	4,212	4,273
Quoted prices in active markets for identical assets (Level 1) [Member]
Summary of financial instruments recognized at fair value and fair value measurement used
Cash	367	385
Short-term investments	444	699
Net derivative contracts	0	0
Long-term debt converted to floating interest rates by interest rate swaps - net	0	0
Other Observable inputs Level 2) [Member]
Summary of financial instruments recognized at fair value and fair value measurement used
Cash	0	0
Short-term investments	0	0
Net derivative contracts	46	46
Long-term debt converted to floating interest rates by interest rate swaps - net	56	66
Unobservable inputs (Level 3) [Member]
Summary of financial instruments recognized at fair value and fair value measurement used
Cash	0	0
Short-term investments	0	0
Net derivative contracts	0	0
Long-term debt converted to floating interest rates by interest rate swaps - net	$ 0	$ 0

XML

Equity (Tables)

3 Months Ended

Mar. 31, 2012

Stockholders' Equity Note [Abstract]

Changes in Shareholders' equity

The changes in Shareholders’ equity follow:

	Eaton shareholders’ equity			Noncontrolling interests			Total equity
Balance at December 31, 2011	$	7,469		$	23		$	7,492
Net income	311			—			311
Other comprehensive income	226			—			226
Cash dividends paid	(127		)	(2		)	(129		)
Issuance of shares under equity-based compensation plans-net	54			—			54
Balance at March 31, 2012	$	7,933		$	21		$	7,954

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 March 31
(Shares in millions)	2012		2011
Net income attributable to Eaton common shareholders	$	311	$	287
Weighted-average number of common shares outstanding-diluted	339.8		345.7
Less dilutive effect of stock options and restricted stock awards	4.4		5.6
Weighted-average number of common shares outstanding-basic	335.4		340.1
Net income per common share
Diluted	$	0.91	$	0.83
Basic	0.93		0.84

