NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Amounts are in millions unless indicated otherwise (per share data assume dilution).
Note 1.BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of Eaton Corporation plc (Eaton or the Company) have been prepared in accordance with generally accepted accounting principles for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by United States generally accepted accounting principles (US GAAP) for complete financial statements. However, in the opinion of management, all adjustments (consisting of normal recurring accruals) have been made that are necessary for a fair presentation of the condensed consolidated financial statements for the interim periods.
This Form 10-Q should be read in conjunction with the consolidated financial statements and related notes included in Eaton’s 2020 Form 10-K. The interim period results are not necessarily indicative of the results to be expected for the full year. Management has evaluated subsequent events through the date this Form 10-Q was filed with the Securities and Exchange Commission.
Note 2.ACQUISITIONS AND DIVESTITURES OF BUSINESSES
Acquisition of Power Distribution, Inc.
On February 25, 2020, Eaton acquired Power Distribution, Inc. a leading supplier of mission critical power distribution, static switching, and power monitoring equipment and services for data centers and industrial and commercial customers. The company is headquartered in Richmond, Virginia, and had 2019 sales of $125. Power Distribution, Inc. is reported within the Electrical Americas business segment.
Sale of Lighting business
On March 2, 2020, Eaton sold its Lighting business to Signify N.V. for a cash purchase price of $1.4 billion. As a result of the sale, the Company recognized a pre-tax gain of $221 in 2020. The Lighting business, which had sales of $1.6 billion in 2019 as part of the Electrical Americas business segment, served customers in commercial, industrial, residential, and municipal markets.
Pending sale of Hydraulics business
On January 21, 2020, Eaton entered into an agreement to sell its Hydraulics business to Danfoss A/S, a Danish industrial company, for $3.3 billion in cash. Eaton’s Hydraulics business is a global leader in hydraulics components, systems, and services for industrial and mobile equipment. The business had sales of $1.8 billion in 2020. The transaction is subject to customary closing conditions and regulatory approvals and is expected to close in the second quarter of 2021.
During the first quarter of 2020, the Company determined the Hydraulics business met the criteria to be classified as held for sale. Therefore, assets and liabilities of the business have been presented as held for sale in the Consolidated Balance Sheets as of December 31, 2020 and March 31, 2021. Assets and liabilities classified as held for sale are measured at the lower of carrying value or fair value less costs to sell. No write-down has been required as fair value of the Hydraulics business assets less the costs to sell exceed their respective carrying values. Depreciation and amortization expense is not recorded for the period in which Other long-lived assets are classified as held for sale.
The Company used the relative fair value method to allocate goodwill to the Hydraulics business. The fair value of the Hydraulics business was estimated based on a combination of the price paid to Eaton by Danfoss A/S and a discounted cash flow model. The model includes estimates of future cash flows, future growth rates, terminal value amounts, and the applicable weighted-average cost of capital used to discount those estimated cash flows. 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 judgments, including judgments about appropriate discount rates, perpetual growth rates, revenue growth, and margin assumptions.
The assets and liabilities classified as held for sale for the Hydraulics business on the March 31, 2021 and December 31, 2020 Consolidated Balance Sheets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
|
|
|
|
|
Cash
|
|
$
|
7
|
|
|
$
|
—
|
|
Accounts receivable - net
|
|
397
|
|
|
345
|
|
Inventory
|
|
378
|
|
|
369
|
|
Prepaid expenses and other current assets
|
|
9
|
|
|
18
|
|
Net property, plant and equipment
|
|
505
|
|
|
504
|
|
Goodwill
|
|
909
|
|
|
920
|
|
Other intangible assets
|
|
247
|
|
|
248
|
|
Operating lease assets
|
|
63
|
|
|
61
|
|
Deferred income taxes
|
|
5
|
|
|
6
|
|
Other noncurrent assets
|
|
17
|
|
|
16
|
|
Assets held for sale - current
|
|
$
|
2,537
|
|
|
$
|
2,487
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
276
|
|
|
$
|
241
|
|
Accrued compensation
|
|
25
|
|
|
26
|
|
Other current liabilities
|
|
105
|
|
|
101
|
|
Pension liabilities
|
|
57
|
|
|
60
|
|
Operating lease liabilities
|
|
32
|
|
|
35
|
|
Deferred income taxes
|
|
4
|
|
|
3
|
|
Other noncurrent liabilities
|
|
2
|
|
|
2
|
|
|
|
|
|
|
Liabilities held for sale - current
|
|
$
|
501
|
|
|
$
|
468
|
|
The Hydraulics business did not meet the criteria to be classified as discontinued operations as the sale does not represent a strategic shift that will have a major effect on the Company's operations.
Agreement to Acquire Cobham Mission Systems
On January 31, 2021, Eaton signed an agreement to acquire Cobham Mission Systems (CMS), a leading manufacturer of air-to-air refueling systems, environmental systems, and actuation primarily for defense markets. Under the terms of the agreement, Eaton will pay $2.83 billion. CMS had sales of over $700 in 2020. The transaction is subject to customary closing conditions and is expected to close the beginning of the fourth quarter of 2021. CMS will be reported within the Aerospace business segment.
Acquisition of Tripp Lite
On March 17, 2021, Eaton acquired Tripp Lite for $1.65 billion, net of cash received. Tripp Lite is a leading supplier of power quality products and connectivity solutions including single-phase uninterruptible power supply systems, rack power distribution units, surge protectors, and enclosures for data centers, industrial, medical, and communications markets in the Americas. Tripp Lite had sales of over $400 in 2020. Tripp Lite is reported within the Electrical Americas business segment.
