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Eaton Corporation    Correspondence

November 21, 2005

SUBMITTED VIA EDGAR

Mr. Rufus Decker

Accounting Branch Chief

Division of Corporation Finance

United States Securities and Exchange Commission

Washington, D.C. 20549

    Re:

    Eaton Corporation

Form 10-K for the fiscal year ended December 31, 2004

Form 10-Q for the quarter ended September 30, 2005

File No. 1-1396

Dear Mr. Decker:

We have reviewed your November 4, 2005 letter (“the Letter”) regarding your comments on the
financial statements and disclosures contained in the above referenced reports (the “Subject
Reports”) filed by Eaton Corporation (the “Company”) with the Securities and Exchange Commission
(the “SEC”) and provide the following responses to your comments.

The Company’s Introductory Comment

The Company has in place processes and internal controls to identify amounts related to disclosures
that are required by GAAP. Some of the comments and inquiries noted in the Letter by the staff
relate to amounts that the Company previously has assessed for disclosure, but concluded were not
individually material, and the financial statements and related disclosures were prepared in light
of that analysis. In the preparation of financial statements and related disclosures, the Company
will continue to perform the appropriate analysis of these and all other items related to financial
reporting, regardless of materiality, and, when appropriate, will modify its disclosures for
amounts that become material, as has been suggested in the various comments.

FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2004

General

    1.

    Where a comment below requests additional disclosures or other revisions to be made,
please show us in your supplemental response what the revisions will look like. These
revisions should be included in your future filings.

    Please see our comments below for a description of the additional disclosures or other
revisions that will be made in future filings.

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Item 3 — Legal Proceedings

    2.

    For each legal proceeding that is not routine and incidental to the business, please
include the name of the court in which the proceeding is pending, the date instituted, the
parties involved, a description of the suit, and the relief sought. See Item 103 of
Regulation S-K.

    The Company believes that at the time of the filing of both of the Subject Reports, all
pending litigation was routine and incidental to the business and none of it was required
to be disclosed under Regulation S-K, Item 103.

Item 15 — Exhibits and Financial Statement Schedules

    3.

    Please tell us where you have provided the disclosures required by Schedule II
related to your allowance for doubtful accounts or revise your disclosure accordingly.
Please note these disclosures are required for all periods presented. See Rules 5-04 and
12-09 of Regulation S-X.

    Financial Statement Schedule II for Valuation and Qualifying Accounts required by
Regulation S-X, Item 12-09 is not included in the 2004 Form 10-K, since there is full
disclosure of material amounts related to the allowance for doubtful accounts in the
financial statements and accompanying footnotes. The allowance for doubtful accounts at
December 31, 2004 and 2003 is disclosed in the “Accounts Receivable” footnote in the “Other
Information” footnote on page F-33 of the financial section of the 2004 Form 10-K, and
additions and deductions during 2004, 2003 and 2002 were not material. Regulation S-X,
Item 5-04 (b) provides that any information required to be contained in a “Schedule” may
instead be shown in the related financial statement or in a note thereto, provided such
presentation is not unclear or confusing. Further, Regulation S-X, Item 4-02 provides that
immaterial items need not be separately set forth.

Financial Statements

Statements of Consolidated Cash Flows, page F-8

    4.

    Please breakout for each period presented the other-net line item in the cash
provided by operating activities sections into smaller components having more descriptive
titles. Netting of dissimilar gains and losses is not appropriate. Netting of cash flows
related to asset balances with cash flows related to liability balances is also not
appropriate. See SFAS 95.

    The Company’s process to prepare the statement of cash flows does not net dissimilar gains
and losses, nor are net cash flows related to asset balances netted with cash flows related
to liability balances. Only after it is determined these items are individually and
collectively not material, are the items aggregated in

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    the final disclosure. Therefore, consistent with Regulation S-X, Item 4-02 and SFAS 95,
amounts included in “Other-net” in “Net Cash Provided by Operating Activities” have not
been disclosed on separate line items, since, individually and collectively, they were not
material in 2004, 2003 and 2002. The Company will continue to carefully evaluate its
disclosure of “Other-net” in “Net Cash Provided by
Operating Activities” and, should the amounts become material, will alter its future filings accordingly.

    5.

    Please present the effect of exchange rate changes on cash balances held in foreign
currencies as a separate part of the reconciliation of the change in cash and cash
equivalents during the period. See paragraph 25 of SFAS 95.

