Table of products sold. Although the majority of the sales agreements contain standard terms and conditions, there are agreements that contain multiple elements or non-standard terms and conditions. As a result, judgment is required to determine the appropriate accounting, including whether the deliverables specified in these agreements should be treated as separate units of accounting for recognition purposes, and, if so, how the sales price should be allocated among the elements and when to recognize sales for each element. For delivered elements, sales generally are recognized only when the delivered elements have standalone value and there are no uncertainties regarding customer acceptance. Sales for service contracts generally are recognized as the services are provided.Contents

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

Goodwill and Indefinite Life Intangible Assets

Goodwill is evaluated annually for impairment as of July 1 using either a quantitative or qualitative analysis. Additionally, goodwill is evaluated for impairment whenever an event occurs or circumstances change that would indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Goodwill is tested for impairment at the reporting unit level, ~~which~~and is ~~equivalent to Eaton's operating segments and~~ based on the net assets for each ~~segment,~~reporting unit, including goodwill and intangible assets. The Company’s reporting units are equivalent to the reportable operating segments, except for the Aerospace segment which has 2 reporting units. Goodwill is assigned to each ~~operating segment,~~reporting unit, as this represents the lowest level that constitutes a business and is the level at which management regularly reviews the operating results. The Company performs a quantitative analysis using a discounted cash flow model and other valuation techniques, but may elect to perform a qualitative analysis. ~~Additionally,~~

The annual goodwill ~~is evaluated for~~ impairment ~~whenever an event occurs or circumstances change that would indicate that it is more likely than not that the fair value of an operating segment is less than its carrying amount.~~

~~Goodwill impairment testing in 2017~~test was performed using a qualitative analysis in 2021 and 2020, except for the eMobility reporting unit which used a quantitative analysis. A qualitative analysis is performed by assessing certain trends and factors, including projected market outlook and growth rates, forecasted and actual sales and operating profit margins, discount rates, industry data, and other relevant qualitative factors. These trends and factors are compared to, and based on, the assumptions used in the most recent quantitative ~~assessment~~analysis performed ~~in 2016.~~for each reporting unit. The results of the qualitative ~~analysis~~analyses did not indicate a need to perform a quantitative analysis.

Goodwill impairment testing ~~for 2016~~ was also performed using quantitative analyses in 2020 for the Electrical Americas, Electrical Global, Hydraulics and Aerospace reporting units due to a ~~quantitative analysis under which~~reorganization of the Company’s businesses and in 2020 as a result of the Hydraulics business being classified as held for sale as discussed in Note 2. The Company used the relative fair value method to reallocate goodwill.

Quantitative analyses were performed by estimating the fair value for each reporting unit ~~was estimated~~ using a discounted cash flow model. The model ~~which considered forecasted~~includes estimates of future cash flows, ~~discounted at an estimated~~future growth rates, terminal value amounts, and the applicable weighted-average cost of ~~capital.~~capital used to discount those estimated cash flows. The ~~forecasted~~future cash flows were based on the Company's long-term operating plan and a terminal value was used to estimate the ~~operating segment's~~reporting unit'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, revenue growth, and ~~the timing of expected future cash flows of the respective reporting unit.~~margin assumptions. Sensitivity analyses were performed around certain of these assumptions in order to assess the reasonableness of the assumptions and the resulting estimated fair values.

Based on ~~a qualitative analysis~~these analyses performed in ~~2017~~2021 and ~~a quantitative analysis performed in 2016,~~2020, the fair value of Eaton's reporting units continue to substantially exceed their respective carrying ~~amounts.~~amounts and thus, no impairment exists.

Indefinite life intangible assets consist of certain trademarks. They are evaluated annually for impairment as of July 1 using either a quantitative or qualitative analysis to determine whether their fair values exceed their respective carrying amounts. Indefinite life intangible asset impairment testing for ~~2017~~2021 and ~~2016~~2020 was performed using a quantitative analysis. The Company determines the fair value of these assets using a royalty relief methodology similar to that employed when the associated assets were acquired, but using updated estimates of future sales, cash flows, and profitability. Additionally, indefinite life intangible assets are evaluated for impairment whenever an event occurs or circumstances change that would indicate that it is more likely than not that the asset is impaired. For ~~2017~~2021 and ~~2016,~~2020, the fair value of indefinite lived intangible assets exceeded the respective carrying value.

For additional information about goodwill and other intangible assets, see Note 5.6.

Leases

The Company determines if an arrangement is a lease at inception. Operating lease assets and liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term. Lease assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. As most leases do not provide an implicit interest rate, Eaton uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. The length of a lease term includes options to extend or terminate the lease when it is reasonably certain that the Company will exercise those options. The Company made an accounting policy election to not recognize lease assets or liabilities for leases with a term of 12 months or less. Additionally, when accounting for leases, the Company combines payments for leased assets, related services and other components of a lease.

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Other Long-Lived Assets

Depreciation and amortization for property, plant and equipment, and intangible assets subject to amortization, are generally computed by the straight-line method and included in Cost of products sold, Selling and administrative expense, and Research and development expense, as appropriate. ~~Cost of buildings are depreciated generally over 40 years~~The Company uses the following depreciation and ~~machinery and equipment over 3 to 10 years. At December 31, 2017, the weighted-average~~ amortization period for intangible assets subject to amortization was 17 years for patents and technology, primarily as a result of the long life of aircraft platforms; 17 years for customer relationships; and 17 years for certain trademarks. Software is generally amortized up to a life of 15 years.periods:


Category						Estimated useful life or amortization period
Buildings						Generally 40 years
Machinery and equipment						3 - 10 years
Software						5 - 15 years
Customer relationships, certain trademarks, and patents and technology						Weighted-average of 18 years

Other long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable. Upon indications of impairment, assets and liabilities are grouped at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. The asset group would be considered impaired when the estimated future net undiscounted cash flows generated by the asset group are less than its carrying value. Determining asset groups and underlying cash flows requires the use of significant judgment.

Retirement Benefits Plans

For the principal pension plans in the United States, Canada, Puerto Rico, and the United Kingdom, the Company uses a market-related value of plan assets to calculate the expected return on assets used to determine net periodic benefit costs. The market-related value of plan assets is a calculated value that recognizes changes in the fair value of plan assets over a five year period. All other plans use fair value of plan assets.

Net actuarial gains or losses are amortized to expense on a plan-by-plan basis when they exceed the accounting corridor. The Company’s corridors are set at either 8% or 10%, depending on the plan, of the greater of the plan assets or benefit obligations. Gains or losses outside of the corridor are subject to amortization over an average employee future service period that differs by ~~plan, but is approximately 12 years on a weighted average basis.~~plan. If most or all of the plan’s participants are no longer actively accruing benefits, the average life expectancy is used.

~~Warranty Accruals~~

~~Product warranty accruals~~ The amortization periods on a weighted average basis for United States and Non-United States pension plans are ~~established at the time the related sale~~approximately 23 years and 10 years, respectively. The amortization period for other postretirement benefits plans is recognized through a charge to Cost of products sold. Warranty accrual estimates are based primarily on historical warranty claim experience and specific customer contracts. Provisions for warranty accruals are comprised of basic warranties for products sold, as well as accruals for product recalls and other events when they are known and estimable. See Note 8 for additional information about warranty accruals.7 years.

Asset Retirement Obligations

A conditional asset retirement obligation is recognized at fair value when incurred if the fair value of the liability can be reasonably estimated. Uncertainty about the timing or method of settlement of a conditional asset retirement obligation would be considered in the measurement of the liability when sufficient information exists. Eaton believes that for substantially all of its asset retirement obligations, there is an indeterminate settlement date because the range of time over which the Company may settle the obligation is unknown or cannot be estimated. A liability for these obligations will be recognized when sufficient information is available to estimate fair value.

Income Taxes

Deferred income tax assets and liabilities are determined based on the difference between the financial statement and tax basis of the respective assets and liabilities, using enacted tax rates in effect for the year when the differences are expected to reverse. Deferred income tax assets are recognized for income tax loss carryforwards and income tax credit carryforwards. Judgment is required in determining and evaluating income tax provisions and valuation allowances for deferred income tax assets. Eaton recognizes ~~the~~an income tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. Eaton evaluates and adjusts these accruals based on changing facts and circumstances. Eaton recognizes interest and penalties related to unrecognized income tax benefits in the provision for income tax expense. ~~Penalties on unrecognized~~Eaton's policy is to recognize income tax ~~benefits have been accrued for jurisdictions where penalties~~effects from accumulated other comprehensive income when individual units of account are ~~automatically applied to any deficiency, regardless of the merit of the position.~~sold, terminated, or extinguished. For additional information about income taxes, see Note 9.11.

~~Equity-Based Compensation~~

~~Eaton recognizes equity-based compensation expense based on the grant date fair value~~

Table of the award. Awards with service conditions or both service and market conditions are expensed over the period during which an employee is required to provide service in exchange for the award. Awards with both service and performance conditions are expensed over the period an employee is required to provide service based on the number of units for which achievement of the performance objective is probable. Participants awarded restricted stock units (RSUs) in 2015 and 2016, do not receive dividends; therefore, their fair value is determined by reducing the closing market price of the Company’s ordinary shares on the date of grant by the present value of the estimated dividends had they been paid. The fair value of RSUs awarded in 2017, restricted stock awards (RSAs) and performance stock units (PSUs) with performance conditions are determined based on the closing market price of the Company’s ordinary shares at the date of grant. The Company uses a Monte Carlo simulation to estimate the fair value of PSUs with market conditions, which incorporates assumptions regarding expected stock price volatility and the risk-free interest rate. Stock options are granted with an exercise price equal to the closing market price of Eaton ordinary shares on the date of grant. The fair value of stock options is determined using a Black-Scholes option-pricing model, which incorporates assumptions regarding the expected stock price volatility, the expected option life, the risk-free interest rate, and the expected dividend yield. See Note 11 for additional information about equity-based compensation.Contents

Derivative Financial Instruments and Hedging Activities

Eaton uses derivative financial instruments to manage the exposure to the volatility in raw material costs, currency, and interest rates on certain debt. These instruments are marked to fair value in the accompanying Consolidated Balance Sheets. Changes in the fair value of derivative assets or liabilities (i.e., gains or losses) are recognized depending upon the type of hedging relationship and whether an instrument has been designated as a hedge. For those instruments that qualify for hedge accounting, Eaton designates the hedging instrument, based upon the exposure being hedged, as a cash flow hedge, a fair value hedge, or a hedge of a net investment in a foreign operation. Changes in fair value of these instruments that do not qualify for hedge accounting are recognized immediately in net income. See Note 1315 for additional information about hedges and derivative financial instruments.

~~Recently Issued Accounting Pronouncements~~

~~In May 2014,~~Note 2.ACQUISITIONS AND DIVESTITURES OF BUSINESSES

Acquisition of controlling interest of Ulusoy Elektrik Imalat Taahhut ve Ticaret A.S.

On April 15, 2019, Eaton completed the acquisition of an 82.275% controlling interest in Ulusoy Elektrik Imalat Taahhut ve Ticaret A.S. (Ulusoy Elektrik), a leading manufacturer of electrical switchgear based in Ankara, Turkey, with a primary focus on medium voltage solutions for industrial and utility customers. The purchase price for the shares was $214 million on a cash and debt free basis. As required by the Turkish capital markets legislation, Eaton filed an application to execute a mandatory tender offer for the remaining shares shortly after the transaction closed. During the tender offer, Eaton purchased additional shares for $33 million to increase its ownership interest to 93.7%. Ulusoy Elektrik is reported within the Electrical Global business segment.

Acquisition of Innovative Switchgear Solutions, Inc.

On July 19, 2019, Eaton acquired Innovative Switchgear Solutions, Inc. (ISG), a specialty manufacturer of medium-voltage electrical equipment serving the North American utility, commercial and industrial markets. ISG is reported within the Electrical Americas business segments.

Acquisition of Souriau-Sunbank Connection Technologies

On December 20, 2019, Eaton acquired the Souriau-Sunbank Connection Technologies (Souriau-Sunbank) business of TransDigm Group Inc. for a cash purchase price of $907 million, net of cash received. Headquartered in Versailles, France, Souriau-Sunbank is a global leader in highly engineered electrical interconnect solutions for harsh environments in the aerospace, defense, industrial, energy, and transport markets. Souriau-Sunbank is reported within the Aerospace business segment.

The acquisition of Souriau-Sunbank 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 final allocation as of the date of acquisition follows:


(In millions)	Final Allocation
Accounts receivable - net	$	60
Inventory	125
Prepaid expenses and other current assets	4
Property, plant and equipment	103
Other intangible assets	370
Other assets	8
Accounts payable	(33)
Other current liabilities	(58)
Other noncurrent liabilities	(126)
Total identifiable net assets	453
Noncontrolling interests	(3)
Goodwill	457
Total consideration, net of cash received	$	907

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Goodwill is calculated as the excess of the consideration transferred over the fair value of net assets recognized and represents the anticipated synergies of acquiring Souriau-Sunbank. Goodwill recognized as a result of the acquisition is not deductible for tax purposes. The estimated fair values of the customer relationships and technology intangible assets were $250 million and $95 million, respectively. The Company generally determines the fair value of intangible assets acquired using third-party valuations that are prepared using discounted cash flow models that rely on the Company's estimates. These estimates require judgment of future revenue growth rates, future margins, and the applicable weighted-average cost of capital used to discount those estimated cash flows. The estimated weighted-average useful lives was 20 years for customer relationships and 15 years for technology intangible assets. See Note 6 for additional information about goodwill and other intangible assets.

Eaton’s Consolidated Financial ~~Accounting Standards Board (FASB) issued Accounting Standards Update 2014-09, Revenue~~Statements include Souriau-Sunbank’s results of operations. Souriau-Sunbank's sales for the years ended December 31, 2020 and 2019 were $287 million and $3 million, respectively.

Sale of Automotive Fluid Conveyance business

On December 31, 2019, Eaton sold its Automotive Fluid Conveyance Business. The transaction resulted in a pre-tax loss of $66 million which was recorded in Other expense - net. This business was reported within the Vehicle business segment.

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 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 million 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.

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 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, as well as measurement period adjustments recorded as of December 31, 2021. These preliminary estimates will continue to be revised during the measurement period as further information becomes available and additional analyses are performed. The third-party valuations for Other intangible assets and Property, plant and equipment have been received. The current measurement period adjustments did not have a material impact to the Consolidated Statements of Income.


(In millions)	Preliminary Allocation		Measurement Period Adjustments		Adjusted Preliminary Allocation

Short-term investments	$	5	$	—	$	5
Accounts receivable	94		—		94
Inventory	184		(7)		177
Prepaid expenses and other current assets	6		(1)		5
Property, plant and equipment	6		(5)		1
Other intangible assets	630		(26)		604
Other assets	—		2		2
Accounts payable	(13)		—		(13)
Other current liabilities	(32)		(3)		(35)
Other noncurrent liabilities	(157)		(3)		(160)
Total identifiable net assets	723		(43)		680

Goodwill	928		43		971
Total consideration, net of cash received	$	1,651	$	—	$	1,651

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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. The adjusted preliminary estimated fair values of the customer relationships, trademarks and technology intangible assets of $539 million, $33 million and $32 million, respectively, were determined using either the relief-from-royalty model or the multi-period excess earnings model, which are discounted cash flow models that rely on the Company's estimates. These estimates require judgment of future revenue growth rates, future margins, 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. The estimated useful lives for customer relationships, trademarks and technology intangible assets were 20 years, 15 years, and 5 years, respectively. See Note 6 for additional information about goodwill and other intangible assets.

Eaton's 2021 Consolidated Financial Statements include Tripp Lite’s results of operations, including segment operating profit of $139 million on sales of $419 million, from ~~Contracts~~the date of acquisition through December 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 $106 million, including $49 million of cash paid at closing and $57 million 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 ~~Customers (ASU 2014-09). This~~a maximum possible undiscounted value of $109 million. 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 has production operations in Wenzhou, China. Eaton accounts for this investment on the equity method of accounting ~~standard supersedes all existing US GAAP~~and is reported within the Electrical Global business segment.

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Acquisition of Cobham Mission Systems

On June 1, 2021, Eaton acquired Cobham Mission Systems (CMS) for $2.80 billion, net of cash received. CMS is a leading manufacturer of air-to-air refueling systems, environmental systems, and actuation primarily for defense markets. CMS is reported within the Aerospace business segment.

The acquisition of CMS 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, as well as measurement period adjustments recorded as of December 31, 2021. 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. The current measurement period adjustments did not have a material impact to the Consolidated Statements of Income.


(In millions)	Preliminary Allocation		Measurement Period Adjustments		Adjusted Preliminary Allocation


Accounts receivable	$	84	$	—	$	84
Inventory	179		(1)		178
Prepaid expenses and other current assets	45		7		52
Property, plant and equipment	86		—		86
Other intangible assets	1,575		—		1,575
Other assets	19		(9)		10
Accounts payable	(40)		—		(40)
Other current liabilities	(159)		3		(156)
Other noncurrent liabilities	(77)		(3)		(80)
Total identifiable net assets	1,712		(3)		1,709
Goodwill	1,088		3		1,091
Total consideration, net of cash received	$	2,800	$	—	$	2,800

Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the anticipated synergies of acquiring CMS. As a result of the acquisition, goodwill of $295 million recognized in the United States is expected to be deductible for tax purposes. Other intangible assets of $1,575 million include customer relationships, technology and backlog. 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 and other intangible assets.

Eaton's 2021 Consolidated Financial Statements include CMS’s results of operations, including segment operating profit of $128 million on sales of $450 million, from the date of acquisition through December 31, 2021.

Acquisition of a 50% stake in Jiangsu YiNeng Electric's busway business

On June 25, 2021, Eaton acquired a 50 percent stake in Jiangsu YiNeng Electric's busway business, which manufactures and markets busway products in China. Eaton accounts for this investment on the equity method of accounting and is reported within the Electrical Global business segment.

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. The Hydraulics business sold hydraulics components, systems, and services for industrial and mobile equipment. The business had sales of $1.8 billion in 2020 and $1.3 billion in 2021 through the date of the sale.

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 Sheet as of December 31, 2020. 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 was required as fair value of the Hydraulics business assets less the costs to sell exceed their respective carrying value. Depreciation and amortization expense was not recorded for the period in which Other long-lived assets were classified as held for sale.

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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 ~~recognition guidance. Under ASU 2014-09,~~growth, and margin assumptions.

The assets and liabilities classified as held for sale for the Hydraulics business on the December 31, 2020 Consolidated Balance Sheet are as follows:



(In millions)	December 31, 2020

Accounts receivable - net	$	345
Inventory	369
Prepaid expenses and other current assets	18
Net property, plant and equipment	504
Goodwill	920
Other intangible assets	248
Operating lease assets	61

Deferred income taxes	6
Other noncurrent assets	16
Assets held for sale - current	$	2,487

Accounts payable	$	241
Accrued compensation	26
Other current liabilities	101
Pension liabilities	60
Operating lease liabilities	35
Deferred income taxes	3
Other noncurrent liabilities	2
Liabilities held for sale - current	$	468

On August 2, 2021, Eaton completed the sale of the Hydraulics business to Danfoss A/S. As a ~~company~~result of the sale, the Company received $3.1 billion, net of cash sold, and recognized a pre-tax gain of $617 million, subject to post-closing adjustments to be negotiated with Danfoss A/S. 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 ~~recognize revenue~~have a major effect on the Company's operations.

Acquisition of Royal Power Solutions

On January 5, 2022, Eaton acquired Royal Power Solutions for $600 million. Royal Power Solutions is a U.S. based manufacturer of high-precision electrical connectivity components used in electric vehicle, energy management, industrial and mobility markets. Royal Power Solutions will be reported within the eMobility business segment.

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Note 3. REVENUE RECOGNITION

Sales are recognized when ~~it transfers~~obligations under the terms of the contract are satisfied and control of promised goods or services have transferred to ~~customers in an~~our customers. Control is transferred when the customer has the ability to direct the use of and obtain benefits from the goods or services. Sales are measured at the amount ~~that reflects~~of consideration the ~~consideration which the company~~Company expects to ~~collect~~be paid in exchange for ~~those goods~~these products or services. ~~ASU 2014-09 will require additional disclosures~~

The majority of the Company’s sales agreements contain performance obligations satisfied at a point in ~~the notes~~time when title and risk and rewards of ownership have transferred to the ~~consolidated financial statements.~~

~~Eaton adopted the standard~~customer. Sales recognized over time are less than 5% of Eaton’s Consolidated Net Sales. Sales recognized over time are generally accounted for using an input measure to determine progress completed at the ~~start~~end of the ~~first quarter~~period. Sales for service contracts generally are recognized as the services are provided. For agreements with multiple performance obligations, judgment is required to determine whether performance obligations specified in these agreements are distinct and should be accounted for as separate revenue transactions for recognition purposes. In these types of ~~2018 using the modified retrospective approach and recorded a cumulative effect adjustment~~agreements, we generally allocate sales price to ~~retained earnings~~each distinct obligation based on the ~~current~~price of each item sold in separate transactions.

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

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

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

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

Sales of products and services varies by segment and are discussed in Note 17.

In the Electrical Americas segment, sales contracts are primarily for electrical components, industrial components, power distribution and assemblies, residential products, single phase power quality and connectivity, three phase power quality, wiring devices, circuit protection, utility power distribution, power reliability equipment, and services that are primarily produced and sold in North and South America. The majority of the sales in this segment contain performance obligations satisfied at a point in time either when we ship the product from our facility, or when it arrives at the customer’s facility. However, certain power distribution and power quality services are recognized over time.

In the Electrical Global segment, sales contracts are primarily for electrical components, industrial components, power distribution and assemblies, single phase and three phase power quality, and services that are primarily produced and sold outside of North and South America, as well as hazardous duty electrical equipment, emergency lighting, fire detection, intrinsically safe explosion-proof instrumentation, and structural support systems that are produced and sold globally. The majority of the sales contracts in this segment contain performance obligations satisfied at a point in time either when we ship the product from our facility, or when it arrives at the customer’s facility. However, certain power distribution and power quality services are recognized over time.

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

Table of ~~January 1, 2018. The adoption~~Contents

Many of the ~~standard did not have a material impact on~~products and services in power distribution and power quality services in the ~~Company’s Consolidated financial statements. While, certain revenue streams moved from point-in-time or multiple elements~~Electrical Americas and Electrical Global business segments and contracts to ~~over time because~~develop new products that are fully funded by customers in the Aerospace business segment meet the definition of ~~the~~ continuous transfer of control to customers ~~we do not expect these changes~~and are recognized over time. These products are engineered to ~~be material. The Company implemented~~a customer’s design specifications, have no alternative use to Eaton, and are controlled by the ~~appropriate changes~~customer as evidenced by the customer’s contractual ownership of the work in process or our right to ~~business processes and controls~~payment for work performed to ~~support recognition and disclosure under the new standard, including the new qualitative and quantitative disclosures that will include information~~date plus a reasonable margin. As control is transferring over time, sales are recognized based on the ~~nature, amount, timing~~extent of progress towards completion of the obligation. Eaton generally uses an input method to determine the progress completed and ~~significant judgments impacting revenue from contracts~~sales are recorded proportionally as costs are incurred. Incurred costs represent work performed, which corresponds with, ~~customers.~~and thereby best depicts, the transfer of control to the customer.

In ~~October 2016,~~ the ~~FASB issued Accounting Standards Update 2016-16, Intra-Entity Transfers~~Hydraulics segment, sales contracts were primarily for hydraulic components and systems for industrial and mobile equipment. These sales contracts were primarily based on a customer’s purchase order. In this segment, performance obligations were generally satisfied at a point in time when we ship the product from our facility.

In the Vehicle segment, sales contracts are primarily for drivetrains, powertrain systems and critical components that reduce emissions and improve fuel economy, stability, performance, and safety of ~~Assets Other Than Inventory (ASU 2016-16). This accounting standard requires companies~~cars, light trucks, and commercial vehicles. These sales contracts are primarily based on a customer’s purchase order or a blanket purchase order subject to ~~recognize~~firm releases, frequently covered by terms and conditions included in a master supply agreement. In this segment, performance obligations are generally satisfied at a point in time either when we ship the ~~income tax effects~~product from our facility, or when it arrives at the customer’s facility.

