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 ~~September 30, 2013~~March 31, 2014

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)

Fitzwilliam Hall, Fitzwilliam Place, Dublin 2, Ireland		-
(Address of principal executive offices)		(Zip Code)



			+1 (440) 523-5000
			(Registrant's telephone number, including area code)

			Not applicable
			(Former name, former address and former fiscal year if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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 ~~474.5~~476.7 million Ordinary Shares outstanding as of ~~September 30, 2013~~March 31, 2014.

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PART I — FINANCIAL INFORMATION


ITEM 1.	FINANCIAL STATEMENTS.

EATON CORPORATION plc

CONSOLIDATED STATEMENTS OF INCOME


	Three months ended September 30						Nine months ended September 30						Three months ended March 31
(In millions except for per share data)	2013			2012			2013			2012			2014			2013
Net sales	$	5,607		$	3,950		$	16,519		$	11,978		$	5,492		$	5,310

Cost of products sold	3,883			2,747			11,488			8,316			3,858			3,735
Selling and administrative expense	967			687			2,885			2,079			962			958
Research and development expense	166			102			479			313			162			152
Interest expense - net	63			42			209			100			62			75
Other expense (income) - net	7			(4		)	3			7
Other income - net													(5		)	(10		)
Income before income taxes	521			376			1,455			1,163			453			400
Income tax expense	7			29			64			123			12			20
Net income	514			347			1,391			1,040			441			380
Less net income for noncontrolling interests	(4		)	(2		)	(9		)	(2		)	(2		)	(2		)
Net income attributable to Eaton ordinary shareholders	$	510		$	345		$	1,382		$	1,038		$	439		$	378

Net income per ordinary share
Diluted	$	1.07		$	1.02		$	2.90		$	3.05		$	0.92		$	0.79
Basic	1.08			1.02			2.92			3.08			0.92			0.80

Weighted-average number of ordinary shares outstanding
Diluted	477.2			339.8			476.2			339.7			478.8			475.1
Basic	474.0			337.6			473.1			336.7			475.8			471.9

Cash dividends declared per ordinary share	$	0.42		$	0.76		$	1.26		$	1.52		$	0.49		$	0.42

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 September 30						Nine months ended September 30						Three months ended March 31
(In millions)	2013			2012			2013			2012			2014			2013
Net income	$	514		$	347		$	1,391		$	1,040		$	441		$	380
Less net income for noncontrolling interests	(4		)	(2		)	(9		)	(2		)	(2		)	(2		)
Net income attributable to Eaton ordinary shareholders	510			345			1,382			1,038			439			378

Other comprehensive income, net of tax
Currency translation and related hedging instruments	286			146			(104		)	47			(47		)	(281		)
Pensions and other postretirement benefits	31			22			120			93			50			53
Cash flow hedges	5			4			—			16			—			(7		)
Other comprehensive income attributable to Eaton ordinary shareholders	322			172			16			156
Other comprehensive income (loss) attributable to Eaton ordinary shareholders													3			(235		)

Total comprehensive income attributable to Eaton ordinary shareholders	$	832		$	517		$	1,398		$	1,194		$	442		$	143

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)	September 30, 2013		December 31, 2012		March 31, 2014		December 31, 2013
Assets
Current assets
Cash	$	642	$	577	$	784	$	915
Short-term investments	698		527		360		794
Accounts receivable - net	3,950		3,510		3,889		3,648
Inventory	2,403		2,339		2,532		2,382
Deferred income taxes	404		393		554		577
Prepaid expenses and other current assets	669		429		564		415
Total current assets	8,766		7,775		8,683		8,731

Property, plant and equipment - net	3,757		3,823		3,806		3,833

Other noncurrent assets
Goodwill	14,276		14,211		14,450		14,495
Other intangible assets	7,231		7,468		7,078		7,186
Deferred income taxes	328		369		257		240
Other assets	954		1,704		988		1,006
Total assets	$	35,312	$	35,350	$	35,262	$	35,491

Liabilities and shareholders’ equity
Current liabilities
Short-term debt	$	88	$	757	$	8	$	13
Current portion of long-term debt	576		314		316		567
Accounts payable	1,976		1,879		2,076		1,960
Accrued compensation	430		463		334		461
Other current liabilities	1,984		2,008		2,071		1,913
Total current liabilities	5,054		5,421		4,805		4,914

Noncurrent liabilities
Long-term debt	9,029		9,762		8,991		8,969
Pension liabilities	1,801		2,004		1,228		1,465
Other postretirement benefits liabilities	733		740		666		668
Deferred income taxes	1,513		1,456		1,296		1,313
Other noncurrent liabilities	1,065		812		1,165		1,299
Total noncurrent liabilities	14,141		14,774		13,346		13,714

Shareholders’ equity
Eaton shareholders’ equity	16,071		15,113		17,037		16,791
Noncontrolling interests	46		42		74		72
Total equity	16,117		15,155		17,111		16,863
Total liabilities and equity	$	35,312	$	35,350	$	35,262	$	35,491

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


	Nine months ended September 30						Three months ended March 31
(In millions)	2013			2012			2014			2013
Operating activities
Net income	$	1,391		$	1,040		$	441		$	380
Adjustments to reconcile to net cash provided by operating activities
Depreciation and amortization	740			419			249			245
Pension expense	239			205
Deferred income taxes							(24		)	104
Pension and other postretirement benefits expense							99			87
Contributions to pension plans	(303		)	(383		)	(272		)	(208		)
Contributions to other postretirement benefits plans	(45		)	(34		)
Excess tax benefit from equity-based compensation							(20		)	(16		)
Changes in working capital	(813		)	(318		)	(370		)	(546		)
Other - net	204			48			(91		)	54
Net cash provided by operating activities	1,413			977			12			100

Investing activities
Cash paid for acquisitions of businesses	(11		)	(554		)
Capital expenditures for property, plant and equipment	(372		)	(357		)	(110		)	(122		)
(Purchases) sales of short-term investments - net	(185		)	89
Proceeds from sales of businesses	761			3
Sales of short-term investments - net							431			132
Proceeds from sale of business							3			761
Other - net	(50		)	(38		)	(20		)	2
Net cash provided by (used in) investing activities	143			(857		)
Net cash provided by investing activities							304			773

Financing activities
Proceeds from borrowings	6			600
Payments on borrowings	(1,012		)	(321		)	(257		)	(687		)
Payments of financing costs	—			(63		)
Cash dividends paid	(597		)	(384		)	(229		)	(194		)
Exercise of employee stock options	98			54			23			56
Excess tax benefit from equity-based compensation	24			18			20			16
Other - net	(4		)	—			—			(1		)
Net cash used in financing activities	(1,485		)	(96		)	(443		)	(810		)

Effect of currency on cash	(6		)	16			(4		)	(1		)
Total increase in cash	65			40
Total (decrease) increase in cash							(131		)	62
Cash at the beginning of the period	577			385			915			577
Cash at the end of the period	$	642		$	425		$	784		$	639

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 generally accepted accounting principles for complete financial statements. However, in the opinion of management, all adjustments (consisting of normal recurring accruals) have been made that are necessary for a fair presentation of the condensed consolidated financial statements for the interim periods.

This Form 10-Q should be read in conjunction with the consolidated financial statements and related notes included in Eaton’s ~~2012~~2013 Form ~~10-K, as updated by Exhibit 99.1 of Eaton's current report on Form 8-K filed on September 6, 2013.~~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 Exchange Commission.

During the first quarter of 2013, Eaton re-segmented certain reportable operating segments due to a reorganization of the Company's businesses. The new reportable business segments include Electrical Products and Electrical Systems and Services (which include legacy Eaton and former Cooper Industries plc (Cooper) electrical businesses), and Vehicle (which includes truck and automotive drivetrain and powertrain systems businesses). For those reportable segments that were re-segmented, previously reported segment information has been updated for all periods presented. See Note 13 for additional information related to these segments.

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


Note 2.	ACQUISITIONS AND SALE OF BUSINESSES

In ~~2012, Eaton~~Eaton's most recently acquired businesses, ~~in separate transactions. The Consolidated Statements of Income include the results of these businesses from the dates of the transactions. These transactions~~ and the related annual sales prior to acquisition, are summarized below:



Acquired businesses	Date of transaction	Business segment	Annual sales
Acquired businesses	Date of transaction	Business segment	Annual sales
Cooper Industries plc (Cooper)	November 30, 2012	Electrical Products; Electrical Systems and Services	$5,409 for 2011
A diversified global manufacturer of electrical products and systems, with brands including Bussmann electrical and electronic fuses; Crouse-Hinds and CEAG explosion-proof electrical equipment; Halo and Metalux lighting fixtures; and Kyle and McGraw-Edison power systems products.	November 30, 2012	Electrical Products; Electrical Systems and Services	$5,409 for 2011

Rolec Comercial e Industrial S.A.	September 28, 2012	Electrical Systems and Services	$85 for the 12 months ended September 30, 2012
A Chilean manufacturer of integrated power assemblies and low- and medium-voltage switchgear, and a provider of engineering services serving mining and other heavy industrial applications in Chile and Peru.	September 28, 2012	Electrical Systems and Services	$85 for the 12 months ended September 30, 2012

Jeil Hydraulics Co., Ltd.	July 6, 2012	Hydraulics	$189 for 2011
A Korean manufacturer of track drive motors, swing drive motors, main control valves and remote control valves for the construction equipment market.	July 6, 2012	Hydraulics	$189 for 2011

Polimer Kaucuk Sanayi ve Pazarlama A.S.	June 1, 2012	Hydraulics	$335 for 2011
A Turkish manufacturer of hydraulic and industrial hose for construction, mining, agriculture, oil and gas, manufacturing, food and beverage, and chemicals markets. This business sells its products under the SEL brand name.	June 1, 2012	Hydraulics	$335 for 2011

Gycom Electrical Low-Voltage Power Distribution, Control and Automation	June 1, 2012	Electrical Systems and Services	$24 for 2011
A Swedish electrical low-voltage power distribution, control and automation components business.	June 1, 2012	Electrical Systems and Services	$24 for 2011

See Note 3 for information about acquisition integration charges and transaction costs related to these acquisitions.

Sale of Aerospace Power Distribution Management Solutions and Integrated Cockpit Solutions

On January 20, 2014, Eaton announced it entered into an agreement to sell the Aerospace Power Distribution Management Solutions and Integrated Cockpit Solutions businesses to Safran for $270. The sale, which was approved by Eaton's Board of Directors, is subject to regulatory approvals and other customary closing conditions. The transaction is expected to close in the second quarter of 2014.

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~~Cooper Industries plc~~

On ~~November 30, 2012, Eaton Corporation acquired Cooper for a purchase price of~~ ~~$13,192~~. The acquisition of Cooper has been accounted for using the acquisition method of accounting which requires, among other things, the assets acquired and liabilities assumed be recognized at their respective fair values as of the acquisition date. For accounting purposes, Eaton has been treated as the acquirer in the transaction.

~~The estimated purchase price allocation below represents Cooper's opening balance sheet on~~ ~~November 30, 2012, as updated for adjustments made during 2013 primarily related to intangible assets, goodwill, certain property values and the related deferred tax impact. Eaton's consolidated balance sheet at~~ ~~December 31, 2012~~ ~~and the related notes to the consolidated financial statements have been adjusted to reflect these adjustments. The Company did not revise the Consolidated Statement of Income for the year ended~~ ~~December 31, 2012, as any adjustment was considered immaterial. For additional information, refer to Eaton's Form 10-K for the year ended~~ ~~December 31, 2012, as updated by Exhibit 99.1 of Eaton's current report on Form 8-K filed on September 6, 2013.~~

November 30,
2012
(as adjusted)
Working capital accounts ⁽¹⁾
$ 2,304
Prepaid expenses and other current assets 204
Property, plant and equipment 885
Investment in Apex Tool Group, LLC 807
Intangible assets 5,250
Other assets 35
Debt (1,221 )
Accounts payable (519 )
Other current liabilities (673 )
Other noncurrent liabilities (2,185 )
Total identifiable net assets 4,887
Goodwill 8,305
Total consideration $ 13,192

⁽¹⁾ Working capital accounts include Cash, Short-term investments, Accounts receivable and Inventory.

The purchase price allocation for Cooper continues to be evaluated. As the Company finalizes the fair value of assets acquired and liabilities assumed, additional purchase price adjustments will be recorded. Fair value estimates are based on a complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions. The finalization of the purchase accounting assessment will result in changes in the valuation of assets acquired and liabilities assumed and may have a material impact on the Company's results of operations and financial position.

Goodwill has been allocated to the Electrical Products and Electrical Systems and Services segments. The goodwill recognized is calculated as the excess of the consideration transferred over the net assets recognized and represents the expected revenue and cost synergies of the combined company and assembled workforce. Goodwill recognized as a result of the acquisition is not deductible for tax purposes. See Note 4 for additional information about goodwill.

~~Contingent liabilities assumed as part of the transaction total~~ ~~$226~~ and are included in Other current liabilities and Other noncurrent liabilities. These contingent liabilities are related to environmental, legal (including product liability claims) and tax matters. Contingent liabilities are recorded at fair value in purchase accounting, aside from those pertaining to uncertainty in income taxes which are an exception to the fair value basis of accounting. Legal matters, and certain environmental matters that are legal in nature, are recorded at the respective probable and estimable amount. The estimated fair values noted above continue to be evaluated and are subject to change upon completion of the final valuation. Changes in the respective fair value of these assumed contingent liabilities may be material.