    The Company’s process to prepare the statement of cash flows results in the identification
of the effect of exchange rate changes on cash balances held in foreign currencies. Only
after it is determined these items are not material are the effects of exchange rate
changes aggregated in the final disclosure and included in “Other-net” in “Net Cash
Provided by Operating Activities”. Consistent with Regulation S-X, Item 4-02 and SFAS 95,
the effects of exchange rate changes on cash balances have not been disclosed on separate
lines, since they were not material in 2004, 2003 and 2002. The Company will continue to
carefully evaluate its disclosure of the effects of exchange rate changes on cash balances
and, should the amounts become material, will alter its future filings accordingly.

Statements of Consolidated Shareholders’ Equity, page F-9

    6.

    Please present all components of other comprehensive income on the face of your
statement of shareholders’ equity, as opposed to your current disclosure in the footnotes.
See paragraphs 14 and 22 of SFAS 130.

    In future filings, all components of other comprehensive income will be presented on the
face of the Statement of Consolidated Shareholders’ Equity. This presentation will be
consistent with the components of other comprehensive loss in 2004, 2003 and 2002 as
displayed in the “Accumulated Other Comprehensive Loss” footnote on page F-30 of the
financial section of the 2004 Form 10-K.

    7.

    Please disclose for all periods presented the amounts of the reclassification
adjustments and the income tax provisions for each classification of other comprehensive
income. See paragraphs 20 and 25 of SFAS 130.

    The only material amounts of income taxes related to the components of accumulated other
comprehensive loss pertain to the minimum pension liability adjustment. In the
“Accumulated Other Comprehensive Loss” footnote on page F-30 of the financial section of
the 2004 Form 10-K, reference is made to the “Retirement Benefit Plans” footnote on page
F-23, where income taxes related to the minimum pension liability adjustment are disclosed.
Consistent with the response to Comment 6, the Company will revise its future filings to
add the

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    disclosure of income taxes related to the components of accumulated other comprehensive
loss on the face of the Statement of Consolidated Shareholders’ Equity and in the
“Accumulated Other Comprehensive Loss” footnote.

    Consistent with Regulation S-X, Item 4-02 and SFAS 130, reclassification adjustments
related to accumulated other comprehensive loss have not been disclosed as separate line
items, since they were not material in 2004, 2003 and 2002. The Company will continue to
carefully evaluate its disclosure of reclassification adjustments related to accumulated
other comprehensive loss and, should the amounts become material, will alter its future filings
accordingly.

Accounting Policies, page F-11

General

    8.

    Please disclose the types of expenses that you include in the cost of products sold
line item and the types of expenses that you include in the selling and administrative
expenses line item. Please also disclose whether you include inbound freight charges,
purchasing and receiving costs, inspection costs, warehousing costs, internal transfer
costs, and the other costs of your distribution network in the cost of products sold line
item. With the exception of warehousing costs, if you currently exclude a portion of
these costs from cost of products sold, please disclose:

    •

    in a footnote the line items that these excluded costs are included in and the
amounts included in each line item for each period presented, and

    •

    in MD&A that your gross margins may not be comparable to those of other entities,
since some entities include all of the costs related to their distribution network in
cost of products sold and others like you exclude a portion of them from gross margin,
including them instead in a line item such as selling and administrative expenses.

    Inbound freight charges, purchasing and receiving costs, inspection costs, warehousing
costs, internal transfer costs, and other costs of the distribution network are included in
cost of products sold. Therefore, for these amounts, the Company’s gross margins are
comparable to those of other entities.

    In future filings, the Company will include the following disclosure regarding the types of
expenses that are included in the cost of products sold line item, in the “Inventories”
policy in “Accounting Policies”:

    Cost components include raw materials, purchased components, direct labor, indirect labor,
utilities, depreciation, inbound freight charges, purchasing and receiving costs,
inspection costs, warehousing costs, internal transfer costs, and costs of the distribution
network.

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Depreciation and Amortization, page F-11

    9.

    The range of amortization periods for your intangible assets of five to thirty years
is very broad. Please separately disclose the range of amortization periods for your
patents, tradenames, and distribution networks. See paragraph 13 of APB 22.