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

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

Table of Contents

The following table provides disaggregated sales by lines of businesses, geographic destination, market channel or end market, as applicable, for the Company's operating segments:


(In millions)	2021		2020		2019
Electrical Americas
Products	$	2,255	$	2,255	$	3,675
Systems	4,987		4,425		4,500
Total	$	7,242	$	6,680	$	8,175

Electrical Global
Products	$	3,283	$	2,608	$	2,782
Systems	2,233		2,095		2,390
Total	$	5,516	$	4,703	$	5,172

Hydraulics
United States	$	534	$	796	$	1,000
Rest of World	766		1,046		1,204
Total	$	1,300	$	1,842	$	2,204

Aerospace
Original Equipment Manufacturers	$	1,018	$	986	$	1,178
Aftermarket	823		685		859
Industrial and Other	807		552		443
Total	$	2,648	$	2,223	$	2,480

Vehicle
Commercial	$	1,438	$	1,060	$	1,538
Passenger and Light Duty	1,141		1,058		1,500
Total	$	2,579	$	2,118	$	3,038

eMobility	$	343	$	292	$	321

Total net sales	$	19,628	$	17,858	$	21,390

The timing of revenue recognition, billings and cash collections results in ~~which~~billed accounts receivable, unbilled receivables (revenue recognized exceeds amount billed to the ~~transfer occurs. The previous accounting standard required companies to defer~~customer), and deferred revenue (advance payments and billings in excess of revenue recognized). Accounts receivables from customers were $2,896 million and $2,539 million at December 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 ~~income tax effects of intercompany transfers of assets by recording~~Consolidated Balance Sheets on a prepaid tax, until such assets were sold to an outside party or otherwise recognized. ASU 2016-16 is effective for annual and interim periods beginning after December 15, 2017. Upon adoption, ASU 2016-16 requires companies to write off any income tax amounts that had been deferred as prepaid taxes from past intercompany transactions, and record deferred tax balances for amounts that have not been recognized, through a cumulative-effect adjustment to retained earnings. The Company adopted ASU 2016-16contract-by-contract basis at the ~~start~~end of each reporting period. Unbilled receivables were $187 million and $90 million at December 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 from increased business activity in 2021 and the ~~first quarter~~addition of ~~2018 by recording a cumulative-effect adjustment~~unbilled receivables from acquisitions.

Table of ~~approximately $200 to reduce retained earnings.~~Contents

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


(In millions)	Deferred revenue
Balance at January 1, 2020	$	234
Customer deposits and billings	1,041
Revenue recognized in the period	(1,014)
Translation	7
Deferred revenue reclassified to held for sale	(11)
Balance at December 31, 2020	$	257
Customer deposits and billings	1,267
Revenue recognized in the period	(1,192)
Deferred revenue from business acquisitions	99
Translation and other	(9)

~~Note 2.~~Balance at December 31, 2021	~~SALE AND ACQUISITIONS OF BUSINESSES~~$	422

~~Sale~~Deferred revenue liabilities of ~~heavy-duty~~$395 million and ~~medium-duty commercial vehicle automated transmission business~~

On July 31, 2017, Eaton sold a 50% interest in its heavy-duty and medium-duty commercial vehicle automated transmission business for $600 in cash to Cummins, Inc. The new joint venture is named Eaton Cummins Automated Transmission Technologies (ECATT). The Company recognized a pre-tax gain$230 million as of $1,077, of which $533 related to the pre-tax gain from the $600 proceeds from the sale and $544 related to the Company’s remaining 50% investment in the joint venture being remeasured to fair value. The after-tax gain was $843. The fair value is based on the price paid to Eaton for the 50% interest sold to Cummins, Inc. and further supported by a discounted cash flow model. Eaton accounts for its investment on the equity method of accounting.

~~Acquisition of Ephesus Lighting, Inc.~~

On October 28, 2015, Eaton acquired Ephesus Lighting, Inc. (Ephesus). Ephesus is a leader in LED lighting for stadiums and other high lumen outdoor and industrial applications. Its sales for the 12 months ended September 30, 2015 were $23. Ephesus is reported within the Electrical Products business segment.

~~Acquisition of UK Safety Technology Manufacturer Oxalis Group Ltd.~~

On January 12, 2015, Eaton acquired Oxalis Group Ltd. (Oxalis). Oxalis is a manufacturer of closed-circuit television camera stations, public address and general alarm systems and other electrical products for the hazardous area, marine and industrial communications markets. Its sales for the 12 months ended December 31, ~~2014 were $9. Oxalis is reported within the Electrical Systems~~2021 and ~~Services business segment.~~


~~Note 3.~~	~~ACQUISITION INTEGRATION CHARGES~~

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

2017 2016 2015
Electrical Products $ 4
$ 3
$ 25
Electrical Systems and Services —
1
15
Hydraulics —
—
2
Total business segments 4
4
42
Corporate —
—
5
Total acquisition integration charges before income taxes 4
4
47
Income taxes 2
1
16
Total after income taxes $ 2
$ 3
$ 31
Per ordinary share - diluted $ —
$ 0.01
$ 0.07

Business segment acquisition integration charges in 2017 related to the integration of Ephesus. The charges associated with Ephesus were included in Selling and administrative expense. Business segment acquisition integration charges in 2016 related to the integration of Ephesus and Oxalis. The charges associated with Ephesus were included in Cost of products sold and Selling and administrative expense, while the charges associated with Oxalis were included in Cost of products sold. Business segment acquisition charges in 2015 related primarily to the integration of Cooper Industries plc, which was acquired in 2012. The charges in 2015 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.

The integration of Cooper included costs related to restructuring activities Eaton undertook in an effort to gain efficiencies in selling, marketing, traditional back-office functions and manufacturing and distribution. These actions resulted in charges of $20 during 2015, comprised of severance costs and other expense totaling $1 and $19,2020, respectively, ~~of which $14 were incurred in the Electrical Products segment, and $6 were incurred in the Electrical Systems and Services segment.~~

~~Corporate integration charges related primarily to the 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.~~

~~See Note 15 for additional information about business segments.~~


~~Note 4.~~	~~RESTRUCTURING CHARGES~~

~~During 2015, Eaton announced its commitment to undertake actions to reduce its cost structure~~current liabilities with the remaining balance presented in all business segments and at corporate. Restructuring charges incurred under this plan were $116, $211, and $129 in 2017, 2016, and 2015, respectively. The multi-year initiative concluded at the end of 2017.Other noncurrent liabilities.

A ~~summary~~significant portion of ~~restructuring~~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 December 31, 2021 was approximately $7.7 billion. At December 31, 2021, approximately 87% of this backlog is targeted for delivery to customers 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-off 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 $42 million and $48 million at December 31, 2021 and 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 using the first-in, first-out (FIFO) method. Cost components include raw materials, purchased components, direct labor, indirect labor, utilities, depreciation, inbound freight charges, ~~by type follows:~~

2017 2016 2015
Workforce reductions $ 57
$ 177
$ 112
Plant closings and other costs 59
34
17
Total $ 116
$ 211
$ 129

~~A summary of restructuring charges by segment follows:~~

2017 2016 2015
Electrical Products $ 29
$ 44
$ 12
Electrical Systems & Services 16
49
29
Hydraulics 32
67
31
Aerospace 2
4
5
Vehicle 12
35
34
Corporate 25
12
18
Total $ 116
$ 211
$ 129

~~A summary of liabilities related to workforce reductions, plant closings~~purchasing and ~~other associated~~receiving costs, ~~announced in 2015 follows:~~

Workforce reductions Plant closing and other Total
Balance at December 31, 2015 $ 54
$ —
$ 54
Liability recognized 177
34
211
Payments (116 ) (13 ) (129 )
Other adjustments (2 ) (20 ) (22 )
Balance at December 31, 2016 113
1
114
Liability recognized 57
59
116
Payments (102 ) (39 ) (141 )
Other adjustments (1 ) (16 ) (17 )
Balance at December 31, 2017 $ 67
$ 5
$ 72

~~These charges were included in Cost of products sold, Selling~~inspection costs, warehousing costs, and ~~administrative expenses or Other income-net, as appropriate. In Business Segment Information, the charges reduced Operating profit~~costs of the ~~related business segment. See Note 15 for additional information about business segments.~~distribution network.

The components of inventory are as follows:


	December 31
(In millions)	2021		2020
Raw materials	$	1,096	$	803
Work-in-process	620		498
Finished goods	1,253		808
Total inventory	$	2,969	$	2,109

Table of Contents


~~Note 5.~~	~~GOODWILL AND OTHER INTANGIBLE ASSETS~~

Note 6. GOODWILL AND OTHER INTANGIBLE ASSETS

Changes in the carrying amount of goodwill by segment ~~follow:~~

are as follows:

Electrical
Products

Electrical
Systems
and Services
Hydraulics Aerospace Vehicle Total
December 31, 2015 $ 6,642
$ 4,279
$ 1,259
$ 956
$ 343
$ 13,479
Translation (145 ) (76 ) (38 ) (18 ) (1 ) (278 )
December 31, 2016 6,497
4,203
1,221
938
342
13,201
Goodwill written off from sale of business —
(3 ) —
—
(52 ) (55 )
Translation 262
111
36
9
4
422
December 31, 2017 $ 6,759
$ 4,311
$ 1,257
$ 947
$ 294
$ 13,568


(In millions)	January 1, 2020		Additions		Goodwill reclassified to held for sale		Translation		December 31, 2020		Additions		Translation		December 31, 2021
Electrical Americas	$	6,352	$	97	$	—	$	7	$	6,456	$	971	$	(10)	$	7,417
Electrical Global	4,106		7		—		182		4,295		85		(197)		4,183
Hydraulics	921		—		(907)		(14)		—		—		—		—
Aerospace	1,706		15		—		56		1,777		1,091		(87)		2,781
Vehicle	291		—		—		2		293		—		(3)		290
eMobility	80		—		—		2		82		—		(2)		80
Total	$	13,456	$	119	$	(907)	$	235	$	12,903	$	2,147	$	(299)	$	14,751

The 2021 additions to goodwill relate to the anticipated synergies of acquiring Cobham Mission Systems, 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. The 2020 additions to goodwill primarily relate to the anticipated synergies of acquiring Power Distribution, Inc.

A summary of other intangible assets is as follows:


										December 31
	2017				2016					2021				2020
	Historical cost		Accumulated amortization		Historical cost		Accumulated amortization
(In millions)									(In millions)	Historical cost		Accumulated amortization		Historical cost		Accumulated amortization
Intangible assets not subject to amortization									Intangible assets not subject to amortization
Trademarks	$	1,654			$	1,637			Trademarks	$	1,374			$	1,382

Intangible assets subject to amortization									Intangible assets subject to amortization
Customer relationships	$	3,586	$	1,475	$	3,456	$	1,199	Customer relationships	$	4,752	$	1,974	$	3,415	$	1,795
Patents and technology	1,395		628		1,342		519		Patents and technology	1,879		712		1,428		773
Trademarks	1,137		473		1,104		378		Trademarks	951		518		970		505
Other	99		30		97		26		Other	165		62		91		38
Total intangible assets subject to amortization	$	6,217	$	2,606	$	5,999	$	2,122	Total intangible assets subject to amortization	$	7,747	$	3,266	$	5,904	$	3,111

~~As a result of the retrospective application of this change in accounting method, the following financial statement line items within the accompanying financial statements were adjusted, as follows:~~

December 31, 2017 December 31, 2016 December 31, 2015
(In millions except for per share data) As computed under LIFO As reported under FIFO Effect of change As originally reported As adjusted Effect of change As originally reported As adjusted Effect of change
TCJA Other
Consolidated Statements of Income
Cost of products sold $ 13,770
$ 13,756
$ —
$ (14 ) $ 13,400
$ 13,409
$ 9
$ 14,292
$ 14,304
$ 12
Income before income taxes 3,354
3,368
—
14
2,127
2,118
(9 ) 2,145
2,133
(12 )
Income tax expense 391
382
(14 ) 5
202
199
(3 ) 164
159
(5 )
Net income 2,963
2,986
14
9
1,925
1,919
(6 ) 1,981
1,974
(7 )
Net income attributable to Eaton ordinary shareholders $ 2,962
$ 2,985
$ 14
$ 9
$ 1,922
$ 1,916
$ (6 ) $ 1,979
$ 1,972
$ (7 )

Net income per ordinary share
Diluted $ 6.63
$ 6.68
$ 0.03
$ 0.02
$ 4.21
$ 4.20
$ (0.01 ) $ 4.23
$ 4.22
$ (0.01 )
Basic $ 6.66
$ 6.71
$ 0.03
$ 0.02
$ 4.22
$ 4.21
$ (0.01 ) $ 4.25
$ 4.23
$ (0.02 )

Consolidated Statements of Comprehensive Income
Net income $ 2,963
$ 2,986
$ 14
$ 9
$ 1,925
$ 1,919
$ (6 ) $ 1,981
$ 1,974
$ (7 )
Net income attributable to Eaton ordinary shareholders 2,962
2,985
14
9
1,922
1,916
(6 ) 1,979
1,972
(7 )
Total comprehensive income attributable to Eaton ordinary shareholders $ 4,006
$ 4,029
$ 14
$ 9
$ 1,337
$ 1,331
$ (6 ) $ 1,015
$ 1,008
$ (7 )

~~As a result~~Table of the retrospective application of this change in accounting principle, the following financial statement line items within the unaudited interim 2017 and 2016 quarterly condensed consolidated financial statements were adjusted, as follows:

Contents

(unaudited) Three months ended
March 30, 2017 June 30, 2017 September 30, 2017
(In millions except for per share data) As originally reported As adjusted Effect of change As originally reported As adjusted Effect of change As originally reported As adjusted Effect of change
Consolidated Statements of Income
Cost of products sold $ 3,310
$ 3,307
$ (3 ) $ 3,450
$ 3,448
$ (2 ) $ 3,469
$ 3,466
$ (3 )
Income before income taxes 464
467
3
570
572
2
1,691
1,694
3
Income tax expense 32
33
1
54
55
1
292
293
1
Net income 432
434
2
516
517
1
1,399
1,401
2
Net income attributable to Eaton ordinary shareholders $ 432
$ 434
$ 2
$ 515
$ 516
$ 1
$ 1,399
$ 1,401
$ 2

Net income per ordinary share
Diluted $ 0.96
$ 0.96
$ —
$ 1.15
$ 1.15
$ —
$ 3.14
$ 3.14
$ —
Basic $ 0.96
$ 0.97
$ 0.01
$ 1.15
$ 1.16
$ 0.01
$ 3.16
$ 3.16
$ —

(unaudited) Three months ended
March 30, 2016 June 30, 2016 September 30, 2016
(In millions except for per share data) As originally reported As adjusted Effect of change As originally reported As adjusted Effect of change As originally reported As adjusted Effect of change
Consolidated Statements of Income
Cost of products sold $ 3,291
$ 3,294
$ 3
$ 3,419
$ 3,422
$ 3
$ 3,371
$ 3,374
$ 3
Income before income taxes 442
439
(3 ) 553
550
(3 ) 573
570
(3 )
Income tax expense 39
38
(1 ) 61
60
(1 ) 51
50
(1 )
Net income 403
401
(2 ) 492
490
(2 ) 522
520
(2 )
Net income attributable to Eaton ordinary shareholders $ 404
$ 402
$ (2 ) $ 491
$ 489
$ (2 ) $ 523
$ 521
$ (2 )

Net income per ordinary share
Diluted $ 0.88
$ 0.87
$ (0.01 ) $ 1.07
$ 1.07
$ —
$ 1.15
$ 1.14
$ (0.01 )
Basic $ 0.88
$ 0.88
$ —
$ 1.08
$ 1.07
$ (0.01 ) $ 1.15
$ 1.15
$ —


~~Note 15.~~	~~BUSINESS SEGMENT AND GEOGRAPHIC REGION INFORMATION~~

Note 17. BUSINESS SEGMENT AND GEOGRAPHIC REGION INFORMATION

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

Electrical ~~Products~~Americas and Electrical ~~Systems and Services~~Global

The Electrical ~~Products~~Americas segment consists of electrical components, industrial components, power distribution and assemblies, residential products, single phase power quality ~~emergency lighting, fire detection, wiring devices, structural support systems, circuit protection,~~ and ~~lighting products. The Electrical Systems and Services segment consists of power distribution and assemblies,~~connectivity, three phase power quality, ~~hazardous duty electrical equipment, intrinsically safe explosion-proof instrumentation,~~wiring devices, circuit protection, utility power distribution, power reliability equipment, and ~~services.~~services that are primarily produced and sold in North and South America. The Electrical Global segment consists of electrical components, industrial components, power distribution and assemblies, single phase and three phase power quality, and services that are primarily produced and sold outside of North and South America; as well as hazardous duty electrical equipment, emergency lighting, fire detection, intrinsically safe explosion-proof instrumentation, and structural support systems that are produced and sold globally. The principal markets for these segments are industrial, institutional, governmental, utility, commercial, residential and information technology. These products are used wherever there is a demand for electrical power in commercial buildings, data centers, residences, apartment and office buildings, hospitals, factories, utilities, and industrial and energy facilities. The segments share ~~several~~certain common global customers, but a large number of customers are located regionally. Sales are made through distributors, resellers, and manufacturers' representatives, as well as directly to original equipment manufacturers, utilities, and certain other end ~~users, as well as through distributors, resellers, and manufacturers' representatives.~~users.

Hydraulics

On August 2, 2021, Eaton completed the sale of the Hydraulics business to Danfoss A/S. The Hydraulics ~~segment is a global leader in~~business sold hydraulics components, systems and services for industrial and mobile equipment. ~~Eaton offers~~The Hydraulics business offered a wide range of power products including pumps, motors and hydraulic power units; a broad range of controls and sensing products including valves, cylinders and electronic controls; a full range of fluid conveyance products including industrial and hydraulic hose, fittings, and assemblies, thermoplastic hose and tubing, couplings, connectors, and assembly equipment; ~~filtration systems solutions;~~ industrial drum and disc ~~brakes; and golf grips. The~~brakes. Historically, the principal markets for the Hydraulics ~~segment include~~business included renewable energy, marine, agriculture, oil and gas, construction, mining, forestry, utility, material handling, truck and bus, machine tools, molding, primary metals, and power generation. Key manufacturing customers in these markets and other customers ~~are~~were located globally. Products ~~are~~were sold and serviced through a variety of channels.

Aerospace

The Aerospace segment is a leading global supplier of aerospace fuel, hydraulics, and pneumatic systems for commercial and military ~~use.~~use, as well as filtration systems for industrial applications. Products include hydraulic power generation systems for aerospace applications including pumps, motors, hydraulic power units, hose and fittings, electro-hydraulic pumps; controls and sensing products including valves, cylinders, electronic controls, electromechanical actuators, sensors, aircraft flap and slat systems and nose wheel steering systems; fluid conveyance products, including hose, thermoplastic tubing, fittings, adapters, couplings, sealing and ducting; ~~and~~ fuel systems including air-to-air refueling systems, fuel pumps, fuel inerting products, sensors, valves, adapters and ~~regulators.~~regulators; mission systems including oxygen generation system, payload carriages, and thermal management products; high performance interconnect products including wiring connectors and cables. The Aerospace segment also includes filtration systems including hydraulic filters, bag filters, strainers and cartridges; and golf grips. The principal markets for the Aerospace segment are manufacturers of commercial and military aircraft and related after-market ~~customers.~~customers, as well as industrial applications. These manufacturers and other customers operate globally. Products are sold and serviced through a variety of channels.

Vehicle

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

Table of Contents

eMobility

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

Other Information

No single customer represented greater than 10% of net sales in ~~2017, 2016~~2021, 2020 or ~~2015,~~2019, respectively.

The accounting policies of the business segments are generally the same as the policies described in Note 1, except that, ~~operating profit only reflects~~as described further in the ~~service cost component related~~following paragraph, certain items are not allocated to ~~pensions and other postretirement benefits.~~the businesses. Intersegment sales and transfers are accounted for at the same prices as if the sales and transfers were made to third parties. These intersegment sales are eliminated in consolidation. Operating profit includes the operating profit from intersegment sales.

~~For purposes~~Corporate includes all the Company's amortization of ~~business segment performance measurement,~~intangible assets, interest expense-net and restructuring program costs (Note 16) and the ~~Company does not allocate~~non-service cost portion of pensions and other postretirement benefits expense. Other expense-net includes all the Company's costs associated with acquisitions, divestitures, and gains and losses on the sale of certain businesses and other items that ~~are of a non-operating nature or~~ are of a corporate or functional governance nature. ~~Corporate expenses consist~~For purposes of ~~transaction~~business segment performance measurement, a portion of corporate costs, ~~associated~~excluding amortization of intangibles assets, acquisition integration and divestiture costs, and restructuring program charges, are allocated to the businesses. These allocations are periodically adjusted to pass on year-over-year cost savings or increases to the businesses in a manner that is consistent with how the ~~acquisition of certain businesses and corporate office expenses including compensation, benefits, occupancy, depreciation, and other administrative costs.~~chief operating decision maker assesses performance. Identifiable assets of the business segments exclude goodwill, other intangible assets, and general corporate assets, which principally consist of certain cash, short-term investments, deferred income taxes, certain accounts receivable, certain property, plant and equipment, and certain other assets.

Table of Contents

Business Segment Information


(In millions)	2021		2020		2019
Net sales
Electrical Americas	$	7,242	$	6,680	$	8,175
Electrical Global	5,516		4,703		5,172
Hydraulics	1,300		1,842		2,204
Aerospace	2,648		2,223		2,480
Vehicle	2,579		2,118		3,038
eMobility	343		292		321
Total net sales	$	19,628	$	17,858	$	21,390

Segment operating profit (loss)
Electrical Americas	$	1,495	$	1,352	$	1,549
Electrical Global	1,034		750		897
Hydraulics	177		186		193
Aerospace	580		414		595
Vehicle	449		243		460
eMobility	(29)		(8)		17
Total segment operating profit	3,706		2,937		3,711

Corporate

Intangible asset amortization expense	(444)		(354)		(367)
Interest expense - net	(144)		(149)		(199)
Pension and other postretirement benefits income (expense)	65		(40)		(12)
Restructuring program charges	(78)		(214)		—


Other expense - net	(209)		(434)		(542)
Income before income taxes	2,896		1,746		2,591
Income tax expense	750		331		378
Net income	2,146		1,415		2,213
Less net income for noncontrolling interests	(2)		(5)		(2)
Net income attributable to Eaton ordinary shareholders	$	2,144	$	1,410	$	2,211

Table of Contents

2017 2016 2015
Net sales
Electrical Products $ 7,193
$ 6,957
$ 6,976
Electrical Systems and Services 5,666
5,662
5,931
Hydraulics 2,468
2,222
2,459
Aerospace 1,744
1,753
1,807
Vehicle 3,333
3,153
3,682
Total net sales $ 20,404
$ 19,747
$ 20,855

Segment operating profit
Electrical Products $ 1,287
$ 1,240
$ 1,156
Electrical Systems and Services 770
711
776
Hydraulics 288
198
246
Aerospace 332
335
310
Vehicle 537
474
645
Total segment operating profit 3,214
2,958
3,133

Corporate
Amortization of intangible assets (388 ) (392 ) (406 )
Interest expense - net (246 ) (233 ) (232 )
Pension and other postretirement benefits expense (45 ) (60 ) (130 )
Gain on sale of business 1,077
—
—
Other corporate expense - net* (244 ) (155 ) (232 )
Income before income taxes* 3,368
2,118
2,133
Income tax expense* 382
199
159
Net income* 2,986
1,919
1,974
Less net income for noncontrolling interests (1 ) (3 ) (2 )
Net income attributable to Eaton ordinary shareholders* $ 2,985
$ 1,916
$ 1,972

*Other corporate expense - net and Income tax expense in 2016 and 2015 have been adjusted to reflect the change in inventory accounting method, as described in Notes 1 and 14.

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


(In millions)	2021		2020		2019
Identifiable assets
Electrical Americas	$	3,002	$	2,333	$	2,360
Electrical Global	2,579		2,334		2,319
Hydraulics	—		—		1,293
Aerospace	1,729		1,363		1,562
Vehicle	1,985		1,950		2,145
eMobility	220		180		141
Total identifiable assets	9,515		8,160		9,820
Goodwill	14,751		12,903		13,456
Other intangible assets	5,855		4,175		4,638
Corporate	3,906		4,099		3,514
Assets held for sale	—		2,487		1,377
Total assets	$	34,027	$	31,824	$	32,805


Capital expenditures for property, plant and equipment
Electrical Americas	$	180	$	95	$	160
Electrical Global	120		71		106
Hydraulics	34		41		80
Aerospace	78		59		61
Vehicle	112		77		127
eMobility	27		24		8
Total	551		367		542
Corporate	24		22		45
Total expenditures for property, plant and equipment	$	575	$	389	$	587

Depreciation of property, plant and equipment
Electrical Americas	$	105	$	101	$	118
Electrical Global	97		94		93
Hydraulics	—		—		58
Aerospace	69		53		37
Vehicle	95		98		102
eMobility	8		6		5
Total	374		352		413
Corporate	52		56		52
Total depreciation of property, plant and equipment	$	426	$	408	$	465

2017 2016 2015
Electrical Products $ 4
$ 3
$ 25
Electrical Systems and Services —
1
15
Hydraulics —
—
2
Total $ 4
$ 4
$ 42

Corporate acquisition integration charges totaled $5 in 2015, and are included above in Other corporate expense - net. There was no corporate acquisition integration charges in 2017 and 2016. See Note 3 for additional information about acquisition integration charges.