~~Table of Contents~~

~~Sale of Apex Tool Group, LLC~~

In July 2010, Cooper formed a joint venture, named Apex Tool Group, LLC (Apex), with Danaher Corporation (Danaher). Apex was formed by combining Cooper’s tools business with certain tools businesses from Danaher’s Tools and Components segment. Cooper and Danaher each owned a ~~50%~~ ~~interest in the joint venture, had equal representation on its board of directors and had a~~ ~~50%~~ ~~voting interest in the joint venture.~~

~~On October 10, 2012, Cooper and Danaher announced they had entered into a definitive agreement to sell Apex to Bain Capital for approximately~~ ~~$1.6 billion~~ ~~subject to post-closing adjustments. On~~ ~~February 1, 2013, the sale of Apex was completed.~~


Note 3.	ACQUISITION INTEGRATION AND RESTRUCTURING CHARGES

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


	Three months ended September 30				Nine months ended September 30				Three months ended March 31
	2013		2012		2013		2012		2014		2013
Acquisition integration charges
Electrical Products	$	9	$	1	$	24	$	1	$	29	$	3
Electrical Systems and Services	10		1		26		8		26		5
Hydraulics	8		5		28		9		4		12
Total business segments	27		7		78		18		59		20
Corporate	9		1		21		2		7		6
Total acquisition integration charges	$	36	$	8	$	99	$	20	66		26

Transaction costs
Corporate	$	2	$	19	$	9	$	26	—		5
Total transaction costs	$	2	$	19	$	9	$	26	—		5

Total acquisition integration charges and transaction costs before income taxes	$	38	$	27	$	108	$	46	$	66	$	31
Total after income taxes	$	26	$	18	$	73	$	30	$	44	$	22
Per ordinary share - diluted	$	0.05	$	0.05	$	0.15	$	0.09	$	0.09	$	0.05

Business segment integration charges in the first quarter of 2014 were related primarily to the integration of Cooper. Business segment integration charges in the first quarter of 2013 were related primarily to the integrations of Cooper, ~~and Polimer Kaucuk Sanayi ve Pazarlama. Business segment integration charges in~~ ~~2012~~ ~~were related primarily to the integrations of Internormen Technology Group, Jeil Hydraulics,~~ Polimer Kaucuk Sanayi ve Pazarlama, Jeil Hydraulics, and ~~E. Begerow GmbH & Co. KG.~~Rolec Comercial e Industrial S.A. These charges were included in Cost of products sold or Selling and administrative expense, as appropriate. In Business Segment Information the charges reduced Operating profit of the related business segment.

Corporate integration charges in ~~2013~~2014 and ~~2012~~2013 were related primarily to the ~~integration~~acquisition of Cooper. These charges were included in Selling and administrative expense. In Business Segment Information the charges were included in Other corporate expense - net.

Acquisition-related transaction costs, such as investment banking, legal, other professional fees, and costs associated with change in control agreements, are not included as a component of consideration transferred in an acquisition but are expensed as incurred. Acquisition-related transaction costs in 2013 ~~and~~ ~~2012~~were related to the acquisition of Cooper. These charges were included in Selling and administrative expense, Interest expense - net and Other ~~corporate expense~~income - ~~net, as appropriate.~~net. In Business Segment Information the charges were included in Interest expense - net and Other corporate expense - net.

See Note 2 for additional information about business acquisitions.

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Restructuring Charges

During ~~the fourth quarter of~~ ~~2012, Eaton undertook restructuring activities to improve the efficiency of certain businesses. These actions resulted in a charge in the fourth quarter of~~ ~~2012~~ of ~~$50, comprised of severance costs totaling~~ ~~$34~~ ~~and other non-cash expenses totaling~~ ~~$16~~.

~~During~~ 2013,, Eaton undertook restructuring activities related to the acquisition and integration of Cooper in an effort to gain efficiencies in selling, marketing, traditional back-office functions and manufacturing and distribution. These actions resulted in charges totaling $$36 in 2013 and $41 in the first quarter of 262014, comprised primarily of severance ~~costs, and are included in the table above in acquisition integration charges.~~costs. These restructuring initiatives are expected to continue through ~~the second half of~~ ~~2013~~.2015.

Restructuring charges were included in Cost of products sold or Selling and administrative expense, as appropriate. In Business Segment Information, the charges reduced Operating profit of the related business segment. See Note 1312 for additional information about business segments. As of ~~September 30,~~March 31, 2014 and December 31, 2013,~~, the~~ liabilities related to restructuring actions totaled $2963. and $32, respectively.

During April 2014, the Company implemented certain restructuring activities in an effort to gain efficiencies in the Vehicle, Hydraulics and Aerospace business segments. These restructuring activities resulted in a charge of $40, comprised primarily of severance costs.

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Note 4.	GOODWILL

A summary of goodwill follows:


	September 30, 2013		December 31, 2012		March 31, 2014		December 31, 2013
Electrical Products	$	5,937	$	5,874	$	7,153	$	7,189
Electrical Systems and Services	5,550		5,531		4,508		4,517
Hydraulics	1,388		1,404		1,384		1,385
Aerospace	1,045		1,045		1,048		1,048
Vehicle	356		357		357		356
Total goodwill	$	14,276	$	14,211	$	14,450	$	14,495

~~Assessing Goodwill for Impairment~~

~~Goodwill is tested for impairment annually as of July 1 at the reporting unit level, which is equivalent~~The decrease in goodwill in 2014 was due to Eaton's operating segments. Impairment testing for 2013 was performed using a quantitative analysis under which the fair value for each reporting unit was estimated using a discounted cash flow model, which considered forecasted cash flows discounted at an estimated weighted-average cost of capital. The forecasted cash flows were based on the Company's long-term operating plan and a terminal value was used to estimate the operating segment's cash flows beyond the period covered by the operating plan. The weighted-average cost of capital is an estimate of the overall after-tax rate of return required by equity and debt market holders of a business enterprise. These analyses require the exercise of significant judgments, including judgments about appropriate discount rates, perpetual growth rates and the timing of expected future cash flows of the respective operating segment. Sensitivity analyses were performed around these assumptions in order to assess the reasonableness of the assumptions and the resulting estimated fair values.

~~For 2013, based on a quantitative analysis, the fair values of Eaton's reporting units continue to substantially exceed the respective carrying amounts.~~currency translation.


~~Note 5.~~	~~DEBT~~

On ~~November 30, 2012, the closing date of the acquisition of Cooper, Eaton borrowed~~ ~~$1,669~~ ~~on a~~ ~~$6.75 billion~~, ~~364-day bridge facility (the Facility) which was obtained on~~ ~~May 21, 2012~~. The Facility was obtained to finance a portion of the cash paid to acquire Cooper and was available in a single draw on the closing date of the acquisition. On February 1, 2013, Eaton repaid the outstanding balance on the Facility.

~~Table of Contents~~


Note 6.5.	RETIREMENT BENEFITS PLANS

The components of retirement benefits expense follow:


	Three months ended September 30																		United States pension benefit expense						Non-United States pension benefit expense						Other postretirement benefits expense
	United States pension benefit expense						Non-United States pension benefit expense						Other postretirement benefits expense						Three months ended March 31
	2013			2012			2013			2012			2013			2012			2014			2013			2014			2013			2014			2013
Service cost	$	32		$	28		$	16		$	13		$	5		$	5		$	29		$	32		$	16		$	15		$	4		$	5
Interest cost	37			33			20			18			10			10			40			37			22			20			9			9
Expected return on plan assets	(56		)	(46		)	(21		)	(18		)	(2		)	(2		)	(61		)	(57		)	(25		)	(21		)	(1		)	(2		)
Amortization	33			30			7			3			3			3			23			33			7			7			2			3
	46			45			22			16			16			16			31			45			20			21			14			15
Settlement loss	23			8			—			—			—			—			34			6			—			—			—			—
Total expense	$	69		$	53		$	22		$	16		$	16		$	16		$	65		$	51		$	20		$	21		$	14		$	15

Nine months ended September 30

United States
pension benefit expense

Non-United States
pension benefit expense

Other postretirement
benefits expense
2013 2012 2013 2012 2013 2012
Service cost $ 96
$ 86
$ 46
$ 37
$ 15
$ 13
Interest cost 111
100
59
56
27
29
Expected return on plan assets (169 ) (136 ) (63 ) (56 ) (5 ) (5 )
Amortization 99
88
21
11
10
10
137
138
63
48
47
47
Settlement loss 39
17
—
2
—
—
Total expense $ 176
$ 155
$ 63
$ 50
$ 47
$ 47


Note 7.6.	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 (including asbestos claims), antitrust matters and employment-related matters. Although it is not possible to predict with certainty the outcome or cost of these matters, the Company believes they will not have a material adverse effect on the consolidated financial statements.

In December 2010, a Brazilian court held that a judgment obtained by a Brazilian company, Raysul, against another Brazilian company, Saturnia, which was sold by Eaton in 2006, could be enforced against Eaton Ltda. This judgment is based on an alleged violation of an agency agreement between Raysul and Saturnia. At ~~September 30, 2013~~March 31, 2014, the Company has a total accrual of 7479 Brazilian Reais related to this matter ($3335 based on current exchange rates), comprised of 60 Brazilian Reais recognized in the fourth quarter of 2010 ($27 based on current exchange rates) with an additional 1419 Brazilian Reais recognized through ~~September 30, 2013~~March 31, 2014 ($68 based on current exchange rates). In 2010, Eaton filed motions for clarification with the Brazilian court of appeals which were denied on April 6, 2011. Eaton Holding and Eaton Ltda. filed appeals on various issues to the Superior Court of Justice in Brasilia. In April 2013,, the Superior Court of Justice ruled in favor of Raysul. Additional motions for clarification have been filed with the Superior Court of Justice in Brasilia and an additional appeal is being considered. The Company expects that any sum it may be required to pay in connection with this matter will not exceed the amount of the recorded liability.

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On October 5, 2006, ZF Meritor LLC and Meritor Transmission Corporation (collectively, Meritor) filed an action against Eaton in the United States District Court for Delaware. The action sought damages, which would be trebled under United States antitrust laws, as well as injunctive relief and costs. The suit alleged that Eaton engaged in anti-competitive conduct against Meritor in the sale of heavy-duty truck transmissions in North America. Following a four week trial on liability only, on October 8, 2009, the jury returned a verdict in favor of Meritor. Eaton firmly believes that it competes fairly and honestly for business in the marketplace, and that at no time did it act in an anti-competitive manner. During an earlier stage in the case, the judge concluded that damage estimates contained in a report filed by Meritor were not based on reliable data and the report was specifically excluded from the case. On November 3, 2009, Eaton filed a motion for judgment as a matter of law and to set aside the verdict. That motion was denied on March 10, 2011. On March 14, 2011, Eaton filed a motion for entry of final judgment of liability, zero damages and no injunctive relief. That motion was denied on June 9, 2011. On August 19, 2011, the Court entered final judgment of liability but awarded zero damages to plaintiffs. The Court also entered an injunction prohibiting Eaton from offering rebates or other incentives based on purchasing targets but stayed the injunction pending appeal. Eaton appealed the liability finding and the injunction to the Third Circuit Court of Appeals. Meritor cross-appealed the finding of zero damages. On September 28, 2012, the Third Circuit Court of Appeals affirmed the District Court's denial of Eaton's motion for judgment as a matter of law, and let stand the jury verdict in favor of Meritor. The Third Circuit Court of Appeals also ruled that the plaintiffs' damages report was properly excluded, but reversed the judgment of zero damages and ordered that the District Court must allow plaintiffs a limited opportunity to amend the damages report, which may be re-considered for reliability and admissibility. Injunctive relief also was vacated. On remand to the District Court, plaintiffs submitted an amended damages report in which their expert opined that damages range between $475 and $800. On December 20, 2013, the District court ruled that the plaintiffs' damages expert could testify at trial and be subjected to cross-examination. The District Court has scheduled a jury trial for the second quarter of 2014. Eaton's damages expert opined that damages are zero. An estimate of any potential loss related to this action cannot be made at this time.

Frisby Corporation, now known as Triumph Actuation Systems, LLC, and other claimants (collectively, the Frisby Parties) asserted claims alleging, among other things, unfair competition, defamation, malicious prosecution, deprivation of civil rights, and antitrust in the Hinds County Circuit Court of Mississippi in 2004 and in the Federal District Court of North Carolina in 2011. Eaton had asserted claims against the Frisby Parties regarding improper use of trade secrets and these claims were dismissed by the Hinds County Circuit Court. ~~The dismissal of Eaton’s claims by the Hinds County Circuit Court is on appeal to~~On September 25, 2013, the Mississippi Supreme Court ~~which, on September 25, 2013,~~ issued an order that stayed all proceedings in the Hinds County Circuit Court pending further order of the Mississippi Supreme Court. ~~During~~On November 21, 2013, the ~~third quarter~~Mississippi Supreme Court upheld the dismissal of ~~2013,~~Eaton's claims but did not lift the stay on all proceedings in the Hinds County Circuit Court. Prior to the stay, the Frisby Parties submitted various expert damage designations related to their claims into the Hinds County Circuit ~~Court.~~Court, claiming damages of at least $376. Eaton disputes liability to the Frisby Parties and Eaton's experts dispute the amount of damages claimed by the experts for the Frisby Parties. An estimate of any potential loss ~~if any,~~related to this action cannot be made at this time.