XML

Derivative Financial Instruments and Hedging Activities (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Dec. 31, 2011
Derivatives, Fair Value [Line Items]
Debt denominated in foreign currency designated as non-derivative net investment hedging instrument	$ 122	$ 129
Percentage of intercompany balance sheet exposure that Eaton manages	100.00%
Other current assets [Member]
Derivatives designated as hedges
Derivative asset designated as hedging instrument	6	4
Derivatives not designated as hedges
Derivative instruments not designated as hedging instruments, asset, at fair value	10	18
Other long-term assets [Member]
Derivatives designated as hedges
Derivative asset designated as hedging instrument	61	68
Other current liabilities [Member]
Derivatives designated as hedges
Derivative liability designated as hedging instrument	3	16
Derivatives not designated as hedges
Derivative instruments not designated as hedging instruments, liability, at fair value	22	26
Other long-term liabilites [Member]
Derivatives designated as hedges
Derivative liability designated as hedging instrument	6	2
Foreign Currency Exchange Contracts [Member]
Derivatives not designated as hedges
Notional amount	3,086	2,954
Period of derivatives not designated as hedges	12 months	12 months
Foreign Currency Exchange Contracts [Member] | Other current assets [Member]
Derivatives not designated as hedges
Derivative instruments not designated as hedging instruments, asset, at fair value	9	18
Foreign Currency Exchange Contracts [Member] | Other current liabilities [Member]
Derivatives not designated as hedges
Derivative instruments not designated as hedging instruments, liability, at fair value	18	14
Commodity contracts (cash flow hedges) [Member]
Derivatives not designated as hedges
Notional amount	64	61
Period of derivatives not designated as hedges	12 months	12 months
Commodity contracts (cash flow hedges) [Member] | Other current assets [Member]
Derivatives not designated as hedges
Derivative instruments not designated as hedging instruments, asset, at fair value	1	0
Commodity contracts (cash flow hedges) [Member] | Other current liabilities [Member]
Derivatives not designated as hedges
Derivative instruments not designated as hedging instruments, liability, at fair value	4	12
Fair Value Hedging [Member] | Fixed-to-floating interest rate swaps (fair value hedges) [Member]
Derivatives designated as hedges
Notional amount	1,290	940
Period of derivatives designated as hedges	1 to 22 years	1 to 22 years
Fair Value Hedging [Member] | Fixed-to-floating interest rate swaps (fair value hedges) [Member] | Other current assets [Member]
Derivatives designated as hedges
Derivative asset designated as hedging instrument	0	0
Fair Value Hedging [Member] | Fixed-to-floating interest rate swaps (fair value hedges) [Member] | Other long-term assets [Member]
Derivatives designated as hedges
Derivative asset designated as hedging instrument	61	68
Fair Value Hedging [Member] | Fixed-to-floating interest rate swaps (fair value hedges) [Member] | Other current liabilities [Member]
Derivatives designated as hedges
Derivative liability designated as hedging instrument	0	0
Fair Value Hedging [Member] | Fixed-to-floating interest rate swaps (fair value hedges) [Member] | Other long-term liabilites [Member]
Derivatives designated as hedges
Derivative liability designated as hedging instrument	5	2
Fair Value Hedging [Member] | Floating to Fixed Interest Rate Swap [Domain]
Derivatives designated as hedges
Period of derivatives designated as hedges		2 years
Fair Value Hedging [Member] | Foreign Currency Exchange Contracts [Member] | Other long-term liabilites [Member]
Derivatives designated as hedges
Derivative liability designated as hedging instrument	0
Fair Value Hedging [Member] | Commodity contracts (cash flow hedges) [Member] | Other long-term liabilites [Member]
Derivatives designated as hedges
Derivative liability designated as hedging instrument	0
Cash Flow Hedging [Member] | Floating to Fixed Interest Rate Swap [Domain]
Derivatives designated as hedges
Notional amount	300	300
Period of derivatives designated as hedges	2 years
Cash Flow Hedging [Member] | Floating to Fixed Interest Rate Swap [Domain] | Other current assets [Member]
Derivatives designated as hedges
Derivative asset designated as hedging instrument	0	0
Cash Flow Hedging [Member] | Floating to Fixed Interest Rate Swap [Domain] | Other long-term assets [Member]
Derivatives designated as hedges
Derivative asset designated as hedging instrument	0	0
Cash Flow Hedging [Member] | Floating to Fixed Interest Rate Swap [Domain] | Other current liabilities [Member]
Derivatives designated as hedges
Derivative liability designated as hedging instrument	0	0
Cash Flow Hedging [Member] | Floating to Fixed Interest Rate Swap [Domain] | Other long-term liabilites [Member]
Derivatives designated as hedges
Derivative liability designated as hedging instrument	1	0
Cash Flow Hedging [Member] | Foreign Currency Exchange Contracts [Member]
Derivatives designated as hedges
Notional amount	408	308
Period of derivatives designated as hedges	12 to 36 months	12 to 36 months
Cash Flow Hedging [Member] | Foreign Currency Exchange Contracts [Member] | Other current assets [Member]
Derivatives designated as hedges
Derivative asset designated as hedging instrument	6	4
Cash Flow Hedging [Member] | Foreign Currency Exchange Contracts [Member] | Other long-term assets [Member]
Derivatives designated as hedges
Derivative asset designated as hedging instrument	0	0
Cash Flow Hedging [Member] | Foreign Currency Exchange Contracts [Member] | Other current liabilities [Member]
Derivatives designated as hedges
Derivative liability designated as hedging instrument	1	9
Cash Flow Hedging [Member] | Foreign Currency Exchange Contracts [Member] | Other long-term liabilites [Member]
Derivatives designated as hedges
Derivative liability designated as hedging instrument		0
Cash Flow Hedging [Member] | Commodity contracts (cash flow hedges) [Member]
Derivatives designated as hedges
Notional amount	51	47
Period of derivatives designated as hedges	12 months	12 months
Cash Flow Hedging [Member] | Commodity contracts (cash flow hedges) [Member] | Other current assets [Member]
Derivatives designated as hedges
Derivative asset designated as hedging instrument	0	0
Cash Flow Hedging [Member] | Commodity contracts (cash flow hedges) [Member] | Other long-term assets [Member]
Derivatives designated as hedges
Derivative asset designated as hedging instrument	0	0
Cash Flow Hedging [Member] | Commodity contracts (cash flow hedges) [Member] | Other current liabilities [Member]
Derivatives designated as hedges
Derivative liability designated as hedging instrument	2	7
Cash Flow Hedging [Member] | Commodity contracts (cash flow hedges) [Member] | Other long-term liabilites [Member]
Derivatives designated as hedges
Derivative liability designated as hedging instrument		$ 0

