Ireland

98-1059235

(State or other jurisdiction of incorporation or organization)

(IRS Employer Identification Number)

Eaton House,

30 Pembroke Road,

Dublin 4, ~~Ireland~~

Ireland

D04 Y0C2

(Address of principal executive offices)

(Zip Code)

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

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

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

Large ~~accelerated filer~~ þ

Accelerated Filer

☑

Accelerated filero

☐

Non-accelerated filero

☐

Smaller reporting companyo

☐

Emerging growth companyo

☐

(Do not check if a smaller reporting company)

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐ No þ☑

There were ~~440.6~~398.6 million Ordinary Shares outstanding as of September 30, ~~2017~~.2020.

PART I — FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS.


	Three months ended September 30				Nine months ended September 30
(In millions except for per share data)	2020		2019		2020		2019
Net sales	$	4,526	$	5,314	$	13,171	$	16,152

Cost of products sold	3,051		3,512		9,230		10,782
Selling and administrative expense	754		885		2,310		2,709

Research and development expense	132		147		411		454
Interest expense - net	41		47		113		157
Gain on sale of business	0		0		221		0


Other expense (income) - net	23		5		135		(9)
Income before income taxes	525		718		1,193		2,059
Income tax expense	78		116		254		299
Net income	447		602		939		1,760
Less net income for noncontrolling interests	(1)		(1)		(4)		(1)
Net income attributable to Eaton ordinary shareholders	$	446	$	601	$	935	$	1,759

Net income per share attributable to Eaton ordinary shareholders
Diluted	$	1.11	$	1.44	$	2.31	$	4.16
Basic	1.11		1.44		2.32		4.18

Weighted-average number of ordinary shares outstanding
Diluted	402.3		418.4		404.9		422.5
Basic	400.4		416.6		403.3		420.7

Cash dividends declared per ordinary share	$	0.73	$	0.71	$	2.19	$	2.13

Three months ended
September 30 Nine months ended
September 30
(In millions except for per share data) 2017 2016 2017 2016
Net sales $ 5,211
$ 4,987
$ 15,191
$ 14,880

Cost of products sold 3,469
3,371
10,229
10,081
Selling and administrative expense 916
853
2,703
2,642
Research and development expense 147
146
440
444
Interest expense - net 60
59
181
173
Gain on sale of business 1,077
—
1,077
—
Other expense (income) - net 5
(15 ) (10 ) (28 )
Income before income taxes 1,691
573
2,725
1,568
Income tax expense 292
51
378
151
Net income 1,399
522
2,347
1,417
Less net (income) loss for noncontrolling interests —
1
(1 ) 1
Net income attributable to Eaton ordinary shareholders $ 1,399
$ 523
$ 2,346
$ 1,418

Net income per share attributable to Eaton ordinary shareholders
Diluted $ 3.14
$ 1.15
$ 5.23
$ 3.09
Basic 3.16
1.15
5.26
3.10

Weighted-average number of ordinary shares outstanding
Diluted 445.2
455.6
448.3
457.9
Basic 442.6
453.9
445.9
456.5

Cash dividends declared per ordinary share $ 0.60
$ 0.57
$ 1.80
$ 1.71

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


	Three months ended September 30				Nine months ended September 30
(In millions)	2020		2019		2020		2019
Net income	$	447	$	602	$	939	$	1,760
Less net income for noncontrolling interests	(1)		(1)		(4)		(1)
Net income attributable to Eaton ordinary shareholders	446		601		935		1,759

Other comprehensive income (loss), net of tax
Currency translation and related hedging instruments	217		(252)		(276)		(235)
Pensions and other postretirement benefits	16		35		128		88
Cash flow hedges	43		(42)		(95)		(75)


Other comprehensive income (loss) attributable to Eaton ordinary shareholders	276		(259)		(243)		(222)

Total comprehensive income attributable to Eaton ordinary shareholders	$	722	$	342	$	692	$	1,537

Three months ended
September 30 Nine months ended
September 30
(In millions) 2017 2016 2017 2016
Net income $ 1,399
$ 522
$ 2,347
$ 1,417
Less net (income) loss for noncontrolling interests —
1
(1 ) 1
Net income attributable to Eaton ordinary shareholders 1,399
523
2,346
1,418

Other comprehensive income (loss), net of tax
Currency translation and related hedging instruments 195
(22 ) 743
(57 )
Pensions and other postretirement benefits 16
45
53
132
Cash flow hedges (12 ) 1
(11 ) (33 )
Other comprehensive income (loss) attributable to Eaton
ordinary shareholders
199
24
785
42

Total comprehensive income attributable to Eaton
ordinary shareholders
$ 1,598
$ 547
$ 3,131
$ 1,460

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


	Nine months ended September 30
(In millions)	2020		2019
Operating activities
Net income	$	939	$	1,760
Adjustments to reconcile to net cash provided by operating activities
Depreciation and amortization	603		668
Deferred income taxes	(7)		(71)
Pension and other postretirement benefits expense	159		115
Contributions to pension plans	(92)		(89)
Contributions to other postretirement benefits plans	(16)		(11)

Gain on sale of business	(91)		0
Changes in working capital	357		76
Other - net	149		66
Net cash provided by operating activities	2,001		2,514

Investing activities
Capital expenditures for property, plant and equipment	(291)		(441)
Proceeds from sale of business	1,408		0
Cash paid for acquisitions of businesses, net of cash acquired	(200)		(277)
Purchases of short-term investments - net	(121)		(132)
Proceeds (payments) for settlement of currency exchange contracts not designated as hedges - net	(28)		26
Other - net	(59)		(8)
Net cash provided by (used in) investing activities	709		(832)

Financing activities
Proceeds from borrowings	2		1,232
Payments on borrowings	(262)		(757)

Cash dividends paid	(884)		(907)
Exercise of employee stock options	31		40
Repurchase of shares	(1,464)		(978)

Employee taxes paid from shares withheld	(36)		(45)
Other - net	(6)		(8)
Net cash used in financing activities	(2,619)		(1,423)

Effect of currency on cash	(30)		7
Less: Increase in cash classified as held for sale	(2)		0
Increase in cash	59		266
Cash at the beginning of the period	370		283
Cash at the end of the period	$	429	$	549

Nine months ended
September 30
(In millions) 2017 2016
Operating activities
Net income $ 2,347
$ 1,417
Adjustments to reconcile to net cash provided by operating activities
Depreciation and amortization 685
700
Deferred income taxes (181 ) (105 )
Pension and other postretirement benefits expense 161
177
Contributions to pension plans (447 ) (114 )
Contributions to other postretirement benefits plans (14 ) (26 )
Gain on sale of business (843 ) —
Changes in working capital (144 ) (206 )
Other - net 223
89
Net cash provided by operating activities 1,787
1,932

Investing activities

Capital expenditures for property, plant and equipment (351 ) (346 )
Proceeds from sale of business 600
—
Cash received from acquisitions of businesses, net of cash acquired —
1
Purchases of short-term investments - net (621 ) (29 )
Other - net (63 ) 3
Net cash used in investing activities (435 ) (371 )

Financing activities
Proceeds from borrowings 1,000
633
Payments on borrowings (553 ) (666 )
Cash dividends paid (803 ) (780 )
Exercise of employee stock options 59
60
Repurchase of shares (789 ) (567 )
Employee taxes paid from shares withheld (21 ) (18 )
Other - net (8 ) (5 )
Net cash used in financing activities (1,115 ) (1,343 )

Effect of currency on cash 11
8
Total increase in cash 248
226
Cash at the beginning of the period 543
268
Cash at the end of the period $ 791
$ 494

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

Amounts are in millions unless indicated otherwise (per share data assume dilution).

Note 1.BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of Eaton Corporation plc (Eaton or the Company) have been prepared in accordance with generally accepted accounting principles for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by United States generally accepted accounting principles (US GAAP) for complete financial statements. However, in the opinion of management, all adjustments (consisting of normal recurring accruals) have been made that are necessary for a fair presentation of the condensed consolidated financial statements for the interim periods.

This Form 10-Q should be read in conjunction with the consolidated financial statements and related notes included in Eaton’s ~~2016~~2019 Form 10-K. The interim period results are not necessarily indicative of the results to be expected for the full year. Management has evaluated subsequent events through the date this Form 10-Q was filed with the Securities and Exchange Commission.