Note 8.7.	INCOME TAXES

The effective income tax rate for the ~~third~~first quarter of 2014 was 3% compared to 5% for the first quarter of 2013 ~~was~~ ~~1.4%~~ ~~compared to~~ ~~7.7%~~ ~~for the~~ ~~third~~ ~~quarter of~~ ~~2012~~ ~~and~~ ~~4.4%~~ ~~for the first~~ ~~nine~~ ~~months of~~ ~~2013~~ ~~compared to~~ ~~10.6%~~ ~~for the first~~ ~~nine~~ ~~months of~~ ~~2012~~. The lower effective tax rate in the ~~third~~first quarter of ~~2013~~2014 was primarily attributable to ~~tax effects associated with the acquisition~~a more favorable geographic mix of ~~Cooper. The lower effective tax rate in the first~~ ~~nine~~ ~~months of~~ ~~2013~~ ~~was attributable to the item noted above, the recording of the entire~~ ~~2012~~ ~~U.S. research and experimentation credit in the first quarter of~~ ~~2013, the reinstatement in~~ ~~2013~~ ~~of the U.S. research and experimentation credit and enhanced utilization of foreign tax credits in the U.S.~~

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

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The Company firmly believes that the proposed assessments are without merit. The Company also believes that it was in full compliance with the terms of the two APAs, and that the IRS's unilateral attempt to retroactively cancel these two APAs is also without merit, and represents a breach of the two agreements. On February 29, 2012, the Company filed a Petition with the U.S Tax Court in which it asserted that the transfer pricing established in the two APA contracts meets the arms-length standard set by the U.S. income tax laws, and accordingly, that the two APA contracts should be enforced in accordance with their terms. On June 11, 2012, the Company filed a motion for partial summary judgment with the U.S. Tax Court, asking the U.S. Tax Court to find that the APAs are binding contracts and that the IRS has the burden of proof to substantiate cancellation of the APAs. On June 26, 2013, the U.S. Tax Court ruled that the IRS has the discretion to unilaterally cancel an APA and that the taxpayer bears the burden of proving that the IRS abused that discretion. While the Company disagrees with the Tax Court's ruling, the Company remains confident that it will be able to demonstrate that it was in full compliance with the APAs and that the IRS abused its discretion in canceling the APAs after their terms expired. In addition, the Company continues to believe the transfer pricing methodology contained in the APAs is correct and that the ultimate resolution of this matter will not have a material impact on the consolidated financial statements.

During the third quarter of 2013, adjustments were made to Deferred income taxes and Other current liabilities on the Consolidated Balance Sheet at December 31, 2012 to net certain deferred tax assets against deferred tax liabilities within current and long-term classifications in the amount of ~~$49~~ ~~and~~ ~~$885~~, respectively. These adjustments are related to the acquisition of Cooper and combining both Eaton and Cooper U.S. operations into one tax paying component. The Company concluded that the impact of these adjustments were not material to its 2012 consolidated financial statements. income.


Note 9.8.	EQUITY

The changes in Shareholders’ equity follow:

Eaton
shareholders’
equity

Noncontrolling
interests

Total
equity
Balance at December 31, 2012 $ 15,113
$ 42
$ 15,155
Net income 1,382
9
1,391
Other comprehensive loss 16
—
16
Cash dividends paid (597 ) (5 ) (602 )
Issuance of shares under equity-based compensation plans - net 157
—
157
Balance at September 30, 2013 $ 16,071
$ 46
$ 16,117



	Eaton shareholders’ equity			Noncontrolling interests		Total equity
Balance at December 31, 2013	$	16,791		$	72	$	16,863
Net income	439			2		441
Other comprehensive income	3			—		3
Cash dividends paid and accrued	(234		)	—		(234		)
Issuance of shares under equity-based compensation plans - net	38			—		38
Balance at March 31, 2014	$	17,037		$	74	$	17,111

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The changes in Accumulated other comprehensive (loss) income follow:


	Currency translation and related hedging instruments			Pensions and other postretirement benefits			Cash flow hedges			Total			Currency translation and related hedging instruments			Pensions and other postretirement benefits			Cash flow hedges			Total
Balance at December 31, 2012	$	(367	)	$	(1,599	)	$	2		$	(1,964	)
Balance at December 31, 2013													$	(395	)	$	(1,170	)	$	5		$	(1,560	)
Other comprehensive (loss) income before reclassifications	(104		)	12			(1		)	(93		)	(47		)	9			1			(37		)
Amounts reclassified from Accumulated other comprehensive (loss) income	—			108			1			109			—			41			(1		)	40
Net current-period other comprehensive (loss) income	(104		)	120			—			16			(47		)	50			—			3
Balance at September 30, 2013	$	(471	)	$	(1,479	)	$	2		$	(1,948	)
Balance at March 31, 2014													$	(442	)	$	(1,120	)	$	5		$	(1,557	)

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The reclassifications out of Accumulated other comprehensive loss follow:


	Nine months ended September 30, 2013			Consolidated Statements of Income classification	Three months ended March 31, 2014			Consolidated Statements of Income classification
Amortization of defined benefit pension items
Actuarial loss	$	(169	)	¹	$	(66	)	¹
	(169		)
Tax benefit	61				25
Total, net of tax	(108		)		(41		)

Gains and losses on cash flow hedges
Floating-to-fixed interest rate swaps	(1		)	Interest expense - net
Loss on cash flow hedges
Currency exchange contracts	1			Cost of products sold	2			Cost of products sold
Commodity contracts	(1		)	Cost of products sold
	(1		)
Tax expense	—				(1		)
Total, net of tax	(1		)		1

Total reclassifications for the period	$	(109	)		$	(40	)

¹ These components of Accumulated other comprehensive loss are included in the computation of net periodic pension cost. See Note 65 for additional information about defined benefit pension items.

Net Income per Ordinary Share

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


	Three months ended September 30				Nine months ended September 30				Three months ended March 31
(Shares in millions)	2013		2012		2013		2012		2014		2013
Net income attributable to Eaton ordinary shareholders	$	510	$	345	$	1,382	$	1,038	$	439	$	378

Weighted-average number of ordinary shares outstanding - diluted	477.2		339.8		476.2		339.7		478.8		475.1
Less dilutive effect of equity-based compensation	3.2		2.2		3.1		3.0		3.0		3.2
Weighted-average number of ordinary shares outstanding - basic	474.0		337.6		473.1		336.7		475.8		471.9

Net income per ordinary share
Diluted	$	1.07	$	1.02	$	2.90	$	3.05	$	0.92	$	0.79
Basic	1.08		1.02		2.92		3.08		0.92		0.80

For the ~~third~~first quarter ~~and the first~~ ~~nine~~2014 ~~months of~~and 2013, ~~2013~~, ~~0.2~~0.1 million stock options were excluded from the calculation of diluted net income per ordinary share 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. ~~For the~~ ~~third~~ ~~quarter and the first~~ ~~nine~~ ~~months of~~ ~~2012~~, ~~4.2 million~~ ~~and~~ ~~2.5 million~~ stock options, respectively, were excluded from the calculation of diluted net income per ordinary share 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.

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Note ~~10.~~9.	FAIR VALUE MEASUREMENTS

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

A summary of financial instruments recognized at fair value, and the fair value measurements used, follows:


	Total			Quoted prices in active markets for identical assets (Level 1)		Other observable inputs (Level 2)			Unobservable inputs (Level 3)		Total			Quoted prices in active markets for identical assets (Level 1)		Other observable inputs (Level 2)			Unobservable inputs (Level 3)
September 30, 2013
March 31, 2014
Cash	$	642		$	642	$	—		$	—	$	784		$	784	$	—		$	—
Short-term investments	698			698		—			—		360			360		—			—
Net derivative contracts	(7		)	—		(7		)	—		1			—		1			—
Long-term debt converted to floating interest rates by interest rate swaps - net	4			—		4			—		(10		)	—		(10		)	—

December 31, 2012
December 31, 2013
Cash	$	577		$	577	$	—		$	—	$	915		$	915	$	—		$	—
Short-term investments	527			527		—			—		794			794		—			—
Net derivative contracts	83			—		83			—		(35		)	—		(35		)	—
Long-term debt converted to floating interest rates by interest rate swaps - net	87			—		87			—		(39		)	—		(39		)	—

Eaton values its financial instruments using an industry standard market approach, in which prices and other relevant information is generated by market transactions involving identical or comparable assets or liabilities. No financial instruments were recognized using unobservable inputs.

Other Fair Value Measurements

Long-term debt and the current portion of long-term debt had a carrying value of $~~9,605~~9,307 and fair value of $~~9,787~~9,683 at ~~September 30, 2013~~March 31, 2014 compared to $~~10,076~~9,536 and $~~10,793~~9,665, respectively, at December 31, ~~2012~~2013. The fair value of Eaton's debt instruments was estimated using prevailing market interest rates on debt with similar creditworthiness, terms and maturities and is considered a Level 2 fair value measurement.

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Note ~~11.~~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.

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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 ~~income (loss)~~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 ~~income (loss)~~loss and reclassified to income in the same period when the gain or loss related to the net investment in the foreign operation is included in income.

The gain or loss from a derivative financial instrument designated as a hedge that is effective is classified in the same line of the Consolidated Statements of Income as the offsetting loss or gain on the hedged item. The change in fair value of a derivative financial instrument that is not effective as a hedge is immediately recognized in income.

For derivatives that are not designated as a hedge, any gain or loss is immediately recognized in income. The majority of derivatives used in this manner relate to risks resulting from assets or liabilities denominated in a foreign currency and certain commodity contracts that arise in the normal course of business. Gains and losses associated with commodity hedge contracts are classified in Cost of products sold.

Eaton uses certain of its debt denominated in ~~various currencies~~foreign currency to hedge portions of its net investments in foreign operations against foreign currency exposure (net investment hedges). ~~Debt~~Foreign currency denominated ~~in various currencies and~~debt designated as non-derivative net investment hedging instruments was $~~102~~97 and $~~116~~95, net of tax, at ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013, respectively.

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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 long-term assets		Other current liabilities		Other long-term liabilities		Type of hedge	Term	Notional amount		Other current assets		Other long-term assets		Other current liabilities		Other long-term liabilities		Type of hedge	Term
September 30, 2013
March 31, 2014
Derivatives designated as hedges
Fixed-to-floating interest rate swaps	$	3,090	$	1	$	45	$	—	$	42	Fair value	6 months to 21 years	$	3,290	$	—	$	39	$	—	$	49	Fair value	3 to 20 years
Floating-to-fixed interest rate swaps	300		—		—		1		—		Cash flow	9 months	300		—		—		—		—		Cash flow	3 months
Currency exchange contracts	451		7		—		2		—		Cash flow	12 to 36 months	495		12		—		3		—		Cash flow	12 to 36 months
Commodity contracts	2		—		—		—		—		Cash flow	12 months	1		—		—		—		—		Cash flow	1 to 12 months
Total			$	8	$	45	$	3	$	42					$	12	$	39	$	3	$	49

Derivatives not designated as hedges
Currency exchange contracts	$	4,729	$	25			$	40				12 months	$	4,160	$	23			$	21				1 to 12 months
Commodity contracts	10		—				—					12 months
Total			$	25			$	40

December 31, 2012
Derivatives designated as hedges
Fixed-to-floating interest rate swaps	$	1,290	$	2	$	85	$	—	$	—	Fair value	6 months to 21 years
Floating-to-fixed interest rate swaps	300		—		—		—		2		Cash flow	1 year
Currency exchange contracts	451		9		—		4		—		Cash flow	12 to 36 months
Commodity contracts	17		—		—		—		—		Cash flow	12 months
Total			$	11	$	85	$	4	$	2

Derivatives not designated as hedges
Currency exchange contracts	$	4,997	$	23			$	31				12 months
Commodity contracts	19		1				—					12 months
Total			$	24			$	31

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	Notional amount		Other current assets		Other long-term assets		Other current liabilities		Other long-term liabilities		Type of hedge	Term
December 31, 2013
Derivatives designated as hedges
Fixed-to-floating interest rate swaps	$	3,090	$	1	$	36	$	—	$	76	Fair value	3 months to 20 years
Floating-to-fixed interest rate swaps	300		—		—		1		—		Cash flow	6 months
Currency exchange contracts	393		12		—		3		—		Cash flow	12 to 36 months
Commodity contracts	1		—		—		—		—		Cash flow	1 to 12 months
Total			$	13	$	36	$	4	$	76

Derivatives not designated as hedges
Currency exchange contracts	$	4,277	$	22			$	26				1 to 12 months

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

Three months ended September 30
2013 2012

Gain (loss)
recognized in
Accumulated
other
comprehensive
income (loss)

Gain (loss)
reclassified
from
Accumulated
other
comprehensive
income (loss)

Gain (loss)
recognized in
Accumulated
other
comprehensive
income (loss)

Gain (loss)
reclassified
from
Accumulated
other
comprehensive
income (loss)
Derivatives designated as cash flow hedges
Floating-to-fixed interest rate swaps $ —
$ —
$ (1 ) $ —
Currency exchange contracts 9
—
4
2
Commodity contracts —
—
2
(3 )
Total $ 9
$ —
$ 5
$ (1 )



	Three months ended March 31
	2014				2013
	Gain (loss) recognized in Accumulated other comprehensive income (loss)		Gain (loss) reclassified from Accumulated other comprehensive income (loss)		Gain (loss) recognized in Accumulated other comprehensive income (loss)			Gain (loss) reclassified from Accumulated other comprehensive income (loss)
Derivatives designated as cash flow hedges
Currency exchange contracts	$	2	$	2	$	(9	)	$	1

Nine months ended September 30
2013 2012

Gain (loss)
recognized in
Accumulated
other
comprehensive
income (loss)

Gain (loss)
reclassified
from
Accumulated
other
comprehensive
income (loss)

Gain (loss)
recognized in
Accumulated
other
comprehensive
income (loss)

Gain (loss)
reclassified
from
Accumulated
other
comprehensive
income (loss)
Derivatives designated as cash flow hedges
Floating-to-fixed interest rate swaps $ —
$ (1 ) $ (3 ) $ (1 )
Foreign currency exchange contracts 1
1
10
1
Commodity contracts (1 ) (1 ) 2
(7 )
Total $ —
$ (1 ) $ 9
$ (7 )

Gains and losses reclassified from Accumulated other comprehensive income ~~(loss)~~ to the Consolidated Statements of Income were recognized in Cost of products ~~sold and Interest expense - net.~~sold.