XML

Derivative Financial Instruments and Hedging Activities (Tables)

3 Months Ended

Mar. 31, 2012

Derivative Instruments and Hedging Activities (Textuals) [Abstract]

Percentage of intercompany balance sheet exposure that Eaton manages

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		Other long-term liabilities		Type of hedge	Term
March 31, 2012
Derivatives designated as hedges
Fixed-to-floating interest rate swaps	$	1,290	$	—	$	61	$	—	$	5	Fair value	1 to 22 years
Floating-to-fixed interest rate swaps	300		—		—		—		1		Cash flow	2 years
Foreign currency exchange contracts	408		6		—		1		—		Cash flow	12 to 36 months
Commodity contracts	51		—		—		2		—		Cash flow	12 months
Total			$	6	$	61	$	3	$	6
Derivatives not designated as hedges
Foreign currency exchange contracts	$	3,086	$	9			$	18				12 months
Commodity contracts	64		1				4					12 months
Total			$	10			$	22
December 31, 2011
Derivatives designated as hedges
Fixed-to-floating interest rate swaps	$	940	$	—	$	68	$	—	$	2	Fair value	1 to 22 years
Floating-to-fixed interest rate swaps	300		—		—		—		—		Cash flow	2 years
Foreign currency exchange contracts	308		4		—		9		—		Cash flow	12 to 36 months
Commodity contracts	47		—		—		7		—		Cash flow	12 months
Total			$	4	$	68	$	16	$	2
Derivatives not designated as hedges
Foreign currency exchange contracts	$	2,954	$	18			$	14				12 months
Commodity contracts	61		—				12					12 months
Total			$	18			$	26

Amounts recognized in accumulated other comprehensive income (loss)

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

	Three months ended March 31
	2012						2011
	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	$	9		$	(2	)	$	1	$	—
Commodity contracts	4			(2		)	—		2
Floating-to-fixed interest rate swaps	(1		)	—			—		—
Total	$	12		$	(4	)	$	1	$	2

Amounts recognized in net income

Amounts recognized in net income follow:

	Three months ended March 31
	2012			2011
Derivatives designated as fair value hedges
Fixed-to-floating interest rate swaps	$	(10	)	$	(6	)
Related long-term debt converted to floating interest rates by interest rate swaps	10			6
	$	—		$	—

XML

Acquisitions of Businesses

3 Months Ended

Mar. 31, 2012

Business Combinations [Abstract]

ACQUISITIONS OF BUSINESSES

ACQUISITIONS OF BUSINESSES

In 2012 and 2011, 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 and the related annual sales prior to acquisition are summarized below:

Acquired businesses and joint venture	Date of transaction	Business segment	Annual sales
E.A. Pedersen Company	December 29, 2011	Electrical Americas	$37 for 2011
A United States manufacturer of medium voltage switchgear, metal-clad switchgear, power control buildings and relay control panels primarily for the electrical utilities industry.
IE Power, Inc.	August 31, 2011	Electrical Americas	$5 for 2010
A Canadian 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 German 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 African 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 Colombian 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	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 based manufacturer of pneumatic and hydraulic quick coupling solutions and leak-free connectors used in industrial, construction, mining, defense, energy and power applications.