The acquisition of Tripp Lite has been accounted for using the acquisition method of accounting which requires the assets acquired and liabilities assumed be recognized at their respective fair values on the acquisition date. The table below summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed on the acquisition date. These preliminary estimates will continue to be revised during the measurement period as third-party valuations are received and finalized, further information becomes available and additional analyses are performed, and these differences could have a material impact on Eaton's preliminary purchase price allocation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 17, 2021
|
|
|
|
|
|
Short-term investments
|
|
|
|
$
|
5
|
|
Accounts receivable
|
|
|
|
94
|
|
Inventory
|
|
|
|
184
|
|
Prepaid expenses and other current assets
|
|
|
|
6
|
|
Property, plant and equipment
|
|
|
|
6
|
|
Other intangible assets
|
|
|
|
630
|
|
|
|
|
|
|
Accounts payable
|
|
|
|
(13)
|
|
Other current liabilities
|
|
|
|
(32)
|
|
Other noncurrent liabilities
|
|
|
|
(157)
|
|
Total identifiable net assets
|
|
|
|
723
|
|
|
|
|
|
|
Goodwill
|
|
|
|
928
|
|
Total consideration, net of cash received
|
|
|
|
$
|
1,651
|
|
Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the anticipated synergies of acquiring Tripp Lite. Goodwill recognized as a result of the acquisition is not deductible for tax purposes. Other intangible assets of $630 are expected to include customer relationships, trademarks and technology. Given the timing of the acquisition, Eaton utilized a benchmarking approach based on similar acquisitions to determine the preliminary fair values for intangible assets. See Note 6 for additional information about goodwill.
Eaton's 2021 Condensed Consolidated Financial Statements include Tripp Lite’s results of operations, including sales of $26, from date the of acquisition through March 31, 2021.
Acquisition of Green Motion SA
On March 22, 2021, Eaton acquired Green Motion SA, a leading designer and manufacturer of electric vehicle charging hardware and related software based in Switzerland. Green Motion SA was acquired for $105, including $49 of cash paid at closing and $56 of estimated fair value of contingent future consideration based on 2023 and 2024 revenue performance. The fair value of contingent consideration liabilities is estimated by discounting contingent payments expected to be made, and may increase or decrease based on changes in revenue estimates and discount rates, with a maximum possible undiscounted value of $109. Green Motion SA is reported within the Electrical Global business segment.
Acquisition of a 50% stake in HuanYu High Tech
On March 29, 2021, Eaton acquired a 50 percent stake in HuanYu High Tech, a subsidiary of HuanYu Group that manufactures and markets low-voltage circuit breakers and contactors in China, and throughout the Asia-Pacific region. HuanYu High Tech had 2019 sales of $106 and has production operations in Wenzhou, China. Eaton accounts for this investment on the equity method of accounting and is reported within the Electrical Global business segment.
Note 3. REVENUE RECOGNITION
Sales are recognized when obligations under the terms of the contract are satisfied and control of promised goods or services have transferred to our customers. Sales are measured at the amount of consideration the Company expects to be paid in exchange for these products or services.
The Company’s six operating segments and the following tables disaggregate sales by lines of businesses, geographic destination, market channel or end market.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2021
|
Net sales
|
|
|
Products
|
|
Systems
|
|
Total
|
Electrical Americas
|
|
|
$
|
520
|
|
|
$
|
1,102
|
|
|
$
|
1,622
|
|
Electrical Global
|
|
|
713
|
|
|
540
|
|
|
1,253
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
Rest of World
|
|
|
Hydraulics
|
|
|
$
|
222
|
|
|
$
|
339
|
|
|
561
|
|
|
|
|
|
|
|
|
|
|
Original Equipment Manufacturers
|
|
Aftermarket
|
|
Industrial and Other
|
|
|
Aerospace
|
$
|
208
|
|
|
$
|
146
|
|
|
$
|
165
|
|
|
519
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
Passenger and Light Duty
|
|
|
Vehicle
|
|
|
$
|
342
|
|
|
$
|
312
|
|
|
654
|
|
|
|
|
|
|
|
|
|
eMobility
|
|
|
|
|
|
|
83
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
$
|
4,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2020
|
Net sales
|
|
|
Products
|
|
Systems
|
|
Total
|
Electrical Americas
|
|
|
$
|
724
|
|
|
$
|
1,064
|
|
|
$
|
1,788
|
|
Electrical Global
|
|
|
657
|
|
|
487
|
|
|
1,144
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
Rest of World
|
|
|
Hydraulics
|
|
|
$
|
227
|
|
|
$
|
280
|
|
|
507
|
|
|
|
|
|
|
|
|
|
|
Original Equipment Manufacturers
|
|
Aftermarket
|
|
Industrial and Other
|
|
|
Aerospace
|
$
|
325
|
|
|
$
|
220
|
|
|
$
|
135
|
|
|
680
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
Passenger and Light Duty
|
|
|
Vehicle
|
|
|
$
|
292
|
|
|
$
|
306
|
|
|
598
|
|
|
|
|
|
|
|
|
|
eMobility
|
|
|
|
|
|
|
72
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
$
|
4,789
|
|
The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (revenue recognized exceeds amount billed to the customer), and deferred revenue (advance payments and billings in excess of revenue recognized). Accounts receivables from customers were $2,708 and $2,539 at March 31, 2021 and December 31, 2020, respectively. Amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals or upon achievement of contractual milestones. These assets and liabilities are reported on the Consolidated Balance Sheets on a contract-by-contract basis at the end of each reporting period. Unbilled receivables were $106 and $90 at March 31, 2021 and December 31, 2020, respectively, and are recorded in Prepaid expenses and other current assets. The increase in unbilled receivables reflects higher revenue recognized and not yet billed during the quarter.