Amounts recognized in net income follow:


	Three months ended September 30						Nine months ended September 30						Three months ended March 31
	2013			2012			2013			2012			2014			2013
Derivatives designated as fair value hedges
Fixed-to-floating interest rate swaps	$	5		$	11		$	(83	)	$	25		$	29		$	(8	)
Related long-term debt converted to floating interest rates by interest rate swaps	(5		)	(11		)	83			(25		)	(29		)	8
	$	—		$	—		$	—		$	—		$	—		$	—

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

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Note ~~12.~~11.	INVENTORY

The components of inventory follow:


	September 30, 2013			December 31, 2012			March 31, 2014			December 31, 2013
Raw materials	$	1,008		$	919		$	1,103		$	955
Work-in-process	400			424			323			428
Finished goods	1,118			1,129			1,226			1,115
Inventory at FIFO	2,526			2,472			2,652			2,498
Excess of FIFO over LIFO cost	(123		)	(133		)	(120		)	(116		)
Total inventory	$	2,403		$	2,339		$	2,532		$	2,382


Note ~~13.~~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.

~~During the first quarter of 2013, Eaton re-segmented certain reportable~~ Eaton’s operating ~~segments due to a reorganization of the Company's businesses. The new reportable business~~ segments are Electrical Products, ~~and~~ Electrical Systems and Services, ~~(which include legacy Eaton~~Hydraulics, Aerospace and former Cooper electrical businesses), and Vehicle (which includes truck and automotive drivetrain and powertrain systems businesses). Previously reported segment financial information has been updated for all periods reported.

Electrical Products consists of electrical components, industrial controls, residential products, single phase power quality, emergency lighting, fire detection, wiring devices, structural support systems, circuit protection, and lighting products.

Electrical Systems and Services 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.

~~Table of Contents~~

Three months ended
September 30 Nine months ended
September 30
2013 2012 2013 2012
Net sales
Electrical Products $ 1,817
$ 919
$ 5,235
$ 2,708
Electrical Systems and Services 1,639
910
4,784
2,675
Hydraulics 739
763
2,267
2,267
Aerospace 448
419
1,328
1,285
Vehicle 964
939
2,905
3,043
Total net sales $ 5,607
$ 3,950
$ 16,519
$ 11,978

Segment operating profit
Electrical Products $ 301
$ 172
$ 814
$ 462
Electrical Systems and Services 231
111
668
278
Hydraulics 89
93
271
325
Aerospace 64
49
193
168
Vehicle 161
144
465
472
Total segment operating profit 846
569
2,411
1,705

Corporate
Amortization of intangible assets (110 ) (45 ) (325 ) (129 )
Interest expense - net (63 ) (42 ) (209 ) (100 )
Pension and other postretirement benefits expense (55 ) (41 ) (136 ) (121 )
Inventory step-up adjustment —
(1 ) (34 ) (4 )
Other corporate expense - net (97 ) (64 ) (252 ) (188 )
Income before income taxes 521
376
1,455
1,163
Income tax expense 7
29
64
123
Net income 514
347
1,391
1,040
Less net income for noncontrolling interests (4 ) (2 ) (9 ) (2 )
Net income attributable to Eaton ordinary shareholders $ 510
$ 345
$ 1,382
$ 1,038

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

Three months ended
September 30 Nine months ended
September 30
2013 2012 2013 2012
Electrical Products $ 9
$ 1
$ 24
$ 1
Electrical Systems and Services 10
1
26
8
Hydraulics 8
5
28
9
Total $ 27
$ 7
$ 78
$ 18

~~Corporate acquisition integration charges totaled~~ $9 ~~and~~ ~~$21~~ ~~for the~~ ~~third~~ ~~quarter and the first~~ ~~nine~~ ~~months of~~ ~~2013, respectively, and~~ $1 ~~and~~ $2 ~~for the~~ ~~third~~ ~~quarter and the first~~ ~~nine~~ ~~months of~~ ~~2012, respectively. Corporate acquisition integration charges related primarily to the acquisition of Cooper and are included above in Other corporate expense - net.~~

Acquisition-related transaction costs, such as investment banking, legal, other professional fees, and costs associated with change in control agreements, are included above in Interest expense - net and Other corporate expense - net and are related to the acquisition of Cooper. These charges totaled $2 ~~and~~ $9 ~~for the~~ ~~third~~ ~~quarter and the first~~ ~~nine~~ ~~months of~~ ~~2013, respectively, and~~ ~~$19~~ ~~and $26 for the~~ ~~third~~ ~~quarter and the first~~ ~~nine~~ ~~months of~~ ~~2012, respectively. See Note 3 for additional information about acquisition integration charges and transaction costs.~~

Vehicle. For additional information regarding Eaton’s business segments, see Note 14 to the Consolidated Financial Statements contained in the ~~2012~~2013 Form ~~10-K, as updated by Exhibit 99.1 of Eaton's current report on Form 8-K filed on September 6, 2013.~~10-K.



	Three months ended March 31
	2014			2013
Net sales
Electrical Products	$	1,726		$	1,660
Electrical Systems and Services	1,524			1,521
Hydraulics	782			756
Aerospace	464			434
Vehicle	996			939
Total net sales	$	5,492		$	5,310

Segment operating profit
Electrical Products	$	250		$	241
Electrical Systems and Services	169			210
Hydraulics	108			78
Aerospace	62			62
Vehicle	151			132
Total segment operating profit	740			723

Corporate
Amortization of intangible assets	(110		)	(107		)
Interest expense - net	(62		)	(75		)
Pension and other postretirement benefits expense	(51		)	(38		)
Inventory step-up adjustment	—			(33		)
Other corporate expense - net	(64		)	(70		)
Income before income taxes	453			400
Income tax expense	12			20
Net income	441			380
Less net income for noncontrolling interests	(2		)	(2		)
Net income attributable to Eaton ordinary shareholders	$	439		$	378

1914

Table of Contents


Note ~~14.~~13.	CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

On November 20, 2012,, Eaton Corporation issued senior notes (the ~~"Senior Notes")~~Senior Notes) totaling ~~$4,900~~$4,900 to finance part of the cash portion of the acquisition of Cooper. Eaton and certain other of Eaton's principal 100% owned ~~operating~~ subsidiaries (the ~~"Guarantors")~~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 following,~~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 ~~following, or~~ in connection with the release or termination of ~~the~~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.

Eaton was incorporated under the laws of Ireland on May 10, 2012, and became the successor registrant to Eaton Corporation on November 30, 2012 in connection with the acquisition of Cooper. Therefore, for presentation purposes of entities under common control, Eaton is presented as the parent company in the 2013 condensed consolidating financial statements. For periods prior to November 30, 2012, Eaton Corporation is presented as the parent company.

CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2013
CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2014																			CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2014

	Eaton Corporation plc			Eaton Corporation			Guarantors			Other subsidiaries			Consolidating adjustments			Total			Eaton Corporation plc			Eaton Corporation			Guarantors			Other subsidiaries			Consolidating adjustments			Total
Net sales	$	—		$	1,695		$	1,636		$	3,424		$	(1,148	)	$	5,607		$	—		$	1,667		$	1,641		$	3,291		$	(1,107	)	$	5,492

Cost of products sold	—			1,319			1,214			2,500			(1,150		)	3,883			—			1,342			1,218			2,392			(1,094		)	3,858
Selling and administrative expense	2			370			194			401			—			967			2			361			200			399			—			962
Research and development expense	—			71			46			49			—			166			—			60			50			52			—			162
Interest expense (income) - net	—			63			7			(7		)	—			63			—			59			7			(6		)	2			62
Other expense (income) - net	—			2			(9		)	14			—			7			—			5			3			(13		)	—			(5		)
Equity in (earnings) loss of subsidiaries, net of tax	(563		)	(292		)	(676		)	(224		)	1,755			—			(469		)	(207		)	(485		)	(201		)	1,362			—
Intercompany expense (income) - net	63			(90		)	222			(195		)	—			—			28			(71		)	120			(77		)	—			—
Income before income taxes	498			252			638			886			(1,753		)	521			439			118			528			745			(1,377		)	453
Income tax expense (benefit)	(12		)	(21		)	45			(5		)	—			7
Income tax (benefit) expense																			—			(25		)	(7		)	49			(5		)	12
Net income	510			273			593			891			(1,753		)	514			439			143			535			696			(1,372		)	441
Less net income for noncontrolling interests	—			—			—			(1		)	(3		)	(4		)	—			—			—			(2		)	—			(2		)
Net income attributable to Eaton ordinary shareholders	$	510		$	273		$	593		$	890		$	(1,756	)	$	510		$	439		$	143		$	535		$	694		$	(1,372	)	$	439

Other comprehensive loss	$	322		$	109		$	347		$	505		$	(961	)	$	322
Other comprehensive income (loss)																			$	3		$	28		$	23		$	(15	)	$	(36	)	$	3
Total comprehensive income attributable to Eaton ordinary shareholders	$	832		$	382		$	940		$	1,395		$	(2,717	)	$	832		$	442		$	171		$	558		$	679		$	(1,408	)	$	442

2015

Table of Contents

CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2012
CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2013																CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2013

	Eaton Corporation			Guarantors			Other subsidiaries			Consolidating adjustments			Total			Eaton Corporation plc			Eaton Corporation			Guarantors			Other subsidiaries			Consolidating adjustments			Total
Net sales	$	1,653		$	622		$	2,511		$	(836	)	$	3,950		$	—		$	1,588		$	1,573		$	3,273		$	(1,124	)	$	5,310

Cost of products sold	1,197			489			1,897			(836		)	2,747			—			1,239			1,195			2,425			(1,124		)	3,735
Selling and administrative expense	319			77			291			—			687			2			341			198			417			—			958
Research and development expense	55			26			21			—			102			—			58			47			47			—			152
Interest expense (income) - net	47			1			(6		)	—			42			—			74			7			(6		)	—			75
Other expense (income) - net	1			—			(5		)	—			(4		)
Other (income) expense - net																—			(5		)	8			(13		)	—			(10		)
Equity in (earnings) loss of subsidiaries, net of tax	(276		)	(13		)	—			289			—			(444		)	(309		)	(567		)	(166		)	1,486			—
Intercompany (income) expense - net	(52		)	(5		)	57			—			—
Intercompany expense (income) - net																64			(102		)	176			(138		)	—			—
Income before income taxes	362			47			256			(289		)	376			378			292			509			707			(1,486		)	400
Income tax expense (benefit)	17			9			3			—			29
Income tax (benefit) expense																—			(2		)	(37		)	59			—			20
Net income	345			38			253			(289		)	347			378			294			546			648			(1,486		)	380
Less net income for noncontrolling interests	—			—			(2		)	—			(2		)	—			—			—			(2		)	—			(2		)
Net income attributable to Eaton ordinary shareholders	$	345		$	38		$	251		$	(289	)	$	345		$	378		$	294		$	546		$	646		$	(1,486	)	$	378

Other comprehensive loss	$	172		$	12		$	146		$	(158	)	$	172		$	(235	)	$	(22	)	$	(233	)	$	(391	)	$	646		$	(235	)
Total comprehensive income attributable to Eaton ordinary shareholders	$	517		$	50		$	397		$	(447	)	$	517		$	143		$	272		$	313		$	255		$	(840	)	$	143

CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013

Eaton
Corporation
plc

Eaton
Corporation
Guarantors
Other
subsidiaries

Consolidating
adjustments
Total
Net sales $ —
$ 5,026
$ 4,835
$ 10,117
$ (3,459 ) $ 16,519

Cost of products sold —
3,911
3,588
7,450
(3,461 ) 11,488
Selling and administrative expense 6
1,081
565
1,233
—
2,885
Research and development expense —
199
138
142
—
479
Interest expense (income) - net —
206
21
(18 ) —
209
Other expense (income) - net —
16
13
(26 ) —
3
Equity in (earnings) loss of
   subsidiaries, net of tax
(1,576 ) (916 ) (848 ) (629 ) 3,969
—
Intercompany expense (income) - net 188
(304 ) (462 ) 578
—
—
Income before income taxes 1,382
833

1,820

1,387

(3,967 )
1,455
Income tax expense (benefit) —
(66 ) 28
102
—
64
Net income 1,382
899

1,792

1,285

(3,967 )
1,391
Less net income for
   noncontrolling interests
—
—
—
(6 ) (3 ) (9 )
Net income attributable to
   Eaton ordinary shareholders
$ 1,382
$ 899

$ 1,792

$ 1,279

$ (3,970 )
$ 1,382

Other comprehensive income (loss) $ 16
$ 45
$ 41
$ (66 ) $ (20 ) $ 16
Total comprehensive income
   attributable to Eaton
   ordinary shareholders
$ 1,398
$ 944
$ 1,833
$ 1,213
$ (3,990 ) $ 1,398