Table of Contents

2017 2016 2015
Identifiable assets
Electrical Products $ 2,570
$ 2,363
$ 2,538
Electrical Systems and Services 2,141
2,222
2,285
Hydraulics 1,345
1,188
1,138
Aerospace 938
830
841
Vehicle 2,379
1,549
1,579
Total identifiable assets 9,373
8,152
8,381
Goodwill 13,568
13,201
13,479
Other intangible assets 5,265
5,514
6,014
Corporate* 4,417
3,609
3,185
Total assets* $ 32,623
$ 30,476
$ 31,059
*Corporate identifiable assets in 2016 and 2015 have been adjusted to reflect the change in inventory accounting method, as described in Notes 1 and 14.

Capital expenditures for property, plant and equipment
Electrical Products $ 134
$ 134
$ 137
Electrical Systems and Services 83
78
94
Hydraulics 96
92
61
Aerospace 37
28
33
Vehicle 141
142
119
Total 491
474
444
Corporate 29
23
62
Total expenditures for property, plant and equipment $ 520
$ 497
$ 506

Depreciation of property, plant and equipment
Electrical Products $ 143
$ 141
$ 137
Electrical Systems and Services 83
82
82
Hydraulics 61
64
67
Aerospace 26
27
28
Vehicle 109
109
113
Total 422
423
427
Corporate 54
63
52
Total depreciation of property, plant and equipment $ 476
$ 486
$ 479

Geographic Region Information

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


(In millions)	2021		2020		2019
Net sales
United States	$	10,868	$	10,044	$	12,336
Canada	797		757		941
Latin America	1,160		939		1,312
Europe	4,276		3,818		4,311
Asia Pacific	2,527		2,300		2,490
Total	$	19,628	$	17,858	$	21,390

Long-lived assets
United States	$	1,593	$	1,510	$	1,821
Canada	25		25		24
Latin America	277		249		316
Europe	701		738		797
Asia Pacific	468		442		538
Total	$	3,064	$	2,964	$	3,496

2017
2016
2015
Net sales
United States $ 11,222
$ 10,937
$ 11,396
Canada 942
898
969
Latin America 1,485
1,448
1,726
Europe 4,394
4,228
4,379
Asia Pacific 2,361
2,236
2,385
Total $ 20,404
$ 19,747
$ 20,855

Long-lived assets
United States $ 1,872
$ 1,924
$ 1,982
Canada 20
19
19
Latin America 290
281
243
Europe 769
681
734
Asia Pacific 551
538
587
Total $ 3,502
$ 3,443
$ 3,565


~~Note 16.~~	~~CONDENSED CONSOLIDATING FINANCIAL STATEMENTS~~

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

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

During 2017, 2016 and 2015, the Company undertook certain steps to restructure ownership of various subsidiaries. The transactions were entirely among wholly-owned subsidiaries under the common control of Eaton. This restructuring has been reflected as of the beginning of the earliest period presented below.

~~Additionally, certain amounts in 2016 and 2015 have been adjusted to reflect the change in inventory accounting method, as described in Notes 1 and 14.~~

CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
YEAR ENDED DECEMBER 31, 2017

Eaton
Corporation
plc

Eaton
Corporation

Guarantors

Other
subsidiaries

Consolidating
adjustments
Total
Net sales $ —
$ 6,659
$ 6,563
$ 12,599
$ (5,417 ) $ 20,404

Cost of products sold —
5,276
4,840
9,054
(5,414 ) 13,756
Selling and administrative expense 136
1,172
759
1,498
—
3,565
Research and development expense —
215
207
162
—
584
Interest expense (income) - net —
245
21
(21 ) 1
246
Gain on sale of business

—
560
—
517
—
1,077
Other expense (income) - net 79
9
(70 ) (56 ) —
(38 )
Equity in loss (earnings) of
   subsidiaries, net of tax
(3,644 ) (1,139 ) (4,958 ) (4,665 ) 14,406
—
Intercompany expense (income) - net 444
(561 ) 1,197
(1,080 ) —
—
Income (loss) before income taxes 2,985
2,002
4,567
8,224
(14,410 ) 3,368
Income tax expense (benefit) —
499
(232 ) 115
—
382
Net income (loss) 2,985
1,503
4,799
8,109
(14,410 ) 2,986
Less net loss (income) for
   noncontrolling interests
—
—
—
(3 ) 2
(1 )
Net income (loss) attributable to
   Eaton ordinary shareholders
$ 2,985
$ 1,503
$ 4,799
$ 8,106
$ (14,408 ) $ 2,985

Other comprehensive income (loss) 1,044
41
1,064
2,192
(3,297 ) 1,044
Total comprehensive income (loss) attributable to Eaton
   ordinary shareholders
$ 4,029
$ 1,544
$ 5,863
$ 10,298
$ (17,705 ) $ 4,029

CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
YEAR ENDED DECEMBER 31, 2016

Eaton
Corporation
plc

Eaton
Corporation

Guarantors

Other
subsidiaries

Consolidating
adjustments
Total
Net sales $ —
$ 6,447
$ 6,351
$ 11,961
$ (5,012 ) $ 19,747

Cost of products sold —
5,076
4,697
8,649
(5,013 ) 13,409
Selling and administrative expense 140
1,153
760
1,452
—
3,505
Research and development expense —
235
186
168
—
589
Interest expense (income) - net —
233
17
(16 ) (1 ) 233
Other expense (income) - net (35 ) (48 ) 43
(67 ) —
(107 )
Equity in loss (earnings) of
   subsidiaries, net of tax
(2,433 ) (770 ) (3,266 ) (2,808 ) 9,277
—
Intercompany expense (income) - net 412
(122 ) 1,230
(1,520 ) —
—
Income (loss) before income taxes 1,916
690
2,684
6,103
(9,275 ) 2,118
Income tax expense (benefit) —
23
26
149
1
199
Net income (loss) 1,916
667
2,658
5,954
(9,276 ) 1,919
Less net loss (income) for
   noncontrolling interests
—
—
—
(5 ) 2
(3 )
Net income (loss) attributable to
   Eaton ordinary shareholders
$ 1,916
$ 667
$ 2,658
$ 5,949
$ (9,274 ) $ 1,916

Other comprehensive income (loss) (585 ) 54
(566 ) (1,344 ) 1,856
(585 )
Total comprehensive income (loss) attributable to Eaton
   ordinary shareholders
$ 1,331
$ 721
$ 2,092
$ 4,605
$ (7,418 ) $ 1,331

CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
YEAR ENDED DECEMBER 31, 2015

Eaton
Corporation
plc

Eaton
Corporation

Guarantors

Other
subsidiaries

Consolidating
adjustments
Total
Net sales $ —
$ 6,926
$ 6,660
$ 12,531
$ (5,262 ) $ 20,855

Cost of products sold —
5,518
5,041
8,978
(5,233 ) 14,304
Selling and administrative expense 141
1,223
738
1,494
—
3,596
Research and development expense —
266
197
162
—
625
Interest expense (income) - net —
222
21
(13 ) 2
232
Other expense (income) - net —
—
24
(59 ) —
(35 )
Equity in loss (earnings) of
   subsidiaries, net of tax
(2,449 ) (821 ) (3,221 ) (2,761 ) 9,252
—
Intercompany expense (income) - net 336
(384 ) 1,218
(1,170 ) —
—
Income (loss) before income taxes 1,972
902
2,642
5,900
(9,283 ) 2,133
Income tax expense (benefit) —
87
(69 ) 152
(11 ) 159
Net income (loss) 1,972
815
2,711
5,748
(9,272 ) 1,974
Less net loss (income) for
   noncontrolling interests
—
—
—
(3 ) 1
(2 )
Net income (loss) attributable to
   Eaton ordinary shareholders
$ 1,972
$ 815
$ 2,711
$ 5,745
$ (9,271 ) $ 1,972

Other comprehensive income (loss) (964 ) 5
(951 ) (2,000 ) 2,946
(964 )
Total comprehensive income (loss) attributable to Eaton
   ordinary shareholders
$ 1,008
$ 820
$ 1,760
$ 3,745
$ (6,325 ) $ 1,008

CONDENSED CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 2017

Eaton
Corporation
plc

Eaton
Corporation

Guarantors

Other
subsidiaries

Consolidating
adjustments
Total
Assets
Current assets
Cash $ —
$ 183
$ 12
$ 366
$ —
$ 561
Short-term investments —
—
—
534
—
534
Accounts receivable - net —
482
1,317
2,144
—
3,943
Intercompany accounts receivable 8
2,865
5,146
2,741
(10,760 ) —
Inventory —
473
692
1,537
(82 ) 2,620
Prepaid expenses and other
   current assets
—
229
145
277
28
679
Total current assets 8
4,232
7,312
7,599
(10,814 ) 8,337

Property, plant and equipment - net —
835
684
1,983
—
3,502

Other noncurrent assets
Goodwill —
1,307
6,293
5,968
—
13,568
Other intangible assets —
138
3,002
2,125
—
5,265
Deferred income taxes —
356
—
221
(324 ) 253
Investment in subsidiaries 15,045
15,439
87,919
39,527
(157,930 ) —
Intercompany loans receivable 3,122
7,104
2,735
61,225
(74,186 ) —
Other assets —
748
163
787
—
1,698
Total assets $ 18,175
$ 30,159
$ 108,108
$ 119,435
$ (243,254 ) $ 32,623

Liabilities and shareholders’
   equity

Current liabilities

Short-term debt $ —
$ —
$ —
$ 6
$ —
$ 6
Current portion of long-term debt —
542
35
1
—
578
Accounts payable —
533
313
1,320
—
2,166
Intercompany accounts payable 4
4,920
4,405
1,431
(10,760 ) —
Accrued compensation —
128
63
262
—
453
Other current liabilities 1
564
308
1,000
(1 ) 1,872
Total current liabilities 5
6,687
5,124
4,020
(10,761 ) 5,075

Noncurrent liabilities
Long-term debt —
6,180
976
8
3
7,167
Pension liabilities —
341
83
802
—
1,226
Other postretirement benefits
   liabilities
—
192
94
76
—
362
Deferred income taxes —
—
558
304
(324 ) 538
Intercompany loans payable 917
3,718
68,405
1,146
(74,186 ) —
Other noncurrent liabilities —
314
272
379
—
965
Total noncurrent liabilities 917
10,745
70,388
2,715
(74,507 ) 10,258

Shareholders’ equity
Eaton shareholders’ equity 17,253
12,727
32,596
112,663
(157,986 ) 17,253
Noncontrolling interests —
—
—
37
—
37
Total equity 17,253
12,727
32,596
112,700
(157,986 ) 17,290
Total liabilities and equity $ 18,175
$ 30,159
$ 108,108
$ 119,435
$ (243,254 ) $ 32,623

CONDENSED CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 2016

Eaton
Corporation
plc

Eaton
Corporation

Guarantors

Other
subsidiaries

Consolidating
adjustments
Total
Assets
Current assets
Cash $ 1
$ 92
$ 5
$ 445
$ —
$ 543
Short-term investments —
—
—
203
—
203
Accounts receivable - net —
536
1,049
1,975
—
3,560
Intercompany accounts receivable 5
953
4,239
3,382
(8,579 ) —
Inventory —
443
638
1,344
(79 ) 2,346
Prepaid expenses and other
   current assets
—
77
42
237
25
381
Total current assets 6
2,101
5,973
7,586
(8,633 ) 7,033

Property, plant and equipment - net —
857
706
1,880
—
3,443

Other noncurrent assets
Goodwill —
1,362
6,293
5,546
—
13,201
Other intangible assets —
169
3,442
1,903
—
5,514
Deferred income taxes —
864
15
218
(772 ) 325
Investment in subsidiaries 32,852
20,200
92,766
44,345
(190,163 ) —
Intercompany loans receivable —
7,609
2,061
56,938
(66,608 ) —
Other assets —
490
134
336
—
960
Total assets $ 32,858
$ 33,652
$ 111,390
$ 118,752
$ (266,176 ) $ 30,476

Liabilities and shareholders’
   equity

Current liabilities
Short-term debt $ —
$ —
$ 8
$ 6
$ —
$ 14
Current portion of long-term debt —
1,250
296
6
—
1,552
Accounts payable 1
412
252
1,053
—
1,718
Intercompany accounts payable 281
3,332
3,130
1,836
(8,579 ) —
Accrued compensation —
98
58
223
—
379
Other current liabilities 1
590
276
957
(2 ) 1,822
Total current liabilities 283
5,682
4,020
4,081
(8,581 ) 5,485

Noncurrent liabilities
Long-term debt —
5,767
936
8
—
6,711
Pension liabilities —
610
161
888
—
1,659
Other postretirement benefits
   liabilities
—
198
99
71
—
368
Deferred income taxes —
—
732
361
(772 ) 321
Intercompany loans payable 17,621
3,768
44,788
431
(66,608 ) —
Other noncurrent liabilities —
326
212
396
—
934
Total noncurrent liabilities 17,621
10,669
46,928
2,155
(67,380 ) 9,993

Shareholders’ equity
Eaton shareholders’ equity 14,954
17,301
60,442
112,478
(190,221 ) 14,954
Noncontrolling interests —
—
—
38
6
44
Total equity 14,954
17,301
60,442
112,516
(190,215 ) 14,998
Total liabilities and equity $ 32,858
$ 33,652
$ 111,390
$ 118,752
$ (266,176 ) $ 30,476

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
DECEMBER 31, 2017

Eaton
Corporation
plc

Eaton
Corporation

Guarantors

Other
subsidiaries

Consolidating
adjustments
Total
Net cash provided by (used in)
   operating activities
$ 258
$ (498 ) $ (30 ) $ 4,545
$ (1,609 ) $ 2,666

Investing activities
Capital expenditures for property,
   plant and equipment
—
(90 ) (110 ) (320 ) —
(520 )
Cash received from sales (paid for
   acquisitions) of affiliates
—
—
(92 ) 92
—
—
Purchases of short-term investments - net —
—
—
(298 ) —
(298 )
Investments in affiliates (190 ) —
—
(90 ) 280
—
Return of investments in affiliates —
—
90
—
(90 ) —
Loans to affiliates —
(444 ) —
(6,723 ) 7,167
—
Repayments of loans from affiliates —
303
46
3,817
(4,166 ) —
Proceeds from sale of business —
338
—
269
—
607
Other - net —
(45 ) 9
30
—
(6 )
Net cash provided by (used in)
    investing activities
(190 ) 62
(57 ) (3,223 ) 3,191
(217 )

Financing activities
Proceeds from borrowings —
1,000
—
—
—
1,000
Payments on borrowings —
(1,250 ) (297 ) (7 ) —
(1,554 )
Proceeds from borrowings from
   affiliates
2,605
3,130
991
441
(7,167 ) —
Payments on borrowings from
   affiliates
(822 ) (2,904 ) (353 ) (87 ) 4,166
—
Capital contributions from affiliates —
—
90
190
(280 ) —
Return of capital to affiliates —
—
—
(90 ) 90
—
Other intercompany financing
   activities
—
573
469
(1,042 ) —
—
Cash dividends paid (1,068 ) —
—
—
—
(1,068 )
Cash dividends paid to affiliates —
—
(800 ) (809 ) 1,609
—
Exercise of employee stock options 66
—
—
—
—
66
Repurchase of shares (850 ) —
—
—
—
(850 )
Employee taxes paid from shares
   withheld

—
(14 ) (5 ) (3 ) —
(22 )
Other - net —
(8 ) (1 ) (5 ) —
(14 )
Net cash provided by (used in)
   financing activities
(69 ) 527
94
(1,412 ) (1,582 ) (2,442 )

Effect of currency on cash —
—
—
11
—
11
Total increase (decrease) in cash (1 ) 91
7
(79 ) —
18
Cash at the beginning of the period 1
92
5
445
—
543
Cash at the end of the period $ —
$ 183
$ 12
$ 366
$ —
$ 561

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
DECEMBER 31, 2016

Eaton
Corporation
plc

Eaton
Corporation

Guarantors

Other
subsidiaries

Consolidating
adjustments
Total
Net cash provided by (used in)
   operating activities
$ (253 ) $ 22
$ (232 ) $ 3,033
$ —
$ 2,570

Investing activities
Capital expenditures for property,
   plant and equipment
—
(92 ) (114 ) (291 ) —
(497 )
Cash received from acquisitions of
   businesses, net of cash acquired
—
—
1
—
—
1
Sales (purchases) of short-term investments - net —
—
2
(42 ) —
(40 )
Investments in affiliates (1,250 ) —
(120 ) (1,370 ) 2,740
—
Return of investments in affiliates

—
—
47
—
(47 ) —
Loans to affiliates —
(251 ) (655 ) (8,208 ) 9,114
—
Repayments of loans from affiliates —
1,293
—
5,951
(7,244 ) —
Other - net —
(9 ) 41
(25 ) —
7
Net cash provided by (used in)
    investing activities
(1,250 ) 941
(798 ) (3,985 ) 4,563
(529 )

Financing activities
Proceeds from borrowings —
21
610
—
—
631
Payments on borrowings —
(408 ) (233 ) (12 ) —
(653 )
Proceeds from borrowings from
   affiliates
3,843
4,045
1,120
106
(9,114 ) —
Payments on borrowings from
   affiliates
(646 ) (4,712 ) (1,844 ) (42 ) 7,244
—
Capital contribution from affiliates —
—
1,370
1,370
(2,740 ) —
Return of capital to affiliates —
—
—
(47 ) 47
—
Other intercompany financing
   activities
—
168
12
(180 ) —
—
Cash dividends paid (1,037 ) —
—
—
—
(1,037 )
Exercise of employee stock options 74
—
—
—
—
74
Repurchase of shares (730 ) —
—
—
—
(730 )
Employee taxes paid from shares
   withheld
—
(12 ) (3 ) (3 ) —
(18 )
Other - net —
1
(4 ) (2 ) —
(5 )
Net cash provided by (used in)
   financing activities
1,504
(897 ) 1,028
1,190
(4,563 ) (1,738 )

Effect of currency on cash —
—
—
(28 ) —
(28 )
Total increase (decrease) in cash 1
66
(2 ) 210
—
275
Cash at the beginning of the period —
26
7
235
—
268
Cash at the end of the period $ 1
$ 92
$ 5
$ 445
$ —
$ 543

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
DECEMBER 31, 2015

Eaton
Corporation
plc

Eaton
Corporation

Guarantors

Other
subsidiaries

Consolidating
adjustments
Total
Net cash provided by (used in)
   operating activities
$ (137 ) $ (195 ) $ (281 ) $ 3,026
$ (4 ) $ 2,409

Investing activities
Capital expenditures for property,
   plant and equipment
—
(94 ) (146 ) (266 ) —
(506 )
Cash paid for acquisitions of
   businesses, net of cash acquired
—
—
(36 ) (36 ) —
(72 )
Sales (purchases) of short-term
   investments - net
—
—
(2 ) 39
—
37
Investments in affiliates (1,482 ) —
(1,176 ) (1,482 ) 4,140
—
Loans to affiliates —
(889 ) (39 ) (10,608 ) 11,536
—
Repayments of loans from affiliates —
342
359
7,493
(8,194 ) —
Proceeds from the sales of
   businesses
—
—
—
1
—
1
Other - net —
(50 ) 47
(32 ) —
(35 )
Net cash provided by (used in)
   investing activities
(1,482 ) (691 ) (993 ) (4,891 ) 7,482
(575 )

Financing activities
Proceeds from borrowings —
408
—
17
—
425
Payments on borrowings —
(724 ) (301 ) (2 ) —
(1,027 )
Proceeds from borrowings from
   affiliates
3,322
6,885
997
332
(11,536 ) —
Payments on borrowings from
   affiliates
(48 ) (6,467 ) (1,282 ) (397 ) 8,194
—
Capital contribution from affiliates —
1,176
1,482
1,482
(4,140 ) —
Other intercompany financing
   activities
—
(518 ) 378
140
—
—
Cash dividends paid (1,026 ) —
—
—
—
(1,026 )
Cash dividends paid to affiliates —
—
—
(4 ) 4
—
Exercise of employee stock options 52
—
—
—
—
52
Repurchase of shares (682 ) —
—
—
—
(682 )
Employee taxes paid from shares
   withheld

—
(26 ) (6 ) (6 ) —
(38 )
Other - net —
1
—
(10 ) —
(9 )
Net cash provided by (used in)
   financing activities
1,618
735
1,268
1,552
(7,478 ) (2,305 )

Effect of currency on cash —
—
—
(42 ) —
(42 )
Total increase (decrease) in cash (1 ) (151 ) (6 ) (355 ) —
(513 )
Cash at the beginning of the period 1
177
13
590
—
781
Cash at the end of the period $ —
$ 26

$ 7

$ 235

$ —
$ 268

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 aan intelligent power management company ~~with 2017 net sales~~dedicated to improving the quality of ~~$20.4 billion. The Company provides energy-efficient~~life and protecting the environment for people everywhere. We are guided by our commitment to do business right, to operate sustainably and to help our customers manage power – today and well into the future. By capitalizing on the global growth trends of electrification and digitalization, we're accelerating the planet's transition to renewable energy, helping to solve the world's most urgent power management challenges, and doing what's best for our stakeholders and all of society.

Eaton’s businesses are well-positioned to take advantage of secular growth trends related to the energy transition from fossil fuels to renewables. We are responding to these trends by innovating solutions that ~~help its customers effectively manage~~transform the electrical ~~hydraulic~~power value chain, investing in electrical vehicle markets, increasing our focus on electrification, and ~~mechanical~~employing digital technologies for power ~~more efficiently, safely~~management. The Company’s innovations are expected to enable the integration of renewables and ~~sustainably.~~sustainability solutions, with new types of equipment, services, and software. These strategic focus areas are an important part of our response to climate change.

Founded in 1911, Eaton has ~~approximately 96,000 employees~~been listed on the New York Stock Exchange for nearly a century. We reported revenues of $19.6 billion in ~~59 countries~~2021 and ~~sells products to~~serve customers in more than ~~175~~170 countries.

~~Summary~~

Table of ~~Results~~Contents

Portfolio Changes

The Company continues to actively manage its portfolio of ~~Operations~~businesses to deliver on its strategic objectives. The Company is focused on deploying its capital toward businesses that provide opportunities for above-market growth, strong returns, and align with secular trends and its power management strategies. Over the last three years, Eaton has completed a number of transactions to strengthen its portfolio.

~~During 2017, the Company's results~~

Acquisitions of businesses and investments in associate companies

Date of acquisition

Business segment

Ulusoy Elektrik Imalat Taahhut ve Ticaret A.S.

April 15, 2019

Electrical Global

93.7 percent controlling interest in a leading manufacturer of electrical switchgear with a primary focus on medium voltage solutions for industrial and utility customers.

Innovative Switchgear Solutions, Inc.

July 19, 2019

Electrical Americas

A specialty manufacturer of medium-voltage electrical equipment serving the North American utility, commercial and industrial markets.

Souriau-Sunbank Connection Technologies

December 20, 2019

Aerospace

A global leader in highly engineered electrical interconnect solutions for harsh environments in the aerospace, defense, industrial, energy, and transport markets.

Power Distribution, Inc.

February 25, 2020

Electrical Americas

A leading supplier of mission critical power distribution, static switching, and power monitoring equipment and services for data centers and industrial and commercial customers.

Tripp Lite

March 17, 2021

Electrical Americas

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.

Green Motion SA

March 22, 2021

Electrical Global

A leading designer and manufacturer of electric vehicle charging hardware and related software.

HuanYu High Tech

March 29, 2021

Electrical Global

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.

Cobham Mission Systems

June 1, 2021

Aerospace

A leading manufacturer of air-to-air refueling systems, environmental systems, and actuation primarily for defense markets.

Jiangsu YiNeng Electric's busway business

June 25, 2021

Electrical Global

A 50 percent stake in Jiangsu YiNeng Electric's busway business which manufactures and markets busway products in China.

Royal Power Solutions

January 5, 2022

eMobility

A manufacturer of high-precision electrical connectivity components used in electric vehicle, energy management, industrial and mobility markets.

Divestitures of businesses

Date of divestiture

Business segment

Automotive Fluid Conveyance business

December 31, 2019

Vehicle

Lighting business

March 2, 2020

Electrical Americas

Hydraulics business

August 2, 2021

Hydraulics

Additional information related to acquisitions and divestitures of ~~operations returned to solid growth as global end markets expanded, particularly~~businesses is presented in Note 2.

