Eaton - 10-Q quarterly report FY2018 Q1

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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, 2018

Commission file number 000-54863

EATON CORPORATION plc

(Exact name of registrant as specified in its charter)



Ireland		98-1059235
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification Number)

Eaton House, 30 Pembroke Road, Dublin 4, Ireland		D04 Y0C2
(Address of principal executive offices)		(Zip Code)



			+353 1637 2900
			(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, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer," “smaller reporting company,” and "emerging growth 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	Emerging growth company o	(Do not check if a smaller reporting company)

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange

Act. o

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 437.3 million Ordinary Shares outstanding as of March 31, 2018.

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PART I — FINANCIAL INFORMATION


ITEM 1.	FINANCIAL STATEMENTS.

EATON CORPORATION plc

CONSOLIDATED STATEMENTS OF INCOME



	Three months ended March 31
(In millions except for per share data)	2018			2017
Net sales	$	5,251		$	4,848

Cost of products sold	3,573			3,307
Selling and administrative expense	889			876
Research and development expense	156			143
Interest expense - net	70			61
Other income - net	(2		)	(6		)
Income before income taxes	565			467
Income tax expense	78			33
Net income	487			434
Less net loss for noncontrolling interests	1			—
Net income attributable to Eaton ordinary shareholders	$	488		$	434

Net income per share attributable to Eaton ordinary shareholders
Diluted	$	1.10		$	0.96
Basic	1.11			0.97

Weighted-average number of ordinary shares outstanding
Diluted	441.7			451.0
Basic	438.8			448.8

Cash dividends declared per ordinary share	$	0.66		$	0.60

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

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EATON CORPORATION plc

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



	Three months ended March 31
(In millions)	2018		2017
Net income	$	487	$	434
Less net loss for noncontrolling interests	1		—
Net income attributable to Eaton ordinary shareholders	488		434

Other comprehensive income, net of tax
Currency translation and related hedging instruments	257		228
Pensions and other postretirement benefits	26		33
Cash flow hedges	13		2
Other comprehensive income attributable to Eaton ordinary shareholders	296		263

Total comprehensive income attributable to Eaton ordinary shareholders	$	784	$	697

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

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EATON CORPORATION plc

CONDENSED CONSOLIDATED BALANCE SHEETS



(In millions)	March 31, 2018			December 31, 2017
Assets
Current assets
Cash	$	317		$	561
Short-term investments	510			534
Accounts receivable - net	4,005			3,943
Inventory	2,745			2,620
Prepaid expenses and other current assets	552			679
Total current assets	8,129			8,337

Property, plant and equipment
Land and buildings	2,531			2,491
Machinery and equipment	6,135			6,014
Gross property, plant and equipment	8,666			8,505
Accumulated depreciation	(5,123		)	(5,003		)
Net property, plant and equipment	3,543			3,502

Other noncurrent assets
Goodwill	13,698			13,568
Other intangible assets	5,206			5,265
Deferred income taxes	356			253
Other assets	1,736			1,698
Total assets	$	32,668		$	32,623

Liabilities and shareholders’ equity
Current liabilities
Short-term debt	$	185		$	6
Current portion of long-term debt	847			578
Accounts payable	2,203			2,166
Accrued compensation	300			453
Other current liabilities	1,861			1,872
Total current liabilities	5,396			5,075

Noncurrent liabilities
Long-term debt	6,845			7,167
Pension liabilities	1,225			1,226
Other postretirement benefits liabilities	359			362
Deferred income taxes	557			538
Other noncurrent liabilities	985			965
Total noncurrent liabilities	9,971			10,258

Shareholders’ equity
Eaton shareholders’ equity	17,263			17,253
Noncontrolling interests	38			37
Total equity	17,301			17,290
Total liabilities and equity	$	32,668		$	32,623

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

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EATON CORPORATION plc

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS



	Three months ended March 31
(In millions)	2018			2017
Operating activities
Net income	$	487		$	434
Adjustments to reconcile to net cash provided by operating activities
Depreciation and amortization	230			225
Deferred income taxes	(12		)	(37		)
Pension and other postretirement benefits expense	43			51
Contributions to pension plans	(40		)	(128		)
Contributions to other postretirement benefits plans	(5		)	(6		)
Changes in working capital	(459		)	(166		)
Other - net	95			90
Net cash provided by operating activities	339			463

Investing activities
Capital expenditures for property, plant and equipment	(131		)	(116		)
Sales (purchases) of short-term investments - net	31			(93		)
Other - net	(37		)	(20		)
Net cash used in investing activities	(137		)	(229		)

Financing activities
Proceeds from borrowings	179			194
Payments on borrowings	(33		)	(254		)
Cash dividends paid	(284		)	(263		)
Exercise of employee stock options	19			38
Repurchase of shares	(300		)	(255		)
Employee taxes paid from shares withheld	(23		)	(20		)
Other - net	(1		)	(3		)
Net cash used in financing activities	(443		)	(563		)

Effect of currency on cash	(3		)	8
Total decrease in cash	(244		)	(321		)
Cash at the beginning of the period	561			543
Cash at the end of the period	$	317		$	222

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

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EATON CORPORATION plc

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 plc (Eaton or the 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 United States generally accepted accounting principles (US GAAP) 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 2017 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 Securities and Exchange Commission.

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

Revenue Recognition

Sales are recognized when control of promised goods or services are transferred to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Control is transferred when the customer has the ability to direct the use of and obtain benefits from the goods or services. The majority of the Company’s sales agreements contain performance obligations satisfied at a point in time when control is transferred to the customer. Sales recognized over time are generally accounted for using an input measure to determine progress completed at the end of the period. Sales for service contracts generally are recognized as the services are provided. For agreements with multiple performance obligations, judgment is required to determine whether performance obligations specified in these agreements are distinct and should be accounted for as separate revenue transactions for recognition purposes. In these types of agreements, we generally allocate sales price to each distinct obligation based on the price of each item sold in separate transactions.

Payment terms vary by the type and location of the customer and the products or services offered. Generally, the time between when revenue is recognized and payment is due is not significant. Eaton does not evaluate whether the selling price includes a financing interest component for contracts that are less than a year. Sales, value add, and other taxes collected concurrent with revenue are excluded from sales. Shipping and handling costs are treated as fulfillment costs and are included in Cost of products sold.

Eaton records reductions to sales for returns, and customer and distributor incentives, primarily comprised of rebates, at the time of the initial sale. Rebates are estimated based on sales terms, historical experience, trend analysis, and projected market conditions in the various markets served. The rebate programs offered vary across businesses due to the numerous markets Eaton serves, but the most common incentives relate to amounts paid or credited to customers for achieving defined volume levels. Returns are estimated at the time of the sale primarily based on historical experience and recorded gross on the Consolidated Balance Sheet. See Note 3 for additional information.

Adoption of New Accounting Standards

Eaton adopted Accounting Standard Update 2014-09, Revenue from Contracts with Customers, at the start of the first quarter of 2018 using the modified retrospective approach and recorded a cumulative effect adjustment to retained earnings based on the current terms and conditions for open contracts as of January 1, 2018. The adoption of the standard did not have a material impact on the Company’s Consolidated financial statements. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.

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Consolidated Balance Sheet		Balance at December 31, 2017		Adjustments due to ASU 2014-09			Balance at January 1, 2018
Assets
	Accounts receivable - net	$	3,943	$	(99	)	$	3,844
	Prepaid expenses and other current assets	679		129			808
	Deferred income taxes	253		1			254

Liabilities and shareholders' equity
	Other current liabilities	$	1,872	$	33		$	1,905
	Eaton shareholders' equity	17,253		(2		)	17,251

Eaton adopted Accounting Standards Update 2016-16, Intra-Entity Transfers of Assets Other Than Inventory (ASU 2016-16), at the start of the first quarter of 2018. This accounting standard requires companies to recognize the income tax effects of intercompany sales and transfers of assets other than inventory in the period in which the transfer occurs. The previous accounting standard required companies to defer the income tax effects of intercompany transfers of assets by recording a prepaid tax, until such assets were sold to an outside party or otherwise recognized. ASU 2016-16 requires companies to write off any income tax amounts that had been deferred as prepaid taxes from past intercompany transactions, and record deferred tax balances for amounts that have not been recognized, through a cumulative-effect adjustment to retained earnings. Upon adoption, the Company recorded a cumulative-effect adjustment of $199 to reduce retained earnings.