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CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012

Eaton
Corporation
Guarantors
Other
subsidiaries

Consolidating
adjustments
Total
Net sales $ 5,097
$ 1,965
$ 7,606
$ (2,690 ) $ 11,978

Cost of products sold 3,890
1,499
5,616
(2,689 ) 8,316
Selling and administrative expense 960
243
876
—
2,079
Research and development expense 166
74
73
—
313
Interest expense (income) - net 116
5
(21 ) —
100
Other expense - net 1
5
1
—
7
Equity in (earnings) loss of subsidiaries, net of tax (948 ) (44 ) —
992
—
Intercompany (income) expense - net (176 ) (14 ) 190
—
—
Income before income taxes 1,088

197

871

(993 )
1,163
Income tax expense 50
53
20
—
123
Net income 1,038

144

851

(993 )
1,040
Less net income for noncontrolling interests —
—
(2 ) —
(2 )
Net income attributable to
Eaton ordinary shareholders
$ 1,038

$ 144

$ 849

$ (993 )
$ 1,038

Other comprehensive income $ 156
$ 17
$ 64
$ (81 ) $ 156
Total comprehensive income attributable
to Eaton ordinary shareholders
$ 1,194
$ 161
$ 913
$ (1,074 ) $ 1,194

CONDENSED CONSOLIDATING BALANCE SHEETS MARCH 31, 2014

	Eaton Corporation plc		Eaton Corporation		Guarantors		Other subsidiaries		Consolidating adjustments			Total
Assets
Current assets
Cash	$	8	$	46	$	12	$	718	$	—		$	784
Short-term investments	—		—		35		325		—			360
Accounts receivable - net	—		506		986		2,397		—			3,889
Intercompany accounts receivable	10		682		3,508		4,900		(9,100		)	—
Inventory	—		368		656		1,558		(50		)	2,532
Prepaid expenses and other current assets	—		473		156		476		13			1,118
Total current assets	18		2,075		5,353		10,374		(9,137		)	8,683

Property, plant and equipment - net	—		966		765		2,075		—			3,806

Other noncurrent assets
Goodwill	—		1,382		6,301		6,767		—			14,450
Other intangible assets	—		207		3,949		2,922		—			7,078
Deferred income taxes	—		826		12		153		(734		)	257
Investment in subsidiaries	25,427		9,057		41,344		8,701		(84,529		)	—
Intercompany loans receivable	—		7,872		2,643		19,840		(30,355		)	—
Other assets	—		417		183		388		—			988
Total assets	$	25,445	$	22,802	$	60,550	$	51,220	$	(124,755	)	$	35,262

Liabilities and shareholders’ equity
Current liabilities
Short-term debt	$	—	$	—	$	—	$	8	$	—		$	8
Current portion of long-term debt	—		301		1		14		—			316
Accounts payable	—		475		391		1,210		—			2,076
Intercompany accounts payable	10		3,609		3,626		1,855		(9,100		)	—
Accrued compensation	—		48		42		244		—			334
Other current liabilities	10		667		381		1,017		(4		)	2,071
Total current liabilities	20		5,100		4,441		4,348		(9,104		)	4,805

Noncurrent liabilities
Long-term debt	—		7,720		1,259		17		(5		)	8,991
Pension liabilities	—		375		79		774		—			1,228
Other postretirement benefits liabilities	—		402		171		93		—			666
Deferred income taxes	—		—		1,287		743		(734		)	1,296
Intercompany loans payable	8,388		2,669		18,084		1,214		(30,355		)	—
Other noncurrent liabilities	—		545		155		465		—			1,165
Total noncurrent liabilities	8,388		11,711		21,035		3,306		(31,094		)	13,346

Shareholders’ equity
Eaton shareholders' equity	17,037		5,991		35,074		43,499		(84,564		)	17,037
Noncontrolling interests	—		—		—		67		7			74
Total equity	17,037		5,991		35,074		43,566		(84,557		)	17,111
Total liabilities and equity	$	25,445	$	22,802	$	60,550	$	51,220	$	(124,755	)	$	35,262

2217

Table of Contents

CONDENSED CONSOLIDATING BALANCE SHEETS SEPTEMBER 30, 2013
CONDENSED CONSOLIDATING BALANCE SHEETS DECEMBER 31, 2013														CONDENSED CONSOLIDATING BALANCE SHEETS DECEMBER 31, 2013

	Eaton Corporation plc		Eaton Corporation		Guarantors		Other subsidiaries		Consolidating adjustments			Total		Eaton Corporation plc		Eaton Corporation		Guarantors		Other subsidiaries		Consolidating adjustments			Total
Assets
Current assets
Cash	$	2	$	37	$	17	$	586	$	—		$	642	$	3	$	51	$	10	$	851	$	—		$	915
Short-term investments	—		140		20		538		—			698		—		—		134		660		—			794
Accounts receivable - net	—		27		1,116		2,807		—			3,950		—		473		922		2,253		—			3,648
Intercompany accounts receivable	21		1,042		2,871		3,950		(7,884		)	—		5		471		3,368		4,470		(8,314		)	—
Inventory	—		345		612		1,483		(37		)	2,403		—		344		609		1,466		(37		)	2,382
Prepaid expenses and other current assets	—		694		190		228		(39		)	1,073		—		458		175		350		9			992
Total current assets	23		2,285		4,826		9,592		(7,960		)	8,766		8		1,797		5,218		10,050		(8,342		)	8,731

Property, plant and equipment - net	—		949		769		2,039		—			3,757		—		982		761		2,090		—			3,833

Other noncurrent assets
Goodwill	—		1,382		9,433		3,461		—			14,276		—		1,382		6,350		6,763		—			14,495
Other intangible assets	—		216		4,033		2,982		—			7,231		—		211		3,996		2,979		—			7,186
Deferred income taxes	—		846		—		236		(754		)	328		—		839		3		145		(747		)	240
Investment in subsidiaries	23,952		8,563		31,089		8,705		(72,309		)	—		24,940		8,853		40,776		8,473		(83,042		)	—
Intercompany loans receivable	—		7,690		2,069		18,319		(28,078		)	—		—		8,019		2,518		18,776		(29,313		)	—
Other assets	—		471		95		388		—			954		—		450		186		370		—			1,006
Total assets	$	23,975	$	22,402	$	52,314	$	45,722	$	(109,101	)	$	35,312	$	24,948	$	22,533	$	59,808	$	49,646	$	(121,444	)	$	35,491

Liabilities and shareholders’ equity
Current liabilities
Short-term debt	$	—	$	75	$	—	$	13	$	—		$	88	$	—	$	—	$	—	$	13	$	—		$	13
Current portion of long-term debt	—		552		8		16		—			576		—		552		—		15		—			567
Accounts payable	—		422		396		1,158		—			1,976		—		440		380		1,140		—			1,960
Intercompany accounts payable	1		3,716		3,418		749		(7,884		)	—		4		3,751		3,288		1,271		(8,314		)	—
Accrued compensation	—		101		52		277		—			430		—		140		37		284		—			461
Other current liabilities	1		611		350		1,074		(52		)	1,984		5		547		400		965		(4		)	1,913
Total current liabilities	2		5,477		4,224		3,287		(7,936		)	5,054		9		5,430		4,105		3,688		(8,318		)	4,914

Noncurrent liabilities
Long-term debt	—		7,739		1,274		16		—			9,029		—		7,693		1,266		16		(6		)	8,969
Pension liabilities	—		788		221		792		—			1,801		—		546		131		788		—			1,465
Other postretirement benefits liabilities	—		448		185		100		—			733		—		402		171		95		—			668
Deferred income taxes	—		—		1,434		833		(754		)	1,513		—		—		1,303		757		(747		)	1,313
Intercompany loans payable	7,902		1,986		17,362		828		(28,078		)	—		8,148		2,113		18,207		845		(29,313		)	—
Other noncurrent liabilities	—		597		103		365		—			1,065		—		652		162		485		—			1,299
Total noncurrent liabilities	7,902		11,558		20,579		2,934		(28,832		)	14,141		8,148		11,406		21,240		2,986		(30,066		)	13,714

Shareholders’ equity
Eaton shareholders' equity	16,071		5,367		27,511		39,468		(72,346		)	16,071		16,791		5,697		34,463		42,906		(83,066		)	16,791
Noncontrolling interests	—		—		—		33		13			46		—		—		—		66		6			72
Total equity	16,071		5,367		27,511		39,501		(72,333		)	16,117		16,791		5,697		34,463		42,972		(83,060		)	16,863
Total liabilities and equity	$	23,975	$	22,402	$	52,314	$	45,722	$	(109,101	)	$	35,312	$	24,948	$	22,533	$	59,808	$	49,646	$	(121,444	)	$	35,491

2318

Table of Contents

CONDENSED CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 2012

Eaton
Corporation
plc

Eaton
Corporation
Guarantors
Other
subsidiaries

Consolidating
adjustments
Total
Assets
Current assets
Cash $ 7
$ 54
$ 14
$ 502
$ —
$ 577
Short-term investments —
25
38
464
—
527
Accounts receivable - net —
624
413
2,473
—
3,510
Intercompany accounts
   receivable
38
365
4,693
5,643
(10,739 ) —
Inventory —
341
563
1,474
(39 ) 2,339
Prepaid expenses and
   other current assets
—
391
149
273
9
822
Total current assets 45
1,800
5,870
10,829
(10,769 ) 7,775

Property, plant and
   equipment - net
—
934
793
2,096
—
3,823

Other noncurrent assets
Goodwill —
1,382
9,381
3,448
—
14,211
Other intangible assets —
231
4,104
3,133
—
7,468
Deferred income taxes —
941
12
262
(846 ) 369
Investment in subsidiaries 20,662
7,678
14,428
6,365
(49,133 ) —
Intercompany loans receivable —
7,650
13,262
14,125
(35,037 ) —
Other assets —
460
90
1,154
—
1,704
Total assets $ 20,707
$ 21,076
$ 47,940
$ 41,412
$ (95,785 ) $ 35,350

Liabilities and
   shareholders’ equity

Current liabilities
Short-term debt $ —
$ 753
$ —
$ 4
$ —
$ 757
Current portion of
   long-term debt
—
303
8
3
—
314
Accounts payable —
424
343
1,112
—
1,879
Intercompany accounts payable 2
2,794
4,855
3,088
(10,739 ) —
Accrued compensation —
129
76
258
—
463
Other current liabilities —
523
375
1,114
(4 ) 2,008
Total current liabilities 2
4,926
5,657
5,579
(10,743 ) 5,421

Noncurrent liabilities
Long-term debt —
8,397
1,331
34
—
9,762
Pension liabilities —
895
255
854
—
2,004
Other postretirement
   benefits liabilities
—
454
189
97
—
740
Deferred income taxes —
—
1,464
838
(846 ) 1,456
Intercompany loans payable 5,592
1,401
14,857
13,187
(35,037 ) —
Other noncurrent liabilities —
440
86
286
—
812
Total noncurrent liabilities 5,592
11,587

18,182

15,296

(35,883 )
14,774

Shareholders’ equity
Eaton shareholders' equity 15,113
4,563
24,101
20,505
(49,169 ) 15,113
Noncontrolling interests —
—
—
32
10
42
Total equity 15,113
4,563
24,101
20,537
(49,159 ) 15,155
Total liabilities and equity $ 20,707
$ 21,076

$ 47,940

$ 41,412

$ (95,785 )
$ 35,350

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2014

	Eaton Corporation plc			Eaton Corporation			Guarantors			Other subsidiaries			Consolidating adjustments			Total
Net cash provided by (used in) operating activities	$	17		$	(463	)	$	182		$	276		$	—		$	12

Investing activities
Capital expenditures for property, plant and equipment	—			(25		)	(29		)	(56		)	—			(110		)
Sales of short-term investments - net	—			—			98			333			—			431
Loans to affiliates	—			(7		)	—			(1,056		)	1,063			—
Repayments of loans from affiliates	—			171			—			814			(985		)	—
Proceeds from sale of business	—			—			—			3			—			3
Other - net	—			(13		)	(1		)	(6		)	—			(20		)
Net cash provided by investing activities	—			126			68			32			78			304

Financing activities
Payments on borrowings	—			(251		)	—			(6		)	—			(257		)
Proceeds from borrowings from affiliates	—			946			110			7			(1,063		)	—
Payments on borrowings from affiliates	—			(510		)	(304		)	(171		)	985			—
Other intercompany financing activities	217			104			(54		)	(267		)	—			—
Cash dividends paid	(229		)	—			—			—			—			(229		)
Exercise of employee stock options	—			23			—			—			—			23
Excess tax benefit from equity-based compensation	—			20			—			—			—			20
Net cash (used in) provided by financing activities	(12		)	332			(248		)	(437		)	(78		)	(443		)

Effect of currency on cash	—			—			—			(4		)	—			(4		)
Total increase (decrease) in cash	5			(5		)	2			(133		)	—			(131		)
Cash at the beginning of the period	3			51			10			851			—			915
Cash at the end of the period	$	8		$	46		$	12		$	718		$	—		$	784

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CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013

Eaton
Corporation
plc

Eaton
Corporation
Guarantors
Other
subsidiaries

Consolidating
adjustments
Total
Net cash provided by (used in)
   operating activities
$ 88
$ 542
$ 313
$ 523
$ (53 ) $ 1,413