Table of Contents

Restructuring

In the second ~~half~~quarter of ~~2017. During the year, the Company completed its~~2020, Eaton decided to undertake a multi-year restructuring program ~~that reduced its cost structure, which expanded operating margins.~~

On July 31, 2017, Eaton sold a 50% interest in its heavy-duty and medium-duty commercial vehicle automated transmission business for $600 in cash to Cummins, Inc. The Company recognized a pre-tax gain of $1,077, of which $533 related to the pre-tax gain from the $600 proceeds from the sale and $544 related to the Company’s remaining 50% investment in the joint venture being remeasured to fair value. The after-tax gain was $843. Eaton accounts for its investment on the equity method of accounting.

The tax rate for 2017 includes a tax benefit of $62 related to the United States Tax Cuts and Jobs Act (“TCJA”), which was signed into law on December 22, 2017. The tax benefit of $62 related to the TCJA is comprised of a tax benefit of $79 for adjusting deferred tax assets and liabilities, offset by a tax expense of $17 for the taxation of unremitted earnings of non-U.S. subsidiaries owned directly or indirectly by U.S. subsidiaries of Eaton.

During 2016, the Company's results of operations were impacted by a decline in several of the Company's end markets. Further, the results of operations were negatively impacted by the strengthening in the value of the U.S. dollar. Despite the declining market conditions and unfavorable impact of currency translation, the Company generated solid operating margins and diluted net income per share.

~~During 2015, Eaton announced a multi-year restructuring initiative~~ to reduce its cost structure and gain efficiencies in ~~all~~its business segments and at corporate in order to respond to declining market ~~conditions. Restructuring~~conditions brought on by the COVID-19 pandemic. Since the inception of the program, the Company has incurred charges of $292 million. These restructuring activities are expected to incur additional expenses of $28 million in ~~2017, 2016 and 2015 were $116, $211 and $129, respectively. These charges were~~2022 primarily comprised of ~~severance costs.~~plant closing and other costs, resulting in total estimated charges of $320 million for the entire program. The ~~initiative concluded at the end of 2017 and the~~ projected ~~annualized~~mature year savings from these restructuring actions are expected to be ~~$518,~~$230 million when fully ~~realized~~implemented in ~~2018.~~

2023. Additional information related to ~~acquisitions and divestitures of businesses, and~~this restructuring ~~activities~~ is presented in Note ~~2, Note 3, and Note 4, respectively,~~16.

Summary of ~~the Notes to the Consolidated Financial Statements.~~Results of Operations

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


(In millions except for per share data)	2021		2020		2019
Net sales	$	19,628	$	17,858	$	21,390
Net income attributable to Eaton ordinary shareholders	2,144		1,410		2,211
Net income per share attributable to Eaton ordinary shareholders - diluted	$	5.34	$	3.49	$	5.25

During 2019, the Company’s results of operations were impacted by negative currency translation and weaker than expected growth in the Company’s end markets, particularly in the second half of 2019. Despite the declining market conditions and unfavorable impact of currency translation, the Company generated solid operating margins and Net income per ordinary share.

During 2020, the Company's results of operations were impacted by the COVID-19 pandemic. Organic sales were down 11% in 2020 primarily due to the impact from the COVID-19 pandemic. The divestitures of the Lighting and Automotive Fluid Conveyance businesses reduced sales, which was partially offset by growth from the acquisitions of Souriau-Sunbank Connection Technologies (Souriau-Sunbank) and Power Distribution, Inc.

During 2021, the Company's organic sales increased 10% as end-markets and regions served by our business segments have largely recovered from the negative impact of the COVID-19 pandemic. Our Electrical Global, Vehicle and eMobility business segments all realized organic growth greater than 10% during the year. This level of organic growth was achieved despite supply chain constraints limiting the availability of materials in select businesses, travel restrictions continuing to impact commercial aviation, and reduced production levels at our customers leading to historic low vehicle inventory. Additionally, over the past several years, Eaton has completed a number of transactions to add higher growth, better margin businesses to its portfolio. These portfolio updates, along with continued improvements in supply chains and recovery of the Aerospace and Vehicle markets from the pandemic, have the Company better aligned with secular growth trends and well positioned for expected further growth.

COVID-19

2017 2016* 2015*
Net sales $ 20,404
$ 19,747
$ 20,855
Net income attributable to Eaton ordinary shareholders 2,985
1,916
1,972
Net income per share attributable to Eaton ordinary shareholders - diluted $ 6.68
$ 4.20
$ 4.22

* Years ended December 31, 2016The Company has been impacted by the COVID-19 pandemic in select markets and ~~2015 amounts~~industries. As a result, our businesses have been ~~revised~~focused on cost control measures where appropriate to ~~reflect~~offset the ~~change~~volume declines we experienced in ~~inventory accounting method,~~addition to executing on our multi-year restructuring program we decided to undertake in the second quarter of 2020. In 2021, the Company has seen broad-based strength in its end-markets and regions as ~~described~~our businesses have largely recovered from the negative impact of the COVID-19 pandemic. However as global economies recover, many of our businesses have been impacted by supply chain disruptions, inflation and labor shortages. Additionally, our Aerospace business segment continues to see some softness in ~~Notes 1 and 14~~demand due to the ~~consolidated financial statements.~~impact of continued travel restrictions on commercial aviation, particularly in international travel.

Eaton's products and support services are vital to hospitals, emergency services, military sites, utilities, public works, transportation, and shipping providers. In addition, data centers, retail outlets, airports, and governments, as well as the networks that support schools and remote workers, rely on the Company's products to serve their customers and communities. As a result, the Company's plants are generally not subject to extended shutdowns.

The Company continues to monitor the pandemic’s impact throughout the world, including guidance from governmental authorities and world health organizations. The Company’s actions to protect the safety and health of its workforce are aligned with its preventive health protocols and those of governmental authorities and health organizations including the Centers for Disease Controls (U.S.) and the World Health Organization.

Table of Contents

RESULTS OF OPERATIONS

Non-GAAP Financial Measures

The following discussion of Consolidated Financial Results ~~and Business Segment Results of Operations~~ includes certain non-GAAP financial measures. These financial measures include adjusted earnings and adjusted earnings per ordinary share, ~~and operating profit before acquisition integration charges for each business segment as well as corporate,~~ each of which differs from the most directly comparable measure calculated in accordance with generally accepted accounting principles (GAAP). A reconciliation of adjusted earnings and adjusted earnings per ordinary share to the most directly comparable GAAP measure is included in the Consolidated Financial Results table below. ~~Operating profit before acquisition integration charges is reconciled in~~During the ~~discussion~~first quarter of 2021, the ~~operating results~~Company revised its definition of ~~each business segment,~~adjusted earnings to exclude intangible asset amortization expense and ~~excludes acquisition integration expense related~~prior periods have been retrospectively adjusted to ~~integration of Ephesus Lighting, Inc. in 2017 and 2016, Oxalis Group Ltd. in 2016, and primarily Cooper Industries plc in 2015.~~apply this change. Management believes that these financial measures are useful to investors because they exclude certain transactions, allowing investors to more easily compare Eaton’s financial performance period to period. Management uses this information in monitoring and evaluating the on-going performance of Eaton.

Acquisition and Divestiture Charges

Eaton ~~and each business segment. For additional information on acquisition~~incurs integration charges ~~see Note 3~~and transaction costs to acquire and integrate businesses, and transaction, separation and other costs to divest and exit businesses. Eaton also recognizes gains and losses on the sale of businesses. A summary of these Corporate items is as follows:


(In millions except for per share data)	2021		2020		2019
Acquisition integration, divestiture charges and transactions costs	$	349	$	288	$	198
Gain on the sale of the Hydraulics and Lighting businesses	(617)		(221)		—
Total charges (income) before income taxes	(268)		67		198
Income tax expense (benefit)	362		66		(24)
Total after income taxes	$	94	$	133	$	174
Per ordinary share - diluted	$	0.23	$	0.33	$	0.42

Acquisition integration, divestiture charges and transaction costs in 2021 are primarily related to the ~~Consolidated Financial Statements.~~divestiture of the Hydraulics business, the acquisitions of Tripp Lite, Cobham Mission Systems, Souriau-Sunbank Connection Technologies, and Ulusoy Elektrik Imalat Taahhut ve Ticaret A.S., and other charges to acquire and exit businesses including certain indemnity claims associated with the sale of 50% interest in the commercial vehicle automated transmission business in 2017. Charges in 2020 are primarily related to the divestitures of the Hydraulics business and the Lighting business, the acquisitions of Souriau-Sunbank, Ulusoy Elektrik, and Power Distribution, Inc., and other charges to exit businesses. Charges in 2019 related to the divestiture of the Lighting business, the acquisitions of Ulusoy Elektrik, ISG, and Souriau-Sunbank, the loss on the sale of the Automotive Fluid Conveyance business, and other charges to exit businesses. These charges were included in Cost of products sold, Selling and administrative expense, Research and development expense, Interest expense - net, or Other expense - net. In Business Segment Information in Note 17, the charges were included in Other expense - net.

Intangible Asset Amortization Expense

Intangible asset amortization expense is as follows:


(In millions except for per share data)	2021		2020		2019
Intangible asset amortization expense	$	444	$	354	$	367
Income tax benefit	83		82		84
Total after income taxes	$	361	$	272	$	283
Per ordinary share - diluted	$	0.90	$	0.67	$	0.67

Table of Contents

Consolidated Financial Results

2017
Change
from 2016
2016*
Change
from 2015
2015*
Net sales $ 20,404
3 % $ 19,747
(5 )% $ 20,855
Gross profit 6,648
5 % 6,338
(3 )% 6,551
Percent of net sales 32.6 % 32.1 % 31.4 %
Income before income taxes 3,368
59 % 2,118
(1 )% 2,133
Net income 2,986
56 % 1,919
(3 )% 1,974
Less net income for noncontrolling interests (1 ) (3 ) (2 )
Net income attributable to Eaton ordinary shareholders 2,985
56 % 1,916
(3 )% 1,972
Excluding acquisition integration charges,
after-tax (Note 3)
2
3
31
Adjusted earnings $ 2,987
56 % $ 1,919
(4 )% $ 2,003

Net income per share attributable to Eaton ordinary shareholders - diluted $ 6.68
59 % $ 4.20
— % $ 4.22
Excluding per share impact of acquisition integration charges, after-tax (Note 3) —
0.01
0.07
Adjusted earnings per ordinary share $ 6.68
59 % $ 4.21
(2 )% $ 4.29

* Year ended December 31, 2016 and 2015 amounts have been revised to reflect the change in inventory accounting method, as described in Notes 1 and 14 to the consolidated financial statements.


(In millions except for per share data)	2021			Change from 2020		2020			Change from 2019		2019
Net sales	$	19,628		10	%	$	17,858		(17)	%	$	21,390
Gross profit	6,335			16	%	5,450			(23)	%	7,052
Percent of net sales	32.3		%			30.5		%			33.0		%
Income before income taxes	2,896			66	%	1,746			(33)	%	2,591
Net income	2,146			52	%	1,415			(36)	%	2,213
Less net income for noncontrolling interests	(2)					(5)					(2)
Net income attributable to Eaton ordinary shareholders	2,144			52	%	1,410			(36)	%	2,211
Excluding acquisition and divestiture charges, after-tax	94					133					174
Excluding restructuring program charges, after-tax	60					170					—
Excluding intangible asset amortization expense, after-tax	361					272					283
Adjusted earnings	$	2,659		34	%	$	1,985		(26)	%	$	2,668

Net income per share attributable to Eaton ordinary shareholders - diluted	$	5.34		53	%	$	3.49		(34)	%	$	5.25
Excluding per share impact of acquisition and divestiture charges, after-tax	0.23					0.33					0.42
Excluding per share impact of restructuring program charges, after-tax	0.15					0.42					—
Excluding per share impact of intangible asset amortization expense, after-tax	0.90					0.67					0.67
Adjusted earnings per ordinary share	$	6.62		35	%	$	4.91		(23)	%	$	6.34

Net Sales

~~Net~~


Changes in Net sales are summarized as follows:
	2021		2020
Organic growth	10	%	(11)	%
Acquisitions of businesses	5	%	2	%
Divestitures of businesses	(6)	%	(7)	%
Foreign currency	1	%	(1)	%
Total increase (decrease) in Net sales	10	%	(17)	%

Organic sales increased 10% in ~~2017 increased by 3% compared to 2016~~2021 due to ~~an increase~~broad-based strength in end-markets and regions as our business segments have largely recovered from the negative impact of ~~3% in~~the COVID-19 pandemic. This organic ~~sales. The increase in~~growth was achieved despite the supply chain constraints experienced by the Electrical Americas business segment, and customers of the Vehicle and eMobility business segments also experienced supply chain constraints leading to reduced production levels. Additionally, organic sales in ~~2017 was primarily due~~the Aerospace business segment continued to ~~higher sales volumes in the Electrical Products, Hydraulics, and Vehicle business segments. Net sales in 2016 decreased~~be impacted by ~~5% compared to 2015 due to a decrease of 4% in organic sales and decrease of 1%~~travel restrictions from the ~~impact of negative currency translation.~~ COVID-19 pandemic on commercial aviation. The decrease in organic sales in ~~2016~~2020 was primarily due to ~~weakening demand~~the impact from the COVID-19 pandemic, with lower sales in ~~several~~all business segments.

The acquisitions of Tripp Lite and Cobham Mission Systems increased sales in 2021, while the divestitures of the ~~Company's end markets.~~Hydraulics and Lighting businesses reduced sales.

Gross Profit

Gross profit margin increased from ~~32.1%~~30.5% in ~~2016~~2020 to ~~32.6%~~32.3% in ~~2017. The increase in gross profit margin in 2017 was~~2021 primarily due to higher sales volumes and savings from restructuring ~~actions,~~actions. Organic sales volumes improved in the Electrical Americas, Electrical Global, and ~~lower restructuring charges, partially offset by commodity inflation.~~Vehicle business segments, and declined in the Aerospace business segment. Gross profit ~~increased from 31.4% in 2015~~also improved due to ~~32.1% in 2016. The increase in~~the net impact of the acquisitions of Tripp Lite and Cobham Mission Systems and the divestiture of the Hydraulics business. Conversely, commodity and logistics inflation had an unfavorable impact on gross margin during 2021. Gross profit margin decreased from 33.0% in ~~2016 was~~2019 to 30.5% in 2020 primarily due to ~~savings~~the impact from ~~restructuring actions and other cost control measures, partially offset by~~the COVID-19 pandemic, with lower sales ~~volumes, unfavorable product mix, and higher restructuring charges.~~in all business segments.

Table of Contents

Income Taxes

During ~~2017, an~~2021, income tax expense of ~~$382~~$750 million was recognized (an effective tax rate of ~~11.3%~~25.9%) compared to income tax expense of ~~$199~~$331 million in ~~2016~~2020 (an effective tax rate of ~~9.4%~~19.0%)~~. The 2017~~ and income tax expense of $378 million in 2019 (an effective tax rate ~~includes~~of 14.6%). The increase in the effective tax rate from 19.0% in 2020 to 25.9% in 2021 was primarily due to the tax expense ~~of $234~~ on the gain from the sale of the Hydraulics business in 2021 discussed in Note 2. The increase in the effective tax rate from 14.6% in 2019 to 19.0% in 2020 was primarily due to the tax expense on the gain from the sale of the Lighting business in 2020 discussed in Note 2, ~~and~~partially offset by a tax benefit ~~of $62 related to the TCJA. Excluding the gain and related tax impact~~ on the sale of business, and the impact of the TCJA, the tax rate for 2017 was expense of 9.2%. The decrease from 9.4% for the full year 2016 compared to 9.2% for the full year 2017 was due to the resolution of tax contingencies in various tax jurisdictions and the excess tax benefits recognized for employee share-based payments pursuant to the adoption of ASU 2016-09 asrestructuring charges discussed in Note ~~1. During 2016, an~~16. Additionally, see Note 11 for income tax ~~expense of $199 was recognized (an~~rate reconciliations from Ireland's national statutory rate to the consolidated effective tax rate of 9.4%) compared to income tax expense of $159 in 2015 (an effective tax rate of 7.5%). The 2016 effective tax rate increased from 2015 primarily due to greater levels of income earned in higher tax jurisdictions, partially offset by net decreases in worldwide tax liabilities.rate.

Net Income

Net income attributable to Eaton ordinary shareholders of ~~$2,985~~$2,144 million in ~~2017~~2021 increased ~~56%~~52% compared to ~~$1,916~~$1,410 million in ~~2016.~~2020. Net income in ~~2017~~2021 and 2020 included ~~$843 from the gain~~after-tax gains of $197 million on the sale of the Hydraulics business ~~discussed in Note 2,~~ and ~~$62~~$91 million on the sale of ~~income from~~ the ~~new U.S. tax bill discussed in Note 9.~~Lighting business, respectively. Excluding these ~~items,~~gains, the increase in ~~2017~~2021 net income was primarily due to higher ~~sales volumes, savings from restructuring actions,~~gross profit and lower restructuring program charges, partially offset by ~~commodity inflation.~~higher income tax expense, acquisition and divestiture charges, and intangible asset amortization expense. Net income attributable to Eaton ordinary shareholders of ~~$1,916~~$1,410 million in ~~2016~~2020 decreased 3%36% compared to $2,211 million in 2019. Net income ~~attributable to Eaton ordinary shareholders~~in 2020 included an after-tax gain of ~~$1,972 in 2015.~~$91 million on the sale of the Lighting business. The decrease in ~~2016~~2020 net income was primarily due to lower sales volumes ~~unfavorable product mix, and higher restructuring charges, partially offset by savings from restructuring actions, other cost control measures,~~as a ~~decrease in pension and other post benefits expense, and income from several insurance matters during 2016.~~result of the COVID-19 pandemic.

Net income per ordinary share increased to $5.34 in ~~2017 included $1.89 from the gain on the sale of business discussed~~2021 compared to $3.49 in ~~Note 2 and $0.14 income from the new U.S. tax bill discussed in Note 9.~~2020. Net income per ordinary share ~~increased by 59% to $6.68~~ in ~~2017 compared to $4.20~~2021 and 2020 included $0.49 and $0.22 from the sale of the Hydraulics and Lighting businesses, respectively. Excluding these gains, the increase in ~~2016. The increase~~Net income per ordinary share in 2021 was due to higher Net income attributable to Eaton ordinary shareholders and the Company's share repurchases in 2017. Net income per ordinary share was broadly flat at $4.20 in 2016 compared to $4.22 in 2015 primarily due to a decrease in Net Income attributable to Eaton ordinary shareholders offset by the impact of the Company's share repurchases over the past two years. Net income per ordinary share decreased to $3.49 in ~~2016.~~

~~Adjusted Earnings~~

~~Adjusted earnings of $2,987 in 2017 increased 56%~~2020 compared to ~~Adjusted earnings of $1,919~~$5.25 in ~~2016.~~2019. The ~~increase was due to higher~~decrease in Net income ~~attributable to Eaton~~per ordinary ~~shareholders. Adjusted earnings of $1,919~~share in ~~2016 decreased 4% compared to 2015 Adjusted earnings of $2,003. The decrease~~2020 was due to lower Net income attributable to Eaton ordinary shareholders, adjusted for the impact of the Company's share repurchases over the past few years.

Adjusted Earnings

Adjusted earnings of $2,659 million in 2021 increased 34% compared to Adjusted earnings of $1,985 million in 2020. The increase in Adjusted earnings in 2021 was primarily due to higher Net income attributable to Eaton ordinary shareholders, adjusted for acquisition and divestiture charges, restructuring program charges, and intangible asset amortization expense. Adjusted earnings of $1,985 million in 2020 decreased 26% compared to Adjusted Earnings of $2,668 million in 2019. The decrease in Adjusted earnings in 2020 was primarily due to lower Net income attributable to Eaton ordinary shareholders, adjusted for acquisition ~~integration~~and divestiture charges, and restructuring program charges.

Adjusted earnings per ordinary share increased ~~by 59%~~ to ~~$6.68~~$6.62 in ~~2017~~2021 compared to ~~$4.21~~$4.91 in ~~2016.~~2020. The increase in Adjusted earnings per ordinary share in ~~2017~~2021 was due to higher Adjusted earnings and the impact of the Company's share repurchases ~~in 2017.~~over the past two years. Adjusted earnings per ordinary share ~~of $4.21~~decreased to $4.91 in ~~2016 decreased 2% from $4.29~~2020 compared to $6.34 in ~~2015.~~2019. The decrease in Adjusted earnings per ordinary share in ~~2016~~2020 was due to lower Adjusted earnings, ~~partially offset by~~adjusted for the impact of the Company's share repurchases ~~in 2016.~~over the past few years.

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Business Segment Results of Operations

The following is a discussion of Net sales, operating profit and operating profit margin by business segment, which includes a discussion of operating profit and operating profit margin before acquisition integration charges. For additional information related to acquisition integration charges see Note 3 to the Consolidated Financial Statements.

segment.

Electrical ~~Products~~Americas


(In millions)	2021			Change from 2020		2020			Change from 2019		2019
Net sales	$	7,242		8	%	$	6,680		(18)	%	$	8,175

Operating profit	$	1,495		11	%	$	1,352		(13)	%	$	1,549
Operating margin	20.6		%			20.2		%			18.9		%

Changes in Net sales are summarized as follows:
	2021					2020
Organic growth	5		%			(2)		%
Acquisitions of Tripp Lite, Power Distribution, Inc., and Innovative Switchgear Solutions, Inc.	7		%			1		%
Divestiture of the Lighting business	(4)		%			(17)		%

Total increase (decrease) in Net sales	8		%			(18)		%

2017 Change
from 2016 2016 Change
from 2015 2015
Net sales $ 7,193
3 % $ 6,957
— % $ 6,976

Operating profit $ 1,287
4 % $ 1,240
7 % $ 1,156
Operating margin 17.9 % 17.8 % 16.6 %

Acquisition integration charges $ 4
$ 3
$ 25

Before acquisition integration charges
Operating profit $ 1,291
4 % $ 1,243
5 % $ 1,181
Operating margin 17.9 % 17.9 % 16.9 %

~~Net sales increased 3% in 2017 compared to 2016 due to an~~The increase ~~of 3%~~ in organic sales in 2021 was primarily due to broad-based strength in end-markets as they have largely recovered from the COVID-19 pandemic with particular strength in residential and data centers, partially offset by weakness in sales to utilities. This organic growth was achieved despite the supply chain constraints experienced by the Electrical Americas business segment during 2021, which had a negative impact on Net sales. ~~Organic~~The decrease in organic sales ~~growth~~ in ~~2017~~2020 was primarily driven by the impact of the COVID-19 pandemic, partially offset by growth in ~~the Americas~~residential, data center, and ~~Europe. Net sales were broadly flat~~utility end-markets.

The operating margin increased from 20.2% in ~~2016 compared~~2020 to ~~2015~~20.6% in 2021 primarily due to higher organic sales volumes, the favorable net impact of an ~~increase~~acquisition and a divestiture, and savings from restructuring actions. Conversely, commodity and logistics inflation had an unfavorable impact on the operating margin. The operating margin increased from 18.9% in 2019 to 20.2% in 2020 primarily due to the favorable impact from the divestiture of 1%the Lighting business and cost containment actions to counteract the impact of the COVID-19 pandemic, partially offset by lower volumes.

Electrical Global


(In millions)	2021			Change from 2020		2020			Change from 2019		2019
Net sales	$	5,516		17	%	$	4,703		(9)	%	$	5,172

Operating profit	$	1,034		38	%	$	750		(16)	%	$	897
Operating margin	18.7		%			15.9		%			17.3		%

Changes in Net sales are summarized as follows:
	2021					2020
Organic growth	15		%			(9)		%


Foreign currency	2		%			—		%
Total increase (decrease) in Net sales	17		%			(9)		%

The increase in organic sales ~~offset~~in 2021 was primarily due to broad-based strength in end-markets as they have largely recovered from the COVID-19 pandemic. The decrease in organic sales in 2020 was primarily driven by ~~a decrease of 1% from~~ the impact of ~~negative currency translation. By region, organic sales grew~~the COVID-19 pandemic, with particular weakness in ~~2016 in the Americas~~global oil and ~~Europe, while organic sales declined in Asia Pacific.~~gas markets and industrial applications.

~~Operating~~The operating margin increased from ~~17.8%~~15.9% in ~~2016~~2020 to ~~17.9%~~18.7% in ~~2017. The increase in operating margin in 2017 was~~2021 primarily due to higher sales volumes savings from restructuring actions, and lower restructuring charges, partially offset by commodity inflation and the impact from natural disasters in 2017. Operating margin increased from 16.6% in 2015 to 17.8% in 2016. The increase in operating margin in 2016 was primarily due to savings from restructuring actions, other cost control measures, and lower acquisition integration charges, partially offset by higher restructuring charges and unfavorable product mix.

Operating margin before acquisition integration charges was flat at 17.9% for 2016 and 2017. Operating margin before acquisition integration charges increased from 16.9% in 2015 to 17.9% in 2016. The increase in operating margin before acquisition integration charges in 2016 was primarily due to an increase in operating margin, partially offset by lower acquisition integration charges.