Eaton adopted Accounting Standards Update 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (ASU 2017-07), at the start of the first quarter of 2018. The new standard requires companies to present service costs consistent with other employee compensation costs on the income statement and separate from all other elements of pension costs. The retrospective adoption of this standard resulted in a reduction in selling and administrative expense with a corresponding decrease in Other income - net of $1 and $9 for the three months ended March 31, 2018 and 2017, respectively.

Recently Issued Accounting Pronouncement

In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases (Topic 842), (ASU 2016-02). This accounting standard requires that a lessee recognize a lease asset and a lease liability on its balance sheet for all leases, including operating leases, with a term greater than 12 months. ASU 2016-02 will require additional disclosures in the notes to the consolidated financial statements and is effective for annual and interim reporting periods beginning after December 15, 2018. A project team has been formed to evaluate and implement the new standard. The project team is working to gather the data required to account for leases under the new standard, and validating the functionality of third-party lease accounting software. In addition, the Company is in the process of identifying and implementing the appropriate changes to business processes and controls to support recognition and disclosure under the new standard. Eaton plans to adopt the standard as of the first quarter of 2019. Eaton is evaluating the impact of ASU 2016-02 and an estimate of the impact to the consolidated financial statements cannot be made at this time.

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Note 2.	ACQUISITION INTEGRATION CHARGES

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



	Three months ended March 31
	2018		2017
Electrical Products	$	—	$	1
Total acquisition integration charges before income taxes	—		1
Income taxes	—		—
Total after income taxes	$	—	$	1
Per ordinary share - diluted	$	—	$	—

Business segment acquisition integration charges in 2017 related to the integration of Ephesus Lighting, Inc. (Ephesus), which was acquired in 2015. The charges associated with Ephesus were included in Selling and administrative expense. In Business Segment Information, the charges reduced Operating profit of the related business segment. See Note 13 for additional information about business segments.


Note 3.	REVENUE RECOGNITION

Sales are recognized when obligations under the terms of the contract are satisfied and control of promised goods or services have transferred to our customers. Sales are measured at the amount of consideration the Company expects to be paid in exchange for these products or services.

The majority of the Company’s sales agreements contain performance obligations satisfied at a point in time when title and risk and rewards of ownership have transferred to the customer. Sales recognized over time are less than 5% of Eaton’s Consolidated Net Sales. Sales recognized over time are generally accounted for using an input measure to determine progress completed at the end of the period. Sales for service contracts generally are recognized as the services are provided. For agreements with multiple performance obligations, judgment is required to determine whether performance obligations specified in these agreements are distinct and should be accounted for as separate revenue transactions for recognition purposes. In these types of agreements, we generally allocate sales price to each distinct obligation based on the price of each item sold in separate transactions.

Due to the nature of the work required to be performed for obligations recognized over time, Eaton estimates total costs by contract. The estimate of total costs are subject to judgment. Estimated amounts are included in the recognized sales price to the extent it is not probable that a significant reversal of cumulative sales will occur. Additionally, contracts can be modified to account for changes in contract specifications, requirements or sale price. The effect of a contract modification on the sales price or adjustments to the measure of completion under the input method are recognized as adjustments to revenue on a cumulative catch-up basis.

Payment terms vary by the type and location of the customer and the products or services offered. Generally, the time between when revenue is recognized and when payment is due is not significant. Eaton does not evaluate whether the selling price includes a financing interest component for contracts that are less than a year. Sales, value add, and other taxes collected concurrent with revenue are excluded from sales. Shipping and handling costs are treated as fulfillment costs and are included in Cost of products sold.

Eaton records reductions to sales for returns, and customer and distributor incentives, primarily comprised of rebates, at the time of the initial sale. Rebates are estimated based on sales terms, historical experience, trend analysis, and projected market conditions in the various markets served. The rebate programs offered vary across businesses due to the numerous markets Eaton serves, but the most common incentives relate to amounts paid or credited to customers for achieving defined volume levels. Returns are estimated at the time of the sale primarily based on historical experience and are recorded gross on the Condensed Consolidated Balance Sheet.

Sales commissions are expensed when the amortization period is less than a year and are generally not capitalized as they are typically earned at the completion of the contract when the customer is invoiced or when the customer pays Eaton.

Sales of products and services varies by segment and are discussed in Note 15 of Eaton’s 2017 Form 10-K and in Note 13.

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In the Electrical Products segment, sales contracts are primarily for electrical components, industrial components, residential products, single phase power quality, emergency lighting, fire detection, wiring devices, structural support systems, circuit protection, and lighting products. These sales contracts are primarily based on a customer’s purchase order followed by our order acknowledgement, and may also include a master supply or distributor agreement. In this segment, performance obligations are generally satisfied at a point in time either when we ship the product from our facility, or when it arrives at the customer’s facility.

In the Electrical Systems and Services segment, sales contracts are primarily for power distribution and assemblies, three phase power quality, hazardous duty electrical equipment, intrinsically safe explosion-proof instrumentation, utility power distribution, power reliability equipment, and services. The majority of the sales contracts in this segment contain performance obligations satisfied at a point in time either when we ship the product from our facility, or when it arrives at the customer’s facility; however, certain power distribution and power quality services are recognized over time.

Many of the products and services in power distribution and power quality services meet the definition of continuous transfer of control to customers and are recognized over time. These products are engineered to a customer’s design specifications, have no alternative use to Eaton, and are controlled by the customer as evidenced by the customer’s contractual ownership of the work in process or our right to payment for work performed to date plus a reasonable margin. As control is transferring over time, sales are recognized based on the extent of progress towards completion of the obligation. Eaton generally uses an input method to determine the progress completed and sales are recorded proportionally as costs are incurred. Incurred cost represent work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer.

In the Hydraulics segment, sales contracts are primarily for hydraulic components and systems for industrial and mobile equipment. These sales contracts are primarily based on a customer’s purchase order. In this segment, performance obligations are generally satisfied at a point in time when we ship the product from our facility.

In the Aerospace segment, sales contracts are primarily for aerospace fuel, hydraulics, and pneumatic systems for commercial and military use. These sales contracts are primarily based on a customer’s purchase order, and frequently covered by terms and conditions included in a long-term agreement. In this segment, performance obligations are generally satisfied at a point in time either when we ship the product from our facility, or when it arrives at the customer’s facility. Our military contracts are primarily fixed-price contracts that are not subject to performance-based payments or progress payments from the customer.

In the Vehicle segment, sales contracts are primarily for drivetrains, powertrain systems and critical components that reduce emissions and improve fuel economy, stability, performance, and safety of cars, light trucks and commercial vehicles. These sales contracts are primarily based on a customer’s purchase order or a blanket purchase order subject to firm releases, frequently covered by terms and conditions included in a master supply agreement. In this segment, performance obligations are generally satisfied at a point in time either when we ship the product from our facility, or when it arrives at the customer’s facility.

In the eMobility segment, sales contracts are primarily for electronic and mechanical components and systems that improves the power management and performance of both on-road and off-road vehicles. These sales contracts are primarily based on a customer’s purchase order. In this segment, performance obligations are generally satisfied at a point in time either when we ship the product from our facility, or when it arrives at the customer’s facility.

In limited circumstances, primarily in the Electrical and Vehicle segments, Eaton sells separately-priced warranties that extend the warranty coverage beyond the standard coverage offered on specific products. Sales for these separately-priced warranties are recorded based on their stand-alone selling price and are recognized as revenue over the length of the warranty period.

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The Company’s six operating segments and the following tables disaggregate sales by lines of businesses, geographic destination, market channel or end market.



Net sales	United States		Rest of world		Total
Electrical Products	$	960	$	772	$	1,732
Electrical Systems and Services	894		487		1,381
Hydraulics	297		413		710

	Original Equipment Manufacturers		Aftermarket, Distribution and End User
Aerospace	$	264	$	194	458

	Commercial		Passenger and Light Duty
Vehicle	$	430	$	463	893

eMobility					77

Total					$	5,251

The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (revenue recognized exceeds amount billed to the customer), and deferred revenue (advance payments and billings in excess of revenue recognized). Accounts receivables from customers were $3,520 and $3,399 at March 31, 2018 and December 31, 2017, respectively. Amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals or upon achievement of contractual milestones. These assets and liabilities are reported on the Condensed Consolidated Balance Sheets on a contract-by-contract basis at the end of each reporting period. Unbilled receivables were $129 and $117 at March 31, 2018 and January 1, 2018, respectively, and are recorded in Prepaid expenses and other current assets. The increase in the unbilled receivables was primarily due to revenue recognized and not yet billed, partially offset by billings to customers during the quarter.