Changes in the deferred revenue liabilities are as follows:
|
|
|
|
|
|
|
Deferred Revenue
|
Balance at January 1, 2021
|
$
|
257
|
|
Customer deposits and billings
|
276
|
|
Revenue recognized in the period
|
(262)
|
|
Translation and other
|
(3)
|
|
|
|
Balance at March 31, 2021
|
$
|
268
|
|
|
|
|
|
|
|
|
Deferred Revenue
|
Balance at January 1, 2020
|
$
|
234
|
|
Customer deposits and billings
|
245
|
|
Revenue recognized in the period
|
(240)
|
|
Translation
|
(4)
|
|
Deferred revenue reclassified to held for sale
|
(11)
|
|
Balance at March 31, 2020
|
$
|
224
|
|
A significant portion of open orders placed with Eaton are by original equipment manufacturers or distributors. These open orders are not considered firm as they have been historically subject to releases by customers. In measuring backlog of unsatisfied or partially satisfied obligations, only the amount of orders to which customers are firmly committed are included. Using this criterion, total backlog at March 31, 2021 was approximately $6.4 billion. At March 31, 2021, Eaton expects to recognize approximately 88% of this backlog in the next twelve months and the rest thereafter.
Note 4. CREDIT LOSSES FOR RECEIVABLES
Receivables are exposed to credit risk based on the customers’ ability to pay which is influenced by, among other factors, their financial liquidity position. Eaton’s receivables are generally short-term in nature with a majority outstanding less than 90 days.
Eaton performs ongoing credit evaluation of its customers and maintains sufficient allowances for potential credit losses. The Company evaluates the collectability of its receivables based on the length of time the receivable is past due, and any anticipated future write-offs based on historic experience adjusted for market conditions. The Company’s segments, supported by our global credit department, perform the credit evaluation and monitoring process to estimate and manage credit risk. The process includes an evaluation of credit losses for both the overall segment receivable and specific customer balances. The process also includes review of customer financial information and credit ratings, approval and monitoring of customer credit limits, and an assessment of market conditions. The Company may also require prepayment from customers to mitigate credit risk. Receivable balances are written off against an allowance for credit losses after a final determination of collectability has been made.
Accounts receivable are net of an allowance for credit losses of $52 and $48 at March 31, 2021 and December 31, 2020. The change in the allowance for credit losses includes expense and net write-offs, none of which are significant.
Note 5. INVENTORY
Inventory is carried at lower of cost or net realizable value. The components of inventory follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2021
|
|
December 31,
2020
|
Raw materials
|
$
|
824
|
|
|
$
|
803
|
|
Work-in-process
|
530
|
|
|
498
|
|
Finished goods
|
1,045
|
|
|
808
|
|
Total inventory
|
$
|
2,399
|
|
|
$
|
2,109
|
|
Note 6. GOODWILL
Change in the carrying amount of goodwill by segment follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
2021
|
|
Additions
|
|
|
|
|
|
|
|
Translation
|
|
March 31,
2021
|
Electrical Americas
|
|
$
|
6,456
|
|
|
$
|
928
|
|
|
|
|
|
|
|
|
$
|
(3)
|
|
|
$
|
7,381
|
|
Electrical Global
|
|
4,295
|
|
|
61
|
|
|
|
|
|
|
|
|
(101)
|
|
|
4,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace
|
|
1,777
|
|
|
—
|
|
|
|
|
|
|
|
|
(28)
|
|
|
1,749
|
|
Vehicle
|
|
293
|
|
|
—
|
|
|
|
|
|
|
|
|
(2)
|
|
|
291
|
|
eMobility
|
|
82
|
|
|
—
|
|
|
|
|
|
|
|
|
(1)
|
|
|
81
|
|
Total
|
|
$
|
12,903
|
|
|
$
|
989
|
|
|
|
|
|
|
|
|
$
|
(135)
|
|
|
$
|
13,757
|
|
The 2021 additions to goodwill relate to the anticipated synergies of acquiring Tripp Lite and Green Motion SA. The allocations of the purchase price from these acquisitions are preliminary and will be completed during the measurement periods.
Note 7. DEBT
On March 8, 2021, a subsidiary of Eaton issued Euro denominated notes (2021 Euro Notes) with a face value of €1,500 ($1,798), in accordance with Regulation S promulgated under the Securities Act of 1933, as amended. The 2021 Euro Notes are comprised of two tranches of €900 and €600, which mature in 2026 and 2030, respectively, with interest payable annually at a respective rate of 0.128% and 0.577%. The issuer received proceeds totaling €1,494 ($1,790) from the issuance, net of financing costs and discounts. The senior 2021 Euro Notes are fully and unconditionally guaranteed on an unsubordinated, unsecured basis by Eaton and certain of its direct and indirect subsidiaries. The 2021 Euro Notes contain customary optional redemption and par call provisions. The 2021 Euro Notes also contain a change of control provision which requires the Company to make an offer to purchase all or any part of the 2021 Euro Notes at a purchase price of 101% of the principal amount plus accrued and unpaid interest. The capitalized deferred financing fees are amortized in Interest expense-net over the respective terms of the 2021 Euro Notes. The 2021 Euro Notes are subject to customary non-financial covenants.