On February 20, 2012, Eaton reached an agreement to acquire Polimer Kaucuk Sanayi ve Pazarlama A.S., a Turkish manufacturer of hydraulic and industrial hose. This business sells its products under the SEL brand name and had sales of $335 for 2011. The acquisition is expected to close in the second quarter of 2012 and will be included in the Hydraulics segment. The terms of the agreement are subject to customary closing conditions.

On April 5, 2012, Eaton reached an agreement to acquire substantially all the shares of Jeil Hydraulics Co., Ltd., a Korean manufacturer of hydraulic motors and valves with sales of $189 for 2011. The acquisition is expected to close early in the third quarter of 2012 and will be included in the Hydraulics segment. The terms of the agreement are subject to customary closing conditions.

XML

Consolidated Statements of Comprehensive Income (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Net income	$ 311	$ 286
Adjustment for net loss for noncontrolling interests	0	1
Net income attributable to Eaton common shareholders	311	287
Other comprehensive income (loss), net of tax
Foreign currency translation and related hedging instruments	172	217
Pensions and other postretirement benefits	38	16
Cash flow hedges	16	(1)
Other comprehensive income	226	232
Adjustment for other comprehensive income for noncontrolling interests	0	(1)
Other comprehensive income attributable to Eaton common shareholders	226	231
Total comprehensive income attributable to Eaton common shareholders	$ 537	$ 518

XML

Business Segment Information

3 Months Ended

Mar. 31, 2012

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 2011 Form 10-K.

	Three months ended March 31
	2012			2011
Net sales
Electrical Americas	$	1,087		$	964
Electrical Rest of World	651			743
Hydraulics	735			685
Aerospace	430			389
Truck	631			576
Automotive	426			446
Total net sales	$	3,960		$	3,803
Segment operating profit
Electrical Americas	$	162		$	132
Electrical Rest of World	53			70
Hydraulics	109			106
Aerospace	60			45
Truck	116			90
Automotive	44			50
Total segment operating profit	544			493
Corporate
Amortization of intangible assets	(42		)	(48		)
Interest expense-net	(28		)	(32		)
Pension and other postretirement benefits expense	(41		)	(33		)
Other corporate expense-net	(65		)	(45		)
Income before income taxes	368			335
Income tax expense	57			49
Net income	311			286
Adjustment for net loss for noncontrolling interests	—			1
Net income attributable to Eaton common shareholders	$	311		$	287

XML

Document and Entity Information Document (USD $) In Billions, except Share data in Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Jun. 30, 2011
Entity Information [Line Items]
Entity Registrant Name	EATON CORP
Entity Central Index Key	0000031277
Document Type	10-Q
Document Period End Date	Mar. 31, 2012
Amendment Flag	false
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q1
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Public Float		$ 17.5
Entity Common Stock, Shares Outstanding	336.5

XML

Acquisitions of Businesses (Tables)

3 Months Ended

Mar. 31, 2012

Business Combinations [Abstract]

Description Of Annual Sales From Acquired Entity From Previous Periods Text Block

In 2012 and 2011, 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 and the related annual sales prior to acquisition are summarized below:

Acquired businesses and joint venture	Date of transaction	Business segment	Annual sales
E.A. Pedersen Company	December 29, 2011	Electrical Americas	$37 for 2011
A United States manufacturer of medium voltage switchgear, metal-clad switchgear, power control buildings and relay control panels primarily for the electrical utilities industry.
IE Power, Inc.	August 31, 2011	Electrical Americas	$5 for 2010
A Canadian 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 German 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 African 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 Colombian 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	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 based manufacturer of pneumatic and hydraulic quick coupling solutions and leak-free connectors used in industrial, construction, mining, defense, energy and power applications.