Changes in the deferred revenue liabilities are as follows:



	Deferred Revenue
Balance at January 1, 2018	$	227
Customer deposits and billings	232
Revenue recognized in the period	(209		)
Translation	1
Balance at March 31, 2018	$	251

A significant portion of open orders placed with Eaton are by original equipment manufacturers or distributors. These open orders are not considered firm as they have been historically subject to releases by customers. In measuring backlog of unsatisfied or partially satisfied obligations, only the amount of orders to which customers are firmly committed are included. Using this criterion, total backlog at March 31, 2018 was approximately $5.2 billion. Eaton expects to recognize approximately 88% of this backlog in the next twelve months and the rest thereafter.

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Impact of new accounting standard

In accordance with the new revenue accounting requirements, the impact of the adoption on the financial statement line items within the accompanying financial statements was as follows:



	Three months ended March 31, 2018
Consolidated Statements of Income	As Reported		Adjustment			Balances without Adoption of ASC 606
Net sales	$	5,251	$	(7	)	$	5,244
Cost of products sold	3,573		(4		)	3,569
Income before income taxes	565		(3		)	562
Income tax expense	78		(1		)	77
Net income	487		(2		)	485
Net income attributable to Eaton ordinary shareholders	$	488	$	(2	)	$	486



	March 31, 2018
Condensed Consolidated Balance Sheets	As Reported		Adjustment			Balances without Adoption of ASC 606
Assets
Accounts receivable - net	$	4,005	$	107		$	4,112
Inventory	2,745		3			2,748
Prepaid expenses and other current assets	552		(139		)	413
Deferred income taxes	356		(1		)	355

Liabilities
Other current liabilities	$	1,861	$	(30	)	$	1,831


Note 4.	RESTRUCTURING CHARGES

During 2015, Eaton announced its commitment to undertake actions to reduce its cost structure in all business segments and at corporate. The multi-year initiative concluded at the end of 2017.

A summary of liabilities related to workforce reductions, plant closings and other associated costs announced as part of this program follows:



	Workforce reductions			Plant closings and other			Total
Balance at December 31, 2016	$	113		$	1		$	114
Liability recognized	57			59			116
Payments	(102		)	(39		)	(141		)
Other adjustments	(1		)	(16		)	(17		)
Balance at December 31, 2017	67			5			72
Payments	(13		)	(3		)	(16		)
Other adjustments	(8		)	—			(8		)
Balance at March 31, 2018	$	46		$	2		$	48

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Note 5.	GOODWILL

Change in the carrying amount of goodwill by segment follows:



	December 31, 2017		Translation		March 31, 2018
Electrical Products	$	6,678	$	77	$	6,755
Electrical Systems and Services	4,311		42		4,353
Hydraulics	1,257		5		1,262
Aerospace	947		4		951
Vehicle	294		1		295
eMobility	81		1		82
Total	$	13,568	$	130	$	13,698

Eaton re-segmented certain reportable operating segments due to a reorganization of the Company's businesses. The new reportable business segment is eMobility (which includes certain legacy Electrical Products and Vehicle product lines). The Company used the relative fair value method to reallocate goodwill to the associated reporting units.

Note 6. RETIREMENT BENEFITS PLANS

The components of retirement benefits expense follow:



	United States pension benefit expense						Non-United States pension benefit expense						Other postretirement benefits expense
	Three months ended March 31
	2018			2017			2018			2017			2018			2017
Service cost	$	25		$	24		$	16		$	17		$	1		$	1
Interest cost	30			31			14			13			3			3
Expected return on plan assets	(63		)	(61		)	(27		)	(23		)	(1		)	(1		)
Amortization	24			20			10			13			(3		)	(3		)
	16			14			13			20			—			—
Settlements	14			17			—			—			—			—
Total expense	$	30		$	31		$	13		$	20		$	—		$	—

The components of retirement benefits expense other than service costs are included in Other income - net.

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Note 7.	LEGAL CONTINGENCIES

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, antitrust matters and employment-related matters. Eaton is also subject to asbestos claims from historic products which may have contained asbestos. Insurance may cover some of the costs associated with these claims and proceedings. 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.

In December 2011, Pepsi-Cola Metropolitan Bottling Company, Inc. (“Pepsi”) filed an action against (a) Cooper Industries, LLC, Cooper Industries, Ltd., Cooper Holdings, Ltd., Cooper US, Inc., and Cooper Industries plc (collectively, “Cooper”), (b) M&F Worldwide Corp., Mafco Worldwide Corp., Mafco Consolidated Group LLC, and PCT International Holdings, Inc. (collectively, “Mafco”), and (c) the Pneumo Abex Asbestos Claims Settlement Trust (the “Trust”) in Texas state court. Pepsi alleged that it was harmed by a 2011 settlement agreement (“2011 Settlement”) among Cooper, Mafco, and Pneumo Abex, LLC (“Pneumo,” which prior to the 2011 Settlement was a Mafco subsidiary), which settlement resolved litigation that Pneumo had previously brought against Cooper involving, among other things, a guaranty related to Pneumo’s friction products business. In November 2015, after a Texas court ruled that Pepsi's claims should be heard in arbitration, Pepsi filed a demand for arbitration against Cooper, Mafco, the Trust, and Pneumo. Pepsi subsequently dropped claims against all parties except Cooper. An arbitration under the auspices of the American Arbitration Association commenced in October 2017. Pepsi’s experts have opined, among other things, that the value contributed to the Trust for a release of the guaranty was approximately $440 below reasonably equivalent value, and that an inability of Pneumo to satisfy future liabilities may result in plaintiffs suing Pepsi under various theories. Cooper submitted various expert reports and, among other things, Cooper’s experts have opined that Pepsi has no basis to seek any damages and that Cooper paid reasonably equivalent value for the release of its indemnity obligations under the guaranty. The arbitration proceedings closed in December 2017. The parties are awaiting the issuance of a decision. The Company believes that the claims of Pepsi are without merit, and that the ultimate resolution of this matter will not have a material impact on the Company’s consolidated financial statements.


Note 8.	INCOME TAXES

The effective income tax rate for the first quarter of 2018 was expense of 13.8% compared to expense of 7.0% for the first quarter of 2017. The increase in the effective tax rate in the first quarter of 2018 was due to the impact of the U.S. Tax Cuts and Jobs Act (“TCJA”) and the impact of realization of a foreign deferred tax asset in the first quarter of 2017.

The TCJA was enacted on December 22, 2017 and the Company recorded provisional tax amounts in the fourth quarter of 2017 for the remeasurement of deferred tax balances, including valuation allowances related to the realization of deferred tax assets, and the one-time transition tax. The Company continues to analyze aspects of the TCJA, including potential impact to the provisional amounts recorded for the remeasurement of deferred tax balances and related valuation allowances, and the one-time transition tax. The Company did not record any adjustments to the 2017 provisional tax amounts in the first quarter of 2018.

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Note 9. EQUITY

During the first quarter of 2018 and 2017, 3.7 million and 3.6 million ordinary shares, respectively, were repurchased under the 2016 Program in the open market at a total cost of $300 and $255, respectively.

The changes in Shareholders’ equity follow:



	Eaton shareholders’ equity			Noncontrolling interests			Total equity
Balance at December 31, 2017	$	17,253		$	37		$	17,290
Cumulative-effect adjustment upon adoption of ASU 2014-09	(2		)	—			(2		)
Cumulative-effect adjustment upon adoption of ASU 2016-16	(199		)	—			(199		)
Net income (loss)	488			(1		)	487
Other comprehensive income	296			—			296
Cash dividends paid and accrued	(290		)	—			(290		)
Issuance of shares under equity-based compensation plans - net	17			—			17
Repurchase of shares	(300		)	—			(300		)
Changes in noncontrolling interest - net	—			2			2
Balance at March 31, 2018	$	17,263		$	38		$	17,301

The changes in Accumulated other comprehensive loss follow:



	Currency translation and related hedging instruments			Pensions and other postretirement benefits			Cash flow hedges			Total
Balance at December 31, 2017	$	(2,255	)	$	(1,139	)	$	(10	)	$	(3,404	)
Other comprehensive (loss) income before reclassifications	257			(12		)	10			255
Amounts reclassified from Accumulated other comprehensive loss (income)	—			38			3			41
Net current-period Other comprehensive income (loss)	257			26			13			296
Balance at March 31, 2018	$	(1,998	)	$	(1,113	)	$	3		$	(3,108	)

The reclassifications out of Accumulated other comprehensive loss follow:



	Three months ended March 31, 2018				Consolidated statements of income classification
Amortization of defined benefit pensions and other postretirement benefits items
Actuarial loss and prior service cost	$	(45	)	¹
Tax benefit	7
Total, net of tax	(38		)

Gains and (losses) on cash flow hedges
Currency exchange contracts	(4		)		Cost of products sold
Tax benefit	1
Total, net of tax	(3		)

Total reclassifications for the period	$	(41	)

¹ These components of Accumulated other comprehensive loss are included in the computation of net periodic benefit cost. See Note 6 for additional information about pension and other postretirement benefits items.

