10-Q 1 etn0331201710-qdoc.htm 10-Q Document

 
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, 2017
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 447.3 million Ordinary Shares outstanding as of March 31, 2017.
 







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)
2017
 
2016
Net sales
$
4,848

 
$
4,813

 
 
 
 
Cost of products sold
3,310

 
3,291

Selling and administrative expense
885

 
892

Research and development expense
143

 
149

Interest expense - net
61

 
57

Other income - net
(15
)
 
(18
)
Income before income taxes
464

 
442

Income tax expense
32

 
39

Net income
432

 
403

Less net loss for noncontrolling interests

 
1

Net income attributable to Eaton ordinary shareholders
$
432

 
$
404

 
 
 
 
Net income per share attributable to Eaton ordinary shareholders
 
 
 
Diluted
$
0.96

 
$
0.88

Basic
0.96

 
0.88

 
 
 
 
Weighted-average number of ordinary shares outstanding
 
 
 
Diluted
451.0

 
459.8

Basic
448.8

 
458.6

 
 
 
 
Cash dividends declared per ordinary share
$
0.60

 
$
0.57


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

2


EATON CORPORATION plc
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 
Three months ended
March 31
(In millions)
2017
 
2016
Net income
$
432

 
$
403

Less net loss for noncontrolling interests

 
1

Net income attributable to Eaton ordinary shareholders
432

 
404

 
 
 
 
Other comprehensive income, net of tax
 
 
 
Currency translation and related hedging instruments
228

 
261

Pensions and other postretirement benefits
33

 
34

Cash flow hedges
2

 
(22
)
Other comprehensive income attributable to Eaton
   ordinary shareholders
263

 
273

 


 


Total comprehensive income attributable to Eaton
  ordinary shareholders
$
695

 
$
677


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


3


EATON CORPORATION plc
CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)
March 31,
2017
 
December 31,
2016
Assets
 
 
 
Current assets
 
 
 
Cash
$
222

 
$
543

Short-term investments
301

 
203

Accounts receivable - net
3,673

 
3,560

Inventory
2,344

 
2,254

Prepaid expenses and other current assets
435

 
381

Total current assets
6,975

 
6,941

 
 
 
 
Property, plant and equipment
 
 
 
Land and buildings
2,413

 
2,369

Machinery and equipment
5,792

 
5,670

Gross property, plant and equipment
8,205

 
8,039

Accumulated depreciation
(4,724
)
 
(4,596
)
Net property, plant and equipment
3,481

 
3,443

 
 
 
 
Other noncurrent assets
 
 
 
Goodwill
13,296

 
13,201

Other intangible assets
5,441

 
5,514

Deferred income taxes
439

 
360

Other assets
979

 
960

Total assets
$
30,611

 
$
30,419

 
 
 
 
Liabilities and shareholders’ equity
 
 
 
Current liabilities
 
 
 
Short-term debt
$
208

 
$
14

Current portion of long-term debt
1,328

 
1,552

Accounts payable
1,891

 
1,718

Accrued compensation
270

 
379

Other current liabilities
1,860

 
1,822

Total current liabilities
5,557

 
5,485

 
 
 
 
Noncurrent liabilities
 
 
 
Long-term debt
6,677

 
6,711

Pension liabilities
1,553

 
1,659

Other postretirement benefits liabilities
366

 
368

Deferred income taxes
319

 
321

Other noncurrent liabilities
940

 
934

Total noncurrent liabilities
9,855

 
9,993

 
 
 
 
Shareholders’ equity
 
 
 
Eaton shareholders’ equity
15,157

 
14,897

Noncontrolling interests
42

 
44

Total equity
15,199

 
14,941

Total liabilities and equity
$
30,611

 
$
30,419


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

4


EATON CORPORATION plc
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 
Three months ended
March 31
(In millions)
2017
 
2016
Operating activities
 
 
 
Net income
$
432

 
$
403

Adjustments to reconcile to net cash provided by operating activities
 
 
 
Depreciation and amortization
225

 
233

Deferred income taxes
(38
)
 
(13
)
Pension and other postretirement benefits expense
51

 
59

Contributions to pension plans
(128
)
 
(42
)
Contributions to other postretirement benefits plans
(6
)
 
(11
)
Changes in working capital
(163
)
 
(296
)
Other - net
90

 
55

Net cash provided by operating activities
463

 
388

 
 
 
 
Investing activities
 

 
 
Capital expenditures for property, plant and equipment
(116
)
 
(111
)
Cash received from acquisitions of businesses, net of cash acquired

 
1

Purchases of short-term investments - net
(93
)
 
(53
)
Other - net
(20
)
 
4

Net cash used in investing activities
(229
)
 
(159
)
 
 
 
 
Financing activities
 
 
 
Proceeds from borrowings
194

 
418

Payments on borrowings
(254
)
 
(241
)
Cash dividends paid
(263
)
 
(256
)
Exercise of employee stock options
38

 
17

Repurchase of shares
(255
)
 
(100
)
Employee taxes paid from shares withheld
(20
)
 
(17
)
Other - net
(3
)
 
2

Net cash used in financing activities
(563
)
 
(177
)
 
 
 
 
Effect of currency on cash
8

 
13

Total (decrease) increase in cash
(321
)
 
65

Cash at the beginning of the period
543

 
268

Cash at the end of the period
$
222

 
$
333


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

5


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 2016 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.
During the first quarter of 2017, the Company adopted Accounting Standards Update 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, (ASU 2016-09). Upon adoption, the Company recorded deferred tax assets of $48 for all excess tax benefits that had not been previously recognized. This was accomplished through a cumulative-effect adjustment to retained earnings. ASU 2016-09 also requires that all excess tax benefits and deficiencies generated in the current and future periods be recorded as income tax benefit or expense in the reporting period in which they occur. These excess tax benefits and deficiencies, which were previously required to be presented as financing activities on the Company’s Condensed Consolidated Statements of Cash Flows, are now classified as operating activities prospectively. The Company also reclassified $20 and $17 for the first quarter of 2017 and 2016, respectively, from operating activities to financing activities on the Company’s Condensed Consolidated Statements of Cash Flows for withholding payments made to taxing authorities from shares withheld from employees. The Company will continue to estimate forfeitures as part of recording equity-based compensation expense.
Certain prior year amounts have been reclassified to conform to the current year presentation.
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (ASU 2014-09). This accounting standard supersedes all existing US GAAP revenue recognition guidance. Under ASU 2014-09, a company will recognize revenue when it transfers the control of promised goods or services to customers in an amount that reflects the consideration which the company expects to collect in exchange for those goods or services. ASU 2014-09 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, 2016. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date (ASU 2015-14). This accounting standard defers the effective date of ASU 2014-09 for one year and permits early adoption as of the original effective date.
A cross-functional implementation team has been established consisting of representatives from all of our business segments. The implementation team is working to analyze the impact of the standard on the Company's contract portfolio by reviewing current accounting policies and practices to identify potential differences that would result from applying the requirements of the new standard to revenue contracts. 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 2018 using the modified retrospective approach and will record a cumulative adjustment to equity for open contracts as of January 1, 2018. Certain revenues will move from point-in-time or multiple elements to over time because of the continuous transfer of control to customers. Eaton is continuing to evaluate the impact of ASU 2014-09 and an estimate of the impact to the consolidated financial statements cannot be made at this time.
In February 2016, the Financial Accounting Standards Board 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. 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.