~~Electrical Systems and Services~~

2017 Change
from 2016 2016 Change
from 2015 2015
Net sales $ 5,666
— % $ 5,662
(5 )% $ 5,931

Operating profit $ 770
8 % $ 711
(8 )% $ 776
Operating margin 13.6 % 12.6 % 13.1 %

Acquisition integration charges $ —
$ 1
$ 15

Before acquisition integration charges
Operating profit $ 770
8 % $ 712
(10 )% $ 791
Operating margin 13.6 % 12.6 % 13.3 %

Net sales were broadly flat in 2017 compared to 2016. Net sales decreased 5% in 2016 compared to 2015 due to a decrease of 3% in organic sales and a decrease of 2% from the impact of negative currency translation. The organic sales decline in 2016 was primarily due to weakness in oil and gas markets and large industrial projects, partially offset by growth in data centers and commercial construction markets.

Operating margin increased from 12.6% in 2016 to 13.6% in 2017. Operating margin increased in 2017 primarily due to savings from restructuring actions and lower restructuring charges, partially offset by commodity inflation. Operating margin decreased from 13.1% in 2015 to 12.6% in 2016. Operating margin decreased in 2016 primarily due to lower sales volumes, unfavorable product mix, and higher restructuring charges, partially offset by savings from restructuring actions and other cost control measures.

Operating margin before acquisition integration charges increased from 12.6% in 2016 to 13.6% in 2017. The increase in operating margin before acquisition integration charges was primarily due to an increase in operating margin. Operating margin before acquisition integration charges decreased from 13.3% in 2015 to 12.6% in ~~2016. The decrease in operating margin was primarily due to lower operating margins and lower acquisition integration charges.~~

~~Hydraulics~~

2017 Change
from 2016 2016 Change
from 2015 2015
Net sales $ 2,468
11 % $ 2,222
(10 )% $ 2,459

Operating profit $ 288
45 % $ 198
(20 )% $ 246
Operating margin 11.7 % 8.9 % 10.0 %

Acquisition integration charges $ —
$ —
$ 2

Before acquisition integration charges
Operating profit $ 288
45 % $ 198
(20 )% $ 248
Operating margin 11.7 % 8.9 % 10.1 %

Net sales in 2017 increased 11% compared to 2016 due to an increase in organic sales of 12% and a decrease of 1% from the impact of negative currency translation. The increase in organic sales in 2017 was due to strength in global mobile equipment markets. Net sales in 2016 decreased 10% compared to ~~2015~~ due to a decrease in organic sales of 9% and a decrease of 1% from the impact of negative currency translation. The decrease in organic sales was due to weakness in both the mobile equipment and industrial markets.

~~Operating margin increased from 8.9% in 2016 to 11.7% in 2017. The increase in operating margin in 2017 was primarily due to higher sales volumes, lower restructuring charges,~~ and savings from restructuring actions, partially offset by commodity and logistics inflation. ~~Operating~~The operating margin decreased from ~~10.0%~~17.3% in ~~2015~~2019 to ~~8.9%~~15.9% in ~~2016. The decrease in operating margin in 2016 was~~2020 primarily due to lower sales volumes and ~~higher restructuring costs,~~unfavorable product mix, partially offset by ~~savings from restructuring~~cost containment actions ~~and other cost control measures.~~

~~Operating margin before acquisition integration charges decreased from 10.1% in 2015~~ to ~~8.9% in 2016. The decrease in operating margin before acquisition integration charges was primarily due to lower operating margins.~~

~~Aerospace~~

2017 Change
from 2016 2016 Change
from 2015 2015
Net sales $ 1,744
— % $ 1,753
(3 )% $ 1,807

Operating profit $ 332
(1 )% $ 335
8 % $ 310
Operating margin 19.0 % 19.1 % 17.2 %

~~Net sales were broadly flat in 2017 compared to 2016. Net sales in 2016 decreased 3% compared to 2015 due to a decrease of 2% from~~mitigate the impact of ~~negative currency translation~~the COVID-19 pandemic.

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Hydraulics


(In millions)	2021			2020			Change from 2019		2019
Net sales	$	1,300		$	1,842		(16)	%	$	2,204

Operating profit	$	177		$	186		(4)	%	$	193
Operating margin	13.6		%	10.1		%			8.8		%

Changes in Net sales are summarized as follows:
				2020
Organic growth				(15)		%


Foreign currency				(1)		%
Total decrease in Net sales				(16)		%

On August 2, 2021, Eaton completed the sale of the Hydraulics business segment. As a result, net sales and ~~a decrease in organic sales~~operating profit for 2021 are not directly comparable to 2020, since 2021 only includes the results of ~~1%.~~ the Hydraulics business through the date of the sale.

The decrease in organic sales ~~during 2016~~in 2020 was primarily due to the impact from the COVID-19 pandemic, with weakness at both OEMs and distributors globally.

The operating margin increased from 8.8% in 2019 to 10.1% in 2020 primarily due to depreciation expense no longer being charged as a result of the business being classified as held for sale as discussed in Note 2 and cost containment actions to counteract the impact of the COVID-19 pandemic, partially offset by lower sales volumes.

Aerospace


(In millions)	2021			Change from 2020		2020			Change from 2019		2019
Net sales	$	2,648		19	%	$	2,223		(10)	%	$	2,480

Operating profit	$	580		40	%	$	414		(30)	%	$	595
Operating margin	21.9		%			18.6		%			24.0		%

Changes in Net sales are summarized as follows:
	2021					2020
Organic growth	(2)		%			(22)		%
Acquisitions of Cobham Mission Systems and Souriau-Sunbank	20		%			12		%

Foreign currency	1		%			—		%
Total increase (decrease) in Net sales	19		%			(10)		%

The decrease in organic sales in 2021 was primarily due to the impact of continued travel restrictions from the COVID-19 pandemic on commercial aviation and weakness in military ~~OEM markets and lower cost reimbursements~~aftermarket. The decrease in organic sales in 2020 was primarily due to the impact of the COVID-19 pandemic on ~~certain engineering programs,~~commercial aviation, partially offset by growth in ~~commercial markets.~~military sales.

~~Operating~~The operating margin ~~decreased~~increased from ~~19.1%~~18.6% in ~~2016~~2020 to ~~19.0%~~21.9% in ~~2017. The decrease was~~2021 primarily due to ~~higher program development spending, partially offset by savings from restructuring actions. Operating margin increased from 17.2% in 2015 to 19.1% in 2016. The increase was primarily due to~~the acquisition of Cobham Mission Systems and savings from restructuring actions, ~~other cost control measures, and reduced program development spending.~~

~~Vehicle~~

2017 Change
from 2016 2016 Change
from 2015 2015
Net sales $ 3,333
6 % $ 3,153
(14 )% $ 3,682

Operating profit $ 537
13 % $ 474
(27 )% $ 645
Operating margin 16.1 % 15.0 % 17.5 %

~~Net~~partially offset by lower organic sales ~~increased 6%~~volumes. The operating margin decrease from 24.0% in ~~2017 compared~~2019 to ~~2016~~18.6% in 2020 primarily due to ~~an increase in organic~~lower sales volumes and the acquisition of ~~5% and an increase of 2% from~~Souriau-Sunbank, partially offset by cost containment actions to mitigate the impact of ~~positive currency translation, partially offset by a decrease~~the COVID-19 pandemic.

Table of ~~1% from the sale of the business discussed Note 2.~~ Contents

Vehicle


(In millions)	2021			Change from 2020		2020			Change from 2019		2019
Net sales	$	2,579		22	%	$	2,118		(30)	%	$	3,038

Operating profit	$	449		85	%	$	243		(47)	%	$	460
Operating margin	17.4		%			11.5		%			15.1		%

Changes in Net sales are summarized as follows:
	2021					2020
Organic growth	21		%			(24)		%

Divestiture of Automotive Fluid Conveyance business	—		%			(4)		%
Foreign currency	1		%			(2)		%
Total increase (decrease) in Net sales	22		%			(30)		%

The increase in organic sales in ~~2017~~2021 was primarily due to ~~growth~~strength in ~~North America. Net sales decreased 14% in 2016~~all regions compared to ~~2015~~2020 which was significantly impacted by plant shutdowns due to ~~a decrease in~~the COVID-19 pandemic. This organic growth was achieved despite the Vehicle business segment's organic sales being negatively impacted in 2021 as a result of ~~13%~~its customers experiencing supply chain constraints leading to reduced production levels and ~~a decrease of 1% from the impact of negative currency translation.~~historic low vehicle inventory. The decrease in organic sales in ~~2016~~2020 was driven by plant shutdowns in the second quarter of 2020, lower Class 8 OEM production, and weakness in light vehicle sales primarily due to the ~~lower North American Class 8 truck market.~~impact from the COVID-19 pandemic.

~~Operating~~The operating margin increased from ~~15.0%~~11.5% in ~~2016~~2020 to ~~16.1%~~17.4% in ~~2017. The increase in operating margin in 2017 was~~2021 primarily due to higher sales volumes ~~lower restructuring costs,~~ and savings from restructuring actions, partially offset by commodity ~~inflation~~ and ~~unfavorable product mix. Operating~~logistics inflation. The operating margin decreased from ~~17.5%~~15.1% in ~~2015~~2019 to ~~15.0%~~11.5% in ~~2016.~~2020 primarily due to lower sales volumes, partially offset by cost containment actions to mitigate the impact of the COVID-19 pandemic.

eMobility


(In millions)	2021			Change from 2020		2020			Change from 2019		2019
Net sales	$	343		17	%	$	292		(9)	%	$	321

Operating profit (loss)	$	(29)		(263)	%	$	(8)		(147)	%	$	17
Operating margin	(8.5)		%			(2.7)		%			5.3		%

Changes in Net sales are summarized as follows:
	2021					2020
Organic growth	16		%			(9)		%


Foreign currency	1		%			—		%
Total increase (decrease) in Net sales	17		%			(9)		%

The increase in organic sales in 2021 was primarily due to strength in North American and Asia Pacific regions compared to 2020 which was significantly impacted by plant shutdowns due to the COVID-19 pandemic. This organic growth was achieved despite the eMobility business segment's organic sales being negatively impacted in 2021 as a result of its customers experiencing supply chain constraints leading to reduced production levels. The decrease in organic sales in 2020 was primarily due to the impact from the COVID-19 pandemic, with particular weakness in the legacy internal combustion engine platforms.

The operating margin decreased from negative 2.7% in ~~2016~~2020 to negative 8.5% in 2021 primarily due to increased research and development costs and manufacturing start-up costs associated with new electric vehicle programs, and commodity and logistics inflation, partially offset by higher sales volumes. The operating margin decreased from 5.3% in 2019 to negative 2.7% in 2020 primarily due to lower sales volumes and increased research and development costs.

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Corporate Expense


(In millions)	2021		Change from 2020		2020		Change from 2019		2019

Intangible asset amortization expense	$	444	25	%	$	354	(4)	%	$	367
Interest expense - net	144		(3)	%	149		(25)	%	199
Pension and other postretirement benefits (income) expense	(65)		(263)	%	40		233	%	12
Restructuring program charges	78		(64)	%	214		NM		—

Other expense - net	209		(52)	%	434		(20)	%	542
Total corporate expense	$	810	(32)	%	$	1,191	6	%	$	1,120

Total corporate expense was $810 million in 2021 compared to Total corporate expense of $1,191 million in 2020. The decrease in Total corporate expense was primarily due to lower ~~sales volume~~Other expense - net, lower Restructuring program charges, and ~~unfavorable product mix,~~the favorable impact of the freeze on the Company's United States pension plans, partially offset by ~~savings from restructuring actions and other cost control measures.~~

~~Corporate Expense (Income)~~

2017
Change
from 2016
2016*
Change
from 2015
2015*
Amortization of intangible assets $ 388
(1 )% $ 392
(3 )% $ 406
Interest expense - net 246
6 % 233
— % 232
Pension and other postretirement benefits expense 45
(25 )% 60
(54 )% 130
Gain on sale of a business (1,077 ) NM
—
NM
—
Other corporate expense - net 244
57 % 155
(33 )% 232
Total corporate expense (income) $ (154 ) (118 )% $ 840
(16 )% $ 1,000

* Year ended December 31, 2016 and 2015 amounts have been revisedhigher Intangible asset amortization expense due to ~~reflect the change~~acquisitions of businesses. The decrease in ~~inventory accounting method, as described in Notes 1 and 14 to the consolidated financial statements.~~

~~Corporate results were income of $154 in 2017 compared to~~Other expense ~~of $840 in 2016. The change in Total corporate expense (income) in 2017 was~~- net is primarily due to the 2021 gain on sale of the Hydraulics business exceeding the 2020 gain on the sale of the Lighting business ~~discussed in Note 2,~~by $396 million. This decrease was partially offset by ~~an increase in~~higher acquisition and divestiture charges and higher other corporate ~~expense.~~expenses due to the removal of the temporary cost containment actions taken during 2020 to mitigate the impact of the COVID-19 pandemic. Total corporate expense ~~decreased 16%~~was $1,191 million in ~~2016~~2020 compared to ~~$840 from $1,000~~Total Corporate expense of $1,120 million in ~~2015~~2019. The increase in Total corporate expense was primarily due to ~~a decrease in pension and other postretirement benefits~~higher Restructuring program charges, partially offset by lower Other expense ~~and income from several insurance matters of $64 during the fourth quarter of 2016.~~- net. The decrease in ~~pension and other postretirement benefits~~Other expense ~~resulted from a change~~- net is primarily due to the ~~spot rate approach for measuring service~~2020 gain on the sale of the Lighting business, partially offset by higher acquisition and ~~interest costs, higher discount rates, and updated mortality tables.~~divestiture charges.

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LIQUIDITY, CAPITAL RESOURCES, AND ~~CHANGES IN~~ FINANCIAL CONDITION

Liquidity and 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.

On March 8, 2021, a subsidiary of Eaton issued Euro denominated notes (2021 Euro Notes) with a face value of €1,500 million ($1,798 million), 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 million and €600 million, 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 million ($1,790 million) from the issuance, net of financing costs and discounts.

On May 17, 2021, the Company ~~maintains~~entered into a $2,500 million 364-day revolving credit facility, which brought the Company’s total revolving credit facilities to $4,500 million. At June 30, 2021, the Company had access to the commercial paper markets through ~~a $2,000~~its $4,500 million commercial paper ~~program.~~ program, of which $3,372 million was outstanding including funds to finance the acquisition of Cobham Mission Systems discussed in Note 2. Eaton used the proceeds from the sale of the Hydraulics business, which was completed August 2, 2021, to reduce its outstanding commercial paper borrowings.

On ~~November 17, 2017, Eaton refinanced a~~September 22, 2021, the Company downsized the 364-day revolving credit facility from $2,500 million to $500 million, which reduced the Company's total revolving credit facilities to $2,500 million. In September 2021, the Company also downsized its commercial paper program to $2,500 million.

On October 4, 2021, the Company replaced its existing $500 million 364-day revolving credit facility, $750 million five-year revolving credit facility, $500 million four-year revolving credit facility, ~~with a $500, three-year revolving credit facility that will expire November 17, 2020~~ and ~~also refinanced a~~ $750 million five-year revolving credit facility, with a ~~$750,~~new $500 million 364-day revolving credit facility and a new $2,000 million five-year revolving credit facility that will expire ~~November 17, 2022. Eaton also maintains a $750, five-year revolving credit facility that will expire~~on October ~~14, 2021. These refinancings maintain long-term~~4, 2026. The revolving credit facilities ~~at a total of $2,000. The revolving credit facilities~~totaling $2,500 million are used to support commercial paper borrowings and are fully and unconditionally guaranteed by Eaton and certain of its direct and indirect subsidiaries on an unsubordinated, unsecured basis. There were no borrowings outstanding under ~~Eaton's~~Eaton’s revolving credit facilities at December 31, ~~2017 or 2016.~~2021. The Company maintains access to the commercial paper markets through its $2,500 million commercial paper program, of which none was outstanding on December 31, 2021. In addition to the revolving credit facilities, the Company also had available lines of credit of ~~$741~~$972 million from various banks primarily for the issuance of letters of credit, of which there was ~~$297~~$335 million outstanding at December 31, ~~2017.~~ 2021.

Eaton received proceeds of $1.4 billion from the sale of its Lighting business in 2020 and $3.1 billion from the sale of its Hydraulics business in 2021. The Company paid $4.45 billion to acquire Tripp Lite and Cobham Mission Systems in 2021.

Over the course of a year, cash, short-term investments, and short-term debt may fluctuate in order to manage global liquidity. As of December 31, 2021 and 2020, Eaton had cash of $297 million and $438 million, short-term investments of $271 million and $664 million, and short-term debt of $13 million and $1 million, respectively. Eaton believes it has the operating flexibility, cash flow, cash and short-term investment balances, availability under existing revolving credit facilities, and access to capital markets in excess of the liquidity necessary to meet future operating needs of the business, fund capital expenditures and acquisitions of businesses, as well as scheduled payments of long-term debt.

On September 15, 2017, a subsidiary of Eaton issued senior notes (the Notes) with a face amount of $1,000. The Notes are comprised of two tranches of $700 and $300 which mature in 2027 and 2047, respectively, with interest payable semi-annually at a respective rate of 3.1% and 3.9%. The issuer received proceeds totaling $993 from the issuance, net of financing costs.

On September 20, 2016, a subsidiary of Eaton issued Euro denominated notes (Euro Notes) with a face value of €550 ($615 based on the September 20, 2016 spot rate), in accordance with Regulation S promulgated under the Securities Act of 1933, as amended. The Euro Notes mature in 2024 with interest payable annually at a rate of 0.75%. After financing costs and discounts, the issuer received proceeds totaling €544 ($609 based on the September 20, 2016 spot rate) from the issuance.

For additional information on financing transactions and debt, see Note ~~6 to the Consolidated Financial Statements.~~8.

Eaton’s credit facilities and indentures governing certain long-term debt contain various covenants, the violation of which would limit or preclude the use of the credit facilities for future borrowings, or might accelerate the maturity of the related outstanding borrowings covered by the indentures. At Eaton’s present credit rating level, the most restrictive financial covenant provides that the ratio of secured debt (or lease payments due under a sale and leaseback transaction) to adjusted consolidated net worth (or consolidated net tangible assets, in each case as defined in the relevant credit agreement or indenture) may not exceed 10%. Eaton's actual ratios are substantially below the required threshold. In addition, Eaton is in compliance with each of its debt covenants for all periods presented.

~~Sources and Uses~~

Table of Contents

Cash Flows

A summary of cash flows is as follows:


(In millions)	2021		Change from 2020		2020		Change from 2019		2019
Net cash provided by operating activities	$	2,163	$	(781)	$	2,944	$	(507)	$	3,451
Net cash provided by (used in) investing activities	(1,764)		(2,161)		397		2,263		(1,866)
Net cash used in financing activities	(535)		2,723		(3,258)		(1,764)		(1,494)
Effect of currency on cash	(5)		10		(15)		(11)		(4)
Total increase (decrease) in cash	$	(141)			$	68			$	87

Operating Cash Flow

Net cash provided by operating activities ~~was $2,666~~decreased by $781 million in ~~2017, an increase of $96~~2021 compared to ~~$2,570~~2020. The decrease in ~~2016. The increase~~net cash provided by operating activities in 2021 was ~~driven by~~primarily due to higher ~~net income, and lower~~ working capital balances ~~compared~~ to ~~2016, partially offset by higher~~support the Company’s organic growth as our business segments have largely recovered from the negative impact of the COVID-19 pandemic, taxes paid on the sale of the Hydraulics business, and a $200 million pension ~~contributions, including $350 of voluntary contributions~~contribution to Eaton's U.S. qualified pension ~~plans.~~plan in 2021.

Net cash provided by operating activities ~~was $2,570~~decreased by $507 million in ~~2016, an increase of $161~~2020 compared to ~~$2,409~~2019. The decrease in ~~2015. The increase~~net cash provided by operating activities in 2020 was driven by lower ~~pension contributions and~~net income, partially offset by lower working capital balances compared to ~~2015.~~2019.

Investing Cash Flow

Net cash used in investing activities ~~was $217~~increased by $2,161 million in ~~2017, a decrease~~2021 compared to 2020. The increase in the use of cash was primarily driven by cash paid in 2021 for business acquisitions of ~~$312~~$4,500 million compared to ~~$529~~cash paid in ~~2016.~~2020 for business acquisitions of $200 million, partially offset by proceeds received in 2021 from the sale of Hydraulics business of $3,129 million compared to proceeds received in 2020 from the sale of the Lighting business of $1,408 million, and net sales of short-term investments of $379 million in 2021 compared to net purchases of $441 million in 2020. Capital expenditures were $575 million in 2021 compared to $389 million in 2020.

Net cash provided by investing activities increased by $2,263 million in 2020 compared to 2019. The ~~decrease~~increase in ~~2017~~the source of cash was primarily driven by proceeds ~~of $600~~ from the sale of the Lighting business ~~discussed in Note 2,~~and lower cash paid for business acquisitions, partially offset by net purchases of short-term investments of ~~$298~~$441 million in ~~2017~~2020 compared to ~~$40~~net purchases of $70 million in ~~2016.~~2019. Capital expenditures were ~~$520~~$389 million in ~~2017~~2020 compared to ~~$497~~$587 million in ~~2016. Eaton expects approximately $575 in capital expenditures in 2018.~~

Net cash used in investing activities was $529 in 2016, a decrease in the use of cash of $46 compared to $575 in 2015. The decrease in 2016 was primarily driven by no business acquisitions completed in 2016 and lower capital expenditures in 2016 compared to 2015, partially offset by purchases of short-term investments of $40 in 2016 compared to sales $37 in 2015. Capital expenditures were $497 in 2016 compared to $506 in 2015.

2019.

Financing Cash Flow

Net cash used in financing activities ~~was $2,442~~decreased by $2,723 million in ~~2017, an increase~~2021 compared to 2020. The decrease in the use of cash was primarily due to higher proceeds from borrowings of ~~$704~~$1,798 million in 2021 compared to ~~$1,738~~no proceeds from borrowings in ~~2016.~~2020, lower share repurchases of $122 million in 2021 compared to $1,608 million in 2020, and net proceeds of short-term debt of $20 million in 2021 compared to net payments of $254 million in 2020, partially offset by higher payments on borrowings of $1,013 million in 2021 compared to $249 million in 2020.

Net cash used in financing activities increased by $1,764 million in 2020 compared to 2019. The increase in the use of cash was primarily due to ~~higher payments on~~no proceeds from borrowings ~~of $1,554~~ in ~~2017~~2020 compared to ~~$653~~$1,232 million in ~~2016~~2019 and higher share repurchases of ~~$850~~$1,608 million in ~~2017~~2020 compared to ~~$730~~$1,029 million in ~~2016, partially offset~~2019.

Uses of Cash

Purchases of Goods and Services

The Company purchases goods and services in the normal course of business based on expected usage. For certain purchases, the Company enters into purchase obligations with various vendors, which include short-term and long-term commitments for purchases of raw materials, outstanding non-cancelable purchase orders, releases under blanket purchase orders, and commitments under ongoing service arrangements. As of December 31, 2021, the Company has purchase obligations to support the operation of its business similar to those included in historical cash flow trends.

Capital Expenditures

Capital expenditures were $575 million, $389 million, and $587 million in 2021, 2020 and 2019, respectively. Eaton expects approximately $650 million in capital expenditures in 2022.

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Dividends

Cash dividend payments were $1,219 million, $1,175 million, and $1,201 million for 2021, 2020 and 2019, respectively. On February 23, 2022, Eaton's Board of Directors declared a quarterly dividend of $0.81 per ordinary share, a 7% increase over the dividend paid in the fourth quarter of 2021. The dividend is payable on March 31, 2022 to shareholders of record on March 11, 2022. Payment of quarterly dividends in the future depends upon the Company’s ability to generate net income and operating cash flows, among other factors, and is subject to declaration by the Eaton Board of Directors. The Company intends to continue to pay quarterly dividends in 2022.

Share Repurchases

On February 27, 2019, the Board of Directors adopted a share repurchase program for share repurchases up to $5.0 billion 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 2021 and 2020, 0.9 million and 17.1 million ordinary shares, respectively, were repurchased under the 2019 Program in the open market at a total cost of $122 million and $1,608 million, respectively. The Company will continue to pursue share repurchases in 2022 depending on market conditions and capital levels. On February 23, 2022, the Board renewed the 2019 Program by providing authority for up to $5.0 billion in repurchases to be made during the three-year period commencing on that date (2022 Program).

Acquisition of Businesses

The Company paid cash of $4,500 million, $200 million, and $1,180 million to acquire businesses in 2021, 2020 and 2019, respectively. The Company will continue to focus on deploying its capital toward businesses that provide opportunities for higher ~~proceeds from borrowings~~growth and strong returns, and align with secular trends and its power management strategies.