Investing activities
Cash paid for acquisitions of
businesses, net of cash acquired —
—
—
(11 ) —
(11 )
Capital expenditures for property,
   plant and equipment
—
(112 ) (66 ) (194 ) —
(372 )
(Purchases) sales of short-term
   investments - net
—
(115 ) 18
(88 ) —
(185 )
Loans to affiliates —
(219 ) (23 ) (4,267 ) 4,509
—
Repayments of loans from affiliates —
28
102
4,030
(4,160 ) —
Proceeds from sale of business —
—
—
761
—
761
Other - net —
(25 ) 4
(29 ) —
(50 )
Net cash (used in) provided by
   investing activities
—
(443 )
35

202

349

143

Financing activities
Proceeds from borrowings —
—
—
6
—
6
Payments on borrowings —
(975 ) (35 ) (2 ) —
(1,012 )
Proceeds from borrowings from
   affiliates
—
1,975
2,436
98
(4,509 ) —
Payments on borrowings from
   affiliates
—
(2,391 ) (1,639 ) (130 ) 4,160
—
Other intercompany
   financing activities
504
1,153
(1,107 ) (550 ) —
—
Cash dividends paid (597 ) —
—
—
—
(597 )
Cash dividends paid to affiliates —
—
—
(53 ) 53
—
Exercise of employee stock options —
98
—
—
—
98
Excess tax benefit from
   equity-based compensation
—
24
—
—
—
24
Other - net —
—
—
(4 ) —
(4 )
Net cash used in financing
   activities
(93 ) (116 )
(345 )
(635 )
(296 )
(1,485 )

Effect of currency on cash —
—
—
(6 ) —
(6 )
Total (decrease) increase in cash (5 ) (17 )
3

84

—

65
Cash at the beginning of the period 7
54
14
502
—
577
Cash at the end of the period $ 2
$ 37

$ 17

$ 586

$ —

$ 642

~~Table of Contents~~

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2013																CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2013

	Eaton Corporation			Guarantors			Other subsidiaries			Consolidating adjustments			Total			Eaton Corporation plc			Eaton Corporation			Guarantors			Other subsidiaries			Consolidating adjustments			Total
Net cash provided by operating activities	$	25		$	29		$	923		$	—		$	977
Net cash provided by (used in) operating activities																$	62		$	(301	)	$	778		$	(439	)	$	—		$	100

Investing activities
Cash paid for acquisitions of businesses, net of cash acquired	1			—			(555		)	—			(554		)
Capital expenditures for property, plant and equipment	(198		)	(33		)	(126		)	—			(357		)	—			(51		)	(18		)	(53		)	—			(122		)
Sales (purchases) of short-term investments - net	100			—			(11		)	—			89
Sales of short-term investments - net																—			25			31			76			—			132
Loans to affiliates	(183		)	—			(6,528		)	6,711			—			—			(36		)	—			(438		)	474			—
Repayments of loans from affiliates	143			—			6,320			(6,463		)	—			—			28			82			303			(413		)	—
Proceeds from sale of business	2			—			1			—			3			—			—			—			761			—			761
Other - net	(31		)	(7		)	—			—			(38		)	—			4			(3		)	1			—			2
Net cash (used in) provided by investing activities	(166		)	(40		)	(899		)	248			(857		)	—			(30		)	92			650			61			773

Financing activities
Proceeds from borrowings	600			—			—			—			600
Payments on borrowings	(306		)	(12		)	(3		)	—			(321		)	—			(676		)	(8		)	(3		)	—			(687		)
Payments of financing costs	(63		)	—			—			—			(63		)
Proceeds from borrowings from affiliates	6,528			—			183			(6,711		)	—			—			437			1			36			(474		)	—
Payments on borrowings from affiliates	(6,320		)	—			(143		)	6,463			—			—			(131		)	(171		)	(111		)	413			—
Other intercompany financing activities	(15		)	22			(7		)	—			—			129			687			(692		)	(124		)	—			—
Cash dividends paid	(384		)	—			—			—			(384		)	(194		)	—			—			—			—			(194		)
Exercise of employee stock options	54			—			—			—			54			—			56			—			—			—			56
Excess tax benefit from equity-based compensation	18			—			—			—			18			—			16			—			—			—			16
Other - net	(2		)	—			2			—			—			—			—			—			(1		)	—			(1		)
Net cash provided by (used in) financing activities	110			10			32			(248		)	(96		)
Net cash (used in) provided by financing activities																(65		)	389			(870		)	(203		)	(61		)	(810		)

Effect of currency on cash	—			—			16			—			16			—			—			—			(1		)	—			(1		)
Total (decrease) increase in cash	(31		)	(1		)	72			—			40			(3		)	58			—			7			—			62
Cash at the beginning of the period	120			3			262						385			7			54			14			502			—			577
Cash at the end of the period	$	89		$	2		$	334		$	—		$	425		$	4		$	112		$	14		$	509		$	—		$	639

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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 providing energy-efficient solutions that help its customers effectively manage electrical, hydraulic and mechanical power. With ~~2012~~2013 net sales of ~~$16.3~~$22.0 billion, the Company is a global technology leader in electrical products, systems and services for power quality, distribution and control, power transmission, lighting and wiring products; hydraulics components, systems and services for industrial and mobile equipment; aerospace fuel, hydraulics and pneumatic systems for commercial and military use; and truck and automotive drivetrain and powertrain systems for performance, fuel economy and safety. Eaton has approximately ~~102,000~~101,000 employees in over 60 countries and sells products to customers in more than 175 countries.

In 2012, Eaton acquired certain businesses that affect comparability on a year over year basis, the most substantial of which was Cooper Industries plc (Cooper). Cooper was acquired November 30, 2012 for a purchase price of $13,192. See Note 2 in the ~~2012~~ Form 10-K, as updated by Exhibit 99.1 of Eaton's current report on Form 8-K filed on September 6, 2013 for additional information on the acquisition of Cooper. The Consolidated Statements of Income include the results of these businesses from the dates of the transactions or formation. For a complete list of business acquisitions impacting the comparative periods, see Note 2 to the Condensed Consolidated Financial Statements.

The acquisition of Cooper has significantly transformed Eaton's mix of businesses. As a result, during the first quarter of 2013, Eaton re-segmented certain reportable operating segments due to a reorganization of the Company's businesses. The new reportable business segments are Electrical Products and Electrical Systems and Services (which include legacy Eaton and former Cooper electrical businesses), and Vehicle (which includes truck and automotive drivetrain and powertrain systems businesses). For those reportable segments that were re-segmented, previously reported segment financial information has been updated for all prior periods. See Note 13 to the Condensed Consolidated Financial Statements contained in the Form 10-Q for the quarterly period ending March 31, 2013. The re-segmentation did not impact previously reported consolidated results of operations. For additional information regarding Eaton’s business segments, see Note 14 to the Consolidated Financial Statements contained in the ~~2012~~ ~~Form 10-K, as updated by Exhibit 99.1 of Eaton's current report on Form 8-K filed on September 6, 2013.~~

Summary of Results of Operations

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


	Three months ended September 30				Nine months ended September 30				Three months ended March 31
	2013		2012		2013		2012		2014		2013
Net sales	$	5,607	$	3,950	$	16,519	$	11,978	$	5,492	$	5,310
Net income attributable to Eaton ordinary shareholders	510		345		1,382		1,038		439		378
Net income per ordinary share-diluted	$	1.07	$	1.02	$	2.90	$	3.05
Net income per ordinary share - diluted									$	0.92	$	0.79

RESULTS OF OPERATIONS

The following discussion of Consolidated Financial Results and Business Segment Results of Operations includes certain non-GAAP financial measures. These financial measures include operating earnings, operating earnings per ordinary share, and operating profit before acquisition integration charges for each business segment, as well as corporate expense, each of which excludes amounts that differ from the most directly comparable measure calculated in accordance with generally accepted accounting principles (GAAP). A reconciliation of each of these financial measures to the most directly comparable GAAP measure is included in the table below and in the discussion of the operating results of each business segment. Management believes that these financial measures are useful to investors because they exclude transactions of an unusual nature, allowing investors to more easily compare Eaton’s financial performance period to period. Management uses this information in monitoring and evaluating the on-going performance of Eaton and each business segment. For additional information on acquisition integration charges, see Note 3 to the Condensed Consolidated Financial Statements.

2721

Table of Contents

Consolidated Financial Results


	Three months ended September 30						Increase (decrease)			Nine months ended September 30								Increase (decrease)		Three months ended March 31								Increase
	2013			2012					2013				2012				2014				2013							Increase
Net sales	$	5,607		$	3,950		Increase (decrease)	42	%		$	16,519			$	11,978		Increase (decrease)			38	%	$	5,492			$	5,310		3	%
Gross profit	1,724			1,203			43	%		5,031				3,662				37	%	1,634				1,575				4	%
Percent of net sales	30.7		%	30.5		%				30.5		%		30.6		%				29.8		%		29.7		%
Income before income taxes	521			376			39	%		1,455				1,163				25	%	453				400				13	%
Net income	$	514		$	347		48	%		$	1,391			$	1,040			34	%	$	441			$	380			16	%
Less net income for noncontrolling interests	(4		)	(2		)				(9		)		(2		)				(2		)		(2		)
Net income attributable to Eaton ordinary shareholders	510			345			48	%		1,382				1,038				33	%	439				378				16	%
Excluding acquisition integration charges and transaction costs (after-tax)	26			18						73				30						44				22
Operating earnings	$	536		$	363		48	%		$	1,455			$	1,068			36	%	$	483			$	400			21	%

Net income per ordinary share-diluted	$	1.07		$	1.02		5	%		$	2.90			$	3.05			(5	)%
Net income per ordinary share - diluted																				$	0.92			$	0.79			16	%
Excluding per share impact of acquisition integration charges and transaction costs (after-tax)	0.05			0.05						0.15				0.09						0.09				0.05
Operating earnings per ordinary share	$	1.12		$	1.07		5	%		$	3.05			$	3.14			(3	)%	$	1.01			$	0.84			20	%

Net Sales

Net sales in the ~~third~~first quarter of 2014 increased 3¹/₂% compared to the first quarter of 2013 ~~increased~~ ~~42%~~ ~~compared to the~~ ~~third~~ ~~quarter of~~ ~~2012~~due to ~~an increase of 40% from the acquisition of businesses and~~ an increase in core sales of 3%4¹/₂%, partially offset by ~~a decrease of 1% from the impact of currency translation. Net sales in the first~~ ~~nine~~ ~~months of~~ ~~2013~~ ~~increased~~ ~~38%~~ ~~compared to the first~~ ~~nine~~ ~~months of~~ ~~2012~~ ~~due to an increase of 40% from the acquisition of businesses, partially offset by a decrease in core sales of 1% and~~ a decrease of 1% from the impact of currency translation. The increase in core sales in the ~~third~~first quarter of 2014 is primarily due to ~~the increase in core sales~~modest global economic growth in the ~~Electrical, Aerospace and Vehicle segments. The decrease in core sales in the first~~ ~~nine~~ ~~months of~~ ~~2013~~ ~~reflects soft~~Company's end markets ~~due~~for all business segments. Eaton continues to ~~a continuation of the subdued global economic conditions experienced during the second half of 2012 and the first half of 2013. Eaton now anticipates that~~anticipate its end markets will grow 3% for ~~2013 will be flat.~~all of 2014.

Gross Profit

The gross profit margin remained relatively consistent at 29.8% for the ~~third~~first quarter ~~and~~of 2014 compared to 29.7% for the ~~first~~ ~~nine~~first ~~months~~quarter of 2013 ~~as compared to~~. The gross profit margin in the ~~same periods~~first quarter of ~~2012~~2014~~, with productivity efficiencies offsetting lower~~ was positively impacted by higher core sales, ~~due to continued subdued global economic conditions,~~ as noted ~~above.~~above, partially offset by the negative impact of severe winter weather in North America, which necessitated premium freight and overtime and caused project delays.

Income Taxes

The effective income tax rate for the ~~third~~first quarter of ~~2013~~2014 was ~~1.4%~~3% compared to ~~7.7%~~ ~~for the~~ ~~third~~ ~~quarter of~~ ~~2012~~ ~~and~~ ~~4.4%~~5% for the first ~~nine~~ ~~months of~~ ~~2013~~ ~~compared to~~ ~~10.6%~~ ~~for the first~~ ~~nine~~ ~~months of~~ ~~2012. The lower effective tax rate in the~~ ~~third~~quarter of ~~2013~~ ~~was primarily attributable to tax effects associated with the acquisition of Cooper.~~2013. The lower effective tax rate in the first ~~nine~~ ~~months~~quarter of ~~2013~~2014 was primarily attributable to ~~the item noted above, the recording~~a more favorable geographic mix of ~~the entire~~ ~~2012~~ ~~U.S. research and experimentation credit in the first quarter of~~ ~~2013, the reinstatement in~~ ~~2013~~ ~~of the U.S. research and experimentation credit and enhanced utilization of foreign tax credits in the U.S.~~income.