    At December 31, 2004, the amortization periods for intangible assets subject to
amortization were 7 to 17 years for patents, 20 years for tradenames, 15 to 30 years for
distributor channels, and 5 to 16 years for manufacturing technology and customer
agreements. In future filings, the Company will disclose the amortization period for
intangible assets subject to amortization by major class of asset in the “Depreciation &
Amortization” policy in “Accounting Policies”, as
described above.

Revenue Recognition, page F-14

    10.

    Please disclose whether your stated shipping terms are FOB shipping point or FOB
destination pursuant to your sales agreements with customers. In addition, please
disclose whether your sales agreements contain right of inspection or acceptance
provisions and whether you replace goods damaged or lost in transit. Even if your sales
agreements state that title passes upon shipment, customer acceptance provisions or a
history of your replacing goods damaged or lost in transit may also make the recognition
of revenue upon delivery to and acceptance by the customer more appropriate. See the
Interpretive Response to Question 3 of SAB Topic 13:A.3.b.

    In future filings, the Company will add disclosures regarding shipping terms and
uncertainties related to revenue recognition, as described in italics below, to the
existing “Revenue Recognition” policy in “Accounting Policies”:

    Sales are recognized when products are shipped to unaffiliated customers, all significant
risks of ownership have been transferred to the customer, title has transferred in accordance
with shipping terms (FOB shipping point or FOB destination), the selling price is fixed and
determinable, and all significant related acts of performance have been completed and no
other significant uncertainties exist. Shipping and handling costs billed to customers are
included in Net sales and the related costs in Cost of products sold. Other revenues for
service contracts are recognized as the services are provided.

Exit and Sale of Businesses, page F-16

    11.

    You disclose that you will be exiting your legacy tire and refrigeration valve
manufacturing business during 2005. Please tell us why you believe it is appropriate to
present within continuing operations the results of operations, as

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    well as the related assets and liabilities, of this business. Please see paragraphs 30 and
41-47 of SFAS 144.

    Consistent with SFAS 144, the results of the legacy tire and refrigeration business that
was disposed of were included as a component of continuing operations, since the sales,
assets and liabilities were not material. Sales of this business in 2004 were $30 million
(0.3% of consolidated sales), and at December 31, 2004 related assets were $14 million
(0.2% of consolidated assets) and liabilities were $2 million. This business was sold in
March 2005, after the announcement of the disposal in December 2004.

Shareholders’ Equity, page F-27

    12.

    Please disclose whether your share repurchases were made
in open market transactions or by some other means. If you repurchased any shares by means other than open market transactions, please disclose the quantity of shares repurchased through each specific
means for each period presented. Please tell us the consideration you gave to FIN 44 with
regards to any repurchases of employee shares. Please also include the disclosures
required by Instruction to paragraph (b)(1) of Item 703 of Regulation S-K in Item 5 of
your Form 10-K and Item 2 of your Forms 10-Q, as applicable.

    All repurchases of Common Shares were made in the open market. Because the shares were
repurchased in the open market, it cannot be determined if any were repurchased from
employees. In future filings, this disclosure will be revised to indicate that all
repurchases of shares are made in the open market.

    The disclosures required by Regulation S-K, Item 703 related to repurchases of shares were
not included in Item 5 of Part II of the 2004 Form 10-K, since no shares were repurchased
in the fourth quarter of 2004 (also see Release No. 33-8335, Section VI, paragraph 6, which
indicates these disclosures are only required in a quarterly reporting period in which shares
are repurchased). All share repurchases in 2004 occurred in the first quarter of
2004, and the disclosure required by Item 703 is included in the Form 10-Q for the first
quarter of 2004.

    In interim filings for 2005, repurchases of shares in the first and second quarters are
disclosed in Item 2 of Part II of the Form 10-Qs related to the first and second quarters,
as required by Item 703.

Lease Commitments, page F-33

    13.

    Please disclose how you account for (a) step rent provisions and escalation clauses
and (b) capital improvement funding and other lease concessions, which may be present in
your leases. Paragraph 5.n. of SFAS 13, as amended by SFAS 29, discusses how lease
payments that depend on an existing index or rate, such as the consumer price index or the
prime interest rate, should also be included in

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    your minimum lease payments. If, as we assume, they are taken into account in computing
your minimum lease payments and the minimum lease payments are recognized on a
straight-line basis over the minimum lease term, the note should so state. If our
assumption is incorrect, please tell us how your accounting complies with SFAS 13 and FTB
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