6


Note 2.
ACQUISITION INTEGRATION CHARGES
Eaton incurs integration charges related to acquired businesses. A summary of these charges follows:
 
Three months ended
March 31
 
2017
 
2016
Electrical Products
$
1

 
$

Electrical Systems and Services

 
1

Total acquisition integration charges before income taxes
1

 
1

Income taxes

 
1

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. Business segment acquisition integration charges in 2016 related to the integration of Oxalis Group Ltd. (Oxalis), which was acquired in 2015. The charges associated with Oxalis were included in Cost of products sold. In Business Segment Information, the charges reduced Operating profit of the related business segment. See Note 12 for additional information about business segments.

Note 3.
RESTRUCTURING CHARGES
During 2015, Eaton announced its commitment to undertake actions to reduce its cost structure in all business segments and at corporate. Restructuring charges incurred in the first quarter of 2017 and 2016 were $20 and $63, respectively. The charges associated with restructuring activities are anticipated to be $100 in 2017.
A summary of restructuring charges by type follows:
 
Three months ended
March 31
 
2017
 
2016
Workforce reductions
$
8

 
$
57

Plant closings and other
12

 
6

Total
$
20

 
$
63

A summary of restructuring charges by segment follows:
 
Three months ended
March 31
 
2017
 
2016
Electrical Products
$
3

 
$
17

Electrical Systems & Services
2

 
10

Hydraulics
9

 
16

Aerospace
1

 
4

Vehicle
2

 
12

Corporate
3

 
4

Total
$
20

 
$
63


7


A summary of liabilities related to workforce reductions, plant closings and other associated costs announced in 2015 follows:
 
Workforce reductions
 
Plant closings and other
 
Total
Balance at December 31, 2015
$
54

 
$

 
$
54

  Liability recognized
177

 
34

 
211

  Payments
(116
)
 
(13
)
 
(129
)
  Other adjustments
(2
)
 
(20
)
 
(22
)
Balance at December 31, 2016
113

 
1

 
114

Liability recognized
8

 
12

 
20

Payments
(32
)
 
(8
)
 
(40
)
Other adjustments
(3
)
 
(4
)
 
(7
)
Balance at March 31, 2017
$
86

 
$
1

 
$
87

These charges were included in Cost of products sold, Selling and administrative expenses or Other income-net, as appropriate. In Business Segment Information, the charges reduced Operating profit of the related business segment. See Note 12 for additional information about business segments.

Note 4.
GOODWILL
Change in the carrying amount of goodwill by segment follows:
 
 
Electrical
Products
 
Electrical
Systems and
Services
 
Hydraulics
 
Aerospace
 
Vehicle
 
Total
December 31, 2016
 
$
6,497

 
$
4,203

 
$
1,221

 
$
938

 
$
342

 
$
13,201

Translation
 
56

 
32

 
5

 
1

 
1

 
95

March 31, 2017
 
$
6,553

 
$
4,235

 
$
1,226

 
$
939

 
$
343

 
$
13,296


Note 5.    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
 
2017
 
2016
 
2017
 
2016
 
2017
 
2016
Service cost
$
24

 
$
28

 
$
17

 
$
16

 
$
1

 
$
1

Interest cost
31

 
31

 
13

 
16

 
3

 
4

Expected return on plan assets
(61
)
 
(63
)
 
(23
)
 
(24
)
 
(1
)
 
(1
)
Amortization
20

 
23

 
13

 
9

 
(3
)
 
(2
)
 
14

 
19

 
20

 
17

 

 
2

Settlements and special termination benefits
17

 
21

 

 

 

 

Total expense
$
31

 
$
40

 
$
20

 
$
17

 
$

 
$
2


Note 6.
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.

8


In December 2010, a Brazilian court held that a judgment obtained by a Brazilian company, Raysul, against another Brazilian company, Saturnia, which was sold by Eaton in 2006, could be enforced against Eaton Ltda. The judgment was based on an alleged violation of an agency agreement between Raysul and Saturnia. At March 31, 2016, the Company had a total accrual of 100 Brazilian Reais related to this matter ($31 based on June 2016 exchange rates). In June 2016, Eaton signed a settlement agreement and resolved the matter, which did not have a material impact on the consolidated financial statements.

Note 7.
INCOME TAXES
The effective income tax rate for the first quarter of 2017 was an expense of 7%, compared to an expense of 9% for the first quarter of 2016. The decrease in the effective tax rate in the first quarter of 2017 was primarily due to the excess tax benefits recognized for employee share-based payments in the quarter pursuant to the adoption of ASU 2016-09 as discussed in Note 1.