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Net Income Per Share Attributable to Eaton Ordinary Shareholders

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



	Three months ended March 31
(Shares in millions)	2018		2017
Net income attributable to Eaton ordinary shareholders	$	488	$	434

Weighted-average number of ordinary shares outstanding - diluted	441.7		451.0
Less dilutive effect of equity-based compensation	2.9		2.2
Weighted-average number of ordinary shares outstanding - basic	438.8		448.8

Net income per share attributable to Eaton ordinary shareholders
Diluted	$	1.10	$	0.96
Basic	1.11		0.97

For the first quarter of 2018 and 2017, 0.1 million and 1.2 million stock options, respectively, were excluded from the calculation of diluted net income per share attributable to Eaton ordinary shareholders because the exercise price of the options exceeded the average market price of the ordinary shares during the period and their effect, accordingly, would have been antidilutive.


Note 10.	FAIR VALUE MEASUREMENTS

Fair value is measured based on an exit price, representing the amount that would be received to sell an asset or paid to satisfy a liability in an orderly transaction between market participants. Fair value is a market-based measurement that 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			Level 1		Level 2			Level 3
March 31, 2018
Cash	$	317		$	317	$	—		$	—
Short-term investments	510			510		—			—
Net derivative contracts	(13		)	—		(13		)	—

December 31, 2017
Cash	$	561		$	561	$	—		$	—
Short-term investments	534			534		—			—
Net derivative contracts	36			—		36			—

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 measured using unobservable inputs.

Other Fair Value Measurements

Long-term debt and the current portion of long-term debt had a carrying value of $7,692 and fair value of $7,790 at March 31, 2018 compared to $7,745 and $8,048, respectively, at December 31, 2017. The fair value of Eaton's debt instruments were estimated using prevailing market interest rates on debt with similar creditworthiness, terms and maturities, and are considered a Level 2 fair value measurement.

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Note 11.	DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

In the normal course of business, Eaton is exposed to certain risks related to fluctuations in interest rates, currency exchange rates and commodity prices. The Company uses various derivative and non-derivative financial instruments, primarily interest rate swaps, currency forward exchange contracts, 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 designated 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 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 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 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. The cash flows resulting from these financial instruments are classified in operating activities on the Condensed Consolidated Statements of Cash Flows.

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 classified 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). Foreign currency denominated debt designated as non-derivative net investment hedging instruments on an after-tax basis was $94 at March 31, 2018 and $88 at December 31, 2017, and designated on a pre-tax basis was $670 at March 31, 2018 and $652 at December 31, 2017.

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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 noncurrent assets		Other current liabilities		Other noncurrent liabilities		Type of hedge	Term
March 31, 2018
Derivatives designated as hedges
Fixed-to-floating interest rate swaps	$	2,965	$	—	$	21	$	2	$	37	Fair value	2 months to 17 years
Currency exchange contracts	990		9		13		15		1		Cash flow	1 to 36 months
Total			$	9	$	34	$	17	$	38

Derivatives not designated as hedges
Currency exchange contracts	$	3,543	$	19			$	20				1 to 12 months
Commodity contracts	17		—				—					1 to 12 months
Total			$	19			$	20

December 31, 2017
Derivatives designated as hedges
Fixed-to-floating interest rate swaps	$	2,965	$	1	$	41	$	—	$	17	Fair value	6 months to 17 years
Currency exchange contracts	924		7		7		22		2		Cash flow	1 to 36 months
Total			$	8	$	48	$	22	$	19

Derivatives not designated as hedges
Currency exchange contracts	$	3,719	$	39			$	19				1 to 12 months
Commodity contracts	13		1				—					1 to 12 months
Total			$	40			$	19

The currency exchange contracts shown in the table above as derivatives not designated as hedges are primarily contracts entered into to manage 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 currency exchange contracts.

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The impact of derivative instruments to the Consolidated Statement of Income and Comprehensive Income follow:



	Gain (loss) recognized in other comprehensive (loss) income					Location of gain (loss) reclassified from Accumulated other comprehensive loss	Gain (loss) reclassified from Accumulated other comprehensive loss
	Three months ended March 31						Three months ended March 31
	2018		2017				2018			2017
Derivatives designated as cash flow hedges
Currency exchange contracts	$	13	$	(1	)	Cost of products sold	$	(4	)	$	(4	)
Total	$	13	$	(1	)		$	(4	)	$	(4	)

Amounts recognized in net income follow:



	Three months ended March 31
	2018			2017
Derivatives designated as fair value hedges
Fixed-to-floating interest rate swaps	$	(43	)	$	(11	)
Related long-term debt converted to floating interest rates by interest rate swaps	43			11
	$	—		$	—

Gains and losses described above were recognized in Interest expense - net.


Note 12.	INVENTORY

Inventory is carried at lower of cost or net realizable value. The components of inventory follow:



	March 31, 2018		December 31, 2017
Raw materials	$	1,019	$	953
Work-in-process	523		471
Finished goods	1,203		1,196
Total inventory	$	2,745	$	2,620

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Note 13.	BUSINESS SEGMENT INFORMATION

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated on a regular basis by the chief operating decision maker, or decision making group, in deciding how to allocate resources to an individual segment and in assessing performance.

The eMobility segment designs, manufactures, markets, and supplies electrical and electronic components and systems that improve the power management and performance of both on-road and off-road vehicles. Products include high voltage inverters, converters, fuses, onboard chargers, circuit protection units, vehicle controls, power distribution, fuel tank isolation valves, and commercial vehicle hybrid systems. The principal markets for the eMobility segment are original equipment manufacturers and aftermarket customers of passenger cars, commercial vehicles, and construction, agriculture, and mining equipment.

Eaton’s operating segments are Electrical Products, Electrical Systems and Services, Hydraulics, Aerospace, Vehicle, and eMobility. Operating profit includes the operating profit from intersegment sales. For additional information regarding Eaton’s business segments, see Note 15 to the Consolidated Financial Statements contained in the 2017 Form 10-K.



	Three months ended March 31
	2018			2017
Net sales
Electrical Products	$	1,732		$	1,651
Electrical Systems and Services	1,381			1,333
Hydraulics	710			587
Aerospace	458			428
Vehicle	893			786
eMobility	77			63
Total net sales	$	5,251		$	4,848

Segment operating profit
Electrical Products	$	307		$	286
Electrical Systems and Services	167			155
Hydraulics	90			60
Aerospace	89			79
Vehicle	132			108
eMobility	11			11
Total segment operating profit	796			699

Corporate
Amortization of intangible assets	(98		)	(94		)
Interest expense - net	(70		)	(61		)
Pension and other postretirement benefits expense	(2		)	(11		)
Other corporate expense - net	(61		)	(66		)
Income before income taxes	565			467
Income tax expense	78			33
Net income	487			434
Less net loss for noncontrolling interests	1			—
Net income attributable to Eaton ordinary shareholders	$	488		$	434

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New Business Segments - Results of Operations

For the reportable segments that were re-segmented, previously reported segment financial information has been updated for all periods reported in 2016 and 2017. The re-segmentation did not impact previously reported consolidated results of operations.