~~Table of Contents~~

Net Income

Net income attributable to Eaton ordinary shareholders of $~~510~~439 in the ~~third~~first quarter of ~~2013~~2014 increased ~~48%~~16% compared to Net income attributable to Eaton ordinary shareholders of $~~345~~378 in the ~~third~~first quarter of ~~2012~~2013. Net income per ordinary share of $~~1.07~~0.92 in the ~~third~~first quarter of ~~2013~~2014 increased 5%16% ~~from~~compared to Net income per ordinary share of $~~1.02~~0.79 in the ~~third~~first quarter of ~~2012. Net income attributable to Eaton ordinary shareholders of~~ ~~$1,382~~ ~~in the first~~ ~~nine~~ ~~months of~~ 2013 ~~increased~~ ~~33%~~ ~~compared to Net income of~~ ~~$1,038~~ ~~in the first~~ ~~nine~~ ~~months of~~ ~~2012. Net income per ordinary share of~~ ~~$2.90~~ ~~in the first~~ ~~nine~~ ~~months of~~ ~~2013~~ ~~decreased~~ 5% ~~from Net income per ordinary share of~~ ~~$3.05~~ ~~in the first~~ ~~nine~~ ~~months of~~ ~~2012~~. The increase in ~~Net income attributable to Eaton ordinary shareholders in both~~ the ~~third~~first quarter ~~and the first~~ ~~nine~~ ~~months~~ of ~~2013~~2014 was primarily due to ~~higher sales volumes resulting from~~ the ~~acquisition of businesses, the most substantial of which was Cooper,~~factors impacting gross profit and a lower effective income tax ~~rate. The increase in Net income per ordinary share in the~~ rate, as described above.~~third~~ ~~quarter reflects the impact~~

Table of ~~higher core sales in the Electrical, Aerospace and Vehicle segments, as noted above. The decrease in Net income per ordinary share in the first~~ ~~nine~~ ~~months of~~ ~~2013~~ ~~reflects the impact of the incremental shares issued in the acquisition of Cooper and purchase price accounting charges resulting from the transaction.~~Contents

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

Electrical Products


	Three months ended September 30						Increase			Nine months ended September 30								Increase		Three months ended March 31								Increase
	2013			2012					2013				2012				2014				2013
Net sales	$	1,817		$	919			98	%		$	5,235			$	2,708					93	%	$	1,726			$	1,660		4	%

Operating profit	301			172			75	%		814				462				76	%	250				241				4	%
Operating margin	16.6		%	18.7		%				15.5		%		17.1		%				14.5		%		14.5		%

Acquisition integration charges	$	9		$	1					$	24			$	1					$	29			$	3

Before acquisition integration charges
Operating profit	$	310		$	173		79	%		$	838			$	463			81	%	$	279			$	244			14	%
Operating margin	17.1		%	18.8		%				16.0		%		17.1		%				16.2		%		14.7		%

Net sales increased ~~98%~~4% in the ~~third~~first quarter of 2014 compared to the first quarter of 2013 ~~compared~~due to an increase in core sales. Core sales growth in the ~~third~~first quarter of ~~2012~~2014 was due to continued strength in the Americas, particularly in North American markets, and improving demand in Europe. Eaton continues to anticipate its Electrical Products markets will grow 3% for all of 2014.

The operating margin before acquisition integration charges increased from 14.7% in the first quarter of 2013 to 16.2% in the first quarter of 2014. The increase in operating margin in the first quarter of 2014 was due to higher sales volumes, as noted above, and incremental synergies related to the acquisition of Cooper Industries plc (Cooper).

Electrical Systems and Services



	Three months ended March 31						Increase (decrease)
	2014			2013			Increase (decrease)
Net sales	$	1,524		$	1,521		—	%

Operating profit	169			210			(20	)%
Operating margin	11.1		%	13.8		%

Acquisition integration charges	$	26		$	5

Before acquisition integration charges
Operating profit	$	195		$	215		(9	)%
Operating margin	12.8		%	14.1		%

Net sales increased slightly to $1,524 in the first quarter of 2014 from $1,521 in the first quarter of 2013 due to ~~an increase of 96% from the acquisition of businesses,~~ an increase in core sales of ~~1% and an increase~~2%, offset by a decrease of 1%2% from the impact of currency translation. ~~Net sales increased~~ ~~93%~~ ~~in the first~~ ~~nine~~ ~~months of~~ ~~2013~~ ~~compared to the first~~ ~~nine~~ ~~months of~~ ~~2012~~ ~~due to an increase of 95% from the acquisition of businesses, partially offset by a decrease in core sales of 2%.~~ Core sales growth in the ~~third~~first quarter of ~~2013~~2014 ~~reflects~~was primarily due to continued strength in the ~~Americas~~United States, partially offset by weakness in Canada and Asia Pacific. ~~The decrease in core sales in the first~~ ~~nine~~ ~~months of~~ ~~2013~~ ~~was primarily impacted by weakness in Europe.~~ Eaton ~~now anticipates~~continues to anticipate its Electrical ~~Products~~Systems and Services markets will grow 1%3% for all of ~~2013.~~2014.

The operating margin before acquisition integration charges decreased from ~~18.8%~~14.1% in the ~~third~~ ~~quarter of~~ ~~2012~~ to ~~17.1%~~ ~~in the~~ ~~third~~first quarter of 2013~~. The operating margin before acquisition integration charges decreased from~~ to ~~17.1%~~12.8% in the ~~first~~ ~~nine~~first ~~months~~quarter of ~~2012~~ to ~~16.0%~~ ~~in the first~~ ~~nine~~ ~~months of~~ ~~2013~~2014. The decrease in operating margin in ~~both~~ the ~~third~~first quarter ~~and the first~~ ~~nine~~ ~~months~~ of ~~2013~~2014 was primarily due to the ~~changed~~negative impact of the severe winter weather in North America, which necessitated premium freight and overtime and caused project delays, and unfavorable mix of ~~products in the segment as a result principally of the Cooper acquisition.~~products.

2923

Table of Contents

~~Electrical Systems and Services~~Hydraulics


	Three months ended September 30						Increase			Nine months ended September 30								Increase		Three months ended March 31								Increase
	2013			2012					2013				2012				2014				2013
Net sales	$	1,639		$	910			80	%		$	4,784			$	2,675					79	%	$	782			$	756		3	%

Operating profit	231			111			108	%		668				278				140	%	108				78				38	%
Operating margin	14.1		%	12.2		%				14.0		%		10.4		%				13.8		%		10.3		%

Acquisition integration charges	$	10		$	1					$	26			$	8					$	4			$	12

Before acquisition integration charges
Operating profit	$	241		$	112		115	%		$	694			$	286			143	%	$	112			$	90			24	%
Operating margin	14.7		%	12.3		%				14.5		%		10.7		%				14.3		%		11.9		%

Net sales increased ~~80%~~3% in the ~~third~~first quarter of 2014 compared to the first quarter of 2013 ~~compared to the~~ ~~third~~ ~~quarter of~~ ~~2012~~due to ~~an increase of 78% from the acquisition of businesses and~~ an increase in core sales of 3%6%, partially offset by a decrease of 1%3% from the impact of currency translation. ~~Net sales increased~~ ~~79%~~ ~~in the first~~ ~~nine~~ ~~months of~~ ~~2013~~ ~~compared to the first~~ ~~nine~~ ~~months of~~ ~~2012~~ ~~due to an increase of 78% from the acquisition of businesses and an~~The increase in core sales ~~of 2%, partially offset by a decrease of 1% from the impact of currency translation. Core sales growth~~ in ~~both~~ the ~~third~~first quarter ~~and the first~~ ~~nine~~ ~~months~~ of ~~2013~~2014 ~~reflect strength~~was primarily due to improved global demand, particularly in the Americas and ~~Asia Pacific.~~Europe. Eaton ~~now anticipates~~continues to anticipate its ~~Electrical Systems and Services~~Hydraulics markets will grow ~~1.5%~~3% for all of ~~2013.~~2014.

The operating margin before acquisition integration charges increased from ~~12.3%~~11.9% in the ~~third~~ ~~quarter of~~ ~~2012~~ to ~~14.7%~~ ~~in the~~ ~~third~~first quarter of 2013~~. The operating margin before acquisition integration charges increased from~~ ~~10.7%~~ ~~for the first~~ ~~nine~~ ~~months of~~ ~~2012~~ to ~~14.5%~~ ~~for the first~~ ~~nine~~ ~~months of~~ ~~2013. The increase in operating margin in both the~~ ~~third~~ ~~quarter and the first~~ ~~nine~~ ~~months of~~ ~~2013~~ ~~was primarily due to the changed mix of products in the segment as a result of the acquisitions.~~

~~Hydraulics~~

Three months ended
September 30 Increase
(decrease) Nine months ended
September 30 Increase
(decrease)
2013 2012 2013 2012
Net sales $ 739
$ 763
(3 )% $ 2,267
$ 2,267
— %

Operating profit 89
93
(4 )% 271
325
(17 )%
Operating margin 12.0 % 12.2 % 12.0 % 14.3 %

Acquisition integration charges $ 8
$ 5
$ 28
$ 9

Before acquisition integration charges
Operating profit $ 97
$ 98
(1 )% $ 299
$ 334
(10 )%
Operating margin 13.1 % 12.8 % 13.2 % 14.7 %

~~Net sales decreased~~ 3% ~~in the~~ ~~third~~ ~~quarter of~~ ~~2013~~ ~~compared to the~~ ~~third~~ ~~quarter of~~ ~~2012~~ ~~due to a decrease in core sales of 2% and a decrease of 1% from the impact of currency translation. Net sales in the first~~ ~~nine~~ ~~months of~~ ~~2013~~ ~~were the same as in the first~~ ~~nine~~ ~~months of~~ ~~2012~~, with an increase of 7% from the acquisition of businesses offset by a decrease in core sales of 6% and a decrease of 1% from the impact of currency translation. The decrease in core sales in both the ~~third~~ ~~quarter and the first~~ ~~nine~~ ~~months of~~ ~~2013~~ ~~primarily reflects lower market demand, particularly in the U.S. and Asia Pacific. Eaton now anticipates its Hydraulics markets will decline 6% for all of 2013.~~

~~Table of Contents~~

~~The operating margin before acquisition integration charges increased from~~ ~~12.8%~~ ~~in the~~ ~~third~~ ~~quarter of~~ ~~2012~~ to ~~13.1%~~ ~~in the~~ ~~third~~ ~~quarter of~~ ~~2013. The operating margin before acquisition integration charges decreased from~~ ~~14.7%~~ ~~for the first~~ ~~nine~~ ~~months of~~ ~~2012~~ to ~~13.2%~~ ~~for the first~~ ~~nine~~ ~~months of~~ ~~2013. The decrease in operating margin in the first~~ ~~nine~~ ~~months of~~ ~~2013~~ ~~was primarily due to lower core sales, as noted above.~~

~~Aerospace~~

Three months ended
September 30 Increase Nine months ended
September 30 Increase
2013 2012 2013 2012
Net sales $ 448
$ 419
7 % $ 1,328
$ 1,285
3 %

Operating profit 64
49
31 % 193
168
15 %
Operating margin 14.3 % 11.7 % 14.5 % 13.1 %

~~Net sales in the~~ ~~third~~ ~~quarter and first~~ ~~nine~~ ~~months of~~ ~~2013~~ ~~increased~~ 7% ~~and~~ 3%~~, respectively, compared to the~~ ~~third~~ ~~quarter of~~ ~~2012~~ ~~and the first~~ ~~nine~~ ~~months of~~ ~~2012. The higher sales were a result of increased core sales, particularly to the commercial OEM market. Eaton continues to anticipate its Aerospace markets will grow 3% for all of 2013.~~

~~The operating margin increased from~~ ~~11.7%~~ ~~in the~~ ~~third~~ ~~quarter of~~ ~~2012~~ to 14.3% in the ~~third~~first quarter of ~~2013. The operating margin increased from~~ ~~13.1%~~ ~~for the first~~ ~~nine~~ ~~months of~~ ~~2012~~ to ~~14.5%~~ ~~for the first~~ ~~nine~~ ~~months of~~ ~~2013~~2014. The increase in operating margin in ~~both the~~ ~~third~~ ~~quarter and~~ the first ~~nine~~ ~~months~~quarter of ~~2013~~2014 was primarily due to higher sales volumes, as noted above, and ~~improved productivity.~~a favorable change in the mix of products.

~~Vehicle~~Aerospace


	Three months ended September 30						Increase (decrease)			Nine months ended September 30								Increase (decrease)		Three months ended March 31							Increase (decrease)
	2013			2012					2013				2012				2014				2013
Net sales	$	964		$	939			3	%		$	2,905			$	3,043					(5	)%	$	464		$	434		7	%

Operating profit	161			144			12	%		465				472				(1	)%	62				62			—	%
Operating margin	16.7		%	15.3		%				16.0		%		15.5		%				13.4		%		14.3	%

Net sales increased 3%7% in the ~~third~~first quarter of ~~2013~~2014 compared to the ~~third~~first quarter of ~~2012~~2013 due to an increase in core sales of 5%~~, partially offset by a decrease of 2% from the impact of currency translation. Net sales decreased~~ 5% ~~in the first~~ ~~nine~~ ~~months of~~ ~~2013~~ ~~compared to the first~~ ~~nine~~ ~~months of~~ ~~2012~~ ~~due to a decrease in core sales of 3%~~ and ~~a decrease~~an increase of 2% from the impact of currency translation. The increase in core sales in the ~~third~~first quarter of 2014 was primarily due to continued strength in the commercial markets. Eaton continues to anticipate its Aerospace markets will grow 3% for all of 2014.

The operating margin decreased from 14.3% in the first quarter of 2013 to 13.4% in the first quarter of 2014. The decrease in operating margin in the first quarter of 2014was primarily due to ~~higher~~increased spending on new programs.