XML

Condensed Consolidated Balance Sheets (USD $) In Millions, unless otherwise specified	Mar. 31, 2012	Dec. 31, 2011
Current assets
Cash	$ 367	$ 385
Short-term investments	444	699
Accounts receivable-net	2,588	2,444
Inventory	1,779	1,701
Other current assets	704	597
Total current assets	5,882	5,826
Property, plant and equipment-net	2,660	2,602
Other noncurrent assets
Goodwill	5,605	5,537
Other intangible assets	2,192	2,192
Deferred income taxes	1,057	1,134
Other assets	597	582
Total assets	17,993	17,873
Current liabilities
Short-term debt	86	86
Current portion of long-term debt	319	321
Accounts payable	1,530	1,491
Accrued compensation	297	420
Other current liabilities	1,333	1,319
Total current liabilities	3,565	3,637
Noncurrent liabilities
Long-term debt	3,345	3,366
Pension liabilities	1,511	1,793
Other postretirement benefits liabilities	640	642
Deferred income taxes	450	442
Other noncurrent liabilities	528	501
Total noncurrent liabilities	6,474	6,744
Shareholders' equity
Eaton shareholders' equity	7,933	7,469
Noncontrolling interests	21	23
Total equity	7,954	7,492
Total liabilities and equity	$ 17,993	$ 17,873

XML

Income Taxes

3 Months Ended

Mar. 31, 2012

Income Tax Expense (Benefit) [Abstract]

INCOME TAXES

INCOME TAXES

The effective tax rate for the first quarter of 2012 was 15.6% compared to 14.5% for the first quarter of 2011. The higher effective tax rate in the first quarter of 2012 was primarily attributable to greater levels of income in high tax rate jurisdictions and the expiration of the U.S. Research and Experimentation tax credit as of December 31, 2011.

At the end of the fourth quarter of 2011, the IRS issued a Notice for Eaton's 2005 and 2006 tax years. The Notice proposes assessments of $75 in additional taxes plus $52 in penalties related primarily to transfer pricing adjustments for products manufactured in the Company's facilities in Puerto Rico and the Dominican Republic and sold to affiliated companies located in the U.S., net of agreed credits and deductions. The Company has set its transfer prices for products sold between these affiliates at the same prices that the Company sells such products to third parties. The Notice was issued despite the IRS having previously recognized the validity of the Company's transfer pricing methodology by entering into two successive binding Advance Pricing Agreements (APAs) that approved and, in fact, required the application of the Company's transfer pricing methodology for the ten year period of 2001 through 2010. For the years 2001 through 2004, the IRS had previously accepted the transfer pricing methodology related to these APAs after a comprehensive review conducted in two separate audit cycles. On December 16, 2011, immediately prior to the Notice being issued, the IRS sent a letter stating that it was canceling the APAs.

The Company firmly believes that the proposed assessments are without merit. The Company also believes that it was in full compliance with the terms of the two APAs and that the IRS's unilateral attempt to retroactively cancel these two binding contracts is also without merit and represents a breach of the two contracts. On February 29, 2012, the Company filed a Petition with the U.S. Tax Court in which it asserted that the transfer pricing established in the two APA contracts meets the arms-length standard set by the U.S. income tax law, that the transfer pricing the Company has used is in full compliance with U.S. income tax laws, and accordingly, that the two APA contracts should be enforced in accordance with their terms. The Company believes that the ultimate resolution of this matter will not have a material impact on its consolidated financial statements.

XML

Legal Contingencies

3 Months Ended

Mar. 31, 2012

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 March 31, 2012, the Company has a total accrual of 72 Brazilian Reais related to this matter ($39 based on current exchange rates), comprised of 60 Brazilian Reais recognized in the fourth quarter of 2010 ($33 based on current exchange rates) with an additional 12 Brazilian Reais recognized through March 31, 2012 ($6 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 on November 21, 2011, Eaton's remaining appeal was accepted. These appeals will be heard in due course.