Note 8.
EQUITY
On October 22, 2013, Eaton's Board of Directors adopted a share repurchase program (the 2013 Program). Under the 2013 Program, the ordinary shares were expected to be repurchased over time, depending on market conditions, the market price of ordinary shares, capital levels, and other considerations. During the first quarter of 2016, 1.5 million ordinary shares were repurchased under the 2013 Program in the open market at a total cost of $82. On February 24, 2016, the Board of Directors approved a new share repurchase program for share repurchases up to $2,500 of ordinary shares (2016 Program). Under the 2016 Program, the ordinary shares are expected to be repurchased over time, depending on market conditions, the market price of ordinary shares, capital levels, and other considerations. During the first quarter of 2017 and 2016, 3.6 million and 0.3 million ordinary shares, respectively, were repurchased under the 2016 Program in the open market at a total cost of $255 and $18, respectively.
The changes in Shareholders’ equity follow:
 
Eaton
shareholders’
equity
 
Noncontrolling
interests
 
Total
equity
Balance at December 31, 2016
$
14,897

 
$
44

 
$
14,941

Cumulative-effect adjustment upon adoption of ASU 2016-09
48

 

 
48

Net income
432

 

 
432

Other comprehensive income
263

 

 
263

Cash dividends paid and accrued
(269
)
 
(2
)
 
(271
)
Issuance of shares under equity-based compensation plans - net
41

 

 
41

Repurchase of shares
(255
)
 

 
(255
)
Balance at March 31, 2017
$
15,157

 
$
42

 
$
15,199

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, 2016
$
(3,062
)
 
$
(1,380
)
 
$
(6
)
 
$
(4,448
)
Other comprehensive (loss) income
   before reclassifications
228

 
2

 
(1
)
 
229

Amounts reclassified from Accumulated other
   comprehensive loss (income)

 
31

 
3

 
34

Net current-period Other comprehensive
   income (loss)
228

 
33

 
2

 
263

Balance at March 31, 2017
$
(2,834
)
 
$
(1,347
)
 
$
(4
)
 
$
(4,185
)

9


The reclassifications out of Accumulated other comprehensive loss follow:
 
Three months ended March 31, 2017
 
Consolidated statements
of income classification
Amortization of defined benefit pensions and other postretirement benefits items
 
 
 
Actuarial loss and prior service cost
$
(47
)
1 
 
Tax benefit
16

 
 
Total, net of tax
(31
)
 
 
 
 
 
 
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
$
(34
)
 
 
1 These components of Accumulated other comprehensive loss are included in the computation of net periodic benefit cost. See Note 5 for additional information about pension and other postretirement benefits items.

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)
2017
 
2016
Net income attributable to Eaton ordinary shareholders
$
432

 
$
404

 
 
 
 
Weighted-average number of ordinary shares outstanding - diluted
451.0

 
459.8

Less dilutive effect of equity-based compensation
2.2

 
1.2

Weighted-average number of ordinary shares outstanding - basic
448.8

 
458.6

 
 
 
 
Net income per share attributable to Eaton ordinary shareholders
 
 
 
Diluted
$
0.96

 
$
0.88

Basic
0.96

 
0.88

For the first quarter of 2017 and 2016, 1.2 million and 2.4 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 9.
FAIR VALUE MEASUREMENTS
Fair value is measured based on an exit price, representing the amount that would be received to sell an asset or paid to satisfy a liability in an orderly transaction between market participants. Fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, a fair value hierarchy is established, which categorizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

10


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, 2017
 
 
 
 
 
 
 
Cash
$
222

 
$
222

 
$

 
$

Short-term investments
301

 
301

 

 

Net derivative contracts
46

 

 
46

 

Long-term debt converted to floating interest rates by
   interest rate swaps - net
(47
)
 

 
(47
)
 

 
 
 
 
 
 
 
 
December 31, 2016
 
 
 
 
 
 
 
Cash
$
543

 
$
543

 
$

 
$

Short-term investments
203

 
203

 

 

Net derivative contracts
(3
)
 

 
(3
)
 

Long-term debt converted to floating interest rates by
   interest rate swaps - net
(58
)
 

 
(58
)
 

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 $8,005 and fair value of $8,261 at March 31, 2017 compared to $8,263 and $8,477, respectively, at December 31, 2016. 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.

Note 10.
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
In the normal course of business, Eaton is exposed to certain risks related to fluctuations in interest rates, 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.

11


The gain or loss from a derivative financial instrument designated as a hedge that is effective is classified in the same line of the Consolidated Statements of Income as the offsetting loss or gain on the hedged item. The change in fair value of a derivative financial instrument that is not effective as a hedge is immediately recognized in income.
For derivatives that are not designated as a hedge, any gain or loss is immediately recognized in income. The majority of derivatives used in this manner relate to risks resulting from assets or liabilities denominated in a foreign currency and certain commodity contracts that arise in the normal course of business. Gains and losses associated with commodity hedge contracts are 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 $89 at March 31, 2017 and $86 at December 31, 2016, and designated on a pre-tax basis was $580 at March 31, 2017 and $572 at December 31, 2016.
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, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives designated as hedges
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed-to-floating interest rate
 swaps
$
3,715

 
$

 
$
58

 
$
1

 
$
10

 
Fair value
 
7 months to 18 years
Forward starting floating-to-fixed
 interest rate swaps
450

 

 
18

 

 

 
Cash flow
 
11 years
Currency exchange contracts
858

 
10

 
1

 
22

 
13

 
Cash flow
 
1 to 36 months
Total
 
 
$
10

 
$
77

 
$
23

 
$
23

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives not designated as
 hedges
 
 
 
 
 
 
 
 
 
 
 
 
 
Currency exchange contracts
$
3,975

 
$
32

 
 
 
$
27

 
 
 
 
 
1 to 12 months
Commodity contracts
7

 

 
 
 

 
 
 
 
 
1 to 12 months
Total
 
 
$
32

 


 
$
27

 


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives designated as hedges
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed-to-floating interest rate
 swaps
$
3,765

 
$
1

 
$
65

 
$

 
$
8

 
Fair value
 
3 months to 18 years
Forward starting floating-to-fixed
 interest rate swaps
450

 

 
19

 

 
1

 
Cash flow
 
11 years
Currency exchange contracts
802

 
11

 
1

 
22

 
17

 
Cash flow
 
1 to 36 months
Total
 
 
$
12

 
$
85

 
$
22

 
$
26

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives not designated as
 hedges
 
 
 
 
 
 
 
 
 
 
 
 
 
Currency exchange contracts
$
5,333

 
$
31

 
 
 
$
85

 
 
 
 
 
1 to 12 months
Commodity contracts
10

 
2

 
 
 

 
 
 
 
 
1 to 12 months
Total
 
 
$
33

 


 
$
85

 


 
 
 
 
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.