Electrical Products



	Year ended December 31, 2017			Quarter ended in 2017												Year ended December 31, 2016			Quarter ended in 2016
	Year ended December 31, 2017			Dec. 31			Sept. 30			June 30			Mar. 31			Year ended December 31, 2016			Dec. 31			Sept. 30			June 30			Mar. 31
Net sales	$	6,917		$	1,750		$	1,785		$	1,731		$	1,651		$	6,703		$	1,665		$	1,705		$	1,717		$	1,616

Operating profit	$	1,233		$	318		$	330		$	299		$	286		$	1,186		$	305		$	317		$	304		$	260
Operating margin	17.8		%	18.2		%	18.5		%	17.3		%	17.3		%	17.7		%	18.3		%	18.6		%	17.7		%	16.1		%

Acquisition integration charges	$	4		$	1		$	1		$	1		$	1		$	3		$	1		$	1		$	1		$	—

Before acquisition integration charges
Operating profit	$	1,237		$	319		$	331		$	300		$	287		$	1,189		$	306		$	318		$	305		$	260
Operating margin	17.9		%	18.2		%	18.5		%	17.3		%	17.4		%	17.7		%	18.4		%	18.7		%	17.8		%	16.1		%

Vehicle



	Year ended December 31, 2017			Quarter ended in 2017												Year ended December 31, 2016			Quarter ended in 2016
	Year ended December 31, 2017			Dec. 31			Sept. 30			June 30			Mar. 31			Year ended December 31, 2016			Dec. 31			Sept. 30			June 30			Mar. 31
Net sales	$	3,326		$	837		$	858		$	845		$	786		$	3,141		$	739		$	784		$	825		$	793

Operating profit	$	541		$	142		$	150		$	141		$	108		$	471		$	97		$	122		$	135		$	117
Operating margin	16.3		%	17.0		%	17.5		%	16.7		%	13.7		%	15.0		%	13.1		%	15.6		%	16.4		%	14.8		%

eMobility



	Year ended December 31, 2017			Quarter ended in 2017												Year ended December 31, 2016			Quarter ended in 2016
	Year ended December 31, 2017			Dec. 31			Sept. 30			June 30			Mar. 31			Year ended December 31, 2016			Dec. 31			Sept. 30			June 30			Mar. 31
Net sales	$	283		$	73		$	75		$	72		$	63		$	266		$	63		$	64		$	73		$	66

Operating profit	$	50		$	10		$	16		$	13		$	11		$	57		$	11		$	14		$	20		$	12
Operating margin	17.7		%	13.7		%	21.3		%	18.1		%	17.5		%	21.4		%	17.5		%	21.9		%	27.4		%	18.2		%


Note 14.	CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

The Registered Senior Notes issued by Eaton Corporation are registered under the Securities Act of 1933. Eaton and certain of Eaton's 100% owned direct and indirect subsidiaries (the Guarantors) fully and unconditionally guaranteed (subject, in the case of the Guarantors, other than Eaton, to customary release provisions as described below), on a joint and several basis, the Registered Senior Notes. The following condensed consolidating financial statements are included so that separate financial statements of Eaton, Eaton Corporation and each of the Guarantors are not required to be filed with the Securities and Exchange Commission. The consolidating adjustments primarily relate to eliminations of investments in subsidiaries and intercompany balances and transactions. The condensed consolidating financial statements present investments in subsidiaries using the equity method of accounting. See Note 6 of Eaton's 2017 Form 10-K for additional information related to the Registered Senior Notes.

The guarantee of a Guarantor that is not a parent of the issuer will be automatically and unconditionally released and discharged in the event of any sale of the Guarantor or of all or substantially all of its assets, or in connection with the release or termination of the Guarantor as a guarantor under all other U.S. debt securities or U.S. syndicated credit facilities, subject to limitations set forth in the indenture. The guarantee of a Guarantor that is a direct or indirect parent of the issuer will only be automatically and unconditionally released and discharged in connection with the release or termination of such Guarantor as a guarantor under all other debt securities or syndicated credit facilities (in both cases, U.S. or otherwise), subject to limitations set forth in the indenture.

During 2018 and 2017, the Company undertook certain steps to restructure ownership of various subsidiaries. The transactions were entirely among wholly-owned subsidiaries under the common control of Eaton. This restructuring has been reflected as of the beginning of the earliest period presented below.




CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2018
	Eaton Corporation plc			Eaton Corporation			Guarantors			Other subsidiaries			Consolidating adjustments			Total
Net sales	$	—		$	1,689		$	1,700		$	3,191		$	(1,329	)	$	5,251

Cost of products sold	—			1,352			1,236			2,310			(1,325		)	3,573
Selling and administrative expense	3			341			178			367			—			889
Research and development expense	—			39			41			76			—			156
Interest expense (income) - net	—			68			4			(1		)	(1		)	70
Other expense (income) - net	18			5			(9		)	(16		)	—			(2		)
Equity in loss (earnings) of subsidiaries, net of tax	(514		)	(178		)	(829		)	(659		)	2,180			—
Intercompany expense (income) - net	5			(21		)	486			(470		)	—			—
Income (loss) before income taxes	488			83			593			1,584			(2,183		)	565
Income tax expense (benefit)	—			(6		)	(14		)	99			(1		)	78
Net income (loss)	488			89			607			1,485			(2,182		)	487
Less net loss (income) for noncontrolling interests	—			—			—			1			—			1
Net income (loss) attributable to Eaton ordinary shareholders	$	488		$	89		$	607		$	1,486		$	(2,182	)	$	488

Other comprehensive income (loss)	$	296		$	38		$	296		$	613		$	(947	)	$	296
Total comprehensive income (loss) attributable to Eaton ordinary shareholders	$	784		$	127		$	903		$	2,099		$	(3,129	)	$	784




CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2017
	Eaton Corporation plc			Eaton Corporation			Guarantors			Other subsidiaries			Consolidating adjustments			Total
Net sales	$	—		$	1,572		$	1,656		$	2,930		$	(1,310	)	$	4,848

Cost of products sold	—			1,251			1,228			2,140			(1,312		)	3,307
Selling and administrative expense	32			317			199			328			—			876
Research and development expense	—			54			49			40			—			143
Interest expense (income) - net	—			62			5			(5		)	(1		)	61
Other expense (income) - net	7			10			1			(24		)	—			(6		)
Equity in loss (earnings) of subsidiaries, net of tax	(583		)	169			(790		)	(658		)	1,862			—
Intercompany expense (income) - net	110			(30		)	338			(418		)	—			—
Income (loss) before income taxes	434			(261		)	626			1,527			(1,859		)	467
Income tax expense (benefit)	—			(3		)	16			18			2			33
Net income (loss)	434			(258		)	610			1,509			(1,861		)	434
Less net loss (income) for noncontrolling interests	—			—			—			(1		)	1			—
Net income (loss) attributable to Eaton ordinary shareholders	$	434		$	(258	)	$	610		$	1,508		$	(1,860	)	$	434

Other comprehensive income (loss)	$	263		$	63		$	262		$	516		$	(841	)	$	263
Total comprehensive income (loss) attributable to Eaton ordinary shareholders	$	697		$	(195	)	$	872		$	2,024		$	(2,701	)	$	697

CONDENSED CONSOLIDATING BALANCE SHEETS MARCH 31, 2018

	Eaton Corporation plc		Eaton Corporation		Guarantors			Other subsidiaries		Consolidating adjustments			Total
Assets
Current assets
Cash	$	—	$	10	$	6		$	301	$	—		$	317
Short-term investments	—		—		—			510		—			510
Accounts receivable - net	—		453		1,407			2,145		—			4,005
Intercompany accounts receivable	3		1,607		1,724			2,952		(6,286		)	—
Inventory	—		517		766			1,549		(87		)	2,745
Prepaid expenses and other current assets	—		108		97			317		30			552
Total current assets	3		2,695		4,000			7,774		(6,343		)	8,129

Property, plant and equipment - net	—		841		698			2,004		—			3,543

Other noncurrent assets
Goodwill	—		1,317		6,705			5,676		—			13,698
Other intangible assets	—		135		3,168			1,903		—			5,206
Deferred income taxes	—		360		3			298		(305		)	356
Investment in subsidiaries	15,651		9,742		54,848			23,602		(103,843		)	—
Intercompany loans receivable	3,122		3,235		5,313			64,992		(76,662		)	—
Other assets	—		741		166			829		—			1,736
Total assets	$	18,776	$	19,066	$	74,901		$	107,078	$	(187,153	)	$	32,668

Liabilities and shareholders’ equity
Current liabilities
Short-term debt	$	—	$	90	$	—		$	95	$	—		$	185
Current portion of long-term debt	—		844		2			1		—			847
Accounts payable	—		504		392			1,307		—			2,203
Intercompany accounts payable	6		1,388		3,243			1,649		(6,286		)	—
Accrued compensation	—		46		31			223		—			300
Other current liabilities	8		492		311			1,050		—			1,861
Total current liabilities	14		3,364		3,979			4,325		(6,286		)	5,396