During the first quarter of ~~2017,~~2020, Eaton re-segmented certain reportable operating segments due to a reorganization of the ~~Company adopted Accounting Standards Update 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, (ASU 2016-09). Upon adoption,~~Company's businesses. The new reportable segments are Electrical Americas and Electrical Global, which include the ~~Company recorded deferred tax assets of $48 for all excess tax benefits that had not been~~legacy Electrical Products and Electrical Systems and Services segments. Additionally, the Filtration and Golf Grip businesses previously ~~recognized. This was accomplished through a cumulative-effect adjustment to retained earnings. ASU 2016-09 also requires that all excess tax benefits and deficiencies generated~~included in the ~~current~~Hydraulics segment, and ~~future periods be recorded as income tax benefit or expense~~the electrical aerospace connectors business previously included in the ~~reporting period in which they occur. These excess tax benefits and deficiencies, which were previously required~~Electrical Products segment, have been added to ~~be presented as financing activities on~~ the Company’s Condensed Consolidated Statements of Cash Flows, are now classified as operating activities prospectively. The Company also reclassified $21 and $18 for the first nine months of 2017 and 2016, respectively, from operating activities to financing activities on the Company’s Condensed Consolidated Statements of Cash Flows for withholding payments made to taxing authorities from shares withheld from employees. The Company will continue to estimate forfeituresAerospace reportable segment as part of ~~recording equity-based compensation expense.~~

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

~~Recently Issued Accounting Pronouncements~~

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (ASU 2014-09). This accounting standard supersedes all existing US GAAP revenue recognition guidance. Under ASU 2014-09, a company will recognize revenue when it transfers the control of promised goods or services to customers in an amount that reflects the consideration which the company expects to collect in exchange for those goods or services. ASU 2014-09 will require additional disclosures in the notes to the consolidated financial statements and is effective for annual and interim reporting periods beginning after December 15, 2016. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date (ASU 2015-14). This accounting standard defers the effective date of ASU 2014-09 for one year and permits early adoption as of the original effective date.

A cross-functional implementation team has been established consisting of representatives from all of our business segments to review current accounting policies and practices to identify potential differences that would result from applying the requirements of the new standard to revenue contracts. The implementation team performed a review of samples of customer contracts across the Company’s significant revenue streams. Based on this evaluation of the revenue streams, the Company believes there will be little difference in revenue recorded under the current and new standards. Certain revenue streams will move from point-in-time or multiple elements to over time because of the continuous transfer of control to customers. The Company is also in the process of implementing the appropriate changes to business processes and controls to support recognition and disclosure under the new standard, including evaluating new qualitative and quantitative disclosures that will include information on the nature, amount, timing and significant judgments impacting revenue from contracts with customers. Eaton plans to adopt the standard as of the first quarter of 2018 using the modified retrospective approach and will record a cumulative adjustment to equity for open contracts as of January 1, 2018.

In February 2016, the Financial Accounting Standards Board issued Accounting Standards Update 2016-02, Leases (Topic 842), (ASU 2016-02). This accounting standard requires that a lessee recognize a lease asset and a lease liability on its balance sheet for all leases, including operating leases, with a term greater than 12 months. ASU 2016-02 will require additional disclosures in the notes to the consolidated financial statements and is effective for annual and interim reporting periods beginning after December 15, 2018. A project team has been formed to evaluate and implement the new standard, including the use of third-party lease accounting software. 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.

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. 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. 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 will account for its investment on the equity method of accounting.

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

Three months ended
September 30 Nine months ended
September 30
2017 2016 2017 2016
Electrical Products $ 1
$ 1
$ 3
$ 2
Electrical Systems and Services —
—
—
1
Total acquisition integration charges before income taxes 1
1
3
3
Income taxes —
—
1
1
Total after income taxes $ 1
$ 1
$ 2
$ 2
Per ordinary share - diluted $ —
$ —
$ —
$ —

Business segment acquisition integration charges in 2017 related to the integration of Ephesus Lighting, Inc. (Ephesus), which was acquired in 2015. The charges associated with Ephesus were included in Selling and administrative expense. Business segment acquisition integration charges in 2016 related to the integration of Ephesus and Oxalis Group Ltd. (Oxalis), which was acquired in 2015. 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. In Business Segment Information, the charges reduced Operating profit of the related business segment.reorganization. See Note 14 for additional information ~~about business~~related to the segments.

~~During 2015, Eaton announced its commitment to undertake actions to reduce its cost structure in all business segments~~The Company recorded $7 and ~~at corporate. Restructuring charges incurred~~$26 of net gains for the three and nine months ended September 30, ~~2017, were $22~~2019, respectively, related primarily to the remeasurement of intercompany loans denominated in a foreign currency and ~~$75, respectively,~~the currency exchange derivative contracts used to hedge these exposures. In the first quarter of 2020, Eaton changed the presentation of these gains from Other expense (income) - net to Interest expense - net, and ~~were $23~~reclassified all prior periods.

In the first quarter of 2020, the Company also changed the presentation of the following items within the operating activities section of the Condensed Consolidated Statements of Cash Flows:

•The non-cash gains and ~~$121~~losses associated with currency exchange derivative contracts have been moved from Changes in working capital to Other - net. This puts the non-cash impact of these derivatives on the same line as the non-cash impact from the balance sheet currency exposures they are used to hedge.

•The changes in uncertain tax positions have been moved from Other - net to Changes in working capital. This places the cash flow impact from all taxes on the same line.

These cash flow reclassifications of $70 for the ~~three and~~ nine months ended September 30, ~~2016, respectively.~~2019, have been made to prior period amounts with no change to total operating cash flow.

Adoption of New Accounting Standard

Eaton adopted Accounting Standard Update 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, in the first quarter of 2020. This standard introduces new guidance for accounting for credit losses on receivables. The ~~charges associated~~Company did not recognize a cumulative-effect adjustment to retained earnings as of January 1, 2020, as the adoption of this standard did not have a material impact to the condensed consolidated financial statements.

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 ~~restructuring activities are anticipated~~a primary focus on medium-voltage solutions for industrial and utility customers. Its sales for the 12 months ended September 30, 2018 were $126. The purchase price for the shares was $214 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 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. Its 2018 sales were approximately $18. ISG is reported within the Electrical Americas business segment.

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, 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. Its sales for the 12 months ended June 30, 2019 were $363. 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. There has not been a material change from the initial estimated fair values of the assets acquired and liabilities assumed on the acquisition date. These preliminary estimates will continue to be ~~$100~~revised during the measurement period as third-party valuations are finalized, and these differences are not expected to have a material impact on Eaton's preliminary purchase price allocation.

Eaton’s 2020 condensed consolidated financial statements include Souriau-Sunbank’s results of operations. Souriau-Sunbank’s sales for the first nine months of 2020 were $215.

Sale of Automotive Fluid Conveyance business

On December 31, 2019, Eaton sold its Automotive Fluid Conveyance Business. The transaction resulted in ~~2017.~~a pre-tax loss of $66 which was recorded in Other expense (income) - net. This business was reported within the Vehicle business segment.

~~A summary~~Acquisition of ~~restructuring charges~~Power Distribution, Inc.

On February 25, 2020, Eaton acquired Power Distribution, Inc. a leading supplier of mission critical power distribution, static switching, and power monitoring equipment and services for data centers and industrial and commercial customers. The company is headquartered in Richmond, Virginia, and had 2019 sales of $125. Power Distribution, Inc. is reported within the Electrical Americas business segment.

Sale of Lighting business

On March 2, 2020, Eaton sold its Lighting business to Signify N.V. for a cash purchase price of $1.4 billion. The Company recognized a pre-tax gain of $221. The Lighting business, which had sales of $1.6 billion in 2019 as part of the Electrical Americas business segment, serves customers in commercial, industrial, residential, and municipal markets.

Pending sale of Hydraulics business

On January 21, 2020, Eaton entered into an agreement to sell its Hydraulics business to Danfoss A/S, a Danish industrial company, for $3.3 billion in cash. Eaton’s Hydraulics business is a global leader in hydraulics components, systems, and services for industrial and mobile equipment. The business had sales of $2.2 billion in 2019. The transaction is subject to customary closing conditions and regulatory approvals and is expected to close by ~~type~~the end of the first quarter of 2021.

Assets and liabilities held for sale

During the fourth quarter of 2019 and first quarter of 2020, the Company determined the Lighting business and Hydraulics business, respectively, met the criteria to be classified as held for sale. Therefore, assets and liabilities of these businesses have been presented as held for sale in the Consolidated Balance Sheets as of December 31, 2019 and September 30, 2020, respectively. Assets and liabilities classified as held for sale are measured at the lower of carrying value or fair value less costs to sell. There was no write-down as fair values of both the Lighting business and Hydraulics business assets less their costs to sell exceeded their respective carrying values. Depreciation and amortization expense is not recorded for the period in which Other long-lived assets are classified as held for sale.

The Company used the relative fair value method to allocate goodwill to both the Lighting and Hydraulics businesses. The fair values of the Lighting business and Hydraulics business were estimated based on a combination of the prices paid to Eaton by Signify N.V. and Danfoss A/S, respectively, and a discounted cash flow model. The model includes estimates of future cash flows, future growth rates, terminal value amounts, and the applicable weighted-average cost of capital used to discount those estimated cash flows. The weighted-average cost of capital is an estimate of the overall after-tax rate of return required by equity and debt market holders of a business enterprise. These analyses require the exercise of judgments, including judgments about appropriate discount rates, perpetual growth rates, revenue growth, and margin assumptions.