12


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
 
2017
 
2016
 
 
 
2017
 
2016
Derivatives designated as
   cash flow hedges
 
 
 
 
 
 
 
 
 
Forward starting floating-to-fixed
 interest rate swaps
$

 
$
(9
)
 
Interest expense - net
 
$

 
$

Currency exchange contracts
(1
)
 
(22
)
 
Cost of products sold
 
(4
)
 
3

Total
$
(1
)
 
$
(31
)
 
 
 
$
(4
)
 
$
3


Amounts recognized in net income follow:
 
Three months ended
March 31
 
2017

2016
Derivatives designated as fair value hedges
 
 
 
Fixed-to-floating interest rate swaps
$
(11
)
 
$
76

Related long-term debt converted to floating interest
   rates by interest rate swaps
11

 
(76
)
 
$

 
$

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

Note 11.
INVENTORY
Inventory accounted for using the first-in, first out (FIFO) method is carried at lower of cost or net realizable value. Inventory accounted for using the last-in, first-out (LIFO) method is carried at lower of cost or market. The components of inventory follow:
 
March 31,
2017
 
December 31,
2016
Raw materials
$
884

 
$
880

Work-in-process
418

 
396

Finished goods
1,140

 
1,074

Inventory at FIFO
2,442

 
2,350

Excess of FIFO over LIFO cost
(98
)
 
(96
)
Total inventory
$
2,344

 
$
2,254



13


Note 12.
BUSINESS SEGMENT INFORMATION
Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated on a regular basis by the chief operating decision maker, or decision making group, in deciding how to allocate resources to an individual segment and in assessing performance. Eaton’s operating segments are Electrical Products, Electrical Systems and Services, Hydraulics, Aerospace and Vehicle. 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 2016 Form 10-K.
 
Three months ended
March 31
 
2017
 
2016
Net sales
 
 
 
Electrical Products
$
1,712

 
$
1,680

Electrical Systems and Services
1,333

 
1,342

Hydraulics
587

 
551

Aerospace
428

 
445

Vehicle
788

 
795

Total net sales
$
4,848

 
$
4,813

 
 
 
 
Segment operating profit
 
 
 
Electrical Products
$
297

 
$
271

Electrical Systems and Services
155

 
159

Hydraulics
60

 
41

Aerospace
79

 
80

Vehicle
108

 
118

Total segment operating profit
699

 
669

 
 
 
 
Corporate
 
 
 
Amortization of intangible assets
(94
)
 
(100
)
Interest expense - net
(61
)
 
(57
)
Pension and other postretirement benefits expense
(11
)
 
(14
)
Other corporate expense - net
(69
)
 
(56
)
Income before income taxes
464

 
442

Income tax expense
32

 
39

Net income
432

 
403

Less net loss for noncontrolling interests

 
1

Net income attributable to Eaton ordinary shareholders
$
432

 
$
404



14


Note 13.
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
On November 14, 2013, Eaton Corporation registered senior notes under the Securities Act of 1933 (the Senior Notes). Eaton and certain other 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 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.
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 2017 and 2016, 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, 2017
 
Eaton
Corporation
plc
 
Eaton
Corporation
 
Guarantors
 
Other
subsidiaries
 
Consolidating
adjustments
 
Total
Net sales
$

 
$
1,572

 
$
1,595

 
$
2,991

 
$
(1,310
)
 
$
4,848

 
 
 
 
 
 
 
 
 
 
 
 
Cost of products sold

 
1,253

 
1,188

 
2,181

 
(1,312
)
 
3,310

Selling and administrative expense
32

 
326

 
194

 
333

 

 
885

Research and development expense

 
54

 
47

 
42

 

 
143

Interest expense (income) - net

 
60

 
5

 
(4
)
 

 
61

Other expense (income) - net
7

 

 
(1
)
 
(21
)
 

 
(15
)
Equity in loss (earnings) of
   subsidiaries, net of tax
(581
)
 
(190
)
 
(872
)
 
(107
)
 
1,750

 

Intercompany expense (income) - net
110

 
(39
)
 
333

 
(404
)
 

 

Income (loss) before income taxes
432

 
108


701


971


(1,748
)

464

Income tax expense (benefit)

 
(3
)
 
16

 
17

 
2

 
32

Net income (loss)
432

 
111


685


954


(1,750
)

432

Less net loss (income) for
   noncontrolling interests

 

 

 
(1
)
 
1

 

Net income (loss) attributable to
   Eaton ordinary shareholders
$
432

 
$
111


$
685


$
953


$
(1,749
)

$
432

 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss)
$
263

 
$
60

 
$
271

 
$
322

 
$
(653
)
 
$
263

Total comprehensive income
  (loss) attributable to Eaton
  ordinary shareholders
$
695

 
$
171

 
$
956

 
$
1,275

 
$
(2,402
)
 
$
695


15


 
 
 
 
 
 
 
 
 
 
 
 
CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2016
 
Eaton
Corporation
plc
 
Eaton
Corporation
 
Guarantors
 
Other
subsidiaries
 
Consolidating
adjustments
 
Total
Net sales
$

 
$
1,538

 
$
1,575

 
$
2,873

 
$
(1,173
)
 
$
4,813

 
 
 
 
 
 
 
 
 
 
 
 
Cost of products sold

 
1,196

 
1,200

 
2,070

 
(1,175
)
 
3,291

Selling and administrative expense
2

 
365

 
196

 
329

 

 
892

Research and development expense

 
62

 
49

 
38

 

 
149

Interest expense (income) - net

 
53

 
3

 
(3
)
 
4

 
57

Other expense (income) - net

 
(2
)
 
(2
)
 
(14
)
 

 
(18
)
Equity in loss (earnings) of
   subsidiaries, net of tax
(504
)
 
(168
)
 
(673
)
 
(95
)
 
1,440

 

Intercompany expense (income) - net
98

 
(36
)
 
255

 
(317
)
 

 

Income (loss) before income taxes
404

 
68


547


865


(1,442
)

442

Income tax expense (benefit)

 
7

 
1

 
31

 

 
39

Net income (loss)
404

 
61


546


834


(1,442
)

403

Less net loss (income) for
   noncontrolling interests

 

 

 

 
1

 
1

Net income (loss) attributable to
   Eaton ordinary shareholders
$
404

 
$
61


$
546


$
834


$
(1,441
)

$
404

 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss)
$
273

 
$
44

 
$
278

 
$
306

 
$
(628
)
 
$
273

Total comprehensive income
   (loss) attributable to Eaton
   ordinary shareholders
$
677

 
$
105

 
$
824

 
$
1,140

 
$
(2,069
)
 
$
677


16


CONDENSED CONSOLIDATING BALANCE SHEETS
MARCH 31, 2017
 
Eaton
Corporation
plc
 
Eaton
Corporation
 
Guarantors
 
Other
subsidiaries
 
Consolidating
adjustments
 
Total
Assets
 
 
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
 
 
Cash
$

 
$
43

 
$
9

 
$
170

 
$

 
$
222

Short-term investments

 