Debt

The Company manages a number of ~~$1,000 in 2017 compared to $631 in 2016.~~short-term and long-term debt instruments, including commercial paper. For additional information on financing transactions and debt, see Note 8.

~~Net cash used in financing activities was $1,738 in 2016, a decrease in use~~Leases

See Note 7 for maturities of lease liabilities.

Unrecognized Income Tax Benefits

At December 31, 2021, the gross unrecognized income tax benefits totaled $1,120 million and interest and penalties were $128 million. Eaton cannot predict with reasonable certainty the timing of cash ~~of $567 compared to $2,305 in 2015. The decrease in~~settlements with the use of cash was primarily due to lower payments on borrowings of $653 in 2016 compared to $1,027 in 2015 and higher proceeds from borrowings of $631 in 2016 compared to $425 in 2015, partially offset by higher share repurchases of $730 in 2016 compared to $682 in 2015.

~~Credit Ratings~~

~~Eaton's debt has been assigned the following credit ratings:~~



~~Credit Rating Agency (long- /short-term rating)~~	~~Rating~~	~~Outlook~~
~~Standard & Poor's~~	~~A-/A-2~~	~~Negative outlook~~
~~Moody's~~	~~Baa1/P-2~~	~~Stable outlook~~
~~Fitch~~	~~BBB+/F2~~	~~Stable outlook~~

respective taxing authorities. For additional information about income taxes see Note 11.

Defined Benefits Plans

Pension Plans

During ~~2017,~~2021, the fair value of plan assets in the Company’s employee pension plans increased ~~$865~~$319 million to ~~$5,312~~$5,919 million at December 31, ~~2017.~~2021. The increase in plan assets was primarily due to ~~better than expected return~~strong returns on plan assets and the Company's contributions to the pension ~~plans, and the impact of positive currency translation.~~plans. At December 31, ~~2017,~~2021, the net unfunded position of ~~$1,048~~$678 million in pension liabilities consisted of ~~$279~~$819 million in plans that have no funding requirements and $97 million in plans that require funding, partially offset by $59 million in the U.S. qualified pension ~~plans, $925 in plans~~plan that ~~have no minimum funding requirements,~~is overfunded and ~~$62~~$179 million in all other ~~plans that require minimum funding, partially offset by $218 in~~ plans that are overfunded.

Funding requirements are a major consideration in making contributions to Eaton’s pension plans. With respect to the Company’s pension plans worldwide, the Company intends to contribute annually not less than the minimum required by applicable law and regulations. In ~~2017, $473~~2021, $343 million was contributed to the pension plans. The Company anticipates making ~~$112~~$114 million of contributions to certain pension plans during ~~2018.~~2022. The funded status of the Company’s pension plans at the end of ~~2018,~~2022, and future contributions, will depend primarily on the actual return on assets during the year and the discount rate used to calculate certain benefits at the end of the year. ~~Depending~~For additional information about pension plans see Note 9.

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Supply Chain Finance Program

The Company negotiates payment terms directly with its suppliers for the purchase of goods and services. In addition, a third-party financial institution offers a voluntary supply chain finance (SCF) program that enables certain of the Company’s suppliers, at the supplier’s sole discretion, to sell receivables due from the Company to the financial institution on ~~these factors,~~terms directly negotiated with the financial institution. If a supplier elects to participate in the SCF program, the supplier decides which invoices are sold to the financial institution and the ~~resulting funded status~~Company has no economic interest in a supplier’s decision to sell an invoice. The SCF program does not have a significant impact on the Company’s liquidity as payments by the Company to participating suppliers are paid to the financial institution on the invoice due date, regardless of whether an individual invoice is sold by the supplier to the financial institution. The amounts due to the financial institution for suppliers that participate in the SCF program are included in Accounts payable on the Company’s Consolidated Balance Sheets, and the associated payments are included in operating activities on the Consolidated Statements of Cash Flows. At  December 31, 2021 and 2020, Accounts payable included $151 million and $15 million, respectively, payable to suppliers that have elected to participate in the SCF program.

Guaranteed Debt

Issuers, Guarantors and Guarantor Structure

Eaton Corporation has issued senior notes pursuant to indentures dated April 1, 1994 (the 1994 Indenture), November 20, 2012 (the 2012 Indenture) and September 15, 2017 (the 2017 Indenture). The senior notes of Eaton Corporation are registered under the Securities Act of 1933, as amended (the Registered Senior Notes). Eaton Corporation is also the issuer of one outstanding series of privately placed debt securities (the PPNs), and Eaton Capital Unlimited Company, another subsidiary of Eaton, is the issuer of four outstanding series of debt securities sold in offshore transactions under Regulation S promulgated under the Securities Act (the Eurobonds). The PPNs, the Eurobonds and the Registered Senior Notes (together, the Senior Notes) comprise substantially all of Eaton’s long-term indebtedness.

Substantially all of the ~~pension plans,~~Senior Notes, together with the ~~level~~credit facilities described above under Financial Condition and Liquidity (the Credit Facilities), are guaranteed by Eaton and 18 of its subsidiaries. Accordingly, they rank equally with each other. However, because these obligations are not secured, they would be effectively subordinated to any existing or future ~~contributions could~~secured indebtedness of Eaton and its subsidiaries. As of December 31, 2021, Eaton has no material, long-term secured debt. The guaranteed Registered Senior Notes are also structurally subordinated to the liabilities of Eaton's subsidiaries that are not guarantors. Except as described below under Future Guarantors, Eaton is not obligated to cause its subsidiaries to guarantee the Registered Senior Notes.

The table set forth in Exhibit 22 filed with the 2020 Form 10-K filed on February 24, 2021, details the primary obligors and guarantors with respect to the guaranteed Registered Senior Notes.

Terms of Guarantees of Registered Securities

Payment of principal and interest on the Registered Senior Notes is guaranteed, on an unsecured, unsubordinated basis by the subsidiaries of Eaton set forth in the table referenced in Exhibit 22. Each guarantee is full and unconditional, and joint and several. Each guarantor's guarantee is an unsecured obligation that ranks equally with all its other unsecured and unsubordinated indebtedness. The obligations of each guarantor under its guarantee of the Registered Senior Notes is subject to a customary savings clause or similar provision designed to prevent such guarantee from constituting a fraudulent conveyance or otherwise legally impermissible or voidable obligation.

Generally, each guarantee of the Registered Senior Notes by a guarantor other than Eaton provides that it will be ~~materially higher~~automatically and unconditionally released and discharged upon:

(a)the consummation of any transaction permitted under the applicable indenture resulting in such guarantor ceasing to be a subsidiary, such as a sale to a third party;

(b)such guarantee (so long as the guarantor is not obligated under any other U.S. debt obligations), becoming prohibited by any applicable law, rule or ~~lower~~regulation or by any contractual obligation;

(c)such guarantee resulting in material adverse tax consequences to Eaton or any of its subsidiaries (so long as the applicable guarantor is not obligated under any other U.S. debt obligation); or

(d)such guarantor becoming a controlled foreign corporation within the meaning Section 957(a) of the Internal Revenue Code (a CFC), or an entity the material assets of which is limited to equity interests of a CFC.

Notwithstanding the foregoing, each guarantee by a direct or indirect parent of Eaton Corporation (other than Eaton) provides that it will be released only under the circumstances described in ~~2017.~~subparagraphs (b) and (c) above.

~~Off-Balance Sheet Arrangements~~

The guarantee of Eaton does not contain any release provisions.

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Future Guarantors

The 2012 and 2017 Indentures generally provide that, with certain limited exceptions, any subsidiary of Eaton must become a guarantor if it becomes obligated as borrower or guarantor under any series of debt securities or a syndicated credit facility. Further, any entity that becomes a direct or indirect parent entity of Eaton Corporation and holds any material assets, with certain limited exceptions, or owes any material liabilities must become a guarantor.

The 1994 Indenture does not contain provisions with respect to future guarantors.

Summarized Financial Information of Guarantors and Issuers


(In millions)	December 31, 2021
Current assets	$	3,032
Noncurrent assets	11,553
Current liabilities	3,950
Noncurrent liabilities	8,461
Amounts due to subsidiaries that are non-issuers and non-guarantors - net	18,006


(In millions)	2021
Net sales	$	10,261
Sales to subsidiaries that are non-issuers and non-guarantors	873
Cost of products sold	8,413
Expense from subsidiaries that are non-issuers and non-guarantors - net	435
Net income	504

The financial information presented is that of Eaton Corporation and the Guarantors, which includes Eaton Corporation plc, on a combined basis and the financial information of non-issuer and non-guarantor subsidiaries has been excluded. Intercompany balances and transactions between Eaton Corporation and Guarantors have ~~off-balance sheet arrangements or financings~~been eliminated, and amounts due from, amounts due to, and transactions with ~~unconsolidated entities or other persons. In~~non-issuer and non-guarantor subsidiaries have been presented separately.

Credit Ratings

Eaton's debt has been assigned the ~~ordinary course~~following credit ratings:

Credit Rating Agency (long- /short-term rating)

Rating

Outlook

Standard & Poor's

A-/A-2

Stable outlook

Moody's

Baa1/P-2

Stable outlook

Fitch

BBB+/F2

Negative outlook

Table of ~~business, the Company leases certain real properties and equipment, as described in Note 8 to the Consolidated Financial Statements.~~Contents

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with generally accepted accounting principles (GAAP) in the United States requires management to make certain estimates and assumptions that may involve the exercise of significant judgment. For any estimate or assumption used, there may be other reasonable estimates or assumptions that could have been used. However, based on facts and circumstances inherent in developing estimates and assumptions, management believes it is unlikely that applying other such estimates and assumptions would have caused materially different amounts to have been reported. Actual results may differ from these estimates.

Revenue Recognition

Sales ~~of products~~ are recognized when ~~a sales agreement is in place, products have been shipped to unaffiliated customers and title has~~control of promised goods or services are transferred in accordance with shipping terms, the selling price is fixed and determinable and collectability is reasonably assured, all significant related acts of performance have been completed, and no other significant uncertainties exist. Shipping and handling costs billed to customers ~~are included~~ in ~~Net sales~~an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Control is transferred when the customer has the ability to direct the use of and obtain benefits from the ~~related costs in Cost of products sold. Although the~~goods or services. The majority of the Company’s sales agreements contain ~~standard terms and conditions, there~~performance obligations satisfied at a point in time when control is transferred to the customer. Sales recognized over time are ~~agreements that contain multiple elements or non-standard terms and conditions. As a result, judgment is required~~generally accounted for using an input measure to determine progress completed at the ~~appropriate accounting, including whether~~end of the deliverables specified in these agreements should be treated as separate units of accounting for recognition purposes, and, if so, how the sales price should be allocated among the elements and when to recognize sales for each element. For delivered elements, sales generally are recognized only when the delivered elements have standalone value and there are no uncertainties regarding customer acceptance.period. Sales for service contracts generally are recognized as the services are provided. For agreements with multiple performance obligations, judgment is required to determine whether performance obligations specified in these agreements are distinct and should be accounted for as separate revenue transactions for recognition purposes. In these types of agreements, we generally allocate sales price to each distinct obligation based on the price of each item sold in separate transactions.

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

Impairment of Goodwill and Other Long-Lived Assets

Goodwill

Goodwill is evaluated annually for impairment as of July 1 using either a quantitative or qualitative analysis. Goodwill is tested for impairment at the reporting unit level, ~~which~~and is ~~equivalent to Eaton's operating segments and~~ based on the net assets for each ~~segment,~~reporting unit, including goodwill and intangible assets. The Company’s reporting units are equivalent to the reportable operating segments, except for the Aerospace segment which has two reporting units. Goodwill is assigned to each ~~operating segment,~~reporting unit, as this represents the lowest level that constitutes a business and is the level at which management regularly reviews the operating results. The Company performs a quantitative analysis using a discounted cash flow model and other valuation techniques, but may elect to perform a qualitative analysis.

Additionally, goodwill is evaluated for impairment whenever an event occurs or circumstances change that would indicate that it is more likely than not that the fair value of ~~an operating segment~~a reporting unit is less than its carrying amount. Events or circumstances that may result in an impairment review include changes in macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, other relevant entity-specific events, specific events affecting the reporting unit or sustained decrease in share price.

~~Goodwill~~The annual goodwill impairment ~~testing for 2017~~test was performed using a qualitative analysis in 2021 and 2020, except for the eMobility reporting unit which used a quantitative analysis. A qualitative analysis is performed by assessing certain trends and factors, ~~that require significant judgment,~~ including projected market outlook and growth rates, forecasted and actual sales and operating profit margins, discount rates, industry data, and other relevant qualitative factors. These trends and factors are compared to, and based on, the assumptions used in the most recent quantitative ~~assessment.~~analysis performed for each reporting unit. The results of ~~these~~the qualitative analyses did not indicate a need to perform a quantitative analysis.

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Based on ~~the qualitative~~these analyses performed in ~~2017~~2021 and ~~quantitative analysis performed in 2016,~~2020, the fair ~~values~~value of Eaton's reporting units continue to substantially exceed their respective carrying ~~amounts.~~amounts and thus, no impairment exists.

Indefinite Life Intangible Assets

Sensitivity analyses were performed around certain of these assumptions in order to assess the reasonableness of the assumptions and the resulting estimated fair values.

Additionally, indefinite life intangible assets are evaluated for impairment whenever an event occurs or circumstances change that would indicate that it is more likely than not that the asset is impaired. Events or circumstances that may result in an impairment review include changes in industry and market considerations, cost factors, financial performance, and other relevant entity-specific events that could affect inputs used to determine the respective fair values of the indefinite-lived intangible assets.

For ~~2017~~2021 and ~~2016,~~2020, the fair value of indefinite lived intangible assets exceeded the respective carrying value.

~~Other Long-Lived Assets~~

Other long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable. Events or circumstances that may result in an impairment review include operations reporting losses, a significant adverse change in the use of an asset, the planned disposal or sale of the asset, a significant adverse change in the business climate or legal factors related to the asset, or a significant decrease in the estimated market value of an asset. Upon indications of impairment, assets and liabilities are grouped at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. The asset group would be considered impaired when the estimated future net undiscounted cash flows generated by the asset group are less than its carrying value. In instances where the carrying amount of the asset group exceeded the undiscounted cash flows, the fair value of the asset group would be determined and an impairment loss would be recognized based on the amount by which the carrying value of the asset group exceeds its fair value. Determining asset groups and underlying cash flows requires the use of significant judgment.

For additional information about goodwill and other intangible assets see Note 56.

Acquisitions of Businesses

The acquisition of a business is accounted for using the acquisition method of accounting which requires assets and liabilities to be recognized at their fair values on the acquisition date. The initial fair value of assets acquired and liabilities assumed may be revised based on the final determination of fair value during the measurement period of 12 months from the acquisition date. The Company generally determines the fair value of intangible assets acquired using third-party valuations that are prepared using discounted cash flow models that rely on the Company's estimates. These estimates require judgement of future revenue growth rates, future margins, and the applicable weighted-average cost of capital used to discount those estimated cash flows. Sensitivity analyses were performed around certain of these assumptions in order to assess the reasonableness of the assumptions and the resulting estimated fair values. For additional information about the acquisitions of businesses see Note 2.

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Divestitures of Businesses

The Company records assets and liabilities of a business to be sold as held for sale in the Consolidated Balance Sheet when all the required criteria are met. The held for sale assets and liabilities are initially measured at the lesser of their carrying value or fair value less cost to sell, with any resulting loss being immediately recognized. In each subsequent reporting period until the business is sold, the Company continues to estimate the fair value less cost to sell of the business and recognizes any additional losses, or any gains to the ~~Consolidated Financial Statements.~~extent losses were previously recorded on the held for sale assets and liabilities.

In the first quarter of 2020, 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. For additional information about the divestitures of businesses see Note 2.

Recoverability of Deferred Income Tax Assets

Eaton is subject to the income tax laws in the jurisdictions in which it operates. In order to determine the income tax provision for financial statement purposes, Eaton must make significant estimates and judgments about its business operations in these jurisdictions. These estimates and judgments are also used in determining the deferred income tax assets and liabilities that have been recognized for differences between the financial statement and income tax basis of assets and liabilities, and income tax loss carryforwards and income tax credit carryforwards.

Management evaluates the realizability of deferred income tax assets for each jurisdiction in which it operates. If the Company experiences cumulative ~~pretax~~pre-tax income in a particular jurisdiction in a three-year period including the current and prior two years, management normally concludes that the deferred income tax assets will more likely than not be realizable and no valuation allowance is recognized, unless known or planned operating developments, or changes in tax laws, would lead management to conclude otherwise. However, if the Company experiences cumulative ~~pretax~~pre-tax losses in a particular jurisdiction in a three-year period including the current and prior two years, management then considers a series of factors in the determination of whether the deferred income tax assets can be realized. These factors include historical operating results, known or planned operating developments, the period of time over which certain temporary differences will reverse, consideration of the utilization of certain deferred income tax liabilities, tax law carryback capability in a particular country, prudent and feasible tax planning strategies, changes in tax laws, and estimates of future earnings and taxable income using the same assumptions as those used for the Company’s goodwill and other impairment testing. After evaluation of these factors, if the deferred income tax assets are expected to be realized within the tax carryforward period allowed for that specific country, management would conclude that no valuation allowance would be required. To the extent that the deferred income tax assets exceed the amount that is expected to be realized within the tax carryforward period for a particular jurisdiction, management would establish a valuation allowance. For additional information about income taxes see Note 911.

Unrecognized Income Tax Benefits

Eaton recognizes an income tax benefit from an uncertain tax position only if it is more likely than not that the benefit would be sustained upon examination by taxing authorities, based on the technical merits of the position. The Company evaluates and adjusts the amount of unrecognized income tax benefits based on changes in law, facts and circumstances. Eaton also estimates, where reasonably possible, the increase or decrease in the amount of unrecognized income tax benefits in the next 12 months.

The evaluation and determination of the amount of unrecognized income tax benefits related to uncertain tax positions is complex and involves both the ~~Consolidated Financial Statements.~~exercise of judgement and the utilization of certain estimates and assumptions. Each tax position carries unique facts and circumstances that must be evaluated in light of current tax laws, regulations, and judicial decisions. Additionally, the ultimate resolution of the majority of Eaton’s unrecognized income tax benefits is dependent upon uncontrollable factors such as the timing of finalizing resolutions of audit disputes through reaching settlement agreements or concluding litigation, or changes in law.

Pension and Other Postretirement Benefits Plans

The measurement of liabilities related to pension plans and other postretirement benefits plans is based on assumptions related to future events including interest rates, return on plan assets, rate of compensation increases, and health care cost trend rates. Actual plan asset performance will either reduce or increase losses included in accumulated other comprehensive loss, which ultimately affects net income.

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The discount rate for United States plans was determined by discounting the expected future benefit payments using a theoretical zero-coupon spot yield curve derived from a universe of high-quality bonds as of the measurement date and solving for the single rate that ~~generated~~would generate the same benefit obligation. Only corporate bonds with a rating of Aa, ~~or higher~~determined by ~~either~~averaging the ratings by Moody’s, or Standard & Poor's, and Fitch, were included. Callable bonds that are not make-whole bonds and certain other non-comparable bonds were eliminated. Finally, a subset of bonds was selected by grouping the universe of bonds by duration and retaining 50% of the bonds that had the highest yields.

The discount rates for non-United States plans were determined by region and are based on high quality long-term corporate and government bonds. Consideration has been given to the duration of the liabilities in each plan when selecting the bonds to be used in determining the discount rate.

~~In 2016, the Company adopted a change in the method it uses to~~To estimate the service and interest cost components of net periodic benefit cost for ~~its defined benefit pension and other postretirement benefit plans. Prior to 2016, for~~ the vast majority of its ~~plans, the service~~defined benefits pension and interest cost components were estimated using a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. Beginning in 2016,other postretirement benefits plans, the Company used a spot rate approach by applying the specific spot rates along the yield curve used to measure the benefit obligation at the beginning of the period to the relevant projected cash flows in the estimation of the service and interest components of benefit cost, resulting in a more precise measurement. This change does not affect the measurement of total benefit obligations. The change was accounted for as a change in estimate and, accordingly, was accounted for prospectively starting in 2016. The reductions in service cost and interest cost for 2016 associated with this change in estimate were $3 and $42, respectively.flows.

Key assumptions used to calculate pension and other postretirement benefits expense are adjusted at each year-end. A 1-percentage point change in the assumed rate of return on pension plan assets is estimated to have approximately a ~~$46~~$54 million effect on pension expense. Likewise, a 1-percentage point change in the discount rate is estimated to have approximately a ~~$69~~$48 million effect on pension expense. A 1-percentage point change in the assumed rate of return on other postretirement benefits assets is estimated to have ~~approximately a~~less than $1 million effect on other postretirement benefits expense. A 1-percentage point change in the discount rate is estimated to have ~~approximately a $3~~less than $1 million effect on expense for other postretirement benefits plans.

Additional information related to changes in key assumptions used to recognize expense for other postretirement benefits plans is found in Note ~~7 to the Consolidated Financial Statements.~~9.

~~Environmental Contingencies~~

As a result of past operations, Eaton is involved in remedial response and voluntary environmental remediation at a number of sites, including certain of its currently-owned or formerly-owned plants. The Company has also been named a potentially responsible party under the United States federal Superfund law, or the state equivalents thereof, at a number of disposal sites.

A number of factors affect the cost of environmental remediation, including the number of parties involved at a particular site, the determination of the extent of contamination, the length of time the remediation may require, the complexity of environmental regulations, and the continuing advancement of remediation technology. Taking these factors into account, Eaton has estimated the costs of remediation, which will be paid over a period of years. The Company accrues an amount on an undiscounted basis, consistent with the estimates of these costs, when it is probable that a liability has been incurred. At December 31, 2017 and 2016, $120 and $124, respectively, was accrued for these costs.

Based upon Eaton's analysis and subject to the difficulty in estimating these future costs, the Company expects that any sum it may be required to pay in connection with environmental matters is not reasonably possible to exceed the recorded liability by an amount that would have a material effect on its financial position, results of operations or cash flows.

MARKET RISK DISCLOSURE

On a regular basis, Eaton monitors third-party depository institutions that hold its cash and short-term investments, primarily for safety of principal and secondarily for maximizing yield on those funds. The Company diversifies its cash and short-term investments among counterparties to minimize exposure to any one of these entities. Eaton also monitors the creditworthiness of its customers and suppliers to mitigate any adverse impact.

Eaton uses derivative instruments to manage exposure to volatility in raw material costs, currency, and interest rates on certain debt instruments. Derivative financial instruments used by the Company are straightforward and non-leveraged. 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. See Note ~~13 to the Consolidated Financial Statements~~15 for additional information about hedges and derivative financial instruments.

Eaton’s ability to access the commercial paper market, and the related cost of these borrowings, is based on the strength of its credit rating and overall market conditions. ~~The~~During 2021, the Company has not experienced any material limitations in its ability to access these sources of liquidity. At December 31, ~~2017,~~2021, Eaton had ~~$2,000~~$2,500 million of long-term revolving credit facilities with banks in support of its commercial paper program. It has no borrowings outstanding under these revolving credit facilities.

Interest rate risk can be measured by calculating the short-term earnings impact that would result from adverse changes in interest rates. This exposure results from short-term debt, which includes commercial paper at a floating interest rate, long-term debt that has been swapped to floating rates, and money market investments that have not been swapped to fixed rates. Based upon the balances of investments and floating rate debt at year end ~~2017,~~2021, a 100 ~~basis-point~~basis point increase in short-term interest rates would have increased the Company’s net, ~~pretax~~pre-tax interest expense by ~~$30.~~

$15 million.

Eaton also measures interest rate risk by estimating the net amount by which the fair value of the Company’s financial liabilities would change as a result of movements in interest rates. Based on Eaton’s best estimate for a hypothetical, 100 basis point ~~decrease~~increase in interest rates at December 31, ~~2017,~~2021, the market value of the Company’s debt and interest rate swap portfolio, in aggregate, would ~~increase~~decrease by ~~$537.~~$503 million.

Table of Contents

In July 2017, the United Kingdom’s Financial Conduct Authority, which regulates the London Interbank Offered Rate (LIBOR), announced it intends to phase out LIBOR. The final publication of rates for certain USD LIBOR tenors is expected to be on June 30, 2023. Various parties, including government agencies, are seeking to identify alternative rates to replace LIBOR. The Company has established a cross-functional project team to evaluate the potential impacts of alternative rates as replacements to LIBOR in the Company’s contracts, which primarily include revolving credit facilities, fixed-to-floating interest rate swaps, and forward starting floating-to-fixed interest rate swaps. As of December 31, 2021, the Company’s $500 million 364-day revolving credit facility that will expire on October 3, 2022 and $2,000 million five-year revolving credit facility that will expire on October 4, 2026 both include a transition process from LIBOR to an alternative rate. The Company’s interest rate swaps are expected to settle prior to June 30, 2023. The Company continues to evaluate the potential impacts of the transition from LIBOR to alternative rates in its contracts and the transition is not expected to have a material impact on the consolidated financial statements.