Noncurrent liabilities
Long-term debt	—		5,841		995			9		—			6,845
Pension liabilities	—		333		88			804		—			1,225
Other postretirement benefits liabilities	—		191		95			73		—			359
Deferred income taxes	—		—		605			257		(305		)	557
Intercompany loans payable	1,499		3,955		70,262			946		(76,662		)	—
Other noncurrent liabilities	—		330		270			385		—			985
Total noncurrent liabilities	1,499		10,650		72,315			2,474		(76,967		)	9,971

Shareholders’ equity
Eaton shareholders' equity	17,263		5,052		(1,393		)	100,241		(103,900		)	17,263
Noncontrolling interests	—		—		—			38		—			38
Total equity	17,263		5,052		(1,393		)	100,279		(103,900		)	17,301
Total liabilities and equity	$	18,776	$	19,066	$	74,901		$	107,078	$	(187,153	)	$	32,668

CONDENSED CONSOLIDATING BALANCE SHEETS DECEMBER 31, 2017

	Eaton Corporation plc		Eaton Corporation		Guarantors		Other subsidiaries		Consolidating adjustments			Total
Assets
Current assets
Cash	$	—	$	183	$	18	$	360	$	—		$	561
Short-term investments	—		—		—		534		—			534
Accounts receivable - net	—		482		1,376		2,085		—			3,943
Intercompany accounts receivable	8		2,865		5,155		2,716		(10,744		)	—
Inventory	—		473		737		1,493		(83		)	2,620
Prepaid expenses and other current assets	—		229		145		277		28			679
Total current assets	8		4,232		7,431		7,465		(10,799		)	8,337

Property, plant and equipment - net	—		859		702		1,941		—			3,502

Other noncurrent assets
Goodwill	—		1,316		6,705		5,547		—			13,568
Other intangible assets	—		138		3,206		1,921		—			5,265
Deferred income taxes	—		356		6		215		(324		)	253
Investment in subsidiaries	15,045		9,503		75,379		39,848		(139,775		)	—
Intercompany loans receivable	3,122		7,105		2,909		61,427		(74,563		)	—
Other assets	—		748		166		784		—			1,698
Total assets	$	18,175	$	24,257	$	96,504	$	119,148	$	(225,461	)	$	32,623

Liabilities and shareholders’ equity
Current liabilities
Short-term debt	$	—	$	—	$	—	$	6	$	—		$	6
Current portion of long-term debt	—		542		35		1		—			578
Accounts payable	—		549		330		1,287		—			2,166
Intercompany accounts payable	4		4,917		4,418		1,405		(10,744		)	—
Accrued compensation	—		128		65		260		—			453
Other current liabilities	1		566		317		989		(1		)	1,872
Total current liabilities	5		6,702		5,165		3,948		(10,745		)	5,075

Noncurrent liabilities
Long-term debt	—		6,180		976		9		2			7,167
Pension liabilities	—		341		89		796		—			1,226
Other postretirement benefits liabilities	—		192		96		74		—			362
Deferred income taxes	—		—		607		255		(324		)	538
Intercompany loans payable	917		3,808		68,685		1,153		(74,563		)	—
Other noncurrent liabilities	—		314		273		378		—			965
Total noncurrent liabilities	917		10,835		70,726		2,665		(74,885		)	10,258

Shareholders’ equity
Eaton shareholders' equity	17,253		6,720		20,613		112,498		(139,831		)	17,253
Noncontrolling interests	—		—		—		37		—			37
Total equity	17,253		6,720		20,613		112,535		(139,831		)	17,290
Total liabilities and equity	$	18,175	$	24,257	$	96,504	$	119,148	$	(225,461	)	$	32,623

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2018

	Eaton Corporation plc			Eaton Corporation			Guarantors			Other subsidiaries			Consolidating adjustments			Total
Net cash provided by (used in) operating activities	$	2		$	(66	)	$	82		$	321		$	—		$	339

Investing activities
Capital expenditures for property, plant and equipment	—			(23		)	(24		)	(84		)	—			(131		)
Sales (purchases) of short-term investments - net	—			—			—			31			—			31
Investments in affiliates	—			(36		)	—			—			36			—
Loans to affiliates	—			—			(486		)	(1,177		)	1,663			—
Repayments of loans from affiliates	—			16			886			1,299			(2,201		)	—
Other - net	—			(15		)	(4		)	(18		)	—			(37		)
Net cash provided by (used in) investing activities	—			(58		)	372			51			(502		)	(137		)

Financing activities
Proceeds from borrowings	—			90			—			89			—			179
Payments on borrowings	—			—			(33		)	—			—			(33		)
Proceeds from borrowings from affiliates	585			1,050			28			—			(1,663		)	—
Payments on borrowings from affiliates	(22		)	(1,409		)	(16		)	(754		)	2,201			—
Capital contributions from affiliates	—			—			—			36			(36		)	—
Other intercompany financing activities	—			237			(441		)	204			—			—
Cash dividends paid	(284		)	—			—			—			—			(284		)
Exercise of employee stock options	19			—			—			—			—			19
Repurchase of shares	(300		)	—			—			—			—			(300		)
Employee taxes paid from shares withheld	—			(16		)	(4		)	(3		)	—			(23		)
Other - net	—			(1		)	—			—			—			(1		)
Net cash provided by (used in) financing activities	(2		)	(49		)	(466		)	(428		)	502			(443		)

Effect of currency on cash	—			—			—			(3		)	—			(3		)
Total increase (decrease) in cash	—			(173		)	(12		)	(59		)	—			(244		)
Cash at the beginning of the period	—			183			18			360			—			561
Cash at the end of the period	$	—		$	10		$	6		$	301		$	—		$	317

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2017

	Eaton Corporation plc			Eaton Corporation			Guarantors			Other subsidiaries			Consolidating adjustments			Total
Net cash provided by (used in) operating activities	$	611		$	430		$	733		$	196		$	(1,507	)	$	463

Investing activities
Capital expenditures for property, plant and equipment	—			(20		)	(26		)	(70		)	—			(116		)
Sales (purchases) of short-term investments - net	—			—			—			(93		)	—			(93		)
Investments in affiliates	—			(1		)	—			—			1			—
Loans to affiliates	—			(6		)	(87		)	(2,348		)	2,441			—
Repayments of loans from affiliates	—			19			55			2,195			(2,269		)	—
Other - net	—			(11		)	2			(11		)	—			(20		)
Net cash provided by (used in) investing activities	—			(19		)	(56		)	(327		)	173			(229		)

Financing activities
Proceeds from borrowings	—			194			—			—			—			194
Payments on borrowings	—			(250		)	—			(4		)	—			(254		)
Proceeds from borrowings from affiliates	668			1,107			662			4			(2,441		)	—
Payments on borrowings from affiliates	(800		)	(1,435		)	(17		)	(17		)	2,269			—
Capital contributions from affiliates	—			—			—			1			(1		)	—
Other intercompany financing activities	—			(63		)	(519		)	582			—			—
Cash dividends paid	(263		)	—			—			—			—			(263		)
Cash dividends paid to affiliates	—			—			(800		)	(707		)	1,507			—
Exercise of employee stock options	38			—			—			—			—			38
Repurchase of shares	(255		)	—			—			—			—			(255		)
Employee taxes paid from shares withheld	—			(13		)	(4		)	(3		)	—			(20		)
Other - net	—			—			(1		)	(2		)	—			(3		)
Net cash provided by (used in) financing activities	(612		)	(460		)	(679		)	(146		)	1,334			(563		)

Effect of currency on cash	—			—			—			8			—			8
Total increase (decrease) in cash	(1		)	(49		)	(2		)	(269		)	—			(321		)
Cash at the beginning of the period	1			92			12			438			—			543
Cash at the end of the period	$	—		$	43		$	10		$	169		$	—		$	222

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

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

COMPANY OVERVIEW

Eaton Corporation plc (Eaton or the Company) is a power management company with 2017 net sales of $20.4 billion. The Company provides energy-efficient solutions that help its customers effectively manage electrical, hydraulic, and mechanical power more efficiently, safely, and sustainably. Eaton has approximately 96,000 employees in 59 countries and sells products to customers in more than 175 countries.