The assets and liabilities classified as held for sale for the Lighting business on the December 31, 2019 Consolidated Balance Sheet and the Hydraulics business on the September 30, 2020 Consolidated Balance Sheet are as follows:


	September 30, 2020		December 31, 2019
	(Hydraulics business)		(Lighting business)
Cash	$	2	$	0
Accounts receivable - net	333		220
Inventory	358		161
Prepaid expenses and other current assets	10		10
Net property, plant and equipment	473		155
Goodwill	907		470
Other intangible assets	247		330
Operating lease assets	48		25
Deferred income taxes	5		—
Other noncurrent assets	15		6
Assets held for sale - current	$	2,398	$	1,377

Accounts payable	$	198	$	184
Accrued compensation	23		7
Other current liabilities	106		102
Pension liabilities	70		3
Operating lease liabilities	25		17
Deferred income taxes	2		(1)
Other noncurrent liabilities	0		13

Liabilities held for sale - current	$	424	$	325

The Lighting business and Hydraulics business did not meet the criteria to be classified as discontinued operations as neither of these sales represent a strategic shift that will have a major effect on the Company's operations.

Three months ended
September 30 Nine months ended
September 30
2017 2016 2017 2016
Workforce reductions $ 10
$ 18
$ 35
$ 95
Plant closings and other 12
5
40
26
Total $ 22
$ 23
$ 75
$ 121

Note 3. REVENUE RECOGNITION

~~A summary~~Sales are recognized when obligations under the terms of ~~restructuring charges~~the contract are satisfied and control of promised goods or services have transferred to our customers. Sales are measured at the amount of consideration the Company expects to be paid in exchange for these products or services.

In the Electrical Americas segment, sales contracts are primarily for electrical components, industrial components, power distribution and assemblies, residential products, single and 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.

Many of the products and services in power distribution and power quality services meet the definition of continuous transfer of control to customers and are recognized over time. These products are engineered to a customer’s design specifications, have no alternative use to Eaton, and are controlled by the customer as evidenced by the customer’s contractual ownership of the work in process or our right to payment for work performed to date plus a reasonable margin. As control is transferring over time, sales are recognized based on the extent of progress towards completion of the obligation. Eaton generally uses an input method to determine the progress completed and sales are recorded proportionally as costs are incurred. Incurred costs represent work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer.

In the Hydraulics segment, ~~follows:~~sales contracts are primarily for hydraulic components and systems for industrial and mobile equipment. These sales contracts are primarily based on a customer’s purchase order. In this segment, performance obligations are generally satisfied at a point in time when we ship the product from our facility.

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 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 are primarily fixed-price contracts that are not subject to performance-based payments or progress payments from the customer.

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 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 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 product from our facility, or when it arrives at the customer’s facility.

In the eMobility segment, sales contracts are primarily for electronic and mechanical components and systems that improves the power management and performance of both on-road and off-road vehicles. These sales 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 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.

Three months ended
September 30 Nine months ended
September 30
2017 2016 2017 2016
Electrical Products $ —
$ 1
$ 14
$ 27
Electrical Systems & Services —
7
7
20
Hydraulics 9
10
26
44
Aerospace —
(1 ) 1
3
Vehicle 2
5
7
22
Corporate 11
1
20
5
Total $ 22
$ 23
$ 75
$ 121
The Company’s 6 operating segments and the following tables disaggregate sales by lines of businesses, geographic destination, market channel or end market.

~~A summary~~


	Three months ended September 30, 2020
Net sales			Products		Systems		Total
Electrical Americas			$	562	$	1,137	$	1,699
Electrical Global			671		525		1,196

			United States		Rest of World
Hydraulics			$	191	$	248	439

	Original Equipment Manufacturers		Aftermarket		Industrial and Other
Aerospace	$	230	$	158	$	152	540

			Commercial		Passenger and Light Duty
Vehicle			$	284	$	289	573

eMobility							79

Total							$	4,526


	Three months ended September 30, 2019
Net sales			Products		Systems		Total
Electrical Americas			$	921	$	1,119	$	2,040
Electrical Global			691		604		1,295

			United States		Rest of World
Hydraulics			$	244	$	275	519

	Original Equipment Manufacturers		Aftermarket		Industrial and Other
Aerospace	$	301	$	210	$	109	620

			Commercial		Passenger and Light Duty
Vehicle			$	371	$	390	761

eMobility							79

Total							$	5,314


	Nine months ended September 30, 2020
Net sales			Products		Systems		Total
Electrical Americas			$	1,725	$	3,252	$	4,977
Electrical Global			1,926		1,525		3,451

			United States		Rest of World
Hydraulics			$	601	$	756	1,357

	Original Equipment Manufacturers		Aftermarket		Industrial and Other
Aerospace	$	754	$	527	$	400	1,681

			Commercial		Passenger and Light Duty
Vehicle			$	742	$	756	1,498

eMobility							207

Total							$	13,171


	Nine months ended September 30, 2019
Net sales			Products		Systems		Total
Electrical Americas			$	2,775	$	3,311	$	6,086
Electrical Global			2,102		1,759		3,861

			United States		Rest of World
Hydraulics			$	783	$	944	1,727

	Original Equipment Manufacturers		Aftermarket		Industrial and Other
Aerospace	$	893	$	635	$	330	1,858

			Commercial		Passenger and Light Duty
Vehicle			$	1,227	$	1,147	2,374

eMobility							246

Total							$	16,152

The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (revenue recognized exceeds amount billed to the customer), and deferred revenue (advance payments and billings in excess of revenue recognized). Accounts receivables from customers were $2,565 and $3,090 at September 30, 2020 and December 31, 2019, 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 ~~related to workforce reductions, plant closings~~are reported on the Consolidated Balance Sheets on a contract-by-contract basis at the end of each reporting period. Unbilled receivables were $108 and $101 at September 30, 2020 and December 31, 2019, respectively, and are recorded in Prepaid expenses and other ~~associated costs announced~~current assets. The increase in ~~2015~~unbilled receivables was primarily due to revenue recognized and not yet billed, partially offset by billings to customers during the quarter.

Changes in the deferred revenue liabilities are as follows:

Workforce reductions Plant closings and other Total
Balance at December 31, 2015 $ 54
$ —
$ 54
  Liability recognized 177
34
211
  Payments (116 ) (13 ) (129 )
  Other adjustments (2 ) (20 ) (22 )
Balance at December 31, 2016 113
1
114
Liability recognized 35
40
75
Payments (78 ) (25 ) (103 )
Other adjustments (3 ) (12 ) (15 )
Balance at September 30, 2017 $ 67
$ 4
$ 71

These charges were included in Cost of products sold, Selling and administrative expenses or Other income-net, as appropriate. In Business Segment Information, the charges reduced Operating profit of the related business segment. See Note 14 for additional information about business segments.


	Deferred Revenue
Balance at January 1, 2019	$	248
Customer deposits and billings	680
Revenue recognized in the period	(683)
Translation	1
Balance at September 30, 2019	$	246

A significant portion of open orders placed with Eaton are by original equipment manufacturers or distributors. These open orders are not considered firm as they have been historically subject to releases by customers. In measuring backlog of unsatisfied or partially satisfied obligations, only the amount of orders to which customers are firmly committed are included. Using this criterion, total backlog at September 30, 2020 was approximately $5.4 billion. At September 30, 2020, Eaton expects to recognize approximately 87% of this backlog in the next twelve months and the rest thereafter.

Note 4. CREDIT LOSSES FOR RECEIVABLES

Receivables are exposed to credit risk based on the customers’ ability to pay which is influenced by, among other factors, their financial liquidity position. Eaton’s receivables are generally short-term in nature with a majority outstanding less than 90 days.

Eaton performs ongoing credit evaluation of its customers and maintains sufficient allowances for potential credit losses. The Company evaluates the collectability of its receivables based on the length of time the receivable is past due, and any anticipated future write-offs based on historic experience adjusted for market conditions. The Company’s segments, supported by our global credit department, perform the credit evaluation and monitoring process to estimate and manage credit risk. The process includes an evaluation of credit losses for both the overall segment receivable and specific customer balances. The process also includes review of customer financial information and credit ratings, approval and monitoring of customer credit limits, and an assessment of market conditions. The Company may also require prepayment from customers to mitigate credit risk. Receivable balances are written off against an allowance for credit losses after a final determination of collectability has been made.

Accounts receivable are net of an allowance for credit losses of $48 and $49 at September 30, 2020 and December 31, 2019. The change in the allowance for credit losses includes expense and net write-offs, none of which are significant.