 

 
301

 

 
301

Accounts receivable - net

 
536

 
1,080

 
2,057

 

 
3,673

Intercompany accounts
   receivable
8

 
718

 
3,733

 
3,621

 
(8,080
)
 

Inventory

 
344

 
652

 
1,425

 
(77
)
 
2,344

Prepaid expenses and
   other current assets

 
101

 
41

 
269

 
24

 
435

Total current assets
8

 
1,742


5,515


7,843

 
(8,133
)
 
6,975

 
 
 
 
 
 
 
 
 
 
 
 
Property, plant and
   equipment - net

 
848

 
700

 
1,933

 

 
3,481

 
 
 
 
 
 
 
 
 
 
 
 
Other noncurrent assets
 
 
 
 
 
 
 
 
 
 
 
Goodwill

 
1,355

 
6,293

 
5,648

 

 
13,296

Other intangible assets

 
166

 
3,396

 
1,879

 

 
5,441

Deferred income taxes

 
930

 
2

 
262

 
(755
)
 
439

Investment in subsidiaries
32,891

 
13,659

 
73,741

 
12,751

 
(133,042
)
 

Intercompany loans receivable

 
7,706

 
2,473

 
56,946

 
(67,125
)
 

Other assets

 
492

 
140

 
347

 

 
979

Total assets
$
32,899

 
$
26,898

 
$
92,260

 
$
87,609

 
$
(209,055
)
 
$
30,611

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and
   shareholders’ equity
 
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
 
 
Short-term debt
$

 
$
194

 
$

 
$
14

 
$

 
$
208

Current portion of
   long-term debt

 
999

 
326

 
3

 

 
1,328

Accounts payable

 
460

 
268

 
1,163

 

 
1,891

Intercompany accounts payable
175

 
3,596

 
3,068

 
1,241

 
(8,080
)
 

Accrued compensation

 
41

 
35

 
194

 

 
270

Other current liabilities
7

 
583

 
308

 
965

 
(3
)
 
1,860

Total current liabilities
182

 
5,873

 
4,005

 
3,580

 
(8,083
)
 
5,557

 
 
 
 
 
 
 
 
 
 
 
 
Noncurrent liabilities
 
 
 
 
 
 
 
 
 
 
 
Long-term debt

 
5,760

 
909

 
8

 

 
6,677

Pension liabilities

 
533

 
137

 
883

 

 
1,553

Other postretirement
   benefits liabilities

 
196

 
99

 
71

 

 
366

Deferred income taxes

 

 
716

 
358

 
(755
)
 
319

Intercompany loans payable
17,560

 
2,557

 
45,583

 
1,425

 
(67,125
)
 

Other noncurrent liabilities

 
318

 
222

 
400

 

 
940

Total noncurrent liabilities
17,560

 
9,364


47,666


3,145


(67,880
)

9,855

 
 
 
 
 
 
 
 
 
 
 
 
Shareholders’ equity
 
 
 
 
 
 
 
 
 
 
 
Eaton shareholders' equity
15,157

 
11,661

 
40,589

 
80,847

 
(133,097
)
 
15,157

Noncontrolling interests

 

 

 
37

 
5

 
42

Total equity
15,157

 
11,661

 
40,589

 
80,884

 
(133,092
)
 
15,199

Total liabilities and equity
$
32,899

 
$
26,898


$
92,260


$
87,609


$
(209,055
)

$
30,611


17


CONDENSED CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 2016
 
Eaton
Corporation
plc
 
Eaton
Corporation
 
Guarantors
 
Other
subsidiaries
 
Consolidating
adjustments
 
Total
Assets
 
 
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
 
 
Cash
$
1

 
$
92

 
$
4

 
$
446

 
$

 
$
543

Short-term investments

 

 

 
203

 

 
203

Accounts receivable - net

 
536

 
1,049

 
1,975

 

 
3,560

Intercompany accounts
   receivable
5

 
954

 
4,023

 
3,633

 
(8,615
)
 

Inventory

 
342

 
642

 
1,349

 
(79
)
 
2,254

Prepaid expenses and
   other current assets

 
77

 
42

 
237

 
25

 
381

Total current assets
6

 
2,001

 
5,760

 
7,843

 
(8,669
)
 
6,941

 
 
 
 
 
 
 
 
 
 
 
 
Property, plant and
   equipment - net

 
857

 
706

 
1,880

 

 
3,443

 
 
 
 
 
 
 
 
 
 
 
 
Other noncurrent assets
 
 
 
 
 
 
 
 
 
 
 
Goodwill

 
1,355

 
6,293

 
5,553

 

 
13,201

Other intangible assets

 
169

 
3,442

 
1,903

 

 
5,514

Deferred income taxes

 
904

 

 
228

 
(772
)
 
360

Investment in subsidiaries
32,795

 
13,743

 
72,938

 
12,516

 
(131,992
)
 

Intercompany loans receivable

 
7,605

 
2,061

 
56,598

 
(66,264
)
 

Other assets

 
491

 
134

 
335

 

 
960

Total assets
$
32,801

 
$
27,125

 
$
91,334

 
$
86,856

 
$
(207,697
)
 
$
30,419

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and
   shareholders’ equity
 
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
 
 
Short-term debt
$

 
$

 
$
8

 
$
6

 
$

 
$
14

Current portion of
   long-term debt

 
1,250

 
296

 
6

 

 
1,552

Accounts payable
1

 
372

 
252

 
1,093

 

 
1,718

Intercompany accounts payable
281

 
3,870

 
3,115

 
1,349

 
(8,615
)
 

Accrued compensation

 
98

 
58

 
223

 

 
379

Other current liabilities
1

 
591

 
291

 
941

 
(2
)
 
1,822

Total current liabilities
283

 
6,181

 
4,020

 
3,618

 
(8,617
)
 
5,485

 
 
 
 
 
 
 
 
 
 
 
 
Noncurrent liabilities
 
 
 
 
 
 
 
 
 
 
 
Long-term debt

 
5,767

 
936

 
8

 

 
6,711

Pension liabilities

 
610

 
161

 
888

 

 
1,659

Other postretirement
   benefits liabilities

 
198

 
99

 
71

 

 
368

Deferred income taxes

 

 
732

 
361

 
(772
)
 
