BUSINESS SEGMENT AND GEOGRAPHIC REGION INFORMATION

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

Electrical Products and Electrical Systems and Services

The Electrical Products segment consists of electrical components, industrial components, residential products, single phase power quality, emergency lighting, fire detection, wiring devices, structural support systems, circuit protection, and lighting products. The Electrical Systems and Services segment consists of 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 principal markets for these segments are industrial, institutional, governmental, utility, commercial, residential and information technology. These products are used wherever there is a demand for electrical power in commercial buildings, data centers, residences, apartment and office buildings, hospitals, factories, utilities, and industrial and energy facilities. The segments share several common global customers, but a large number of customers are located regionally. Sales are made directly to original equipment manufacturers, utilities, and certain other end users, as well as through distributors, resellers, and manufacturers' representatives.

Hydraulics

The Hydraulics segment is a global leader in hydraulics components, systems and services for industrial and mobile equipment. Eaton offers a wide range of power products including pumps, motors and hydraulic power units; a broad range of controls and sensing products including valves, cylinders and electronic controls; a full range of fluid conveyance products including industrial and hydraulic hose, fittings, and assemblies, thermoplastic hose and tubing, couplings, connectors, and assembly equipment; filtration systems solutions; industrial drum and disc brakes; and golf grips. The principal markets for the Hydraulics segment include renewable energy, marine, agriculture, oil and gas, construction, mining, forestry, utility, material handling, truck and bus, machine tools, molding, primary metals, and power generation. Key manufacturing customers in these markets and other customers are located globally. Products are sold and serviced through a variety of channels.

Aerospace

The Aerospace segment is a leading global supplier of aerospace fuel, hydraulics, and pneumatic systems for commercial and military use. Products include hydraulic power generation systems for aerospace applications including pumps, motors, hydraulic power units, hose and fittings, electro-hydraulic pumps; controls and sensing products including valves, cylinders, electronic controls, electromechanical actuators, sensors, aircraft flap and slat systems and nose wheel steering systems; fluid conveyance products, including hose, thermoplastic tubing, fittings, adapters, couplings, sealing and ducting; and fuel systems including fuel pumps, sensors, valves, adapters and regulators. In addition, products included power and load management systems and displays and panels until these businesses were sold in May of 2014. The principal markets for the Aerospace segment are manufacturers of commercial and military aircraft and related after-market customers. These manufacturers and other customers operate globally. Products are sold and serviced through a variety of channels.

Vehicle

The Vehicle segment is a leader in the design, manufacture, marketing, and supply of: drivetrain, powertrain systems and critical components that reduce emissions and improve fuel economy, stability, performance, and safety of cars, light trucks and commercial vehicles. Products include transmissions, clutches, hybrid power systems, superchargers, engine valves and valve actuation systems, cylinder heads, locking and limited slip differentials, transmission controls, fuel vapor components, fluid connectors and conveyance products for the global vehicle industry. The principal markets for the Vehicle segment are original equipment manufacturers and aftermarket customers of heavy-, medium-, and light-duty trucks, SUVs, CUVs, passenger cars and agricultural equipment.

Other Information

No single customer represented greater than 10% of net sales in 2016, 2015 or 2014, respectively.

The accounting policies of the business segments are generally the same as the policies described in Note 1, except that inventory and related cost of products sold of the segments are accounted for using the FIFO method and operating profit only reflects the service cost component related to pensions and other postretirement benefits. Intersegment sales and transfers are accounted for at the same prices as if the sales and transfers were made to third parties. These intersegment sales are eliminated in consolidation. Operating profit includes the operating profit from intersegment sales.

For purposes of business segment performance measurement, the Company does not allocate items that are of a non-operating nature or are of a corporate or functional governance nature. Corporate expenses consist of transaction costs associated with the acquisition of certain businesses and corporate office expenses including compensation, benefits, occupancy, depreciation, and other administrative costs. Identifiable assets of the business segments exclude goodwill, other intangible assets, and general corporate assets, which principally consist of certain cash, short-term investments, deferred income taxes, certain accounts receivable, certain property, plant and equipment, and certain other assets.