Note 8. RETIREMENT BENEFITS PLANS
The components of retirement benefits expense (income) follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
pension benefit expense (income)
|
|
Non-United States
pension benefit expense (income)
|
|
Other postretirement
benefits expense (income)
|
|
Three months ended March 31
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Service cost
|
$
|
10
|
|
|
$
|
24
|
|
|
$
|
19
|
|
|
$
|
18
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest cost
|
17
|
|
|
26
|
|
|
10
|
|
|
11
|
|
|
2
|
|
|
2
|
|
Expected return on plan assets
|
(56)
|
|
|
(57)
|
|
|
(30)
|
|
|
(27)
|
|
|
—
|
|
|
—
|
|
Amortization
|
10
|
|
|
25
|
|
|
19
|
|
|
15
|
|
|
(1)
|
|
|
(3)
|
|
|
(19)
|
|
|
18
|
|
|
18
|
|
|
17
|
|
|
1
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlements, curtailments and special termination benefits
|
14
|
|
|
17
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
—
|
|
Total expense (income)
|
$
|
(5)
|
|
|
$
|
35
|
|
|
$
|
18
|
|
|
$
|
20
|
|
|
$
|
1
|
|
|
$
|
(1)
|
|
During 2020, the Company announced it was freezing its United States pension plans for its non-union employees. The freeze was effective January 1, 2021 for non-union U.S. employees whose retirement benefit was determined under a cash balance formula and is effective January 1, 2026 for non-union U.S. employees whose retirement benefit is determined under a final average pay formula.
The components of retirement benefits expense (income) other than service costs are included in Other (income) expense - net.
Note 9. LEGAL CONTINGENCIES
Eaton is subject to a broad range of claims, administrative and legal proceedings such as lawsuits that relate to contractual allegations, tax audits, patent infringement, personal injuries, antitrust matters, and employment-related matters. Eaton is also subject to asbestos claims from historic products which may have contained asbestos. Insurance may cover some of the costs associated with these claims and proceedings. Although it is not possible to predict with certainty the outcome or cost of these matters, the Company believes they will not have a material adverse effect on the consolidated financial statements.
Note 10. INCOME TAXES
The effective income tax rate for the first quarter of 2021 was expense of 14.7% compared to expense of 29.5% for the first quarter of 2020. The decrease in the effective tax rate in the first quarter of 2021 was primarily due to the tax impact on the gain from the sale of the Lighting business in 2020 described in Note 2.
Note 11. EQUITY
On February 27, 2019, the Board of Directors adopted a share repurchase program for share repurchases up to $5,000 of ordinary shares (2019 Program). Under the 2019 Program, the ordinary shares are expected to be repurchased over time, depending on market conditions, the market price of ordinary shares, capital levels, and other considerations. During the three months ended March 31, 2021 and 2020, 0.5 million and 14.2 million ordinary shares, respectively, were repurchased under the 2019 Program in the open market at a total cost of $59 and $1,300, respectively.
The changes in Shareholders’ equity follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary shares
|
|
Capital in excess of par value
|
|
Retained earnings
|
|
Accumulated other comprehensive loss
|
|
Shares held in trust
|
|
Total Eaton shareholders' equity
|
|
Noncontrolling interests
|
|
Total equity
|
|
|
|
|
|
|
|
|
(In millions)
|
Shares
|
|
Dollars
|
|
|
|
|
|
|
|
Balance at January 1, 2021
|
398.1
|
|
|
$
|
4
|
|
|
$
|
12,329
|
|
|
$
|
6,794
|
|
|
$
|
(4,195)
|
|
|
$
|
(2)
|
|
|
$
|
14,930
|
|
|
$
|
43
|
|
|
$
|
14,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
458
|
|
|
—
|
|
|
—
|
|
|
458
|
|
|
1
|
|
|
459
|
|
Other comprehensive loss, net of tax
|
|
|
|
|
|
|
|
|
(30)
|
|
|
|
|
(30)
|
|
|
—
|
|
|
(30)
|
|
Cash dividends paid and accrued
|
—
|
|
|
—
|
|
|
—
|
|
|
(309)
|
|
|
—
|
|
|
—
|
|
|
(309)
|
|
|
—
|
|
|
(309)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares under equity-based compensation plans
|
0.9
|
|
|
—
|
|
|
6
|
|
|
(1)
|
|
|
—
|
|
|
—
|
|
|
5
|
|
|
—
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in noncontrolling interest of consolidated subsidiaries - net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2)
|
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of shares
|
(0.5)
|
|
|
—
|
|
|
—
|
|
|
(59)
|
|
|
—
|
|
|
—
|
|
|
(59)
|
|
|
—
|
|
|
(59)
|
|
Balance at March 31, 2021
|
398.5
|
|
|
$
|
4
|
|
|
$
|
12,335
|
|
|
$
|
6,883
|
|
|
$
|
(4,225)
|
|
|
$
|
(2)
|
|
|
$
|
14,995
|
|
|
$
|
42
|