The Company is exposed to fluctuations in commodity prices due to volatility in raw material costs and contractual agreements with suppliers. To partially mitigate this exposure, Eaton enters into commodity contracts for certain raw material purchases with the objective of minimizing changes in inventory cost due to market price fluctuations. These commodity contracts are designated for hedge accounting and are generally less than one year in duration. Based on Eaton’s best estimate for a hypothetical 10% fluctuation in commodity prices the gain or loss would be $4 million. The sensitivity analysis of the effects of changes in commodity prices assumes the notional value to remain constant for the next 12 months. Any change in the value of the contracts would be offset by an inverse change in the value of the underlying hedged transactions.

The Company is exposed to currency risk associated with translating its functional currency financial statements into its reporting currency, which is the U.S. dollar. As a result, the Company is exposed to movements in the exchange rates of various currencies against the U.S. dollar. Eaton also monitors exposure to transactions denominated in currencies other than the functional currency of each country in which the Company operates, and regularly enters into forward contracts to mitigate that exposure. In the aggregate, Eaton’s portfolio of forward contracts related to such transactions was not material to its Consolidated Financial Statements.

~~CONTRACTUAL OBLIGATIONS~~

~~A summary of contractual obligations as of December 31, 2017 follows:~~

2018
2019
to
2020

2021
to
2022
Thereafter Total
Long-term debt, including current portion⁽¹⁾
$ 578
$ 581
$ 2,003
$ 4,549
$ 7,711
Interest expense related to long-term debt 284
497
453
1,965
3,199
Reduction of interest expense from interest rate swap agreements related to long-term debt (19 ) (14 ) (12 ) (46 ) (91 )
Operating leases 159
204
105
71
539
Purchase obligations 958
93
9
4
1,064
Other obligations 155
9
8
23
195
Total $ 2,115
$ 1,370
$ 2,566
$ 6,566
$ 12,617

⁽¹⁾Long-term debt excludes deferred gains and losses on derivatives related to debt, adjustments to fair market value, and premiums and discounts on long-term debentures.

Interest expense related to long-term debt is based on the fixed interest rate, or other applicable interest rate, related to the debt instrument. The reduction of interest expense due to interest rate swap agreements related to long-term debt is based on the difference in the fixed interest rate the Company receives from the swap, compared to the floating interest rate the Company pays on the swap. Purchase obligations are entered into with various vendors in the normal course of business. These amounts include commitments for purchases of raw materials, outstanding non-cancelable purchase orders, releases under blanket purchase orders, and commitments under ongoing service arrangements. Other long-term obligations principally include anticipated contributions of $112 to pension plans in 2018 and $45 of deferred compensation earned under various plans for which the participants have elected to receive disbursement at a later date.

The table above does not include future expected pension benefit payments or expected other postretirement benefits payments. Information related to the amounts of these future payments is described in Note 7 to the Consolidated Financial Statements. The table above also excludes the liability for unrecognized income tax benefits, since the Company cannot predict with reasonable certainty the timing of cash settlements with the respective taxing authorities. At December 31, 2017, the gross liability for unrecognized income tax benefits totaled $735 and interest and penalties were $80.

FORWARD-LOOKING STATEMENTS

This Annual Report to Shareholders contains forward-looking statements concerning litigation and regulatory developments, expected pension or other post-retirement ~~benefit~~benefits payments, contributions and rates of return, expected backlog recognition, expected restructuring charges and benefits, expected future ~~liquidity.~~liquidity, and our intended response to climate risks and opportunities. 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: the course of the COVID-19 pandemic and government responses thereto; 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; supply chain disruptions, competitive pressures on sales and pricing; unanticipated changes in the cost of material, labor and other production costs, or unexpected costs that cannot be recouped in product pricing; the introduction of competing technologies; unexpected technical or marketing difficulties; unexpected claims, charges, litigation or dispute resolutions; strikes or other labor unrest; the impact of acquisitions and divestitures; unanticipated difficulties integrating acquisitions; new laws and governmental regulations; interest rate changes; tax rate changes or exposure to additional income tax liability; stock market and currency fluctuations; war, natural disasters, civil or political unrest or terrorism; and unanticipated deterioration of economic and financial conditions in the United States and around the world. Eaton does not assume any obligation to update these forward-looking statements.

~~QUARTERLY DATA~~ ~~(unaudited)~~

Quarter ended in 2017 Quarter ended in 2016
(In millions except for per share data) Dec. 31 Sept. 30* June 30* Mar. 31* Dec. 31* Sept. 30* June 30* Mar. 31*
Net sales $ 5,213
$ 5,211
$ 5,132
$ 4,848
$ 4,867
$ 4,987
$ 5,080
$ 4,813
Gross profit 1,678
1,745
1,684
1,541
1,548
1,613
1,658
1,519
Percent of net sales 32.2 % 33.5 % 32.8 % 31.8 % 31.8 % 32.3 % 32.6 % 31.6 %
Income before income taxes 635
1,694
572
467
559
570
550
439
Net income 634
1,401
517
434
508
520
490
401
Less net (income) loss for
noncontrolling interests
—
—
(1 ) —
(4 ) 1
(1 ) 1
Net income attributable to Eaton ordinary shareholders $ 634
$ 1,401
$ 516
$ 434
$ 504
$ 521
$ 489
$ 402

Net income per share attributable to Eaton ordinary shareholders
Diluted $ 1.43
$ 3.14
$ 1.15
$ 0.96
$ 1.12
$ 1.14
$ 1.07
$ 0.87
Basic 1.44
3.16
1.16
0.97
1.12
1.15
1.07
0.88

Cash dividends declared per
ordinary share
$ 0.60
$ 0.60
$ 0.60
$ 0.60
$ 0.57
$ 0.57
$ 0.57
$ 0.57

Market price per ordinary share
High $ 82.34
$ 81.63
$ 79.31
$ 74.63
$ 70.00
$ 68.20
$ 63.98
$ 63.99
Low 74.90
69.82
73.42
66.60
59.07
58.28
54.30
46.19

Earnings per share for the four quarters in a year may not equal full year earnings per share.

Acquisition integration charges included in Income before income taxes are as follows:

Quarter ended in 2017 Quarter ended in 2016
Dec. 31 Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
Acquisition integration charges $ 1
$ 1
$ 1
$ 1
$ 1
$ 1
$ 1
$ 1

*Certain amounts have been adjusted to reflect the retrospective application of the Company's change in inventory accounting method, as described in Notes 1 and 14 to the consolidated financial statements.

~~FIVE-YEAR CONSOLIDATED FINANCIAL SUMMARY~~ ~~(unaudited)~~

(In millions except for per share data) 2017 2016* 2015* 2014* 2013*
Net sales $ 20,404
$ 19,747
$ 20,855
$ 22,552
$ 22,046
Income before income taxes 3,368
2,118
2,133
1,762
1,870
Net income 2,986
1,919
1,974
1,804
1,864
Less net income for noncontrolling interests (1 ) (3 ) (2 ) (10 ) (12 )
Net income attributable to Eaton ordinary shareholders $ 2,985
$ 1,916
$ 1,972
$ 1,794
$ 1,852

Net income per share attributable to Eaton ordinary shareholders
Diluted $ 6.68
$ 4.20
$ 4.22
$ 3.76
$ 3.88
Basic 6.71
4.21
4.23
3.78
3.91

Weighted-average number of ordinary shares outstanding
Diluted 447.0
456.5
467.1
476.8
476.7
Basic 444.5
455.0
465.5
474.1
473.5

Cash dividends declared
per ordinary share
$ 2.40
$ 2.28
$ 2.20
$ 1.96
$ 1.68

Total assets $ 32,623
$ 30,476
$ 31,059
$ 33,557
$ 35,511
Long-term debt 7,167
6,711
7,746
7,982
8,920
Total debt 7,751
8,277
8,414
8,992
9,500
Eaton shareholders' equity 17,253
14,954
15,249
15,856
16,860
Eaton shareholders' equity
per ordinary share
$ 39.22
$ 33.28
$ 33.24
$ 33.89
$ 35.49
Ordinary shares outstanding 439.9
449.4
458.8
467.9
475.1

*Certain amounts for the years 2013 through 2016 have been adjusted to reflect the retrospective application of the Company's change in inventory accounting method, as described in Notes 1 and 14 to the consolidated financial statements.



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

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



TABLE OF CONTENTS
Part I		2
Item 1.	Business	2
Item 1A.	Risk Factors	35
Item 1B.	Unresolved Staff Comments	58
Item 2.	Properties	58
Item 3.	Legal Proceedings	58
Item 4.	Mine Safety Disclosures	58
~~Part II~~Item 4A.	Information about our Executive Officers	69
Part II		10
Item 5.	Market for the Registrant's Ordinary Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	610
Item 6.	~~Selected Financial Data~~[Reserved]	610
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	610
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	710
Item 8.	Financial Statements and Supplementary Data	711
Item 9.	Change in and Disagreements with Accountants on Accounting and Financial Disclosure	711
Item 9A.	Controls and Procedures	711
Item 9B.	Other Information	711
~~Part III~~Item 9C.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.	811
Part III		11
Item 10.	Directors, Executive Officers and Corporate Governance	811
Item 11.	Executive Compensation	912
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	912
Item 13.	Certain Relationships and Related Transactions, and Director Independence	912
Item 14.	Principal Accounting Fees and Services	1012
Part IV		1012
Item 15.	Exhibits, Financial Statement Schedules	1012
Item 16.	Form 10-K Summary	1416
SIGNATURES		1517


	Total Global	Number of women (Global)	Percentage of women (Global)		U.S. total	Number of minorities (U.S. only)1	Percentage of minorities (U.S. only)1
Board of directors	12	4	33.3	%	10	4	40.0	%
Global leadership team	25	6	24.0	%	23	13	56.5	%
Executives	587	137	23.3	%	413	70	16.9	%
Managers	7,185	1,697	23.6	%	3,668	731	19.9	%
All other employees	78,150	26,827	34.3	%	20,171	7,340	36.4	%
All employees	85,947	28,667	33.4	%	24,275	8,154	33.6	%



Month	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Approximate dollar value of shares that may yet be purchased under the plans or programs (in millions)
October	—	$	—	—	$	1,064
November	781,958	$	78.77	781,958	$	1,002
December	—	$	—	—	$	1,002
Total	781,958	$	78.77	781,958



~~Name~~	~~Age~~	~~Position (Date elected to position)~~
~~Craig Arnold~~	57	~~Chairman of Eaton Corporation plc (June 1, 2016 - present)~~
		~~Chief Executive Officer of Eaton Corporation (June 1, 2016 - present)~~
		~~Director of Eaton Corporation plc (September 1, 2015 - present)~~
		~~President and Chief Operating Officer of Eaton Corporation~~
		~~(September 1, 2015 - May 31, 2016)~~
		~~Vice Chairman and Chief Operating Officer - Industrial Sector of Eaton Corporation~~
		~~(February 1, 2009 - August 31, 2015)~~


~~Richard H. Fearon~~	61	~~Director of Eaton Corporation plc (September 1, 2015 - present)~~
		~~Vice Chairman and Chief Financial and Planning Officer of Eaton Corporation~~
		~~(April 24, 2002 - present)~~


~~Revathi Advaithi~~	50	~~Chief Operating Officer - Electrical Sector of Eaton Corporation~~
		~~(September 1, 2015 - present)~~
		~~President of Electrical Sector, Americas of Eaton Corporation~~
		~~(April 1, 2012 - August 31, 2015)~~


~~Uday Yadav~~	54	~~Chief Operating Officer - Industrial Sector of Eaton Corporation~~
		~~(September 1, 2015 - present)~~
		~~President of Aerospace Group of Eaton Corporation (August 1, 2012 - August 31, 2015)~~


~~Cynthia K. Brabander~~	56	~~Executive Vice President and Chief Human Resources Officer of Eaton Corporation~~
		~~(March 1, 2012 - present)~~


~~Heath B. Monesmith~~	47	~~Executive Vice President and General Counsel of Eaton Corporation~~
		~~(March 1, 2017 - present)~~
		~~Senior Vice President and Deputy General Counsel of Eaton Corporation~~
		~~(May 15, 2015 - March 1, 2017)~~
		~~Vice President and Chief Counsel - Litigation of Eaton Corporation~~
		~~(November 30, 2012 - May 15, 2015)~~


~~Thomas E. Moran~~	53	~~Senior Vice President and Secretary of Eaton Corporation plc (November 27, 2012 - present)~~


~~Ken D. Semelsberger~~	56	~~Senior Vice President and Controller of Eaton Corporation (November 1, 2013 - present)~~
		~~Senior Vice President, Finance and Planning - Industrial Sector of Eaton Corporation~~
		~~(February 1, 2009 - October 31, 2013)~~


~~Joao V. Faria~~	53	~~President - Vehicle Group of Eaton Corporation (May 1, 2017 - present)~~
		~~Vice President and General Manager, Latin America, Electrical Sector and~~
		~~President, Latin America (August 1, 2013 - April 30, 2017)~~
		~~President, Americas, Hydraulics Group (July 1, 2010 - July 31, 2013)~~



EATON CORPORATION plc
(Exact name of registrant as specified in its charter)


(In thousands)			2021
Electrical Americas			28
Electrical Global			26

Aerospace			12
Vehicle			11
eMobility			1
Corporate			8
Total number of persons employed			86






~~Curtis J. Hutchins~~	52	~~President - Hydraulics Group of Eaton Corporation (August 1, 2015 - present)~~
		~~President - Asia Pacific Region of Eaton Corporation (September 1, 2009 - July 31, 2015)~~


~~Nandakumar Cheruvatath~~	56	~~President - Aerospace Group of Eaton Corporation (September 1, 2015 - present)~~
		~~Executive Vice President, Eaton Business System (August 1, 2012 - August 31, 2015)~~


~~Richard M. Eubanks, Jr. (Mark)~~	45	~~President - Electrical Products Group of Eaton Corporation (September 1, 2015 - present)~~
		~~President, Eaton Lighting Division (February 1, 2010 - August 31, 2015)~~


~~William J. VanLandingham II~~	55	~~President - Electrical Systems and Services Group of Eaton Corporation~~
		~~(September 1, 2015 - present)~~
		~~President, Crouse-Hinds Business, Electrical Sector ( December 1, 2012 - August 31, 2015)~~


~~(a)~~	~~(1) The reports of the independent registered public accounting firm, consolidated financial statements and notes to consolidated financial statements are included in Item 8 above:~~



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

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

4.1			Description of Eaton Corporation plc’s Securities registered pursuant to Section 12 of the Securities Exchange Act of 1934 (incorporated by reference to Exhibit 4.1 of the registrant's Form 10-K filed on February 26, 2020)


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

~~4.2~~4.3			Supplemental Indenture No. 1, dated as of November 30, 2012, among Eaton Corporation, the guarantors named therein and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.2 of the registrant's Form S-4 filed on September 6, 2013)

~~4.3~~4.4			Supplemental Indenture No. 2, dated as of January 8, 2013, among Eaton Corporation, the guarantors named therein and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.3 of the registrant's Form S-4 filed on September 6, 2013)

~~4.4~~4.5			Supplemental Indenture No. 3, dated as of December 20, 2013, among Eaton Corporation, the guarantors named therein and The Bank of New York Mellon Trust Company, N.A., as trustee ~~- Filed in conjunction with this~~(incorporated by reference to Exhibit 4.4 of the registrant's Form 10-K Report *filed on February 28, 2018)

~~4.5~~4.6			Supplemental Indenture No. 4, dated as of December 20, 2017 and effective as of January 1, 2018, among Eaton Corporation, the guarantors named therein and The Bank of New York Mellon Trust Company, N.A., as trustee ~~- Filed in conjunction with this~~(incorporated by reference to Exhibit 4.5 of the registrant's Form 10-K Report *filed on February 28, 2018)

~~4.6~~4.7			Supplemental Indenture No. 5, dated as of February 16, 2018, among Eaton Corporation, the guarantors named therein and The Bank of New York Mellon Trust Company, N.A., as trustee ~~- Filed in conjunction with this~~(incorporated by reference to Exhibit 4.6 of the registrant's Form 10-K Report *filed on February 28, 2018)

~~4.7~~4.8			Pursuant to Regulation S-K Item 601(b)(4), Eaton agrees to furnish to the SEC, upon request, a copy of the instruments defining the rights of holders of its long-term debt other than those set forth in Exhibits ~~(4.1~~(4.2 - ~~4.6)~~4.7) hereto



10	~~Material contracts~~
10	Material contracts

	(a)	Senior Executive Incentive Compensation Plan (effective February 27, 2013) - Incorporated by reference to the Form 10-K Report for the year ended December 31, 2012

	(b)	Deferred Incentive Compensation Plan II - Incorporated by reference to the Form 10-K Report for the year ended December 31, 2007

	(c)	First Amendment to Deferred Incentive Compensation Plan II - Incorporated by reference to the Form S-8 filed November 30, 2012

	(d)	Excess Benefits Plan II (2008 restatement) - Incorporated by reference to the Form 10-K Report for the year ended December 31, 2007

	(e)	First Amendment to Excess Benefits Plan II (2008 restatement) - Incorporated by reference to the Form 10-K Report for the year ended December 31, 2012

	(f)	Incentive Compensation Deferral Plan II - Incorporated by reference to the Form 10-K Report for the year ended December 31, 2007

	(g)	First Amendment to Incentive Compensation Deferral Plan II - Incorporated by reference to the Form S-8 filed November 30, 2012

	(h)	Limited Eaton Service Supplemental Retirement Income Plan II - Incorporated by reference to the Form 10-K Report for the year ended December 31, 2007

	(i)	First Amendment to Limited Eaton Service Supplemental Retirement Income Plan II - Incorporated by reference to the Form 10-K Report for the year ended December 31, 2012

	(j)	Supplemental Benefits Plan II (2008 restatement) - Incorporated by reference to the Form 10-K Report for the year ended December 31, 2007

	(k)	First Amendment to Supplemental Benefits Plan II (2008 restatement) - Incorporated by reference to the Form 10-K Report for the year ended December 31, 2012

	(l)	Form of Restricted Share Unit Agreement - Incorporated by reference to the Form 10-K Report for the year ended December 31, 2015

	(m)	Form of Restricted Share Award Agreement - Incorporated by reference to the Form 10-K Report for the year ended December 31, 2015

	(n)	Form of Restricted Share Agreement (Non-Employee Directors) - Incorporated by reference to the Form 8-K Report filed February 1, 2010



			(x)			First Amendment to 2005 Non-Employee Director Fee Deferral Plan - Incorporated by reference to the Form S-8 filed November 30, 2012

			(y)			2013 Non-Employee Director Fee Deferral Plan - Incorporated by reference to the Form 10-K Report for the year ended December 31, 2012

			(z)			2015 Stock Plan - Incorporated by reference to the Form S-8 filed on October 30, 2015

			(aa)			Form of Change of Control Agreement entered into with officers of Eaton Corporation - Incorporated by reference to the Form 8-K Report filed on December 17, 2015

			(bb)			Form of Indemnification Agreement entered into with directors - Incorporated by reference to the Form 10-K Report for the year ended December 31, 2012

			(cc)			Form of Indemnification Agreement II entered into with directors - Incorporated by reference to the Form 10-K Report for the year ended December 31, 2012

			(dd)			Amended and Restated Executive Strategic Incentive Plan (amended and restated February 27, 2013) - Incorporated by reference to the Form 10-K Report for the year ended December 31, 2012

			(ee)			Executive Strategic Incentive Plan II (effective January 1, 2001) - Incorporated by reference to the Form 10-K Report for the year ended December 31, 2002

			(ff)			Amended and Restated Supplemental Executive Strategic Incentive Plan (amended and restated February 27, 2013) - Incorporated by reference to the Form 10-K Report for the year ended December 31, 2012

			(gg)			Deferred Incentive Compensation Plan (amended and restated effective November 1, 2007) - Incorporated by reference to the Form 10-K Report for the year ended December 31, 2009

			(hh)			Excess Benefits Plan (amended and restated effective January 1, 1989) - Incorporated by reference to the Form 10-K Report for the year ended December 31, 2002

			(ii)			Amendment to Excess Benefits Plan I - Incorporated by reference to the Form 10-K Report for the year ended December 31, 2012

			(jj)			Supplemental Benefits Plan (amended and restated January 1, 1989) - Incorporated by reference to the Form 10-K Report for the year ended December 31, 2002

			(kk)			Amendment to Supplemental Benefits Plan I - Incorporated by reference to the Form 10-K Report for the year ended December 31, 2012

			(ll)			Eaton Corporation Board of Directors Policy on Incentive Compensation, Stock Options and Other Equity Grants upon the Restatement of Financial Results - Incorporated by reference to the Form 10-K Report for the year ended December 31, 2015


		(mm)	Amended and Restated Grantor Trust Agreement for Non-Employee Directors’ Deferred Fees Plans - effective January 1, 2010 - Incorporated by reference to the Form 10-K Report for the year ended December 31, 2010

		(nn)	Amended and Restated Grantor Trust Agreement for Employees’ Deferred Compensation Plans - effective January 1, 2010 - Incorporated by reference to the Form 10-K Report for the year ended December 31, 2010

		(oo)	Eaton Savings Plan 2016 Restatement - Incorporated by reference to the Form 10-K Report for the year ended December 31, 2015

		(pp)	First Amendment to Eaton Savings Plan - Incorporated by reference to the Form 10-K Report for the year ended December 31, 2016

		(qq)	Second Amendment to Eaton Savings Plan - Incorporated by reference to the Form 10-K Report for the year ended December 31, 2016

		(rr)	Seventh Amendment to Eaton Savings Plan 2016 Restatement - Incorporated by reference to the Form 10-K Report for the year ended December 31, 2020

		(ss)	Eaton Personal Investment Plan 2015 Restatement - Incorporated by reference to the Form 10-K Report for the year ended December 31, 2015

		~~(qq)~~(tt)	First Amendment to Eaton Personal Investment Plan - Incorporated by reference to the Form 10-K Report for the year ended December 31, 2016

		(uu)	Second Amendment to Eaton Personal Investment Plan - Incorporated by reference to the Form 10-K Report for the year ended December 31, 2016

		(vv)	Performance Share Award Agreement - Incorporated by reference to the Form 10-K Report for the year ended December 31, 2015

		~~(rr)~~(ww)	Form of Indemnification Agreement entered into with officers of Eaton Corporation - Incorporated by reference to the Form 10-K Report for the year ended December 31, 2015

		~~(ss)~~(xx)	Amendment to Limited Eaton Service Supplemental Retirement Income Plan I- Incorporated by reference to the Form 10-K Report for the year ended December 31, 2015

~~(tt)~~	~~First Amendment to Eaton Savings Plan - Incorporated by reference to the Form 10-K Report for the year ended December 31, 2016~~



			~~(uu)~~	~~Second Amendment to Eaton Savings Plan - Incorporated by reference to the Form 10-K Report for the year ended December 31, 2016~~

	~~(vv)~~(yy)	~~First Amendment to Eaton Personal Investment Plan - Incorporated by reference to the Form 10-K Report for the year ended December 31, 2016~~

	~~(ww)~~	~~Second Amendment to Eaton Personal Investment Plan - Incorporated by reference to the Form 10-K Report for the year ended December 31, 2016~~

	~~(xx)~~	Amendment to Eaton Corporation Excess Benefits Plan - Incorporated by reference to the Form 10-K Report for the year ended December 31, 2016

			~~(yy)~~(zz)		Amendment to Eaton Corporation Supplemental Benefits Plan - Incorporated by reference to the Form 10-K Report for the year ended December 31, 2016

			~~(zz)~~(aaa)		Second Amendment to Eaton Corporation Excess Benefits Plan II - Incorporated by reference to the Form 10-K Report for the year ended December 31, 2016

			~~(aaa)~~(bbb)		Second Amendment to Limited Eaton Service Supplemental Retirement Income Plan II - Incorporated by reference to the Form 10-K Report for the year ended December 31, 2016

			~~(bbb)~~(ccc)		Second Amendment to Eaton Corporation Supplemental Benefits Plan II - Incorporated by reference to the Form 10-K Report for the year ended December 31, 2016

			~~(ccc)~~(ddd)		2016 RSU Grant Agreement - Incorporated by reference to the Form 10-K Report for the year ended December 31, 2016

			~~(ddd)~~(eee)		2016 Performance Share Grant Agreement - Incorporated by reference to the Form 10-K Report for the year ended December 31, 2016

			~~(eee)~~(fff)		Special 2016 Performance Share Grant Agreement - Incorporated by reference to the Form 10-K Report for the year ended December 31, 2016

12			(ggg)		~~Ratio of Earnings~~Stock and Asset Purchase Agreement, dated January 21, 2020 - Incorporated by reference to ~~Fixed Charges - Filed in conjunction with this~~the Form 10-K Report *8-K filed on January 27, 2020

14			(hhh)		2020 Stock Plan - Incorporated by reference to the Form S-8 filed on November 3, 2020



*104						Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)


*			Submitted electronically herewith.