Business Segment Information



	2016			2015			2014
Net sales
Electrical Products	$	6,957		$	6,976		$	7,254
Electrical Systems and Services	5,662			5,931			6,457
Hydraulics	2,222			2,459			2,975
Aerospace	1,753			1,807			1,860
Vehicle	3,153			3,682			4,006
Total net sales	$	19,747		$	20,855		$	22,552

Segment operating profit
Electrical Products	$	1,240		$	1,156		$	1,184
Electrical Systems and Services	711			776			843
Hydraulics	198			246			367
Aerospace	335			310			273
Vehicle	474			645			645
Total segment operating profit	2,958			3,133			3,312

Corporate
Litigation settlements	—			—			(644		)
Amortization of intangible assets	(392		)	(406		)	(431		)
Interest expense - net	(233		)	(232		)	(227		)
Pension and other postretirement benefits expense	(60		)	(130		)	(138		)
Other corporate expense - net	(146		)	(220		)	(111		)
Income before income taxes	2,127			2,145			1,761
Income tax expense (benefit)	202			164			(42		)
Net income	1,925			1,981			1,803
Less net income for noncontrolling interests	(3		)	(2		)	(10		)
Net income attributable to Eaton ordinary shareholders	$	1,922		$	1,979		$	1,793

Business segment operating profit was reduced by acquisition integration charges as follows:



	2016		2015		2014
Electrical Products	$	3	$	25	$	66
Electrical Systems and Services	1		15		51
Hydraulics	—		2		12
Total	$	4	$	42	$	129

Corporate acquisition integration charges totaled $5 and $25 in 2015 and 2014, respectively, and are included above in Other corporate expense - net. There was no corporate acquisition integration charges in 2016. See Note 3 for additional information about acquisition integration charges.



	2016		2015		2014
Identifiable assets
Electrical Products	$	2,363	$	2,538	$	3,012
Electrical Systems and Services	2,222		2,285		2,512
Hydraulics	1,188		1,138		1,315
Aerospace	830		841		832
Vehicle	1,549		1,579		1,668
Total identifiable assets	8,152		8,381		9,339
Goodwill	13,201		13,479		13,893
Other intangible assets	5,514		6,014		6,556
Corporate	3,552		3,122		3,699
Total assets	$	30,419	$	30,996	$	33,487

Capital expenditures for property, plant and equipment
Electrical Products	$	134	$	137	$	170
Electrical Systems and Services	78		94		147
Hydraulics	92		61		79
Aerospace	28		33		28
Vehicle	142		119		160
Total	474		444		584
Corporate	23		62		48
Total expenditures for property, plant and equipment	$	497	$	506	$	632

Depreciation of property, plant and equipment
Electrical Products	$	141	$	137	$	148
Electrical Systems and Services	82		82		90
Hydraulics	64		67		67
Aerospace	27		28		28
Vehicle	109		113		130
Total	423		427		463
Corporate	63		52		51
Total depreciation of property, plant and equipment	$	486	$	479	$	514

Geographic Region Information

Net sales are measured based on the geographic destination of sales. Long-lived assets consist of property, plant and equipment - net.



	2016		2015		2014
Net sales
United States	$	10,937	$	11,396	$	11,701
Canada	898		969		1,113
Latin America	1,448		1,726		1,988
Europe	4,228		4,379		5,074
Asia Pacific	2,236		2,385		2,676
Total	$	19,747	$	20,855	$	22,552

Long-lived assets
United States	$	1,924	$	1,982	$	1,988
Canada	19		19		25
Latin America	281		243		306
Europe	681		734		799
Asia Pacific	538		587		632
Total	$	3,443	$	3,565	$	3,750