|
|
$
|
15,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary shares
|
|
Capital in excess of par value
|
|
Retained earnings
|
|
Accumulated other comprehensive loss
|
|
Shares held in trust
|
|
Total Eaton shareholders' equity
|
|
Noncontrolling interests
|
|
Total equity
|
|
|
|
|
|
|
|
|
(In millions)
|
Shares
|
|
Dollars
|
|
|
|
|
|
|
|
Balance at January 1, 2020
|
413.3
|
|
|
$
|
4
|
|
|
$
|
12,200
|
|
|
$
|
8,170
|
|
|
$
|
(4,290)
|
|
|
$
|
(2)
|
|
|
$
|
16,082
|
|
|
$
|
51
|
|
|
$
|
16,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
438
|
|
|
—
|
|
|
—
|
|
|
438
|
|
|
—
|
|
|
438
|
|
Other comprehensive loss, net of tax
|
|
|
|
|
|
|
|
|
(676)
|
|
|
|
|
(676)
|
|
|
—
|
|
|
(676)
|
|
Cash dividends paid and accrued
|
—
|
|
|
—
|
|
|
—
|
|
|
(300)
|
|
|
—
|
|
|
—
|
|
|
(300)
|
|
|
(5)
|
|
|
(305)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares under equity-based compensation plans
|
0.9
|
|
|
—
|
|
|
3
|
|
|
(1)
|
|
|
—
|
|
|
(1)
|
|
|
1
|
|
|
—
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in noncontrolling interest of consolidated subsidiaries - net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3)
|
|
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of shares
|
(14.2)
|
|
|
—
|
|
|
—
|
|
|
(1,300)
|
|
|
—
|
|
|
—
|
|
|
(1,300)
|
|
|
—
|
|
|
(1,300)
|
|
Balance at March 31, 2020
|
400.0
|
|
|
$
|
4
|
|
|
$
|
12,203
|
|
|
$
|
7,007
|
|
|
$
|
(4,966)
|
|
|
$
|
(3)
|
|
|
$
|
14,245
|
|
|
$
|
43
|
|
|
$
|
14,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The changes in Accumulated other comprehensive loss follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation and related hedging instruments
|
|
Pensions and other postretirement benefits
|
|
Cash flow
hedges
|
|
Total
|
Balance at January 1, 2021
|
$
|
(2,647)
|
|
|
$
|
(1,481)
|
|
|
$
|
(67)
|
|
|
$
|
(4,195)
|
|
Other comprehensive (loss) income
before reclassifications
|
(173)
|
|
|
13
|
|
|
94
|
|
|
(66)
|
|
Amounts reclassified from Accumulated other
comprehensive loss (income)
|
1
|
|
|
34
|
|
|
1
|
|
|
36
|
|
Net current-period Other comprehensive
(loss) income
|
(172)
|
|
|
47
|
|
|
95
|
|
|
(30)
|
|
Balance at March 31, 2021
|
$
|
(2,819)
|
|
|
$
|
(1,434)
|
|
|
$
|
28
|
|
|
$
|
(4,225)
|
|
The reclassifications out of Accumulated other comprehensive loss follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2021
|
|
Consolidated statements
of income classification
|
Currency translation losses
|
|
|
|
Sale of shares in associate company
|
$
|
(1)
|
|
|
Other (income) expense - net
|
Tax benefit
|
—
|
|
|
|
Total, net of tax
|
(1)
|
|
|
|
|
|
|
|
Amortization of defined benefit pensions and other postretirement benefits items
|
|
|
|
Actuarial loss and prior service cost
|
(42)
|
|
1
|
|
|
|
|
|
|
|
|
|
Tax benefit
|
8
|
|
|
|
Total, net of tax
|
(34)
|
|
|
|
|
|
|
|
Gains and (losses) on cash flow hedges
|
|
|
|
|
|
|
|
Currency exchange contracts
|
(4)
|
|
|
Net sales and Cost of products sold
|
|
|
|
|
|
|
|
|
Commodity contracts
|
2
|
|
|
Cost of products sold
|
Tax benefit
|
1
|
|
|
|
Total, net of tax
|
(1)
|
|
|
|
|
|
|
|
Total reclassifications for the period
|
$
|
(36)
|
|
|
|
1 These components of Accumulated other comprehensive loss are included in the computation of net periodic benefit cost. See Note 8 for additional information about pension and other postretirement benefits items.
Net Income Per Share Attributable to Eaton Ordinary Shareholders
A summary of the calculation of net income per share attributable to Eaton ordinary shareholders follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31
|
(Shares in millions)
|
|
|
|
|
2021
|
|
2020
|
Net income attributable to Eaton ordinary shareholders
|
|
|
|
|
$
|
458
|
|
|
$
|
438
|
|
|
|
|
|
|
|
|
|
Weighted-average number of ordinary shares outstanding - diluted
|
|
|
|
|
400.9
|
|
|
411.1
|
|
Less dilutive effect of equity-based compensation
|
|
|
|
|
2.6
|
|
|
1.8
|
|
Weighted-average number of ordinary shares outstanding - basic
|
|
|
|
|
398.3
|
|
|
409.3
|
|
|
|
|
|
|
|
|
|
Net income per share attributable to Eaton ordinary shareholders
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
$
|
1.14
|
|
|
$
|
1.07
|
|
Basic
|
|
|
|
|
1.15
|
|
|
1.07
|
|
For the first quarter of 2021 and 2020, 0.1 million and 0.3 million stock options, respectively, were excluded from the calculation of diluted net income per share attributable to Eaton ordinary shareholders because the exercise price of the options exceeded the average market price of the ordinary shares during the period and their effect, accordingly, would have been antidilutive.