321

Intercompany loans payable
17,621

 
2,603

 
44,788

 
1,252

 
(66,264
)
 

Other noncurrent liabilities

 
327

 
211

 
396

 

 
934

Total noncurrent liabilities
17,621

 
9,505


46,927


2,976


(67,036
)

9,993

 
 
 
 
 
 
 
 
 
 
 
 
Shareholders’ equity
 
 
 
 
 
 
 
 
 
 
 
Eaton shareholders' equity
14,897

 
11,439

 
40,387

 
80,224

 
(132,050
)
 
14,897

Noncontrolling interests

 

 

 
38

 
6

 
44

Total equity
14,897

 
11,439

 
40,387

 
80,262

 
(132,044
)
 
14,941

Total liabilities and equity
$
32,801

 
$
27,125


$
91,334


$
86,856


$
(207,697
)

$
30,419


18


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

 
$
201

 
$
470

 
$
688

 
$
(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
)
Loans to affiliates

 
(6
)
 

 
(2,435
)
 
2,441

 

Repayments of loans from affiliates

 
19

 

 
2,250

 
(2,269
)
 

Other - net

 
(11
)
 
3

 
(12
)
 

 
(20
)
Net cash provided by (used in) investing activities

 
(18
)

(23
)

(360
)

172


(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

 

Other intercompany financing
   activities

 
165

 
(282
)
 
117

 

 

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
)
 
(232
)

(442
)

(612
)

1,335


(563
)
 
 
 
 
 
 
 
 
 
 
 
 
Effect of currency on cash

 

 

 
8

 

 
8

Total increase (decrease) in cash
(1
)
 
(49
)

5


(276
)



(321
)
Cash at the beginning of the period
1

 
92

 
4

 
446

 

 
543

Cash at the end of the period
$

 
$
43


$
9


$
170


$


$
222


19


CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2016
 
Eaton
Corporation
plc
 
Eaton
Corporation
 
Guarantors
 
Other
subsidiaries
 
Consolidating
adjustments
 
Total
Net cash provided by (used in)
   operating activities
$
(139
)
 
$
(36
)
 
$
75

 
$
488

 
$

 
$
388

 
 
 
 
 
 
 
 
 
 
 
 
Investing activities
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures for property,
   plant and equipment

 
(22
)
 
(23
)
 
(66
)
 

 
(111
)
Cash received from (paid for) acquisitions of businesses, net of cash acquired

 

 
1

 

 

 
1

Sales (purchases) of short-term
investments - net

 

 
2

 
(55
)
 

 
(53
)
Investments in affiliates
(1,250
)
 

 

 
(1,250
)
 
2,500

 

Loans to affiliates

 
(101
)
 

 
(2,158
)
 
2,259

 

Repayments of loans from affiliates

 
1,255

 

 
1,645

 
(2,900
)
 

Other - net

 
8

 
11

 
(15
)
 

 
4

Net cash provided by (used in)
   investing activities
(1,250
)
 
1,140


(9
)

(1,899
)

1,859


(159
)
 
 
 
 
 
 
 
 
 
 
 
 
Financing activities
 
 
 
 
 
 
 
 
 
 
 
Proceeds from borrowings

 
418

 

 

 

 
418

Payments on borrowings

 
(1
)
 
(240
)
 

 

 
(241
)
Proceeds from borrowings from
   affiliates
1,738

 
264

 
158

 
99

 
(2,259
)
 

Payments on borrowings from
   affiliates
(10
)
 
(1,635
)
 
(1,247
)
 
(8
)
 
2,900

 

Capital contributions from affiliates

 

 
1,250

 
1,250

 
(2,500
)
 

Other intercompany financing activities

 
(162
)
 
16

 
146

 

 

Cash dividends paid
(256
)
 

 

 

 

 
(256
)
Exercise of employee stock options
17

 

 

 

 

 
17

Repurchase of shares
(100
)
 

 

 

 

 
(100
)
Employee taxes paid from shares withheld

 
(10
)
 
(4
)
 
(3
)
 

 
(17
)
Other - net

 
2

 

 

 

 
2

Net cash provided by (used in)
   financing activities
1,389

 
(1,124
)

(67
)

1,484


(1,859
)

(177
)
 
 
 
 
 
 
 
 
 
 
 
 
Effect of currency on cash

 

 

 
13

 

 
13

Total increase (decrease) in cash

 
(20
)

(1
)

86




65

Cash at the beginning of the period

 
26

 
7

 
235

 

 
268

Cash at the end of the period
$

 
$
6


$
6


$
321


$


$
333



20


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 2016 net sales of $19.7 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 95,000 employees in over 60 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
 
2017
 
2016
Net sales
$
4,848

 
$
4,813

Net income attributable to Eaton ordinary shareholders
432

 
404

Net income per share attributable to Eaton ordinary shareholders - diluted
$
0.96

 
$
0.88

During 2015, Eaton announced a multi-year restructuring initiative to reduce its cost structure and gain efficiencies in all business segments and at corporate in order to respond to declining market conditions. Restructuring charges in the first quarter of 2017 and 2016 were $20 and $63, respectively. Charges from this initiative are primarily comprised of severance costs. Restructuring charges are anticipated to be $100 in 2017. The projected annualized savings from these restructuring actions are expected to be $518, when fully realized in 2018.

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 operating earnings, operating 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 operating earnings and operating 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. and Oxalis Group Ltd. in 2017 and 2016, respectively. 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 Consolidated Financial Statements.


21


Consolidated Financial Results
 
Three months ended
March 31
 
Increase
 
2017
 
2016
 
Net sales
$
4,848

 
$
4,813

 
1
%
Gross profit
1,538

 
1,522

 
1
%
Percent of net sales
31.7
%
 
31.6
%
 
 
Income before income taxes
464

 
442

 
5
%
Net income
432

 
403

 
7
%
Less net loss for noncontrolling interests

 
1

 
 
Net income attributable to Eaton
   ordinary shareholders
432

 
404

 
7
%
Excluding acquisition integration charges,
  after-tax (Note 2)
1

 

 
 
Operating earnings
$
433

 
$
404

 
7
%
 
 
 
 
 
 
Net income per share attributable to Eaton ordinary shareholders - diluted
$
0.96

 
$
0.88

 
9
%
Excluding per share impact of acquisition
   integration charges, after-tax (Note 2)

 

 
 