Vehicle



	Three months ended March 31						Increase
	2014			2013			Increase
Net sales	$	996		$	939		6	%

Operating profit	151			132			14	%
Operating margin	15.2		%	14.1		%

Net sales increased 6%in ~~Latin America vehicle markets and North America and Asia Pacific light vehicle markets.~~the first quarter of 2014 compared to the first quarter of 2013 due to an increase in core sales of 9%, partially offset by a decrease of 3% from the impact of currency translation. The ~~decrease~~increase in core sales in the ~~first~~ ~~nine~~first ~~months~~quarter of ~~2013~~2014 was primarily due to ~~lower sales volumes~~improved global demand, particularly in the ~~NAFTA Class 8 truck market and the European light vehicle market,~~North American markets, partially offset by ~~higher sales~~weakness in ~~Latin~~South American ~~markets and in North American and Asia Pacific light vehicle~~ markets. Eaton now anticipates its Vehicle markets will ~~be flat~~grow 5% for all of ~~2013.~~2014.

Table of Contents

The operating margin increased from ~~15.3%~~14.1% in the ~~third~~ ~~quarter of~~ ~~2012~~ to ~~16.7%~~ ~~in the~~ ~~third~~first quarter of 2013~~. The operating margin increased from~~ to ~~15.5%~~15.2% ~~for~~in the ~~first~~ ~~nine~~first ~~months~~quarter of ~~2012~~ to ~~16.0%~~ ~~for the first~~ ~~nine~~ ~~months of~~ ~~2013~~2014. The increase in operating margin in ~~both~~ the ~~third~~first quarter ~~and the first~~ ~~nine~~ ~~months~~ of ~~2013~~2014 was primarily due to ~~the changed mix of products and improved productivity.~~higher sales volumes, as noted above.

~~Table of Contents~~

Corporate Expense


	Three months ended September 30				Increase			Nine months ended September 30								Increase		Three months ended March 31							Increase (decrease)
	2013		2012				2013				2012				2014				2013						Increase (decrease)
Amortization of intangible assets	$	110	$	45	Increase	144	%		$	325			$	129		Increase			152	%	$	110		$	107		3	%
Interest expense - net	63		42		50	%		209				100				109	%	62				75			(17	)%
Pension and other postretirement benefits expense	55		41		34	%		136				121				12	%	51				38			34	%
Inventory step-up adjustment	—		1		NM			34				4				NM		—				33			NM
Other corporate expense - net	97		64		52	%		252				188				34	%	64				70			(9	)%
Total corporate expense	$	325	$	193	68	%		$	956			$	542			76	%	$	287			$	323		(11	)%

Total Corporate expense ~~increased~~decreased ~~68%~~11% from $323 in the ~~third~~first quarter of 2013 to $~~325~~ ~~from~~ ~~$193~~287 in the ~~third~~first quarter of ~~2012~~2014 primarily due to the ~~acquisition~~absence in 2014 of ~~Cooper. The~~the inventory step-up adjustment related to purchase price accounting adjustments associated with the acquisition of Cooper ~~resulted in an increase~~and a decrease of ~~144%~~ ~~in Amortization of intangible assets and an increase of~~ ~~50%~~17% in Interest expense - net ~~primarily~~ related to ~~financing activities~~lower debt levels. These decreases were partially offset by a 34% increase in ~~conjunction with the acquisition.~~

~~Total Corporate~~Pension and other postretirement benefits expense ~~increased~~ ~~76%~~ ~~in the first~~ ~~nine~~ ~~months of~~ ~~2013~~ to ~~$956~~ ~~from~~ ~~$542~~ ~~in the first~~ ~~nine~~ ~~months of~~ ~~2012~~ primarily due to ~~the acquisition of Cooper. The acquisition of Cooper resulted in an increase of~~ ~~152%~~ ~~in Amortization of intangible assets and an increase of~~ ~~109%~~ ~~in Interest~~increased settlement expense ~~- net, primarily~~ related to ~~financing activities in conjunction with~~ the ~~acquisition.~~expiry of restrictions on lump sum settlements.

For additional information ~~regarding the acquisition of Cooper,~~on business acquisitions, see Note 2 to the Condensed Consolidated Financial ~~Statements contained in the~~ ~~2012~~ ~~Form 10-K, as updated by Exhibit 99.1 of Eaton's current report on Form 8-K filed on September 6, 2013.~~Statements.

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 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 ~~September 30, 2013~~March 31, 2014. 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.~~business as well as scheduled payments of long-term debt.

Eaton was in compliance with each of its debt covenants ~~as of~~ ~~September 30, 2013~~ ~~and~~ for all periods presented.

~~Undistributed Assets of Non-U.S. Subsidiaries~~

At ~~September 30, 2013~~, approximately 65% of the Company's consolidated cash and short-term investments resided in non-U.S. locations. These funds are considered permanently reinvested to be used to expand operations either organically or through acquisitions outside the U.S. The largest growth areas that are expected to require capital are in developing markets. The Company's U.S. operations generate cash flow sufficient to satisfy U.S. operating requirements and service its debt. The Company does not intend to repatriate any significant amounts of cash to the U.S. in the foreseeable future.

Sources and Uses of Cash Flow

Operating Cash Flow

Net cash provided by operating activities was $~~1,413~~12 in the first ~~nine~~three months of 2014, a decrease of $88 compared to $100 in the first three months of 2013~~, an increase of $436 compared to~~ ~~$977~~ ~~in the first~~ ~~nine~~ ~~months of~~ ~~2012~~. ~~Higher~~Lower operating cash flow in the first ~~nine~~three months of 2014 compared to the first three months of 2013 ~~compared~~was primarily due to ~~the first~~ ~~nine~~ ~~months of~~ ~~2012~~ ~~was due primarily to~~ higher ~~net income and lower~~ contributions to defined benefits ~~plans, partially offset by higher working capital requirements due to the acquisition of Cooper.~~plans.

~~Table of Contents~~

Investing Cash Flow

Net cash provided by investing activities was $~~143~~304 in the first ~~nine~~three months of ~~2013~~2014, ~~an increase~~a decrease of ~~$1,000~~$469 compared to ~~a use of cash of~~ $~~857~~773 in the first ~~nine~~three months of ~~2012~~2013. Investing cash flows in ~~2013~~2014 were primarily impacted by ~~the~~a decrease in proceeds from the sale of businesses from $761 in the first three months of 2013 to $3 in the first three months in 2014, primarily related to the sale of Apex Tool Group, LLC ~~(Apex) totaling $761 and a decrease in cash paid for acquisitions of businesses from $554~~ in the first ~~nine~~three months of ~~2012~~ ~~to $11 in the first~~ ~~nine~~ ~~months~~2013, partially offset by increased sales of ~~2013. For additional information on the sale of Apex and business acquisitions, see Note 2 to the Condensed Consolidated Financial Statements.~~short-term investments.

Financing Cash Flow

Net cash used in financing activities was $~~1,485~~443 in the first ~~nine~~three months of ~~2013~~2014, a decrease of ~~$1,389~~$367 compared to ~~a use of cash of~~ $96810 in the first ~~nine~~three months of ~~2012~~2013. The decrease was primarily due to ~~higher~~lower payments on debt borrowings, ~~higher cash dividends and lower borrowings. Higher debt repayments included $669 on the bridge facility and $300 on notes that matured in May 2013. Cash dividends~~primarily related to ~~ordinary shareholders increased $213 in the first~~ ~~nine~~ ~~months of~~ ~~2013~~ ~~due to the increase in shares outstanding as a result of~~financing the acquisition of Cooper, ~~and an increase in the quarterly~~partially offset by higher cash ~~dividend. Proceeds from borrowings decreased from $600 in the first~~ ~~nine~~ ~~months of~~ ~~2012~~ ~~to $6 in the first~~ ~~nine~~ ~~months of~~ ~~2013. The proceeds from borrowings in the first~~ ~~nine~~ ~~months of~~ ~~2012~~ ~~related~~dividends. For additional information on business acquisitions, see Note 2 to the ~~private debt issuance that was completed during the second quarter~~Condensed Consolidated Financial Statements.

Table of ~~2012.~~Contents

FORWARD-LOOKING STATEMENTS

This Form 10-Q Report contains forward-looking statements. These statements may discuss goals, intentions and expectations as to future trends, plans, events, results of operations or financial condition, or state other information relating to Eaton, based on current beliefs of management as well as assumptions made by, and information currently available to, management. Forward-looking statements generally will be accompanied by words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “guidance,” “intend,” “may,” “possible,” “potential,” “predict,” “project” or other similar words, phrases or expressions. These statements should be used with caution and are subject to various risks and uncertainties, many of which are outside Eaton’s control. The following factors could cause actual results to differ materially from those in the forward-looking statements: unanticipated changes in the markets for the Company’s business segments; unanticipated downturns in business relationships with customers or their purchases from us; the availability of credit to customers and suppliers; competitive pressures on sales and pricing; increases in the cost of material and other production costs, or unexpected costs that cannot be recouped in product pricing; the introduction of competing technologies; unexpected technical or marketing difficulties; unexpected claims, charges, litigation or dispute resolutions; strikes or other labor unrest; the impact of acquisitions and divestitures; unanticipated difficulties integrating acquisitions; new laws and governmental regulations; interest rate changes; tax rate changes or exposure to additional income tax liability; stock market and currency fluctuations; and unanticipated deterioration of economic and financial conditions in the United States and around the world. Eaton does not assume any obligation to update these forward-looking statements.


ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

There have been no material changes in exposures to market risk since December 31, ~~2012.~~2013.


ITEM 4.	CONTROLS AND PROCEDURES.

Pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 (the Exchange Act), an evaluation was performed, under the supervision and with the participation of Eaton’s management, including Alexander M. Cutler, Principal Executive Officer, and Richard H. Fearon, Principal Financial Officer, of the effectiveness of the design and operation of Eaton’s disclosure controls and procedures. Based on that evaluation, management concluded that Eaton’s disclosure controls and procedures were effective as of ~~September 30, 2013~~March 31, 2014.

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.

There were no changes in Eaton’s internal control over financial reporting that materially affected, or is reasonably likely to materially affect, Eaton’s internal control over financial reporting.

~~Table of Contents~~

PART II — OTHER INFORMATION


ITEM 1.	LEGAL PROCEEDINGS.

Information regarding the Company's current legal proceedings is presented in Note ~~7 and Note 8~~6 of the Notes to the Condensed Consolidated Financial Statements.


ITEM 1A.	RISK FACTORS.

“Item 1A. Risk Factors” in Eaton's ~~2012~~2013 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 ~~2012~~2013 Form 10-K.


ITEM 6.	EXHIBITS.

Exhibits — See Exhibit Index attached.

3426

Table of Contents

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:	~~November 7, 2013~~May 5, 2014	By:	/s/ Richard H. Fearon
			Richard H. Fearon
			Principal Financial Officer
			(On behalf of the registrant and as Principal Financial Officer)

3527

Table of Contents

Eaton Corporation plc

~~Third~~First Quarter ~~2013~~2014 Report on Form 10-Q

Exhibit Index



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

3 ~~(b)~~(ii)		Amended and restated Memorandum and Articles of Incorporation - Incorporated by reference to the Form 10-Q Report for the three months ended September 30, 2012

4 (a)		Pursuant to Regulation S-K Item 601(b)(4), Eaton agrees to furnish to the SEC, upon request, a copy of the instruments defining the rights of holders of its other long-term debt

10.1		Form of Restricted Share Unit Agreement — Filed in conjunction with this Form 10-Q Report *

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 ~~September 30, 2013~~March 31, 2014 and ~~2012~~2013, (ii) ~~Consolidated Statements of Income for the~~ ~~nine~~ ~~months ended~~ ~~September 30, 2013~~ ~~and~~ ~~2012, (iii)~~ Consolidated Statements of Comprehensive Income for the three months ended ~~September 30, 2013~~March 31, 2014 and ~~2012~~2013, ~~(iv) Consolidated Statements of Comprehensive Income for the~~ ~~nine~~ ~~months ended~~ ~~September 30, 2013~~ ~~and~~ ~~2012, (v)~~(iii) Condensed Consolidated Balance Sheets at ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013, ~~(vi)~~(iv) Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30, 2013~~March 31, 2014 and ~~2012~~2013 and ~~(vii)~~(v) Notes to Condensed Consolidated Financial Statements for the ~~nine~~three months ended ~~September 30, 2013~~March 31, 2014.

In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be part of any registration statement or other document filed under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

3628



TABLE OF CONTENTS
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 4. CONTROLS AND PROCEDURES
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ITEM 1A. RISK FACTORS
ITEM 6. EXHIBITS
SIGNATURES
Exhibit Index
EX-10.1
EX-12
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT



	November 30, 2012 (as adjusted)
Working capital accounts ⁽¹⁾	$	2,304
Prepaid expenses and other current assets	204
Property, plant and equipment	885
Investment in Apex Tool Group, LLC	807
Intangible assets	5,250
Other assets	35
Debt	(1,221		)
Accounts payable	(519		)
Other current liabilities	(673		)
Other noncurrent liabilities	(2,185		)
Total identifiable net assets	4,887
Goodwill	8,305
Total consideration	$	13,192

⁽¹⁾ Working capital accounts include Cash, Short-term investments, Accounts receivable and Inventory.



	Nine months ended September 30
	United States pension benefit expense						Non-United States pension benefit expense						Other postretirement benefits expense
	2013			2012			2013			2012			2013			2012
Service cost	$	96		$	86		$	46		$	37		$	15		$	13
Interest cost	111			100			59			56			27			29
Expected return on plan assets	(169		)	(136		)	(63		)	(56		)	(5		)	(5		)
Amortization	99			88			21			11			10			10
	137			138			63			48			47			47
Settlement loss	39			17			—			2			—			—
Total expense	$	176		$	155		$	63		$	50		$	47		$	47

Large accelerated filer þ

Accelerated filer o

Non-accelerated filer o

Smaller reporting company o

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