Summary of Results of Operations

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



	Three months ended March 31
	2018		2017
Net sales	$	5,251	$	4,848
Net income attributable to Eaton ordinary shareholders	488		434
Net income per share attributable to Eaton ordinary shareholders - diluted	$	1.10	$	0.96

During the first quarter of 2018, Eaton re-segmented certain reportable operating segments due to a reorganization of the Company's businesses. The new reportable business segment is eMobility (which includes certain legacy Electrical Products and Vehicle product lines). For those reportable segments that were re-segmented, previously reported segment financial information has been updated for 2017. For additional information regarding the re-segmentation, see Note 13 to the Condensed Consolidated Financial Statements. The re-segmentation did not impact previously reported consolidated results of operations. For additional information regarding Eaton’s business segments, see Note 15 to the Consolidated Financial Statements contained in the 2017 Form 10-K.

RESULTS OF OPERATIONS

Non-GAAP Financial Measures

The following discussion of Consolidated Financial Results and Business Segment Results of Operations includes certain non-GAAP financial measures. These financial measures include adjusted earnings, adjusted earnings per ordinary share, and operating profit before acquisition integration charges for each business segment as well as corporate, each of which differs from the most directly comparable measure calculated in accordance with generally accepted accounting principles (GAAP). A reconciliation of adjusted earnings and adjusted earnings per ordinary share to the most directly comparable GAAP measure is included in the table below. Operating profit before acquisition integration charges is reconciled in the discussion of the operating results of each business segment, and excludes acquisition integration expense related to integration of Ephesus Lighting, Inc. in 2017. Management believes that these financial measures are useful to investors because they exclude certain transactions, 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. For additional information on acquisition integration charges, see Note 2 to the Condensed Consolidated Financial Statements.

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Consolidated Financial Results



	Three months ended March 31						Increase (decrease)
	2018			2017			Increase (decrease)
Net sales	$	5,251		$	4,848		8	%
Gross profit	1,678			1,541			9	%
Percent of net sales	32.0		%	31.8		%
Income before income taxes	565			467			21	%
Net income	487			434			12	%
Less net loss for noncontrolling interests	1			—
Net income attributable to Eaton ordinary shareholders	488			434			12	%
Excluding acquisition integration charges, after-tax (Note 2)	—			1
Adjusted earnings	$	488		$	435		12	%

Net income per share attributable to Eaton ordinary shareholders - diluted	$	1.10		$	0.96		15	%
Excluding per share impact of acquisition integration charges, after-tax (Note 2)	—			—
Adjusted earnings per ordinary share	$	1.10		$	0.96		15	%

Net Sales

Net sales increased 8% in the first quarter of 2018 compared to the first quarter of 2017 due to an increase of 6% in organic sales and an increase of 3% from the impact of positive currency translation, partially offset by a decrease of 1% from the sale of a business and a stake in a joint venture in the second half of 2017. The increase in organic sales in the first quarter of 2018 was primarily due to higher sales volumes in all business segments.

Gross Profit

Gross profit margin increased from 31.8% in the first quarter of 2017 to 32.0% in the first quarter of 2018. The increase in gross profit margin was primarily due to higher sales volumes and savings from restructuring actions.

Income Taxes

Net Income

Net income attributable to Eaton ordinary shareholders of $488 in the first quarter of 2018 increased 12% compared to Net income attributable to Eaton ordinary shareholders of $434 in the first quarter of 2017. The increase in the first quarter of 2018 was primarily due to higher sales volumes and savings from restructuring actions, partially offset by a higher tax rate.

Net income per ordinary share increased to $1.10 in the first quarter of 2018 compared to $0.96 in the first quarter of 2017. The increase in the Net income per ordinary share in the first quarter of 2018 was due to higher Net income attributable to Eaton ordinary shareholders and the Company's share repurchases over the past year.

Adjusted Earnings

Adjusted earnings of $488 in the first quarter of 2018 increased 12% compared to Adjusted earnings of $435 in the first quarter of 2017. The increase in Adjusted earnings in the first quarter of 2018 was primarily due to higher Net income attributable to Eaton ordinary shareholders.

Adjusted earnings per ordinary share increased to $1.10 in the first quarter of 2018 compared to $0.96 in the first quarter of 2017. The increase in Adjusted earnings per ordinary share in the first quarter of 2018 was due to higher Adjusted earnings and the impact of the Company's share repurchases over the past year.

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Business Segment Results of Operations

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

Electrical Products



	Three months ended March 31						Increase (decrease)
	2018			2017			Increase (decrease)
Net sales	$	1,732		$	1,651		5	%

Operating profit	$	307		$	286		7	%
Operating margin	17.7		%	17.3		%

Acquisition integration charges	$	—		$	1

Before acquisition integration charges
Operating profit	$	307		$	287		7	%
Operating margin	17.7		%	17.4		%

Net sales increased 5% in the first quarter of 2018 compared to the first quarter of 2017 due to an increase of 4% from the impact of positive currency translation and an increase of 1% in organic sales. The increase in organic sales in the first quarter of 2018 was primarily driven by growth in products going into industrial applications, partially offset by weakness in North American lighting sales.

The operating margin increased from 17.3% in the first quarter of 2017 to 17.7% in the first quarter of 2018 primarily due to higher sales volumes and savings from restructuring actions.

The operating margin before acquisition integration charges increased from 17.4% in the first quarter of 2017 to 17.7% in the first quarter of 2018 primarily due to an increase in the operating margin.

Electrical Systems and Services



	Three months ended March 31						Increase (decrease)
	2018			2017			Increase (decrease)
Net sales	$	1,381		$	1,333		4	%

Operating profit	$	167		$	155		8	%
Operating margin	12.1		%	11.6		%

Net sales increased 4% in the first quarter of 2018 compared to the first quarter of 2017 due to an increase of 2% in organic sales and an increase of 2% from the impact of positive currency translation, partially offset by a decrease of 1% from a sale of a stake in a joint venture in the fourth quarter of 2017. The increase in organic sales in the first quarter of 2018 was primarily due to strength in large industrial projects in the United States, oil and gas markets, and services in North America.

The operating margin increased from 11.6% in the first quarter of 2017 to 12.1% in the first quarter of 2018 primarily due to higher sales volumes and savings from restructuring actions.

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Hydraulics



	Three months ended March 31						Increase (decrease)
	2018			2017			Increase (decrease)
Net sales	$	710		$	587		21	%

Operating profit	$	90		$	60		50	%
Operating margin	12.7		%	10.2		%

Net sales increased 21% in the first quarter of 2018 compared to the first quarter of 2017 due to an increase of 16% in organic sales and an increase of 5% from the impact of positive currency translation. The increase in organic sales in the first quarter of 2018 was due to strength in global mobile OEM markets and in distribution channels.

The operating margin increased from 10.2% in the first quarter of 2017 to 12.7% in the first quarter of 2018 primarily due to higher sales volumes, partially offset by investments in growth initiatives.

Aerospace



	Three months ended March 31						Increase (decrease)
	2018			2017			Increase (decrease)
Net sales	$	458		$	428		7	%

Operating profit	$	89		$	79		13	%
Operating margin	19.4		%	18.5		%

Net sales increased 7% in the first quarter of 2018 compared to the first quarter of 2017 due to an increase of 6% in organic sales and an increase of 1% from the impact of positive currency translation. The increase in organic sales in the first quarter of 2018 was primarily due to higher sales to the aftermarket and the military OEM market.

The operating margin increased from 18.5% in the first quarter of 2017 to 19.4% in first quarter of 2018 primarily due to higher sales volumes and favorable product mix due to growth in the aftermarket.

Vehicle



	Three months ended March 31						Increase (decrease)
	2018			2017			Increase (decrease)
Net sales	$	893		$	786		14	%

Operating profit	$	132		$	108		22	%
Operating margin	14.8		%	13.7		%

Net sales increased 14% in the first quarter of 2018 compared to the first quarter of 2017 due to an increase of 13% in organic sales and an increase of 3% from the impact of positive currency translation, partially offset by a decrease of 2% from the sale of a business in the third quarter of 2017. The increase in organic sales in the first quarter of 2018 was driven by growth in the Americas and Asia Pacific regions, with particular strength in the North American Class 8 truck market.

The operating margin increased from 13.7% in the first quarter of 2017 to 14.8% in the first quarter of 2018 primarily due to higher sales volumes, partially offset by higher restructuring costs.