Operating earnings per ordinary share
$
0.96

 
$
0.88

 
9
%
Net Sales
Net sales increased 1% in the first quarter of 2017 compared to the first quarter of 2016 due to an increase of 2% in organic sales, partially offset by a decrease of 1% from the impact of negative currency translation. The increase in organic sales in the first quarter of 2017 was due to higher sales volumes in the Electrical Products and Hydraulics business segments.
Gross Profit
Gross profit margin increased from 31.6% in the first quarter of 2016 to 31.7% in the first quarter of 2017. The increase in gross profit margin in the first quarter of 2017 was primarily due to higher sales volumes, savings from restructuring actions, and lower restructuring charges, partially offset by commodity inflation and unfavorable product mix.
Income Taxes
The effective income tax rate for the first quarter of 2017 was expense of 7%, compared to an expense of 9% for the first quarter of 2016. The decrease in the effective tax rate in the first three months of 2017 was primarily due to the excess tax benefits recognized for employee share-based payments in the quarter pursuant to the adoption of ASU 2016-09 as discussed in Note 1.
Net Income
Net income attributable to Eaton ordinary shareholders of $432 in the first quarter of 2017 increased 7% compared to Net income attributable to Eaton ordinary shareholders of $404 in the first quarter of 2016. The increase in the first quarter of 2017 was primarily due to higher sales volumes, savings from restructuring actions, lower restructuring charges and a lower tax rate, partially offset by commodity inflation and unfavorable product mix.
Net income per ordinary share increased to $0.96 in the first quarter of 2017 compared to $0.88 in the first quarter of 2016. The increase in Net income per ordinary share in the first quarter of 2017 was due to higher Net income attributable to Eaton ordinary shareholders and the Company's share repurchases over the past year.
Operating Earnings
Operating earnings of $433 in the first quarter of 2017 increased 7% compared to Operating earnings of $404 in the first quarter of 2016. The increase in Operating earnings in the first quarter of 2017 was primarily due to higher Net income attributable to Eaton ordinary shareholders.
Operating earnings per ordinary share increased to $0.96 in the first quarter of 2017 compared to $0.88 in the first quarter of 2016. The increase in Operating earnings per ordinary share in the first quarter of 2017 was due to higher Operating earnings and the impact of the Company's share repurchases over the past year.

22


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
 
2017
 
2016
 
Net sales
$
1,712

 
$
1,680

 
2
%
 
 
 
 
 
 
Operating profit
$
297

 
$
271

 
10
%
Operating margin
17.3
%
 
16.1
%
 
 
 
 
 
 
 
 
Acquisition integration charges
$
1

 
$

 
 
 
 
 
 
 
 
Before acquisition integration charges
 
 
 
 
 
Operating profit
$
298

 
$
271

 
10
%
Operating margin
17.4
%
 
16.1
%
 
 
Net sales increased 2% in the first quarter of 2017 compared to the first quarter of 2016 due to an increase of 3% in organic sales, partially offset by a decrease of 1% from the impact of negative currency translation. Organic sales grew in the first quarter of 2017 in all regions.
Operating margin increased from 16.1% in the first quarter of 2016 to 17.3% in the first quarter of 2017. The increase in operating margin in the first quarter 2017 was primarily due to higher sales volumes, lower restructuring charges, and savings from restructuring actions, partially offset by commodity inflation.
Operating margin before acquisition integration charges increased from 16.1% in the first quarter of 2016 to 17.4% in the first quarter of 2017 due to an increase in operating margin.
Electrical Systems and Services
 
Three months ended
March 31
 
Decrease
 
2017
 
2016
 
Net sales
$
1,333

 
$
1,342

 
(1
)%
 
 
 
 
 
 
Operating profit
$
155

 
$
159

 
(3
)%
Operating margin
11.6
%
 
11.8
%
 
 
 
 
 
 
 
 
Acquisition integration charges
$

 
$
1

 
 
 
 
 
 
 
 
Before acquisition integration charges
 
 
 
 
 
Operating profit
$
155

 
$
160

 
(3
)%
Operating margin
11.6
%
 
11.9
%
 
 
Net sales decreased 1% in the first quarter of 2017 compared to the first quarter of 2016 due to a decrease of 1% from the impact of negative currency translation. Organic sales were flat in the first quarter of 2017 reflecting strength in the Europe and Asia Pacific regions, and in North America commercial assemblies and 3-phase power quality markets, offset by continued weakness in the oil and gas markets and large industrial projects.
Operating margin decreased from 11.8% in the first quarter of 2016 to 11.6% in the first quarter of 2017. The decrease in operating margin in the first quarter of 2017 was primarily due to commodity inflation and unfavorable product mix, partially offset by savings from restructuring actions and lower restructuring charges.
Operating margin before acquisition integration charges decreased from 11.9% in the first quarter of 2016 to 11.6% in the first quarter of 2017 due to a decrease in operating margin.

23


Hydraulics
 
Three months ended
March 31
 
Increase
 
2017
 
2016
 
Net sales
$
587

 
$
551

 
7
%
 
 
 
 
 
 
Operating profit
$
60

 
$
41

 
46
%
Operating margin
10.2
%
 
7.4
%
 
 
Net sales increased 7% in the first quarter of 2017 compared to the first quarter of 2016 due to an increase of 9% in organic sales, partially offset by a decrease of 2% from the impact of negative currency translation. The increase in organic sales in the first quarter of 2017 was due to strength in global mobile OEM markets and distribution channels, particularly in the Asia Pacific and Europe regions.
Operating margin increased from 7.4% in the first quarter of 2016 to 10.2% in the first quarter of 2017. The increase in operating margin in the first quarter of 2017 was primarily due to higher sales volumes, savings from restructuring actions and lower restructuring charges, partially offset by commodity inflation and unfavorable product mix.
Aerospace
 
Three months ended
March 31
 
Decrease
 
2017
 
2016
 
Net sales
$
428

 
$
445

 
(4
)%
 
 
 
 
 
 
Operating profit
$
79

 
$
80

 
(1
)%
Operating margin
18.5
%
 
18.0
%
 
 
Net sales in the first quarter of 2017 decreased 4% compared to the first quarter of 2016 due to a decrease of 1% in organic sales and a decrease of 3% from the impact of negative currency translation. The decrease in organic sales in the first quarter of 2017 was primarily due to lower sales in military aftermarket, military rotorcraft, and business and regional jets, and lower cost reimbursements on certain engineering programs, partially offset by growth in commercial transports and aftermarket.
Operating margin increased from 18.0% in the first quarter of 2016 to 18.5% in the first quarter of 2017. The increase in operating margin in the first quarter of 2017 was due to savings from restructuring actions and lower restructuring charges, partially offset by lower sales volumes and higher program development costs.
Vehicle
 