Inventory is carried at lower of cost or net realizable value. The components of inventory follow:


	September 30, 2020		December 31, 2019
Raw materials	$	780	$	986
Work-in-process	508		640
Finished goods	808		1,179
Total inventory	$	2,096	$	2,805

Change in the carrying amount of goodwill by segment follows:


	January 1, 2020		Additions		Goodwill reclassified to held for sale		Translation		September 30, 2020
Electrical Americas	$	6,352	$	121	$	0	$	(17)	$	6,456
Electrical Global	4,106		7		0		(5)		4,108
Hydraulics	921		0		(907)		(14)		0
Aerospace	1,706		3		0		32		1,741
Vehicle	291		0		0		0		291
eMobility	80		0		0		1		81
Total	$	13,456	$	131	$	(907)	$	(3)	$	12,677

Electrical
Products

Electrical
Systems and
Services
Hydraulics Aerospace Vehicle Total
December 31, 2016 $ 6,497
$ 4,203
$ 1,221
$ 938
$ 342
$ 13,201
Goodwill written off from sale of business —
—
—
—
(52 ) (52 )
Translation 235
114
34
8
5
396
September 30, 2017 $ 6,732
$ 4,317
$ 1,255
$ 946
$ 295
$ 13,545

During the first quarter of 2020, Eaton re-segmented certain reportable operating segments due to a reorganization of the Company's businesses. The Company used the relative fair value method to reallocate goodwill to the associated reporting units impacted by the reorganization. The Company’s reporting units are equivalent to the reportable operating segments, except for the Aerospace segment which has 2 reporting units.

~~On September 15, 2017,~~The fair values of the Electrical Americas and Electrical Global reportable segments were estimated based on a ~~subsidiary~~discounted cash flow model. The model includes estimates of ~~Eaton issued senior notes (the Notes) with a face amount~~future cash flows, future growth rates, terminal value amounts, and the applicable weighted-average cost of ~~$1,000.~~capital used to discount those estimated cash flows. The ~~Notes are comprised~~weighted-average cost of ~~two tranches~~capital is an estimate of ~~$700 and $300, which mature in 2027 and 2047, respectively, with interest payable semi-annually at a respective~~the overall after-tax rate of ~~3.1%~~return required by equity and ~~3.9%.~~ debt market holders of a business enterprise. These analyses require the exercise of judgments, including judgments about appropriate discount rates, perpetual growth rates, revenue growth, and margin assumptions.

The ~~issuer received proceeds totaling $993 from~~fair value of the ~~issuance, net~~Hydraulics reportable segment was estimated based on a combination of ~~financing costs.~~ the price to be paid to Eaton by Danfoss A/S and a discounted cash flow model. See Note 2 for additional information about the allocation of goodwill to the Hydraulics reportable segment.

The ~~Notes are fully~~Filtration and ~~unconditionally guaranteed on an unsubordinated, unsecured basis by Eaton~~Golf Grip businesses previously included in the Hydraulics reportable segment, and ~~certain of its direct and indirect subsidiaries. The Notes contain customary optional redemption and par call provisions. The Notes also contain a change of control provision which requires~~ the ~~Company~~electrical aerospace connectors business previously included in the Electrical Products segment, have been added to ~~make an offer to purchase all or any~~the Aerospace segment as part of the ~~Notes at~~reorganization.

During the first quarter of 2020, goodwill impairment testing was performed using quantitative analyses as a result of the Hydraulics business being classified as held for sale as discussed in Note 2, and the re-segmentation of the Electrical Americas, Electrical Global and Aerospace segments. Based on these analyses performed, the fair value of Eaton's impacted reporting units continues to substantially exceed their respective carrying amounts and thus, no impairment exists.

The 2020 additions to goodwill relate to the anticipated synergies of acquiring Power Distribution, Inc. The allocation of the purchase price from this acquisition is preliminary and will be completed during the measurement period.

Table of 101% of the principal amount plus accrued and unpaid interest. The capitalized deferred financing fees are amortized in Interest expense-net over the respective terms of the Notes. The Notes are subject to customary non-financial covenants.Contents

Note 7. RETIREMENT BENEFITS PLANS

The components of retirement benefits expense follow:


	United States pension benefit expense				Non-United States pension benefit expense				Other postretirement benefits expense
	Three months ended September 30
	2020		2019		2020		2019		2020		2019
Service cost	$	25	$	22	$	19	$	14	$	0	$	0
Interest cost	26		35		11		13		3		3
Expected return on plan assets	(59)		(59)		(27)		(25)		(1)		0
Amortization	26		15		15		10		(3)		(3)
	18		13		18		12		(1)		0

Settlements, curtailments and special termination benefits	14		13		1		2		0		0
Total expense	$	32	$	26	$	19	$	14	$	(1)	$	0


	United States pension benefit expense				Non-United States pension benefit expense				Other postretirement benefits expense
	Nine months ended September 30
	2020		2019		2020		2019		2020		2019
Service cost	$	73	$	68	$	55	$	43	$	1	$	1
Interest cost	78		103		33		42		7		10
Expected return on plan assets	(174)		(176)		(81)		(79)		(1)		(1)
Amortization	77		46		44		29		(9)		(10)
	54		41		51		35		(2)		0

Settlements, curtailments and special termination benefits	49		36		7		3		0		0
Total expense	$	103	$	77	$	58	$	38	$	(2)	$	0

The components of retirement benefits expense other than service costs are included in Other expense (income) - net.

United States
pension benefit expense Non-United States
pension benefit expense Other postretirement
benefits expense
Three months ended September 30
2017 2016 2017 2016 2017 2016
Service cost $ 24
$ 28
$ 18
$ 16
$ 1
$ 1
Interest cost 30
31
14
16
4
4
Expected return on plan assets (61 ) (63 ) (24 ) (23 ) (1 ) (2 )
Amortization 21
23
13
8
(3 ) (2 )
14
19
21
17
1
1
Settlements 17
24
4
—
—
—
Total expense $ 31
$ 43
$ 25
$ 17
$ 1
$ 1

United States
pension benefit expense Non-United States
pension benefit expense Other postretirement
benefits expense
Nine months ended September 30
2017 2016 2017 2016 2017 2016
Service cost $ 72
$ 83
$ 53
$ 49
$ 2
$ 3
Interest cost 92
94
41
48
11
13
Expected return on plan assets (183 ) (188 ) (70 ) (71 ) (3 ) (5 )
Amortization 62
69
38
25
(9 ) (6 )
43
58
62
51
1
5
Settlements and special termination benefits 51
63
4
—
—
—
Total expense $ 94
$ 121
$ 66
$ 51
$ 1
$ 5

~~In 2017, Eaton expects to make contributions to the United States pension plans of $375, including $370 contributed through September 30, 2017.~~

Note 8. LEGAL CONTINGENCIES

Eaton is subject to a broad range of claims, administrative and legal proceedings such as lawsuits that relate to contractual allegations, tax audits, patent infringement, personal injuries, antitrust matters, and employment-related matters. Eaton is also subject to asbestos claims from historic products which may have contained asbestos. Insurance may cover some of the costs associated with these claims and proceedings. Although it is not possible to predict with certainty the outcome or cost of these matters, the Company believes they will not have a material adverse effect on the consolidated financial statements.

In December 2011, Pepsi-Cola Metropolitan Bottling Company, Inc. (“Pepsi”) filed an action against (a) Cooper Industries, LLC, Cooper Industries, Ltd., Cooper Holdings, Ltd., Cooper US, Inc., and Cooper Industries plc (collectively, “Cooper”), (b) M&F Worldwide Corp., Mafco Worldwide Corp., Mafco Consolidated Group LLC, and PCT International Holdings, Inc. (collectively, “Mafco”), and (c) the Pneumo Abex Asbestos Claims Settlement Trust (the “Trust”) in Texas state court. Pepsi alleged that it was harmed by a 2011 settlement agreement (“2011 Settlement”) among Cooper, Mafco, and Pneumo Abex, LLC (“Pneumo,” which prior to the 2011 Settlement was a Mafco subsidiary), which settlement resolved litigation that Pneumo had previously brought against Cooper involving, among other things, a guaranty related to Pneumo’s friction products business. In November 2015, after a Texas court ruled that Pepsi's claims should be heard in arbitration, Pepsi filed a demand for arbitration against Cooper, Mafco, the Trust, and Pneumo. Pepsi subsequently dropped claims against all parties except Cooper. An arbitration under the auspices of the American Arbitration Association commenced in October 2017. Pepsi’s experts have opined, among other things, that the value contributed to the Trust for a release of the guaranty was approximately $440 below reasonably equivalent value, and that an inability of Pneumo to satisfy future liabilities may result in plaintiffs suing Pepsi under various theories. Cooper submitted various expert reports and, among other things, Cooper’s experts opine that Pepsi has no basis to seek any damages and that Cooper paid reasonably equivalent value for the release of its indemnity obligations under the guaranty. The Company believes that the claims of Pepsi are without merit, and that the ultimate resolution of this matter will not have a material impact on the Company’s consolidated financial statements.