Note 12. 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 and contingent consideration recognized at fair value, and the fair value measurements used, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
March 31, 2021
|
|
|
|
|
|
|
|
Cash
|
$
|
354
|
|
|
$
|
354
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Short-term investments
|
945
|
|
|
945
|
|
|
—
|
|
|
—
|
|
Net derivative contracts
|
105
|
|
|
—
|
|
|
105
|
|
|
—
|
|
Contingent consideration from acquisition of Green Motion (Note 2)
|
(56)
|
|
|
—
|
|
|
—
|
|
|
(56)
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
Cash
|
$
|
438
|
|
|
$
|
438
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Short-term investments
|
664
|
|
|
664
|
|
|
—
|
|
|
—
|
|
Net derivative contracts
|
31
|
|
|
—
|
|
|
31
|
|
|
—
|
|
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.
Other Fair Value Measurements
Long-term debt and the current portion of long-term debt had a carrying value of $9,694 and fair value of $10,337 at March 31, 2021 compared to $8,057 and $9,075, respectively, at December 31, 2020. The fair value of Eaton's debt instruments were estimated using prevailing market interest rates on debt with similar creditworthiness, terms and maturities, and are considered a Level 2 fair value measurement.
Note 13. 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, commodity contracts to manage risks from these market fluctuations. The instruments used by Eaton are straightforward, non-leveraged instruments. The counterparties to these instruments are financial institutions with strong credit ratings. Eaton maintains control over the size of positions entered into with any one counterparty and regularly monitors the credit rating of these institutions. Such instruments are not purchased and sold for trading purposes.
Derivative financial instruments are accounted for at fair value and recognized as assets or liabilities in the 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 gain or loss from the derivative financial instrument is recognized in Accumulated other comprehensive income 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 gain or loss from the derivative financial instrument is recognized in Accumulated other comprehensive income 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 is classified in the same line of the Consolidated Statements of Income as the offsetting loss or gain on the hedged item. The cash flows resulting from these financial instruments are classified in operating activities on the Condensed Consolidated Statements of Cash Flows.
For derivatives that are not designated as a hedge, any gain or loss is immediately recognized in income. The majority of derivatives used in this manner relate to risks resulting from assets or liabilities denominated in a foreign currency and certain commodity contracts that arise in the normal course of business.
Eaton uses certain of its debt denominated in foreign currency to hedge portions of its net investments in foreign operations against foreign currency exposure (net investment hedges). Foreign currency denominated debt designated as a non-derivative net investment hedging instruments had a carrying value on an after-tax basis of $2,973 at March 31, 2021 and $2,020 at December 31, 2020.
Derivative Financial Statement Impacts
The fair value of derivative financial instruments recognized in the Consolidated Balance Sheets follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
amount
|
|
Other
current
assets
|
|
Other
noncurrent
assets
|
|
Other
current
liabilities
|
|
Other
noncurrent
liabilities
|
|
Type of
hedge
|
|
Term
|
March 31, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-to-floating interest rate
swaps
|
$
|
2,075
|
|
|
$
|
1
|
|
|
$
|
82
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Fair value
|
|
3 months to
13 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward starting floating-to-fixed
interest rate swaps
|
900
|
|
|
—
|
|
|
67
|
|
|
—
|
|
|
29
|
|
|
Cash flow
|
|
11 to 31 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency exchange contracts
|
1,295
|
|
|
15
|
|
|
6
|
|
|
25
|
|
|
1
|
|
|
Cash flow
|
|
1 to 36 months
|
Commodity contracts
|
23
|
|
|
5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Cash flow
|
|
1 to 11 months
|
Total
|
|
|
$
|
21
|
|
|
$
|
155
|
|
|
$
|
25
|
|
|
$
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as
hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency exchange contracts
|
$
|
5,667
|
|
|
$
|
29
|
|
|
|
|
$
|
47
|
|
|
|
|
|
|
1 to 12 months
|
Commodity contracts
|
37
|
|
|
2
|
|
|
|
|
—
|
|
|
|
|
|
|
1 month
|
Total
|
|
|
$
|
31
|
|
|
|
|
$
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-to-floating interest rate
swaps
|
$
|
2,075
|
|
|
$
|
2
|
|
|
$
|
100
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Fair value
|
|
6 months to 14 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward starting floating-to-fixed
interest rate swaps
|
900
|
|
|
—
|
|
|
17
|
|
|
—
|
|
|
108
|
|
|
Cash flow
|
|
12 to 32 years
|
Currency exchange contracts
|
946
|
|
|
20
|
|
|
6
|
|
|
20
|
|
|
1
|
|
|
Cash flow
|
|
1 to 36 months
|
Commodity contracts
|
24
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Cash flow
|
|
1 to 12 months
|
Total
|
|
|
$
|
26
|
|
|
$
|
123
|
|
|
$
|
20
|
|
|
$
|
109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as
hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency exchange contracts
|
$
|
5,227
|
|
|
$
|
43
|
|
|
|
|
$
|
34
|
|
|
|
|
|
|
1 to 12 months
|
Commodity contracts
|
18
|
|
|
2
|
|
|
|
|
—
|
|
|
|
|
|
|
1 month
|
Total
|
|
|
$
|
45
|
|
|
|
|
$
|
34
|
|
|
|
|
|
|
|
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 receivables, payables 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. The cash flows resulting from the settlement of these derivatives have been classified in investing activities in the Condensed Consolidated Statements of Cash Flows.