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. Accordingly, an estimate of any potential loss related to this action cannot be made at this time.

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.

XML

Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2012

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)
March 31, 2012
Cash	$	367	$	367	$	—	$	—
Short-term investments	444		444		—		—
Net derivative contracts	46		—		46		—
Long-term debt converted to floating interest rates by    interest rate swaps - net	56		—		56		—
December 31, 2011
Cash	$	385	$	385	$	—	$	—
Short-term investments	699		699		—		—
Net derivative contracts	46		—		46		—
Long-term debt converted to floating interest rates by    interest rate swaps - net	66		—		66		—

XML

Acquisition Integration Charges (Tables)

3 Months Ended

Mar. 31, 2012

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 March 31
	2012		2011
Business segment
Electrical Americas	$	1	$	3
Electrical Rest of World	1		—
Hydraulics	1		—
Total integration charges before income taxes	$	3	$	3
After-tax integration charges	$	2	$	2
Per common share	$	0.01	$	0.01

XML

Derivative Financial Instruments and Hedging Activities

3 Months Ended

Mar. 31, 2012

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 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. Gains and losses associated with commodity hedge contracts are reported in Cost of products sold.

Eaton uses certain of its debt denominated in foreign currency to hedge portions of its net investments in foreign operations against foreign currency exposure (net investment hedges). Debt denominated in foreign currency and designated as non-derivative net investment hedging instruments was $122 at March 31, 2012 and $129 at December 31, 2011.

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		Other long-term liabilities		Type of hedge	Term
March 31, 2012
Derivatives designated as hedges
Fixed-to-floating interest rate swaps	$	1,290	$	—	$	61	$	—	$	5	Fair value	1 to 22 years
Floating-to-fixed interest rate swaps	300		—		—		—		1		Cash flow	2 years
Foreign currency exchange contracts	408		6		—		1		—		Cash flow	12 to 36 months
Commodity contracts	51		—		—		2		—		Cash flow	12 months
Total			$	6	$	61	$	3	$	6
Derivatives not designated as hedges
Foreign currency exchange contracts	$	3,086	$	9			$	18				12 months
Commodity contracts	64		1				4					12 months
Total			$	10			$	22
December 31, 2011
Derivatives designated as hedges
Fixed-to-floating interest rate swaps	$	940	$	—	$	68	$	—	$	2	Fair value	1 to 22 years
Floating-to-fixed interest rate swaps	300		—		—		—		—		Cash flow	2 years
Foreign currency exchange contracts	308		4		—		9		—		Cash flow	12 to 36 months
Commodity contracts	47		—		—		7		—		Cash flow	12 months
Total			$	4	$	68	$	16	$	2
Derivatives not designated as hedges
Foreign currency exchange contracts	$	2,954	$	18			$	14				12 months
Commodity contracts	61		—				12					12 months
Total			$	18			$	26

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 March 31
	2012						2011
	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	$	9		$	(2	)	$	1	$	—
Commodity contracts	4			(2		)	—		2
Floating-to-fixed interest rate swaps	(1		)	—			—		—
Total	$	12		$	(4	)	$	1	$	2

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 March 31
	2012			2011
Derivatives designated as fair value hedges
Fixed-to-floating interest rate swaps	$	(10	)	$	(6	)
Related long-term debt converted to floating interest rates by interest rate swaps	10			6
	$	—		$	—

Gains and losses described above were recognized in Interest expense.