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

Note 9. INCOME TAXES

The effective income tax rate for the third quarter ~~and first nine months~~ of ~~2017~~2020 was expense of ~~17.3% and 13.9%, respectively,~~14.8% compared to expense of ~~8.8% and 9.6%~~16.0% for the third quarter ~~and first nine months~~ of ~~2016.~~2019. The tax rate for the third quarter and first nine months of 2017 includes $234 of tax expense on the gain related to the Eaton Cummins joint venture transaction, which closed during the third quarter and is discussed in Note 2. Excluding the impact from the Eaton Cummins joint venture transaction, the effective income tax rate for the third quarter and first nine months of 2017 was expense of 9.5% and 8.8%, respectively. The increasedecrease in the effective tax rate in the third quarter of ~~2017~~2020 was primarily due to ~~greater~~lower levels of income in higher tax jurisdictions. The ~~decrease~~effective income tax rate for the first nine months of 2020 was expense of 21.3% compared to expense of 14.5% for the first nine months of 2019. The increase in the effective tax rate in the first nine months of ~~2017~~2020 was primarily due to the ~~resolution~~tax impact on the gain from the sale of ~~tax contingencies in lower tax jurisdictions and~~ the ~~excess tax benefits recognized for employee share-based payments pursuant to the adoption of ASU 2016-09 as discussed~~Lighting business described in Note 1.2.

~~On July 26, 2017, the United States Tax Court issued a ruling in the previously-disclosed dispute between Eaton Corporation, a subsidiary~~

Table of the Company (“Eaton Corp”) and the Internal Revenue Service (the “IRS”). As the Company has previously disclosed, the IRS issued a Notice in 2011 for Eaton Corp’s 2005 and 2006 tax years proposing assessments of $75 million in additional taxes plus $52 million in penalties related primarily to transfer pricing adjustments for products manufactured in Eaton facilities in Puerto Rico and the Dominican Republic and sold to affiliated companies located in the U.S. As previously disclosed, the IRS also proposed adjustments related to the same transfer pricing issue in another Notice issued in 2014 for the 2007 through 2010 tax years. Eaton has set its transfer prices for products sold between these affiliates at the same prices that it sells such products to third parties, as required by two successive Advance Pricing Agreements (APAs) Eaton Corp entered into with the IRS. The IRS cancelled the APAs and made the proposed adjustments in the 2011 and 2014 Notices, which Eaton Corp disputed in the Tax Court. The Tax Court case involved both whether the APAs should be enforced and, if not, the appropriate transfer pricing methodology. The Tax Court held a trial for the 2005 and 2006 tax years, the outcome of which also applies to the transfer pricing matter in the 2007 through 2010 tax years.Contents

The Tax Court agreed with Eaton Corp that the IRS must abide by the terms of the APAs for the tax years 2005-2006, a finding that is also applicable to the 2007-2010 years. The Tax Court’s ruling on the APAs did not have a material impact on Eaton’s consolidated financial statements.

Note 10. EQUITY

On ~~October 22, 2013, Eaton's~~February 27, 2019, the Board of Directors adopted a share repurchase program (the 2013 Program). Under the 2013 Program, the ordinary shares were expected to be repurchased over time, depending on market conditions, the market price of ordinary shares, capital levels, and other considerations. During the first quarter of 2016, 1.5 million ordinary shares were repurchased under the 2013 Program in the open market at a total cost of $82. On February 24, 2016, the Board of Directors approved a new share repurchase program for share repurchases up to ~~$2,500~~$5,000 of ordinary shares ~~(2016~~(2019 Program). Under the ~~2016~~2019 Program, the ordinary shares are expected to be repurchased over time, depending on market conditions, the market price of ordinary shares, capital levels, and other considerations. During the three and nine months ended September 30, ~~2017, 4.4~~2020, 1.7 million and ~~10.7~~15.9 million ordinary shares, respectively, were repurchased under the ~~2016~~2019 Program in the open market at a total cost of ~~$324~~$177 and ~~$789,~~$1,477, respectively. During the three and nine months ended September 30, ~~2016, 3.7~~2019, 6.8 million and ~~7.7~~11.9 million ordinary shares, respectively, were repurchased under the ~~2016~~2019 Program in the open market at a total cost of ~~$243~~$539 and ~~$485,~~$949, respectively.

The changes in Shareholders’ equity follow:


	Ordinary shares			Capital in excess of par value		Retained earnings		Accumulated other comprehensive loss		Shares held in trust		Total Eaton shareholders' equity		Noncontrolling interests		Total equity

(In millions)	Shares	Dollars
Balance at January 1, 2020	413.3	$	4	$	12,200	$	8,170	$	(4,290)	$	(2)	$	16,082	$	51	$	16,133


Net income	—	—		—		438		—		—		438		—		438
Other comprehensive loss, net of tax								(676)				(676)		—		(676)
Cash dividends paid and accrued	—	—		—		(300)		—		—		(300)		(5)		(305)

Issuance of shares under equity-based compensation plans	0.9	—		3		(1)		—		(1)		1		—		1

Changes in noncontrolling interest of consolidated subsidiaries - net	—	—		—		—		—		—		—		(3)		(3)


Repurchase of shares	(14.2)	—		—		(1,300)		—		—		(1,300)		—		(1,300)
Balance at March 31, 2020	400.0	$	4	$	12,203	$	7,007	$	(4,966)	$	(3)	$	14,245	$	43	$	14,288

Net income	—	—		—		51		—		—		51		3		54
Other comprehensive income, net of tax								157				157				157
Cash dividends paid	—	—		—		(292)		—		—		(292)		(1)		(293)

Issuance of shares under equity-based compensation plans	0.1	—		25		1		—		1		27		—		27


Changes in noncontrolling interest of consolidated subsidiaries - net	—	—		—		—		—		—		—		2		2

Balance at June 30, 2020	400.1	$	4	$	12,228	$	6,767	$	(4,809)	$	(2)	$	14,188	$	47	$	14,235


Net income	—	—		—		446		—		—		446		1		447
Other comprehensive income, net of tax								276				276				276
Cash dividends paid	—	—		—		(292)		—		—		(292)		(2)		(294)

Issuance of shares under equity-based compensation plans	0.2	—		38		(3)		—		0		35		—		35



Changes in noncontrolling interest of consolidated subsidiaries - net	—	—		—		—		—		—		—		(4)		(4)
Repurchase of Shares	(1.7)	—		—		(177)		—		—		(177)		—		(177)
Balance at September 30, 2020	398.6	$	4	$	12,266	$	6,741	$	(4,533)	$	(2)	$	14,476	$	42	$	14,518

Table of Contents

Eaton
shareholders’
equity

Noncontrolling
interests

Total
equity
Balance at December 31, 2016 $ 14,897
$ 44
$ 14,941
Cumulative-effect adjustment upon adoption of ASU 2016-09 48
—
48
Net income 2,346
1
2,347
Other comprehensive income 785
—
785
Cash dividends paid (803 ) (3 ) (806 )
Issuance of shares under equity-based compensation plans - net 109
—
109
Repurchase of shares (789 ) —
(789 )
Changes in noncontrolling interest - net —
1
1
Balance at September 30, 2017 $ 16,593
$ 43
$ 16,636


	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	—	—		—		522		—		—		522		—		522
Other comprehensive income, net of tax								67				67		—		67
Cash dividends paid and accrued	—	—		—		(309)		—		—		(309)		(1)		(310)

Issuance of shares under equity-based compensation plans	1.4	—		(5)		1		—		—		(4)		—		(4)




Repurchase of shares	(1.9)	—		—		(150)		—		—		(150)		—		(150)
Balance at March 31, 2019	423.1	$	4	$	12,085	$	8,225	$	(4,078)	$	(3)	$	16,233	$	34	$	16,267

Net income	—	—		—		636		—		—		636		0		636
Other comprehensive loss, net of tax	—							(30)				(30)				(30)
Cash dividends paid	—	—		—		(300)		—		—		(300)		(1)		(301)

Issuance of shares under equity-based compensation plans	0.1	—		27		(1)		—		1		27		—		27


Acquisition of a business	—	—		—		—		—		—		—		51		51
Acquisition of noncontrolling interest obtained through tender offer	—	—		—		—		—		—		—		(29)		(29)
Repurchase of Shares	(3.2)	—		—		(260)		—		—		(260)		—		(260)
Balance at June 30, 2019	420.0	$	4	$	12,112	$	8,300	$	(4,108)	$	(2)	$	16,306	$	55	$	16,361


Net income	—	—		—		601		—		—		601		1		602
Other comprehensive loss, net of tax								(259)		—		(259)		—		(259)
Cash dividends paid	—	—		—		(298)		—		—		(298)		0		(298)

Issuance of shares under equity-based compensation plans	0.2	—		39		(2)		—		0		37		—		37