					EATON CORPORATION plc
					Registrant

Date:			February 23, 2022	By:	~~EATON CORPORATION plc~~/s/ Thomas B. Okray
					~~Registrant~~Thomas B. Okray

~~Date:~~	~~February 28, 2018~~	~~By:~~	~~/s/ Richard H. Fearon~~
			~~Richard H. Fearon~~
			(On behalf of the registrant and as Principal Financial Officer)


*By						/s/ Thomas B. Okray
						Thomas B. Okray, Attorney-in-Fact for the officers and directors signing in the capacities indicated


		(iii)	5-Year Revolving Credit Agreement, dated as of October 4, 2021, among Eaton Corporation plc, Eaton Corporation, Eaton Capital Unlimited, the guarantors from time to time party thereto, the several lenders from time to time parties thereto, Citibank, N.A., as Administrative Agent, Citibank, N.A., JPMorgan Chase Bank, N.A., BofA Securities, Inc., BNP Paribas Securities Corp., Deutsche Bank Securities Inc. and Morgan Stanley Senior Funding, Inc., as joint lead arrangers and joint bookrunners, JPMorgan Chase Bank, N.A., as syndication agent and Bank of America, N.A., BNP Paribas, Deutsche Bank AG New York Branch and Morgan Stanley Senior Funding, Inc., as documentation agents, incorporated by reference to Exhibit 99.1 to The Form 8-K filed by the registrant on October 8, 2021.

		(jjj)	364-Day Revolving Credit Agreement, dated as of October 4, 2021, among Eaton Corporation plc, Eaton Corporation, Eaton Capital Unlimited, the guarantors from time to time party thereto, the several lenders from time to time parties thereto, Citibank, N.A., as Administrative Agent, Citibank, N.A., JPMorgan Chase Bank, N.A., BofA Securities, Inc., BNP Paribas Securities Corp., Deutsche Bank Securities Inc. and Morgan Stanley Senior Funding, Inc., as joint lead arrangers and joint bookrunners, JPMorgan Chase Bank, N.A., as syndication agent and Bank of America, N.A., BNP Paribas, Deutsche Bank AG New York Branch and Morgan Stanley Senior Funding, Inc., as documentation agents, incorporated by reference to Exhibit 99.2 to The Form 8-K filed by the registrant on October 8, 2021.

14			Code of Ethics - Incorporated by reference to the definitive Proxy Statement filed on March 14, 2008

1821			Change in Accounting Principles - Filed in conjunction with this Form 10-K Report *

21	Subsidiaries of Eaton Corporation plc - Filed in conjunction with this Form 10-K Report *

2322			Table of Senior Notes, Issuer and Guarantors (incorporated by reference to the Form 10-K Report filed on February 24, 2021)

23			Consent of Independent Registered Public Accounting Firm - Filed in conjunction with this Form 10-K Report *

24			Power of Attorney - Filed in conjunction with this Form 10-K Report *

31.1			Certification of Principal Executive Officer (Pursuant to the Sarbanes-Oxley Act of 2002, Section 302) - Filed in conjunction with this Form 10-K Report *

31.2			Certification of Principal Financial Officer (Pursuant to the Sarbanes-Oxley Act of 2002, Section 302) - Filed in conjunction with this Form 10-K Report *

32.1			Certification of Principal Executive Officer (Pursuant to the Sarbanes-Oxley Act of 2002, Section 906) - Filed in conjunction with this Form 10-K Report *

32.2			Certification of Principal Financial Officer (Pursuant to the Sarbanes-Oxley Act of 2002, Section 906) - Filed in conjunction with this Form 10-K Report *

101.INS			XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. *

101.SCH			XBRL Taxonomy Extension Schema Document *

101.CAL			XBRL Taxonomy Extension Calculation Linkbase Document *

101.DEF			XBRL Taxonomy Extension Definition Linkbase Document *

101.LAB			XBRL Taxonomy Extension Label Linkbase Document *

101.PRE			XBRL Taxonomy Extension Presentation Linkbase Document *


			Unrecognized Income Tax Benefits
Description of the Matter			As discussed in Note 11 to the consolidated financial statements, the Company had gross unrecognized income tax benefits of $1,120 million related to its uncertain tax positions at December 31, 2021. Unrecognized income tax benefits are recorded under the two-step recognition and measurement principles when a tax position does not meet the more likely than not standard, or if a tax position meets the more likely than not standard, but the financial statement tax benefit is reduced as part of the measurement step. The balance of unrecognized income tax benefits is comprised of uncertain tax positions which meet the more likely than not standard, but the financial statement tax benefit has been reduced as part of measuring the tax position. Auditing management’s analysis of its uncertain tax positions and resulting unrecognized income tax benefits is complex as each tax position carries unique facts and circumstances that must be evaluated and ultimate resolution is dependent on uncontrollable factors such as the timing of finalizing resolutions of audit disputes through reaching settlement agreements or concluding litigation, or changes in law, and other factors.
How We Addressed the Matter in Our Audit			We obtained an understanding, evaluated the design and tested the operating effectiveness of management’s controls related to uncertain tax positions. For example, we tested controls over management’s application of the two-step recognition and measurement principles and management’s review of the inputs and resultant calculations of unrecognized income tax benefits, as well as the identification of uncertain tax positions. We also evaluated the Company’s assessment of its uncertain tax positions. Our audit procedures included evaluating management’s accounting policies and documentation to assess the appropriateness and consistency of the methods and assumptions used to develop its uncertain tax positions and related unrecognized income tax benefit amounts by jurisdiction. We also tested the completeness and accuracy of the underlying data used by the Company. For example, we compared the unrecognized income tax benefits recorded with similar positions in prior periods and assessed management’s consideration of current tax controversy and litigation and trends in similar positions challenged by tax authorities. We also assessed the historical accuracy of management’s estimates of its unrecognized income tax benefits with the resolution of those positions. In addition, we involved tax subject matter professionals to evaluate the application of relevant tax laws in the Company’s recognition determination. We have also evaluated the Company’s income tax disclosures in relation to these matters.


			Valuation of Customer Relationships Intangible Asset in the Acquisition of Tripp Lite
Description of the Matter			As discussed in Note 2 to the consolidated financial statements, during March 2021, the Company completed the acquisition of Tripp Lite for a total purchase price of approximately $1.65 billion, net of cash received. The acquisition was accounted for using the acquisition method of accounting. The consideration paid in the acquisition must be allocated to the acquired assets and liabilities assumed generally based on their fair value with the excess of the purchase price over those fair values allocated to goodwill. The estimates of the fair value of intangible assets were recorded in 2021 based upon third-party valuations, which resulted in the recognition of intangible assets totaling approximately $604 million, of which approximately $539 million related to customer relationships. Auditing the Company’s accounting for its acquisition of Tripp Lite was complex because the customer relationships intangible asset recognized was material to the consolidated financial statements and the estimate of fair value involved subjectivity. The subjectivity was primarily due to the sensitivity of the fair value to underlying assumptions about the future performance of the acquired business. The Company used a discounted cash flow model to measure the customer relationships intangible asset. The significant assumptions used to estimate the fair value of the customer relationships intangible asset included the discount rate and certain assumptions that form the basis of the forecasted results (e.g., revenue growth rates and future EBITDA margins). These significant assumptions are forward looking and could be affected by future economic and market conditions.
How We Addressed the Matter in Our Audit			We obtained an understanding, evaluated the design, and tested the operating effectiveness of the Company’s controls over its accounting for the acquisition of Tripp Lite, including recognition and measurement of the intangible assets acquired. For example, we tested controls over the recognition and measurement of the customer relationships intangible asset, including management’s review of the methods and significant assumptions used to develop the fair value estimate. To test the estimated fair value of the customer relationships intangible asset, we performed audit procedures that included, among others, evaluating the Company's selection of the valuation methodology, evaluating the methods and significant assumptions used by the Company's valuation specialist, and evaluating the completeness and accuracy of the underlying data supporting the significant assumptions and estimates. For example, when evaluating the assumptions related to the revenue growth rates and future EBITDA margins, we compared the assumptions to the past performance of Tripp Lite and expected industry trends and considered whether they were consistent with evidence obtained in other areas of the audit. We also performed sensitivity analyses to evaluate the changes in the fair value of the customer relationships intangible asset that would result from changes in the significant assumptions. We involved our EY valuation specialists to assist with our evaluation of the methodology used by the Company and certain significant assumptions included in the fair value estimate.



	Year ended December 31
(In millions except for per share data)	2017			2016*			2015*
Net sales	$	20,404		$	19,747		$	20,855

Cost of products sold	13,756			13,409			14,304
Selling and administrative expense	3,565			3,505			3,596
Research and development expense	584			589			625
Interest expense - net	246			233			232
Gain on sale of business	1,077			—			—
Other income - net	(38		)	(107		)	(35		)
Income before income taxes	3,368			2,118			2,133
Income tax expense	382			199			159
Net income	2,986			1,919			1,974
Less net income for noncontrolling interests	(1		)	(3		)	(2		)
Net income attributable to Eaton ordinary shareholders	$	2,985		$	1,916		$	1,972

Net income per share attributable to Eaton ordinary shareholders
Diluted	$	6.68		$	4.20		$	4.22
Basic	6.71			4.21			4.23

Weighted-average number of ordinary shares outstanding
Diluted	447.0			456.5			467.1
Basic	444.5			455.0			465.5

Cash dividends declared per ordinary share	$	2.40		$	2.28		$	2.20



	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*
	Ordinary shares
(In millions)	Shares		Dollars
Balance at January 1, 2015 (originally reported)	467.9		$	5		$	11,605		$	7,078		$	(2,899	)	$	(3	)	$	15,786		$	53		$	15,839
Inventory accounting method change*	—		—			—			70			—			—			70			—			70
Balance at January 1, 2015*	467.9		5			11,605			7,148			(2,899		)	(3		)	15,856			53			15,909
Net income*	—		—			—			1,972			—			—			1,972			2			1,974
Other comprehensive loss, net of tax												(964		)				(964		)	—			(964		)
Cash dividends paid	—		—			—			(1,026		)	—			—			(1,026		)	(9		)	(1,035		)
Issuance of shares under equity-based compensation plans - net (net of income tax benefit of $1)	2.2		—			99			(3		)	—			—			96			—			96
Changes in noncontrolling interest of consolidated subsidiaries - net	—		—			(3		)	—			—			—			(3		)	(1		)	(4		)
Repurchase of shares	(11.3	)	—			—			(682		)	—			—			(682		)	—			(682		)
Balance at December 31, 2015*	458.8		5			11,701			7,409			(3,863		)	(3		)	15,249			45			15,294
Net income*	—		—			—			1,916			—			—			1,916			3			1,919
Other comprehensive loss, net of tax												(585		)				(585		)	—			(585		)
Cash dividends paid	—		—			—			(1,037		)	—			—			(1,037		)	(2		)	(1,039		)
Issuance of shares under equity-based compensation plans - net (net of income tax benefit of $1)	2.4		—			144			(3		)	—			—			141			—			141
Changes in noncontrolling interest of consolidated subsidiaries - net	—		—			—			—			—			—			—			(2		)	(2		)
Repurchase of shares	(11.8	)	—			—			(730		)	—			—			(730		)	—			(730		)
Balance at December 31, 2016*	449.4		5			11,845			7,555			(4,448		)	(3		)	14,954			44			14,998
Cumulative-effect adjustment upon adoption of ASU 2016-09	—		—			—			48			—			—			48			—			48
Net income	—		—			—			2,985			—			—			2,985			1			2,986
Other comprehensive income, net of tax												1,044						1,044			—			1,044
Cash dividends paid	—		—			—			(1,068		)	—			—			(1,068		)	(5		)	(1,073		)
Issuance of shares under equity-based compensation plans	2.0		—			142			(2		)	—			—			140			—			140
Changes in noncontrolling interest of consolidated subsidiaries - net	—		—			—			—			—			—			—			(3		)	(3		)
Repurchase of shares	(11.5	)	(1		)	—			(849		)	—			—			(850		)	—			(850		)
Balance at December 31, 2017	439.9		$	4		$	11,987		$	8,669		$	(3,404	)	$	(3	)	$	17,253		$	37		$	17,290


	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, 2019	423.6	$	4	$	12,090	$	8,161	$	(4,145)	$	(3)	$	16,107	$	35	$	16,142


Net income	—	—		—		2,211		—		—		2,211		2		2,213
Other comprehensive loss, net of tax								(145)				(145)				(145)
Cash dividends paid	—	—		—		(1,201)		—		—		(1,201)		(3)		(1,204)

Issuance of shares under equity-based compensation plans	2.2	—		110		(1)		—		1		110		—		110
Acquisitions of businesses	—	—		—		—		—		—		—		55		55
Acquisition of noncontrolling interest obtained through tender offer	—	—		—		—		—		—		—		(33)		(33)
Business divestiture	—	—		—		—		—		—		—		(4)		(4)
Changes in noncontrolling interest of consolidated subsidiaries - net	—	—		—		—		—		—		—		(1)		(1)
Repurchase of shares	(12.5)	—		—		(1,000)		—		—		(1,000)		—		(1,000)
Balance at December 31, 2019	413.3	4		12,200		8,170		(4,290)		(2)		16,082		51		16,133


Net income	—	—		—		1,410		—		—		1,410		5		1,415
Other comprehensive income, net of tax								95				95				95
Cash dividends paid	—	—		—		(1,175)		—		—		(1,175)		(9)		(1,184)
Issuance of shares under equity-based compensation plans	1.9	—		129		(3)		—		—		126		—		126



Changes in noncontrolling interest of consolidated subsidiaries - net	—	—		—		—		—		—		—		(4)		(4)
Repurchase of shares	(17.1)	—		—		(1,608)		—		—		(1,608)		—		(1,608)

Balance at December 31, 2020	398.1	4		12,329		6,794		(4,195)		(2)		14,930		43		14,973
Net income	—	—		—		2,144		—		—		2,144		2		2,146
Other comprehensive income, net of tax								562				562				562
Cash dividends paid	—	—		—		(1,219)		—		—		(1,219)		(1)		(1,220)
Issuance of shares under equity-based compensation plans	1.6	—		120		(3)		—		1		118		—		118





Changes in noncontrolling interest of consolidated subsidiaries - net	—	—		—		—		—		—		—		(6)		(6)
Repurchase of shares	(0.9)	—		—		(122)		—		—		(122)		—		(122)
Balance at December 31, 2021	398.8	$	4	$	12,449	$	7,594	$	(3,633)	$	(1)	$	16,413	$	38	$	16,451



	2017		2016		2015
Electrical Products	$	4	$	3	$	25
Electrical Systems and Services	—		1		15
Hydraulics	—		—		2
Total business segments	4		4		42
Corporate	—		—		5
Total acquisition integration charges before income taxes	4		4		47
Income taxes	2		1		16
Total after income taxes	$	2	$	3	$	31
Per ordinary share - diluted	$	—	$	0.01	$	0.07



	Workforce reductions			Plant closing and other			Total
Balance at December 31, 2015	$	54		$	—		$	54
Liability recognized	177			34			211
Payments	(116		)	(13		)	(129		)
Other adjustments	(2		)	(20		)	(22		)
Balance at December 31, 2016	113			1			114
Liability recognized	57			59			116
Payments	(102		)	(39		)	(141		)
Other adjustments	(1		)	(16		)	(17		)
Balance at December 31, 2017	$	67		$	5		$	72



	Electrical Products			Electrical Systems and Services			Hydraulics			Aerospace			Vehicle			Total
December 31, 2015	$	6,642		$	4,279		$	1,259		$	956		$	343		$	13,479
Translation	(145		)	(76		)	(38		)	(18		)	(1		)	(278		)
December 31, 2016	6,497			4,203			1,221			938			342			13,201
Goodwill written off from sale of business	—			(3		)	—			—			(52		)	(55		)
Translation	262			111			36			9			4			422
December 31, 2017	$	6,759		$	4,311		$	1,257		$	947		$	294		$	13,568


(In millions)	Operating Leases		Finance Leases
2022	$	127	$	16
2023	104		7
2024	77		6
2025	49		2
2026	36		2
Thereafter	100		7
Total lease payments	493		40
Less imputed interest	36		2
Total present value of lease liabilities	$	457	$	38


																				United States pension liabilities				Non-United States pension liabilities				Other postretirement liabilities
	United States pension liabilities						Non-United States pension liabilities						Other postretirement liabilities
	2017			2016			2017			2016			2017			2016
(In millions)																			(In millions)	2021		2020		2021		2020		2021		2020
Funded status																			Funded status
Fair value of plan assets	$	3,585		$	2,969		$	1,727		$	1,478		$	55		$	74		Fair value of plan assets	$	3,672	$	3,463	$	2,247	$	2,137	$	19	$	20
Benefit obligations	(3,961		)	(3,771		)	(2,399		)	(2,314		)	(448		)	(473		)	Benefit obligations	(3,760)		(4,121)		(2,837)		(3,036)		(304)		(375)
Funded status	$	(376	)	$	(802	)	$	(672	)	$	(836	)	$	(393	)	$	(399	)	Funded status	$	(88)	$	(658)	$	(590)	$	(899)	$	(285)	$	(355)

Amounts recognized in the Consolidated Balance Sheets																			Amounts recognized in the Consolidated Balance Sheets
Non-current assets	$	82		$	34		$	136		$	33		$	—		$	—		Non-current assets	$	59	$	—	$	179	$	95	$	—	$	—
Current liabilities	(15		)	(24		)	(25		)	(22		)	(31		)	(31		)	Current liabilities	(16)		(36)		(28)		(28)		(22)		(25)
Non-current liabilities	(443		)	(812		)	(783		)	(847		)	(362		)	(368		)	Non-current liabilities	(131)		(622)		(741)		(966)		(263)		(330)
Total	$	(376	)	$	(802	)	$	(672	)	$	(836	)	$	(393	)	$	(399	)	Total	$	(88)	$	(658)	$	(590)	$	(899)	$	(285)	$	(355)

Amounts recognized in Accumulated other comprehensive loss (pretax)
Net actuarial loss	$	1,059		$	1,232		$	596		$	771		$	19		$	21
Amounts recognized in Accumulated other comprehensive loss (pre-tax)																			Amounts recognized in Accumulated other comprehensive loss (pre-tax)
Net actuarial (gain) loss																			Net actuarial (gain) loss	$	708	$	1,046	$	745	$	1,005	$	(55)	$	1
Prior service cost (credit)	4			3			8			8			(46		)	(60		)	Prior service cost (credit)	5		5		18		21		—		(3)

Total	$	1,063		$	1,235		$	604		$	779		$	(27	)	$	(39	)	Total	$	713	$	1,051	$	763	$	1,026	$	(55)	$	(2)


	United States pension benefit expense (income)						Non-United States pension benefit expense (income)						Other postretirement benefits expense (income)
(In millions)	2021		2020		2019		2021		2020		2019		2021		2020		2019
Service cost	$	37	$	97	$	91	$	72	$	73	$	58	$	1	$	2	$	2
Interest cost	70		103		138		40		45		57		6		9		14
Expected return on plan assets	(223)		(231)		(235)		(120)		(109)		(106)		—		—		(2)
Amortization	36		102		62		71		60		38		(5)		(13)		(14)
	(80)		71		56		63		69		47		2		(2)		—
Settlements, curtailments and special termination benefits	65		62		48		17		10		14		(1)		—		—
Total expense (income)	$	(15)	$	133	$	104	$	80	$	79	$	61	$	1	$	(2)	$	—



	United States pension benefit expense									Non-United States pension benefit expense									Other postretirement benefits expense
	2017			2016			2015			2017			2016			2015			2017			2016			2015
Service cost	$	96		$	111		$	123		$	71		$	63		$	71		$	3		$	4		$	6
Interest cost	123			125			156			55			62			72			14			17			24
Expected return on plan assets	(244		)	(250		)	(262		)	(94		)	(92		)	(99		)	(4		)	(6		)	(5		)
Amortization	83			92			119			51			33			40			(13		)	(9		)	2
	58			78			136			83			66			84			—			6			27
Settlements and special termination benefits	62			81			74			5			3			2			—			1			—
Total expense	$	120		$	159		$	210		$	88		$	69		$	86		$	—		$	7		$	27


	United States pension plans						Non-United States pension plans							United States pension plans						Non-United States pension plans
	2017		2016		2015		2017		2016		2015			2021		2020		2019		2021		2020		2019
Assumptions used to determine benefit obligation at year-end													Assumptions used to determine benefit obligation at year-end
Discount rate	3.64	%	4.12	%	4.22	%	2.62	%	2.63	%	3.46	%	Discount rate	2.81	%	2.48	%	3.22	%	2.01	%	1.59	%	2.02	%
Rate of compensation increase	3.15	%	3.15	%	3.18	%	3.11	%	3.13	%	3.12	%	Rate of compensation increase	3.12	%	3.12	%	3.14	%	3.01	%	3.02	%	3.05	%
Interest rate used to credit cash balance plans													Interest rate used to credit cash balance plans	1.99	%	2.02	%	2.59	%	0.56	%	0.53	%	0.54	%

Assumptions used to determine expense													Assumptions used to determine expense
Discount rate used to determine benefit obligation	4.12	%	4.22	%	3.97	%	2.63	%	3.46	%	3.33	%	Discount rate used to determine benefit obligation	2.61	%	3.22	%	4.28	%	1.63	%	2.02	%	2.83	%
Discount rate used to determine service cost	4.31	%	4.35	%	3.97	%	3.38	%	4.13	%	3.33	%	Discount rate used to determine service cost	2.92	%	3.34	%	4.39	%	2.52	%	2.78	%	4.02	%
Discount rate used to determine interest cost	3.40	%	3.42	%	3.97	%	2.34	%	3.07	%	3.33	%	Discount rate used to determine interest cost	1.83	%	2.75	%	3.94	%	1.36	%	1.82	%	2.56	%
Expected long-term return on plan assets	7.90	%	8.50	%	8.50	%	6.30	%	6.62	%	6.92	%	Expected long-term return on plan assets	6.75	%	7.25	%	7.25	%	5.62	%	5.84	%	6.42	%
Rate of compensation increase	3.15	%	3.18	%	3.16	%	3.13	%	3.12	%	3.13	%	Rate of compensation increase	3.12	%	3.14	%	3.14	%	3.02	%	3.05	%	3.10	%
Interest rate used to credit cash balance plans													Interest rate used to credit cash balance plans	2.14	%	2.59	%	3.13	%	0.52	%	0.54	%	2.60	%


	Other postretirement benefits plans
	2021		2020		2019
Assumptions used to determine benefit obligation at year-end
Discount rate	2.79	%	2.37	%	3.13	%
Health care cost trend rate assumed for next year	7.45	%	7.05	%	6.95	%
Ultimate health care cost trend rate	4.75	%	4.75	%	4.75	%
Year ultimate health care cost trend rate is achieved	2031		2030		2029

Assumptions used to determine expense
Discount rate used to determine benefit obligation	2.44	%	3.13	%	4.23	%
Discount rate used to determine service cost	2.76	%	3.25	%	4.29	%
Discount rate used to determine interest cost	1.70	%	2.67	%	3.85	%
Initial health care cost trend rate	7.38	%	6.95	%	7.10	%
Ultimate health care cost trend rate	4.75	%	4.75	%	4.75	%
Year ultimate health care cost trend rate is achieved	2030		2029		2028



	1% increase		1% decrease
Effect on total service and interest cost	$	1	$	(1	)
Effect on other postretirement liabilities	13		(12		)


(In millions)	Expected in 2022		2021		2020		2019
United States plans	$	17	$	237	$	18	$	17
Non-United States plans	97		106		104		102
Total contributions	$	114	$	343	$	122	$	119



	2018		2017		2016		2015
United States plans	$	16	$	374	$	160	$	221
Non-United States plans	96		99		102		109
Total contributions	$	112	$	473	$	262	$	330



	Estimated United States pension payments		Estimated non-United States pension payments		Estimated other postretirement benefit payments
	Estimated United States pension payments		Estimated non-United States pension payments		Gross		Medicare prescription drug subsidy
2018	$	291	$	88	$	47	$	(2	)
2019	291		90		43		(2		)
2020	292		93		39		(2		)
2021	299		95		35		(1		)
2022	298		99		35		—
2023 - 2027	1,478		548		141		(2		)


~~Level 1 -~~	~~Quoted prices (unadjusted) for identical assets in active markets.~~