As of March 31, 2021, the volume of outstanding commodity contracts that were entered into to hedge forecasted transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity
|
|
March 31, 2021
|
|
|
|
|
|
Term
|
Copper
|
|
6
|
|
|
|
|
millions of pounds
|
|
1 to 11 months
|
Gold
|
|
1,346
|
|
|
|
|
Troy ounces
|
|
1 to 11 months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following amounts were recorded on the Consolidated Balance Sheets related to fixed-to-floating interest rate swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount of the hedged assets (liabilities)
|
|
Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged asset (liabilities) (a)
|
Location on Consolidated Balance Sheets
|
March 31, 2021
|
|
|
December 31, 2020
|
|
March 31, 2021
|
|
December 31, 2020
|
|
Long-term debt
|
$
|
(2,688)
|
|
|
|
$
|
(2,688)
|
|
|
$
|
(119)
|
|
|
$
|
(139)
|
|
|
(a) At March 31, 2021 and December 31, 2020, these amounts include the cumulative liability amount of fair value hedging adjustments remaining for which the hedge accounting has been discontinued of $36 and $37, respectively.
The impact of hedging activities to the Consolidated Statements of Income are as follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2021
|
|
Net Sales
|
|
Cost of products sold
|
|
Interest expense - net
|
|
|
Amounts from Consolidated Statements of Income
|
$
|
4,692
|
|
|
$
|
3,184
|
|
|
$
|
38
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on derivatives designated as cash flow hedges
|
|
|
|
|
|
|
|
Currency exchange contracts
|
|
|
|
|
|
|
|
Hedged item
|
$
|
3
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
|
Derivative designated as hedging instrument
|
(3)
|
|
|
(1)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
|
|
|
|
|
|
Hedged item
|
$
|
—
|
|
|
$
|
(2)
|
|
|
$
|
—
|
|
|
|
Derivative designated as hedging instrument
|
—
|
|
|
2
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on derivatives designated as fair value hedges
|
|
|
|
|
|
|
|
Fixed-to-floating interest rate swaps
|
|
|
|
|
|
|
|
Hedged item
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
19
|
|
|
|
Derivative designated as hedging instrument
|
—
|
|
|
—
|
|
|
(19)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2020
|
|
Net Sales
|
|
Cost of products sold
|
|
Interest expense - net
|
|
|
Amounts from Consolidated Statements of Income
|
$
|
4,789
|
|
|
$
|
3,302
|
|
|
$
|
34
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on derivatives designated as cash flow hedges
|
|
|
|
|
|
|
|
Currency exchange contracts
|
|
|
|
|
|
|
|
Hedged item
|
$
|
—
|
|
|
$
|
(3)
|
|
|
$
|
—
|
|
|
|
Derivative designated as hedging instrument
|
—
|
|
|
3
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
|
|
|
|
|
|
Hedged item
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
Derivative designated as hedging instrument
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on derivatives designated as fair value hedges
|
|
|
|
|
|
|
|
Fixed-to-floating interest rate swaps
|
|
|
|
|
|
|
|
Hedged item
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(68)
|
|
|
|
Derivative designated as hedging instrument
|
—
|
|
|
—
|
|
|
68
|
|
|
|
|
|
|
|
|
|
|
|
The impact of derivatives not designated as hedges to the Consolidated Statements of Income are as follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) recognized in Consolidated Statements of Income
|
|
Consolidated Statements of Income classification
|
|
Three months ended
March 31
|
|
|
|
2021
|
|
|
|
2020
|
|
|
Gain (loss) on derivatives not designated as hedges
|
|
|
|
|
|
|
|
Currency exchange contracts
|
$
|
(63)
|
|
|
|
|
$
|
(149)
|
|
|
Interest expense - net
|
Commodity Contracts
|
2
|
|
|
|
|
—
|
|
|
Cost of products sold
|
Total
|
$
|
(61)
|
|
|
|
|
$
|
(149)
|
|
|
|
The impact of derivative and non-derivative instruments designated as hedges to the Consolidated Statements of Income and Comprehensive Income follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) recognized in
other comprehensive
(loss) income
|
|
Location of gain (loss)
reclassified from
Accumulated other
comprehensive loss
|
|
Gain (loss) reclassified
from Accumulated other
comprehensive loss
|
|
Three months ended
March 31
|
|
|
|
Three months ended
March 31
|
|
2021
|
|
2020
|
|
|
|
2021
|
|
2020
|
Derivatives designated as cash
flow hedges
|
|
|
|
|
|
|
|
|
|
Forward starting floating-to-fixed
interest rate swaps
|
$
|
129
|
|
|
$
|
(147)
|
|
|
Interest expense - net
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Currency exchange contracts
|
(13)
|
|
|
(42)
|
|
|
Net sales and Cost of products sold
|
|
(4)
|
|
|
3
|
|
Commodity contracts
|
3
|
|
|
(2)
|
|
|
Cost of products sold
|
|
2
|
|
|
—
|
|
Non-derivative designated as net
investment hedges
|
|
|
|
|
|
|
|
|
|
Foreign currency denominated debt
|
144
|
|
|
43
|
|
|
Interest expense - net
|
|
—
|
|
|
—
|
|
Total
|
$
|
263
|
|
|
$
|
(148)
|
|
|
|
|
$
|
(2)
|
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2021, a loss of $5 of estimated unrealized net gains or losses associated with our cash flow hedges were expected to be reclassified to income from Accumulated other comprehensive loss within the next twelve months. These reclassifications relate to our designated foreign currency and commodity hedges that will mature in the next 12 months.