Acquisition of noncontrolling interest obtained through tender offer	—	—		—		—		—		—		—		(4)		(4)
Repurchase of Shares	(6.8)	—		—		(539)		—		—		(539)		—		(539)
Balance at September 30, 2019	413.4	$	4	$	12,151	$	8,062	$	(4,367)	$	(2)	$	15,848	$	52	$	15,900

The changes in Accumulated other comprehensive loss follow:


	Currency translation and related hedging instruments		Pensions and other postretirement benefits		Cash flow hedges		Total
Balance at January 1, 2020	$	(2,848)	$	(1,408)	$	(34)	$	(4,290)
Other comprehensive (loss) income before reclassifications	(313)		(3)		(104)		(420)
Amounts reclassified from Accumulated other comprehensive loss	37		131		9		177
Net current-period Other comprehensive (loss) income	(276)		128		(95)		(243)
Balance at September 30, 2020	$	(3,124)	$	(1,280)	$	(129)	$	(4,533)

Currency translation and related hedging instruments Pensions and other postretirement benefits
Cash flow
hedges
Total
Balance at December 31, 2016 $ (3,062 ) $ (1,380 ) $ (6 ) $ (4,448 )
Other comprehensive (loss) income
   before reclassifications
743
(46 ) (19 ) 678
Amounts reclassified from Accumulated other
   comprehensive loss (income)
—
99
8
107
Net current-period Other comprehensive
   income (loss)
743
53
(11 ) 785
Balance at September 30, 2017 $ (2,319 ) $ (1,327 ) $ (17 ) $ (3,663 )

Table of Contents

The reclassifications out of Accumulated other comprehensive loss follow:


	Nine months ended September 30, 2020			Consolidated statements of income classification
Currency translation losses
Sale of business	$	(37)		Gain on sale of business
Tax expense	0
Total, net of tax	(37)

Amortization of defined benefit pensions and other postretirement benefits items
Actuarial loss and prior service cost	(168)		1


Tax benefit	37
Total, net of tax	(131)

Gains and (losses) on cash flow hedges

Currency exchange contracts	(12)			Net sales and Cost of products sold


Tax benefit	3
Total, net of tax	(9)

Total reclassifications for the period	$	(177)

Nine months ended September 30, 2017
Consolidated statements
of income classification
Amortization of defined benefit pensions and other postretirement benefits items
Actuarial loss and prior service cost $ (146 )
¹

Tax benefit 47

Total, net of tax (99 )

Gains and (losses) on cash flow hedges
Currency exchange contracts (12 ) Cost of products sold
Tax benefit 4

Total, net of tax (8 )

Total reclassifications for the period $ (107 )

¹ These components of Accumulated other comprehensive loss are included in the computation of net periodic benefit cost. See Note 7 for additional information about pension and other postretirement benefits items.

Net Income Per Share Attributable to Eaton Ordinary Shareholders

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


	Three months ended September 30				Nine months ended September 30
(Shares in millions)	2020		2019		2020		2019
Net income attributable to Eaton ordinary shareholders	$	446	$	601	$	935	$	1,759

Weighted-average number of ordinary shares outstanding - diluted	402.3		418.4		404.9		422.5
Less dilutive effect of equity-based compensation	1.9		1.8		1.6		1.8
Weighted-average number of ordinary shares outstanding - basic	400.4		416.6		403.3		420.7

Net income per share attributable to Eaton ordinary shareholders
Diluted	$	1.11	$	1.44	$	2.31	$	4.16
Basic	1.11		1.44		2.32		4.18

Three months ended
September 30 Nine months ended
September 30
(Shares in millions) 2017 2016 2017 2016
Net income attributable to Eaton ordinary shareholders $ 1,399
$ 523
$ 2,346
$ 1,418

Weighted-average number of ordinary shares outstanding - diluted 445.2
455.6
448.3
457.9
Less dilutive effect of equity-based compensation 2.6
1.7
2.4
1.4
Weighted-average number of ordinary shares outstanding - basic 442.6
453.9
445.9
456.5

Net income per share attributable to Eaton ordinary shareholders
Diluted $ 3.14
$ 1.15
$ 5.23
$ 3.09
Basic 3.16
1.15
5.26
3.10

For the third quarter and first nine months of ~~2017, 0.2~~2020, 0.3 million and ~~0.6~~0.8 million stock options, respectively, were excluded from the calculation of diluted net income per share attributable to Eaton ordinary shareholders because the exercise price of the options exceeded the average market price of the ordinary shares during the period and their effect, accordingly, would have been antidilutive. For the third quarter and first nine months of ~~2016, 1.5~~2019, 0.8 million and ~~1.8~~1.1 million stock options, respectively, were excluded from the calculation of diluted net income per share attributable to Eaton ordinary shareholders because the exercise price of the options exceeded the average market price of the ordinary shares during the period and their effect, accordingly, would have been antidilutive.

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~~Note 11.~~	~~FAIR VALUE MEASUREMENTS~~

Note 11. FAIR VALUE MEASUREMENTS

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

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


												Total		Level 1		Level 2		Level 3
	Total			Level 1		Level 2			Level 3
September 30, 2017
September 30, 2020											September 30, 2020
Cash	$	791		$	791	$	—		$	—	Cash	$	429	$	429	$	0	$	0
Short-term investments	843			843		—			—		Short-term investments	334		334		0		0
Net derivative contracts	28			—		28			—		Net derivative contracts	(35)		0		(35)		0

December 31, 2016
December 31, 2019											December 31, 2019
Cash	$	543		$	543	$	—		$	—	Cash	$	370	$	370	$	0	$	0
Short-term investments	203			203		—			—		Short-term investments	221		221		0		0
Net derivative contracts	(3		)	—		(3		)	—		Net derivative contracts	53		0		53		0

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

Other Fair Value Measurements

Long-term debt and the current portion of long-term debt had a carrying value of ~~$8,767~~$8,199 and fair value of ~~$9,078~~$9,153 at September 30, ~~2017~~2020 compared to ~~$8,263~~$8,067 and ~~$8,477,~~$8,638, respectively, at December 31, ~~2016.~~2019. The fair value of Eaton's debt instruments were estimated using prevailing market interest rates on debt with similar creditworthiness, terms and maturities, and are considered a Level 2 fair value measurement.

As discussed in Note 2, on July 31, 2017 Eaton sold a 50% interest in its heavy-duty and medium-duty commercial vehicle automated transmission business to Cummins, Inc. Eaton's remaining 50% interest was remeasured to a fair value

Table of $600 on July 31, 2017 using a discounted cash flow model which is considered a Level 3 fair value measurement. 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. Eaton will account for its investment on the equity method of accounting.Contents


~~Note 12.~~	~~DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES~~

Note 12. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

In the normal course of business, Eaton is exposed to certain risks related to fluctuations in interest rates, currency exchange rates and commodity prices. The Company uses various derivative and non-derivative financial instruments, primarily interest rate swaps, currency forward exchange contracts, currency swaps and, ~~to a lesser extent,~~ commodity contracts to manage risks from these market fluctuations. The instruments used by Eaton are straightforward, non-leveraged instruments. The counterparties to these instruments are financial institutions with strong credit ratings. Eaton maintains control over the size of positions entered into with any one counterparty and regularly monitors the credit rating of these institutions. Such instruments are not purchased and sold for trading purposes.

Derivative financial instruments are accounted for at fair value and recognized as assets or liabilities in the ~~Condensed~~ Consolidated Balance Sheets. Accounting for the gain or loss resulting from the change in the fair value of the derivative financial instrument depends on whether it has been designated, and is effective, as part of a hedging relationship and, if so, as to the nature of the hedging activity. Eaton formally documents all relationships between derivative financial instruments accounted for as designated hedges and the hedged item, as well as its risk-management objective and strategy for undertaking the hedge transaction. This process includes linking derivative financial instruments to a recognized asset or liability, specific firm commitment, forecasted transaction, or net investment in a foreign operation. These financial instruments can be designated as:

•Hedges of the change in the fair value of a recognized fixed-rate asset or liability, or the firm commitment to acquire such an asset or liability (a fair value hedge); for these hedges, the gain or loss from the derivative financial instrument, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk, are recognized in income during the period of change in fair value.

•Hedges of the variable cash flows of a recognized variable-rate asset or liability, or the forecasted acquisition of such an asset or liability (a cash flow hedge); for these hedges, the ~~effective portion of the~~ gain or loss from the derivative financial instrument is recognized in Accumulated other comprehensive ~~loss~~income and reclassified to income in the same period when the gain or loss on the hedged item is included in income.

•Hedges of the currency exposure related to a net investment in a foreign operation (a net investment hedge); for these hedges, the ~~effective portion of the~~ gain or loss from the derivative financial instrument is recognized in Accumulated other comprehensive ~~loss~~income and reclassified to income in the same period when the gain or loss related to the net investment in the foreign operation is included in income.