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eMobility



	Three months ended March 31						Increase (decrease)
	2018			2017			Increase (decrease)
Net sales	$	77		$	63		22	%

Operating profit	$	11		$	11		—	%
Operating margin	14.3		%	17.5		%

Net sales increased 22% in the first quarter of 2018 compared to the first quarter of 2017 due to an increase of 19% in organic sales and an increase of 3% from the impact of positive currency translation. The increase in organic sales in the first quarter of 2018 was due to strength in North America.

The operating margin decreased from 17.5% in the first quarter of 2017 to 14.3% in the first quarter of 2018 primarily due to increased research and development costs.

Corporate Expense



	Three months ended March 31				Increase (decrease)
	2018		2017		Increase (decrease)
Amortization of intangible assets	$	98	$	94	4	%
Interest expense - net	70		61		15	%
Pension and other postretirement benefits expense	2		11		(82	)%
Other corporate expense - net	61		66		(8	)%
Total corporate expense	$	231	$	232	—	%

Total corporate expense was $231 in the first quarter of 2018 compared to corporate expense of $232 in the first quarter of 2017. The change in Total corporate expense for the first quarter of 2018 was primarily due to a decrease in Pension and other postretirement benefits expense as a result of favorable returns on plan assets during 2017 and the Company's contributions to the pension plans, offset by higher interest expense.

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 a $2,000 commercial paper program, which is supported by credit facilities in the aggregate principal amount of $2,000. There were no borrowings outstanding under these revolving credit facilities at March 31, 2018. 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 as well as scheduled payments of long-term debt.

Eaton was in compliance with each of its debt covenants for all periods presented.

Sources and Uses of Cash

Operating Cash Flow

Net cash provided by operating activities was $339 in the first three months of 2018, a decrease of $124 in the source of cash compared to $463 in the first three months of 2017. The decrease in net cash provided by operating activities in the first three months of 2018 was driven by higher working capital balances compared to 2017, partially offset by lower pension contributions and higher net income.

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Investing Cash Flow

Net cash used in investing activities was $137 in the first three months of 2018, a decrease in the use of cash of $92 compared to $229 in the first three months of 2017. The decrease in the use of cash was primarily driven by net sales of short-term investments of $31 in 2018 compared to net purchases of $93 in 2017.

Financing Cash Flow

Net cash used in financing activities was $443 in the first three months of 2018, a decrease of $120 in the use of cash compared to $563 in the first three months of 2017. The decrease in the use of cash was primarily due to a decrease of $221 in payments on borrowings which totaled $33 in 2018 and $254 in 2017. This was partially offset by an increase of $45 in share repurchases during the first three months of 2018 compared to the first three months of 2017.

FORWARD-LOOKING STATEMENTS

This Form 10-Q Report contains forward-looking statements concerning legal contingencies, among other matters. 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 potential effects on our businesses from natural disasters; the availability of credit to customers and suppliers; competitive pressures on sales and pricing; unanticipated changes 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 market and currency fluctuations; war, civil or political unrest or terrorism; 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.


ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

There have been no material changes in exposures to market risk since December 31, 2017.


ITEM 4.	CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures - Pursuant to SEC Rule 13a-15, an evaluation was performed under the supervision and with the participation of Eaton’s management, including Craig Arnold - Principal Executive Officer; and Richard H. Fearon - Principal Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on that evaluation, management concluded that Eaton’s disclosure controls and procedures were effective as of March 31, 2018.

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 Principal Executive Officer and Principal Financial Officer, to allow timely decisions regarding required disclosure.

During the first quarter of 2018, there was no change in Eaton’s internal control over financial reporting that materially affected, or is reasonably likely to materially affect, internal control over financial reporting.

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PART II — OTHER INFORMATION


ITEM 1.	LEGAL PROCEEDINGS.

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


ITEM 1A.	RISK FACTORS.

“Item 1A. Risk Factors” in Eaton's 2017 Form 10-K includes a discussion of the Company's risk factors. There have been no material changes from the risk factors described in the 2017 Form 10-K.


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

During the first quarter of 2018, 3.7 million ordinary shares were repurchased in the open market at a total cost of $300 million. These shares were repurchased under the program approved by the Board on February 24, 2016. A summary of the shares repurchased in the first quarter of 2018 follows:



Month	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Approximate dollar value of shares that may yet be purchased under the plans or programs (in millions)
January	—	$	—	—	$	1,002
February	2,962,790	$	82.59	2,962,790	$	757
March	689,406	$	80.11	689,406	$	702
Total	3,652,196	$	82.12	3,652,196


ITEM 5.	OTHER INFORMATION.

Disclosure Pursuant to Section 13r of the Exchange Act

Set forth below is a description of all matters reported by us pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 and Section 13(r) of the Exchange Act. Concurrently with the filing of this Quarterly Report, we are filing a notice pursuant to Section 13(r) of the Exchange Act that such matters have been disclosed in this Quarterly Report.

During the first quarter, certain of our wholly-owned non-U.S. subsidiaries sold various electrical products to customers in Iran. We received total revenue of approximately 877,115 Euros and realized net profits of approximately 336,919 Euros from the sales (approximately $1,082,055 and $415,640 in whole U.S. dollars, respectively). One or more of our non-U.S. subsidiaries intend to continue doing business in Iran under General License H in compliance with U.S. economic sanctions and export control laws, though the Company has no assets or employees in Iran.

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ITEM 6.	EXHIBITS.

Eaton Corporation plc

First Quarter 2018 Report on Form 10-Q



3 (i)		Certificate of Incorporation — Incorporated by reference to the Form S-8 filed November 30, 2012

3 (ii)		Amended and Restated Memorandum and Articles of Incorporation — Incorporated by reference to the Form 8-K filed on May 1, 2017

4.1		Indenture dated as of November 20, 2012, among Turlock Corporation, the guarantors named therein and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 of Eaton Corporation plc's Form 8-K Current Report filed on November 26, 2012 (Commission File No. 333-182303))

4.2		Supplemental Indenture No. 1, dated as of November 30, 2012, among Eaton Corporation, the guarantors named therein and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.2 of the registrant's Form S-4 filed on September 6, 2013)

4.3		Supplemental Indenture No. 2, dated as of January 8, 2013, among Eaton Corporation, the guarantors named therein and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference Exhibit 4.3 of the registrant's Form S-4 filed on September 6, 2013)

4.4		Supplemental Indenture No. 3, dated as of December 20, 2013, among Eaton Corporation, the guarantors named therein and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference Exhibit 4.4 of the registrant's Form 10-K filed on February 28, 2018)

4.5		Supplemental Indenture No. 4, dated as of December 20, 2017 and effective as of January 1, 2018, among Eaton Corporation, the guarantors named therein and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference Exhibit 4.5 of the registrant's Form 10-K filed on February 28, 2018)

4.6		Supplemental Indenture No. 5, dated as of February 16, 2018, among Eaton Corporation, the guarantors named therein and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference Exhibit 4.6 of the registrant's Form 10-K filed on February 28, 2018)

4.7		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 long-term debt other than those set forth in Exhibits (4.1 - 4.6) hereto

12		Ratio of Earnings to Fixed Charges — Filed in conjunction with this Form 10-Q Report *

31.1		Certification of Principal Executive Officer (Pursuant to Rule 13a-14(a)) — Filed in conjunction with this Form 10-Q Report *

31.2		Certification of Principal Financial Officer (Pursuant to Rule 13a-14(a)) — Filed in conjunction with this Form 10-Q Report *

32.1		Certification of Principal 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 Principal 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, 2018 and 2017, (ii) Consolidated Statements of Comprehensive Income for the three months ended March 31, 2018 and 2017, (iii) Condensed Consolidated Balance Sheets at March 31, 2018 and December 31, 2017, (iv) Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2018 and 2017 and (v) Notes to Condensed Consolidated Financial Statements for the three months ended March 31, 2018.

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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 plc
			Registrant

Date:	May 1, 2018	By:	/s/ Richard H. Fearon
			Richard H. Fearon
			Principal Financial Officer
			(On behalf of the registrant and as Principal Financial Officer)

Eaton - 10-Q quarterly report FY2018 Q1

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TABLE OF CONTENTS
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS	2
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	27
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	32
ITEM 4. CONTROLS AND PROCEDURES	32
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS	33
ITEM 1A. RISK FACTORS	33
ITEM 2. UNRESTRICTED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	33
ITEM 5. OTHER INFORMATION	33
ITEM 6. EXHIBITS	34
SIGNATURES	35