Three months ended
March 31
 
Decrease
 
2017
 
2016
 
Net sales
$
788

 
$
795

 
(1
)%
 
 
 
 
 
 
Operating profit
$
108

 
$
118

 
(8
)%
Operating margin
13.7
%
 
14.8
%
 
 
Net sales in first quarter of 2017 decreased 1% compared to the first quarter of 2016 due to a decrease of 2% in organic sales, partially offset by an increase of 1% from the impact of positive currency translation. The decrease in organic sales in the first quarter of 2017 was primarily due to the lower North American Class 8 truck market, partially offset by growth in the North American automotive and Asia Pacific markets.
Operating margin decreased from 14.8% in the first quarter of 2016 to 13.7% in the first quarter of 2017. The decrease in the first quarter of 2017 was primarily due to lower sales volumes, commodity inflation, unfavorable product mix, and higher warranty costs, partially offset by savings from restructuring actions and lower restructuring charges.

24


On April 10, 2017, Eaton announced an agreement with Cummins, Inc. to form a joint venture for automated transmissions for heavy-duty and medium-duty commercial vehicles. The joint venture will be named Eaton Cummins Automated Transmission Technologies. Cummins, Inc. and Eaton will each own 50% of the new joint venture. Eaton expects to account for the joint venture on the equity method of accounting. Under the terms of the agreement, Eaton will receive $600 in cash from Cummins for the 50% interest in the joint venture. The formation of the joint venture is subject to regulatory approvals and customary closing conditions. The parties expect the transaction to close in the third quarter of 2017.
Corporate Expense
 
Three months ended
March 31
 
Increase (decrease)
 
2017
 
2016
 
Amortization of intangible assets
$
94

 
$
100

 
(6
)%
Interest expense - net
61

 
57

 
7
 %
Pension and other postretirement
   benefits expense
11

 
14

 
(21
)%
Other corporate expense - net
69

 
56

 
23
 %
Total corporate expense
$
235

 
$
227

 
4
 %
Total corporate expense increased 4% from $227 in the first quarter of 2016 to $235 in the first quarter of 2017. The increase in Total corporate expense for the first quarter of 2017 was primarily due to a 23% increase in other corporate expense - net driven by an increase to the LIFO inventory reserve and higher variable corporate expenses, partially offset by a 6% decrease of amortization of intangible assets.

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, 2017. 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 $463 in the first three months of 2017, an increase of $75 in the source of cash compared to $388 in the first three months of 2016. The increase in net cash provided by operating activities in the first three months of 2017 was driven by a lower increase in working capital compared to the first three months of 2016 and proceeds received from several insurance matters resolved in the fourth quarter of 2016, partially offset by higher pension contributions.
Investing Cash Flow
Net cash used in investing activities was $229 in the first three months of 2017, an increase in the use of cash of $70 compared to $159 in the first three months of 2016. The increase in the use of cash was primarily driven by net purchases of short-term investments of $93 in 2017 compared to net purchases of $53 in 2016.
Financing Cash Flow
Net cash used in financing activities was $563 in the first three months of 2017, an increase of $386 in the use of cash compared to $177 in the first three months of 2016. The increase in the use of cash was primarily due to a decrease of $224 in proceeds from borrowings, which totaled $194 in 2017 and $418 in 2016, and a $155 increase in share repurchases during the first three months of 2017 compared to the first three months of 2016.

25



FORWARD-LOOKING STATEMENTS
This Form 10-Q Report contains forward-looking statements concerning litigation and regulatory developments, the joint venture with Cummins, Inc., and the costs and benefits of restructuring actions, 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 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; unanticipated difficulties closing the joint venture with Cummins, Inc.; 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, 2016.

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, 2017.
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 2017, 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.

PART II — OTHER INFORMATION

ITEM 1.
LEGAL PROCEEDINGS.
Information regarding the Company's current legal proceedings is presented in Note 6 of the Notes to the Condensed Consolidated Financial Statements.

ITEM 1A.
RISK FACTORS.
“Item 1A. Risk Factors” in Eaton's 2016 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 2016 Form 10-K.


26


ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
(c) Issuer's Purchases of Equity Securities
During the first quarter of 2017, 3.6 million ordinary shares were repurchased in the open market at a total cost of $255 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 2017 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
 

 
$

 

 
$
1,853

February
 
3,199,082

 
$
71.45

 
3,199,082

 
$
1,624

March
 
367,546

 
$
71.92

 
367,546

 
$
1,598

Total
 
3,566,628

 
$
71.50

 
3,566,628

 
 

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, our wholly-owned non-U.S. subsidiary sold advanced industrial lighting solutions to a distributor in Iran for final known use by a customer that is ultimately beneficially owned by the government of Iran. We received total net revenue of approximately 514,948 Euros and realized net profits of approximately 74,709 Euros from the sale (approximately $545,844 and $79,191 in whole dollars, respectively, at the exchange rates for U.S. dollars at the date of the sale transactions).  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.

ITEM 6.
EXHIBITS.
Exhibits — See Exhibit Index attached.


27


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 2, 2017
By:
/s/ Richard H. Fearon
 
 
 
 
Richard H. Fearon
 
 
 
 
Principal Financial Officer
 
 
 
(On behalf of the registrant and as Principal Financial Officer)
 
 
 
 
 


28


Eaton Corporation plc
First Quarter 2017 Report on Form 10-Q
Exhibit Index
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
 
 
 
3 (iii)
 
Memorandum of Association — Incorporated by reference to the Form 10-Q Report for the three months ended
March 31, 2016
 
 
 
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 16, 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 16, 2013)
 
 
 
4.4
 
Pursuant to Regulation S-K Item 601(b)(4), Eaton agrees to furnish to the SEC, upon request, a copy of the instruments defining the rights of holders of its long-term debt other than those set forth in Exhibits 4.1-4.3 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, 2017 and 2016, (ii) Consolidated Statements of Comprehensive Income for the three months ended March 31, 2017 and 2016, (iii) Condensed Consolidated Balance Sheets at March 31, 2017 and December 31, 2016, (iv) Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2017 and 2016 and (v) Notes to Condensed Consolidated Financial Statements for the three months ended March 31, 2017.


29