XML

Equity

3 Months Ended

Mar. 31, 2012

Stockholders' Equity Note [Abstract]

EQUITY

EQUITY

The changes in Shareholders’ equity follow:

	Eaton shareholders’ equity			Noncontrolling interests			Total equity
Balance at December 31, 2011	$	7,469		$	23		$	7,492
Net income	311			—			311
Other comprehensive income	226			—			226
Cash dividends paid	(127		)	(2		)	(129		)
Issuance of shares under equity-based compensation plans-net	54			—			54
Balance at March 31, 2012	$	7,933		$	21		$	7,954

Net Income per Common Share

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

	Three months ended March 31
(Shares in millions)	2012		2011
Net income attributable to Eaton common shareholders	$	311	$	287
Weighted-average number of common shares outstanding-diluted	339.8		345.7
Less dilutive effect of stock options and restricted stock awards	4.4		5.6
Weighted-average number of common shares outstanding-basic	335.4		340.1
Net income per common share
Diluted	$	0.91	$	0.83
Basic	0.93		0.84

For the first quarter of 2012 and 2011, 0.9 million and 0.1 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.

XML

Fair Value Measurements

3 Months Ended

Mar. 31, 2012

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 should be 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)
March 31, 2012
Cash	$	367	$	367	$	—	$	—
Short-term investments	444		444		—		—
Net derivative contracts	46		—		46		—
Long-term debt converted to floating interest rates by    interest rate swaps - net	56		—		56		—
December 31, 2011
Cash	$	385	$	385	$	—	$	—
Short-term investments	699		699		—		—
Net derivative contracts	46		—		46		—
Long-term debt converted to floating interest rates by    interest rate swaps - net	66		—		66		—

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 $3,664 and fair value of $4,212 at March 31, 2012 compared to $3,687 and $4,273, respectively, at December 31, 2011. The fair value of debt is determined based on trade information in the financial markets of the Company's public debt and is considered a Level 2 fair value measurement.

XML

Inventory

3 Months Ended

Mar. 31, 2012

Inventory Disclosure [Abstract]

INVENTORY

INVENTORY

The components of inventory follow:

	March 31, 2012			December 31, 2011
Raw materials	$	747		$	706
Work-in-process	291			272
Finished goods	890			867
Inventory at FIFO	1,928			1,845
Excess of FIFO over LIFO cost	(149		)	(144		)
Total inventory	$	1,779		$	1,701

XML

Equity (Details 1) (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Calculation of net income per common share attributable to common shareholders
Net income attributable to Eaton common shareholders	$ 311	$ 287
Weighted-average number of common shares outstanding - diluted	339.8	345.7
Less dilutive effect of stock options and restricted stock awards	4.4	5.6
Weighted-average number of common shares outstanding - basic	335.4	340.1
Net income per common share
Diluted	$ 0.91	$ 0.83
Basic	$ 0.93	$ 0.84

XML

Retirement Benefit Plans (Tables)

3 Months Ended

Mar. 31, 2012

Compensation and Retirement Disclosure [Abstract]

Retirement benefit plans expense

The components of retirement benefits expense follow:

	Three months ended March 31
	United States pension benefit expense						Non-United States pension benefit expense						Other postretirement benefits expense
	2012			2011			2012			2011			2012			2011
Service cost	$	29		$	23		$	12		$	13		$	4		$	4
Interest cost	34			33			19			20			9			10
Expected return on plan assets	(45		)	(41		)	(19		)	(18		)	(1		)	—
Amortization	29			19			4			3			4			3
	47			34			16			18			16			17
Settlement loss	4			3			2			—			—			—
Total expense	$	51		$	37		$	18		$	18		$	16		$	17

XML

Business Segment Information (Tables)

3 Months Ended

Mar. 31, 2012

Segment Reporting [Abstract]

Business Segment Information

	Three months ended March 31
	2012			2011
Net sales
Electrical Americas	$	1,087		$	964
Electrical Rest of World	651			743
Hydraulics	735			685
Aerospace	430			389
Truck	631			576
Automotive	426			446
Total net sales	$	3,960		$	3,803
Segment operating profit
Electrical Americas	$	162		$	132
Electrical Rest of World	53			70
Hydraulics	109			106
Aerospace	60			45
Truck	116			90
Automotive	44			50
Total segment operating profit	544			493
Corporate
Amortization of intangible assets	(42		)	(48		)
Interest expense-net	(28		)	(32		)
Pension and other postretirement benefits expense	(41		)	(33		)
Other corporate expense-net	(65		)	(45		)
Income before income taxes	368			335
Income tax expense	57			49
Net income	311			286
Adjustment for net loss for noncontrolling interests	—			1
Net income attributable to Eaton common shareholders	$	311		$	287