Note 14. RESTRUCTURING CHARGES
In the second quarter of 2020, Eaton decided to undertake a multi-year restructuring program to reduce its cost structure and gain efficiencies in its business segments and at corporate in order to respond to declining market conditions. Restructuring charges incurred under this program were $214 in 2020 and $16 for the three months ended March 31, 2021. These restructuring activities are expected to incur additional expenses of $45 in 2021, and $5 in 2022, primarily comprised of plant closing costs and other costs, resulting in total estimated charges of $280 for the entire program.
A summary of restructuring program charges by type follows:
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2021
|
Workforce reductions
|
|
|
$
|
2
|
|
Plant closing and other
|
|
|
14
|
|
Total before income taxes
|
|
|
16
|
|
Income tax benefit
|
|
|
4
|
|
Total after income taxes
|
|
|
$
|
12
|
|
Per ordinary share - diluted
|
|
|
$
|
0.03
|
|
Restructuring program charges related to the following segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2021
|
|
|
Electrical Americas
|
|
|
|
|
$
|
5
|
|
|
|
|
|
Electrical Global
|
|
|
|
|
2
|
|
|
|
|
|
Aerospace
|
|
|
|
|
1
|
|
|
|
|
|
Vehicle
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
2
|
|
|
|
|
|
Total
|
|
|
|
|
$
|
16
|
|
|
|
|
|
A summary of liabilities related to workforce reductions, plant closing and other associated costs follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Workforce reductions
|
|
Plant closing and other
|
|
Total
|
Balance at January 1, 2020
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Liability recognized
|
172
|
|
|
42
|
|
|
214
|
|
Payments, utilization and translation
|
(33)
|
|
|
(39)
|
|
|
(72)
|
|
Balance at December 31, 2020
|
139
|
|
|
3
|
|
|
142
|
|
Liability recognized
|
2
|
|
|
14
|
|
|
16
|
|
Payments, utilization and translation
|
(25)
|
|
|
(6)
|
|
|
(31)
|
|
|
|
|
|
|
|
Balance at March 31, 2021
|
$
|
116
|
|
|
$
|
11
|
|
|
$
|
127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
These restructuring program charges were included in Cost of products sold, Selling and administrative expense, Research and development expense, or Other (income) expense - net, as appropriate. In Business Segment Information, these restructuring program charges are treated as Corporate items. See Note 15 for additional information about business segments.
Note 15. BUSINESS SEGMENT INFORMATION
Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated on a regular basis by the chief operating decision maker, or decision making group, in deciding how to allocate resources to an individual segment and in assessing performance. Eaton's operating segments are Electrical Americas, Electrical Global, Hydraulics, Aerospace, Vehicle, and eMobility. Operating profit includes the operating profit from intersegment sales. For additional information regarding Eaton's business segments, see Note 17 to the Consolidated Financial Statements contained in the 2020 Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31
|
|
|
|
|
|
2021
|
|
2020
|
Net sales
|
|
|
|
|
|
|
|
Electrical Americas
|
|
|
|
|
$
|
1,622
|
|
|
$
|
1,788
|
|
Electrical Global
|
|
|
|
|
1,253
|
|
|
1,144
|
|
Hydraulics
|
|
|
|
|
561
|
|
|
507
|
|
Aerospace
|
|
|
|
|
519
|
|
|
680
|
|
Vehicle
|
|
|
|
|
654
|
|
|
598
|
|
eMobility
|
|
|
|
|
83
|
|
|
72
|
|
Total net sales
|
|
|
|
|
$
|
4,692
|
|
|
$
|
4,789
|
|
|
|
|
|
|
|
|
|
Segment operating profit (loss)
|
|
|
|
|
|
|
|
Electrical Americas
|
|
|
|
|
$
|
332
|
|
|
$
|
308
|
|
Electrical Global
|
|
|
|
|
213
|
|
|
166
|
|
Hydraulics
|
|
|
|
|
84
|
|
|
55
|
|
Aerospace
|
|
|
|
|
96
|
|
|
147
|
|
Vehicle
|
|
|
|
|
113
|
|
|
81
|
|
eMobility
|
|
|
|
|
(7)
|
|
|
1
|
|
Total segment operating profit
|
|
|
|
|
831
|
|
|
758
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
Intangible asset amortization expense
|
|
|
|
|
(92)
|
|
|
(87)
|
|
Interest expense - net
|
|
|
|
|
(38)
|
|
|
(34)
|
|
Pension and other postretirement benefits income (expense)
|
|
|
|
|
14
|
|
|
(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring program charges
|
|
|
|
|
(16)
|
|
|
—
|
|
Other expense - net
|
|
|
|
|
(161)
|
|
|
(8)
|
|
Income before income taxes
|
|
|
|
|
538
|
|
|
621
|
|
Income tax expense
|
|
|
|
|
79
|
|
|
183
|
|
Net income
|
|
|
|
|
459
|
|
|
438
|
|
Less net income for noncontrolling interests
|
|
|
|
|
(1)
|
|
|
—
|
|
Net income attributable to Eaton ordinary shareholders
|
|
|
|
|
$
|
458
|
|
|
$
|
438
|
|