XML

Condensed Consolidated Statements of Cash Flows (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Operating activities
Net income	$ 311	$ 286
Adjustments to reconcile to net cash used by operating activities
Depreciation and amortization	140	139
Contributions to pension plans	(330)	(282)
Contributions to other postretirement benefits plans	(15)	(16)
Changes in working capital	(388)	(418)
Other-net	184	(13)
Net cash used in operating activities	(98)	(304)
Investing activities
Capital expenditures for property, plant and equipment	(105)	(88)
Sales of short-term investments-net	262	348
Other-net	(16)	6
Net cash provided by investing activities	141	266
Borrowings with original maturities of more than three months
Proceeds	0	5
Payments	(2)	(17)
Borrowings with original maturities of less than three months-net (primarily commercial paper)	1	19
Cash dividends paid	(127)	(116)
Exercise of equity-based awards	43	53
Repurchase of shares	0	(50)
Excess tax benefit from equity-based compensation	13	0
Other-net	3	0
Net cash used in financing activities	(69)	(106)
Effect of foreign exchange rate changes on cash	8	12
Total decrease in cash	(18)	(132)
Cash at the beginning of the period	385	333
Cash at the end of the period	$ 367	$ 201

XML

Retirement Benefit Plans

3 Months Ended

Mar. 31, 2012

Compensation and Retirement Disclosure [Abstract]

RETIREMENT BENEFIT PLANS

RETIREMENT BENEFITS PLANS

The components of retirement benefits expense follow:

	Three months ended March 31
	United States pension benefit expense						Non-United States pension benefit expense						Other postretirement benefits expense
	2012			2011			2012			2011			2012			2011
Service cost	$	29		$	23		$	12		$	13		$	4		$	4
Interest cost	34			33			19			20			9			10
Expected return on plan assets	(45		)	(41		)	(19		)	(18		)	(1		)	—
Amortization	29			19			4			3			4			3
	47			34			16			18			16			17
Settlement loss	4			3			2			—			—			—
Total expense	$	51		$	37		$	18		$	18		$	16		$	17

XML

Acquisitions of Businesses (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended						6 Months Ended	12 Months Ended
	Jun. 30, 2011 E.A. Pedersen Company [Member] Electrical Americas [Member]	Jun. 30, 2011 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]	Dec. 31, 2011 Polimer Kaucuk Sanayi ve Pazarlama A.S. [Member] Hydraulics [Member]	Dec. 31, 2011 Jeil Hydraulics Co. Ltd. [Member] Hydraulics [Member]
Description of annual sales from acquired entity from previous periods
Revenue reported for last annual period of acquired entity	$ 37	$ 5	$ 84	$ 65	$ 8	$ 55	$ 0	$ 35	$ 335	$ 189

XML

Inventory (Details) (USD $) In Millions, unless otherwise specified	Mar. 31, 2012	Dec. 31, 2011
Inventory Disclosure [Abstract]
Raw materials	$ 747	$ 706
Work-in-process	291	272
Finished goods	890	867
Inventories at FIFO	1,928	1,845
Excess of FIFO over LIFO cost	(149)	(144)
Total inventory	$ 1,779	$ 1,701

XML

Goodwill (Tables)

3 Months Ended

Mar. 31, 2012

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Goodwill

A summary of goodwill follows:

	March 31, 2012		December 31, 2011
Electrical Americas	$	2,074	$	2,043
Electrical Rest of World	1,000		981
Hydraulics	1,129		1,116
Aerospace	1,044		1,040
Truck	150		150
Automotive	208		207
Total goodwill	$	5,605	$	5,537