The gain or loss from a derivative financial instrument designated as a hedge ~~that is effective~~ is classified in the same line of the Consolidated Statements of Income as the offsetting loss or gain on the hedged item. The ~~change~~cash flows resulting from these financial instruments are classified in ~~fair value~~operating activities on the Condensed Consolidated Statements of ~~a derivative financial instrument that is not effective as a hedge is immediately recognized in income.~~Cash Flows.

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

Eaton uses certain of its debt denominated in foreign currency to hedge portions of its net investments in foreign operations against foreign currency exposure (net investment hedges). Foreign currency denominated debt designated as a non-derivative net investment hedging ~~instruments~~instrument had a carrying value on an after-tax basis ~~was $89~~of $1,925 at September 30, ~~2017~~2020 and ~~$86~~$1,845 at December 31, ~~2016, and designated on a pre-tax basis was $643 at September 30, 2017 and $572 at December 31, 2016.~~2019.

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Derivative Financial Statement Impacts

The fair value of derivative financial instruments recognized in the ~~Condensed~~ Consolidated Balance Sheets follows:


	Notional amount		Other current assets		Other noncurrent assets		Other current liabilities		Other noncurrent liabilities		Type of hedge	Term
September 30, 2020
Derivatives designated as hedges
Fixed-to-floating interest rate swaps	$	2,225	$	4	$	111	$	0	$	0	Fair value	3 months to 14 years

Forward starting floating-to-fixed interest rate swaps	900		0		7		0		147		Cash flow	12 to 32 years

Currency exchange contracts	963		9		1		28		4		Cash flow	1 to 36 months
Commodity contracts	9		2		0		0		0		Cash flow	1 to 7 months
Total			$	15	$	119	$	28	$	151

Derivatives not designated as hedges
Currency exchange contracts	$	5,019	$	37			$	27				1 to 12 months

Total			$	37			$	27

December 31, 2019
Derivatives designated as hedges
Fixed-to-floating interest rate swaps	$	2,225	$	0	$	57	$	0	$	0	Fair value	12 months to 15 years

Forward starting floating-to-fixed interest rate swaps	500		0		3		0		42		Cash flow	13 to 33 years
Currency exchange contracts	1,146		14		3		11		6		Cash flow	1 to 36 months
Commodity contracts	9		0		0		0		0		Cash flow	1 to 9 months
Total			$	14	$	63	$	11	$	48

Derivatives not designated as hedges
Currency exchange contracts	$	4,975	$	48			$	13				1 to 12 months
Commodity contracts	3		0				0					1 month
Total			$	48			$	13

Notional
amount

Other
current
assets

Other
noncurrent
assets

Other
current
liabilities

Other
noncurrent
liabilities

Type of
hedge
Term
September 30, 2017
Derivatives designated as hedges
Fixed-to-floating interest rate
swaps
$ 3,715
$ 2
$ 56
$ —
$ 7
Fair value 2 months to 17 years
Currency exchange contracts 921
4
6
25
5
Cash flow 1 to 36 months
Total $ 6
$ 62
$ 25
$ 12

Derivatives not designated as
hedges

Currency exchange contracts $ 3,022
$ 21
$ 24
1 to 12 months
Commodity contracts 1
—
—
1 to 12 months
Total $ 21

$ 24

December 31, 2016
Derivatives designated as hedges
Fixed-to-floating interest rate
swaps
$ 3,765
$ 1
$ 65
$ —
$ 8
Fair value 3 months to 18 years
Forward starting floating-to-fixed
interest rate swaps
450
—
19
—
1
Cash flow 11 years
Currency exchange contracts 802
11
1
22
17
Cash flow 1 to 36 months
Total $ 12
$ 85
$ 22
$ 26

Derivatives not designated as
hedges

Currency exchange contracts $ 5,333
$ 31
$ 85
1 to 12 months
Commodity contracts 10
2
—
1 to 12 months
Total $ 33

$ 85

The currency exchange contracts shown in the table above as derivatives not designated as hedges are primarily contracts entered into to manage currency volatility or exposure on intercompany ~~sales~~receivables, payables and loans. While Eaton does not elect hedge accounting treatment for these derivatives, Eaton targets managing 100% of the intercompany balance sheet exposure to minimize the effect of currency volatility related to the movement of goods and services in the normal course of its operations. This activity represents the great majority of these currency exchange contracts.

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As of September 30, 2020, the volume of outstanding commodity contracts that were entered into to hedge forecasted transactions:

Commodity

September 30, 2020

Term

Copper

millions of pounds

1 to 7 months

The following amounts were recorded on the Consolidated Balance Sheets related to fixed-to-floating interest rate swaps:


	Carrying amount of the hedged assets (liabilities)				Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged asset (liabilities) (a)
Location on Consolidated Balance Sheets	September 30, 2020		December 31, 2019			September 30, 2020		December 31, 2019
Long-term debt	$	(2,838)	$	(2,838)		$	(152)	$	(97)

(a) At September 30, 2020 and December 31, 2019, these amounts include the cumulative liability amount of fair value hedging adjustments remaining for which the hedge accounting has been discontinued of $37 and $40, respectively.

The impact of hedging activities to the Consolidated Statements of Income are as follow:


	Three months ended September 30, 2020
	Net Sales		Cost of products sold		Interest expense - net
Amounts from Consolidated Statements of Income	$	4,526	$	3,051	$	41

Gain (loss) on derivatives designated as cash flow hedges
Currency exchange contracts
Hedged item	$	4	$	3	$	0
Derivative designated as hedging instrument	(4)		(3)		0


Commodity contracts
Hedged item	$	0	$	0	$	0
Derivative designated as hedging instrument	0		0		0


Gain (loss) on derivatives designated as fair value hedges
Fixed-to-floating interest rate swaps
Hedged item	$	0	$	0	$	11
Derivative designated as hedging instrument	0		0		(11)

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	Three months ended September 30, 2019
	Net Sales		Cost of products sold		Interest expense - net
Amounts from Consolidated Statements of Income	$	5,314	$	3,512	$	47

Gain (loss) on derivatives designated as cash flow hedges
Currency exchange contracts
Hedged item	$	1	$	(1)	$	0
Derivative designated as hedging instrument	(1)		1		0


Commodity contracts
Hedged item	$	0	$	0	$	0
Derivative designated as hedging instrument	0		0		0


Gain (loss) on derivatives designated as fair value hedges
Fixed-to-floating interest rate swaps
Hedged item	$	0	$	0	$	(13)
Derivative designated as hedging instrument	0		0		13


	Nine months ended September 30, 2020
	Net Sales		Cost of products sold		Interest expense - net
Amounts from Consolidated Statements of Income	$	13,171	$	9,230	$	113

Gain (loss) on derivatives designated as cash flow hedges
Currency exchange contracts
Hedged item	$	9	$	4	$	0
Derivative designated as hedging instrument	(9)		(4)		0


Commodity contracts
Hedged item	$	0	$	0	$	0
Derivative designated as hedging instrument	0		0		0


Gain (loss) on derivatives designated as fair value hedges
Fixed-to-floating interest rate swaps
Hedged item	$	0	$	0	$	(58)
Derivative designated as hedging instrument	0		0		58

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	Nine months ended September 30, 2019
	Net Sales		Cost of products sold		Interest expense - net
Amounts from Consolidated Statements of Income	$	16,152	$	10,782	$	157

Gain (loss) on derivatives designated as cash flow hedges
Currency exchange contracts
Hedged item	$	6	$	(10)	$	0
Derivative designated as hedging instrument	(6)		10		0


Commodity contracts
Hedged item	$	0	$	0	$	0
Derivative designated as hedging instrument	0		0		0


Gain (loss) on derivatives designated as fair value hedges
Fixed-to-floating interest rate swaps
Hedged item	$	0	$	0	$	(76)
Derivative designated as hedging instrument	0		0		76

The impact of derivatives not designated as hedges to the Consolidated Statements of Income are as follow:


	Gain (loss) recognized in Consolidated Statements of Income		Consolidated Statements of Income classification
	Three months ended September 30
	2020		2019
Gain (loss) on derivatives not designated as hedges
Currency exchange contracts	$	49	$	(40)	Interest expense - net
Commodity Contracts	0		1		Cost of products sold
Total	$	49	$	(39)


	Gain (loss) recognized in Consolidated Statements of Income		Consolidated Statements of Income classification
	Nine months ended September 30
	2020		2019
Gain (loss) on derivatives not designated as hedges
Currency exchange contracts	$	(54)	$	8	Interest expense - net
Commodity Contracts	1		1		Cost of products sold
Total	$	(53)	$	9

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The impact of derivative and non-derivative instruments designated as hedges to the Consolidated ~~Statement~~Statements of Income and Comprehensive Income follow:


	Gain (loss) recognized in other comprehensive (loss) income				Location of gain (loss) reclassified from Accumulated other comprehensive loss	Gain (loss) reclassified from Accumulated other comprehensive loss
	Three months ended September 30					Three months ended September 30
	2020		2019			2020		2019
Derivatives designated as cash flow hedges
Forward starting floating-to-fixed interest rate swaps	$	35	$	(46)	Interest expense - net	$	0	$	0

Currency exchange contracts	11		(8)		Net sales and Cost of products sold	(6)		0
Commodity contracts	1		0		Cost of products sold	0		0
Non-derivative designated as net investment hedges
Foreign currency denominated debt	(83)		3		Interest expense - net	0		0
Total	$	(36)	$	(51)		$	(6)	$	0


	Gain (loss) recognized in other comprehensive (loss) income				Location of gain (loss) reclassified from Accumulated other comprehensive loss	Gain (loss) reclassified from Accumulated other comprehensive loss
	Nine months ended September 30					Nine months ended September 30
	2020		2019			2020		2019
Derivatives designated as cash flow hedges
Forward starting floating-to-fixed interest rate swaps	$	(101)	$	(73)	Interest expense - net	$	0	$	0

Currency exchange contracts	(34)		(18)		Net sales and Cost of products sold	(12)		4
Commodity contracts	2		0		Cost of products sold	0		0
Non-derivative designated as net investment hedges
Foreign currency denominated debt	(78)		15		Interest expense - net	0		0
Total	$	(211)	$	(76)		$	(12)	$	4

At September 30, 2020, a loss of $17 of estimated unrealized net gains or losses associated with our cash flow hedges were expected to be reclassified to income from Accumulated other comprehensive loss within the next twelve months. These reclassifications relate to our designated foreign currency and commodity hedges that will mature in the next 12 months.

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

Location of gain (loss)
reclassified from
Accumulated other
comprehensive loss

Gain (loss) reclassified
from Accumulated other
comprehensive loss
Three months ended
September 30 Three months ended
September 30
2017 2016 2017 2016
Derivatives designated as
cash flow hedges

Forward starting floating-to-fixed
interest rate swaps
$ (10 ) $ 1
Interest expense - net $ —
$ —
Interest rate locks (9 ) —
Interest expense - net —
—
Currency exchange contracts (6 ) (3 ) Cost of products sold (7 ) (4 )
Total $ (25 ) $ (2 ) $ (7 ) $ (4 )

Gain (loss) recognized in
other comprehensive
(loss) income Location of gain (loss)
reclassified from
Accumulated other
comprehensive loss Gain (loss) reclassified
from Accumulated other
comprehensive loss
Nine months ended
September 30 Nine months ended
September 30
2017 2016 2017 2016
Derivatives designated as cash
flow hedges
Forward starting floating-to-fixed
interest rate swaps $ (15 ) $ (18 ) Interest expense - net $ —
$ —
Interest rate locks (9 ) —
Interest expense - net —
—
Currency exchange contracts (5 ) (35 ) Cost of products sold (12 ) (3 )
Total $ (29 )
$ (53 )

$ (12 )
$ (3 )

~~Amounts recognized in net income follow:~~

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Three months ended
September 30 Nine months ended
September 30
2017
2016 2017 2016
Derivatives designated as fair value hedges
Fixed-to-floating interest rate swaps $ (4 ) $ (28 ) $ (7 ) $ 78
Related long-term debt converted to floating interest
rates by interest rate swaps
4
28
7
(78 )
$ —
$ —
$ —
$ —
Note 13. RESTRUCTURING CHARGES

~~Gains~~In the second quarter of 2020, Eaton decided to undertake a multi-year restructuring program to reduce its cost structure and ~~losses described above~~gain efficiencies in its business segments and at corporate in order to respond to declining market conditions. Restructuring charges incurred under this program for the three and nine months ended September 30, 2020, were ~~recognized~~$10 and $197, respectively. These restructuring activities are expected to incur additional expenses of $18 in ~~Interest~~the fourth quarter of 2020, $60 in 2021, and $5 in 2022, primarily comprised of plant closing costs, resulting in total estimated charges of $280 for the entire program.

A summary of restructuring program charges by type follows:


	Three months ended September 30, 2020		Nine months ended September 30, 2020
Workforce reductions	$	3	$	169
Plant closing and other	7		28
Total	$	10	$	197

Restructuring program charges related to the following segments:


	Three months ended September 30, 2020		Nine months ended September 30, 2020
Electrical Americas	$	3	$	16
Electrical Global	2		53
Aerospace	2		32
Vehicle	3		93
eMobility	0		1
Corporate	0		2
Total	$	10	$	197

A summary of liabilities related to workforce reductions, plant closing and other associated costs follows:


	Workforce reductions		Plant closing and other		Total
Balance at December 31, 2019	$	0	$	0	$	0
Liability recognized	169		28		197
Payments, utilization and translation	(24)		(28)		(52)

Balance at September 30, 2020	$	145	$	0	$	145

These restructuring program charges were included in Cost of products sold, Selling and administrative expense, Research and development expense, or Other expense (income) - ~~net.~~net, as appropriate. In Business Segment Information, these restructuring program charges are treated as Corporate items. See Note 14 for additional information about business segments.


~~Note 13.~~	~~INVENTORY~~

Inventory accounted for using the first-in, first out (FIFO) method is carried at lower of cost or net realizable value. Inventory accounted for using the last-in, first-out (LIFO) method is carried at lower of cost or market. The components of inventory follow:

Note 14. BUSINESS SEGMENT INFORMATION

September 30,
2017 December 31,
2016
Raw materials $ 959
$ 880
Work-in-process 434
396
Finished goods 1,167
1,074
Inventory at FIFO 2,560
2,350
Excess of FIFO over LIFO cost (103 ) (96 )
Total inventory $ 2,457
$ 2,254


~~Note 14.~~	~~BUSINESS SEGMENT INFORMATION~~

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

During the first quarter of 2020, Eaton re-segmented certain reportable operating segments due to a reorganization of the Company's businesses. The new reportable segments are Electrical Americas and Electrical Global, which include the legacy Electrical Products and Electrical Systems and Services segments. Additionally, the Filtration and Golf Grip businesses previously included in the Hydraulics segment, and the electrical aerospace connectors business previously included in the Electrical Products segment, have been added to the Aerospace reportable segment as part of the reorganization. The Company also changed how it measures business segment performance in 2020 as it no longer allocates acquisition and ~~Vehicle.~~divestiture charges to its operating segments. Historical segment information has been retrospectively adjusted to reflect these changes.

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Electrical Americas and Electrical Global

The Electrical Americas segment consists of electrical components, industrial components, power distribution and assemblies, residential products, single and 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 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 certain common global customers, but a large majority of the 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.

Hydraulics

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

Aerospace

The Aerospace segment is a leading global supplier of aerospace fuel, hydraulics, and pneumatic systems for commercial and military use, 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; fuel systems including fuel pumps, sensors, valves, adapters and regulators; 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, 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, clutches, hybrid power systems, superchargers, engine valves and valve actuation systems, cylinder heads, locking and limited slip differentials, transmission controls, and fuel vapor components 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.

eMobility

The eMobility segment designs, manufactures, markets, and supplies 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

The accounting policies of the business segments are generally the same as the policies described in Note 1 to the Consolidated Financial Statements contained in the 2019 Form 10-K, except that operating profit only reflects the service cost component and the cost of any special termination benefits related to pensions and other postretirement benefits. Intersegment sales and transfers are accounted for at the same prices as if the sales and transfers were made to third parties. These intersegment sales are eliminated in consolidation. Operating profit includes the operating profit from intersegment sales.

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For ~~additional information regarding Eaton’s~~purposes of business segment performance measurement, the Company does not allocate items that are of a non-operating nature or are of a corporate or functional governance nature. Corporate expenses consist of all of the Company’s costs associated with acquisitions, divestitures, and gains and losses on the sale of certain businesses, restructuring program costs (Note 13) and corporate office expenses including compensation, benefits, occupancy, depreciation, and other administrative costs. Identifiable assets of the business segments ~~see Note 15 to the Consolidated Financial Statements contained in the 2016 Form 10-K.~~

Three months ended
September 30 Nine months ended
September 30
2017 2016 2017 2016
Net sales
Electrical Products $ 1,857
$ 1,767
$ 5,371
$ 5,231
Electrical Systems and Services 1,421
1,436
4,168
4,207
Hydraulics 634
562
1,854
1,702
Aerospace 438
436
1,303
1,328
Vehicle 861
786
2,495
2,412
Total net sales $ 5,211
$ 4,987
$ 15,191
$ 14,880

Segment operating profit
Electrical Products $ 346
$ 331
$ 957
$ 924
Electrical Systems and Services 196
197
545
534
Hydraulics 80
61
214
161
Aerospace 84
88
244
251
Vehicle 150
122
397
377
Total segment operating profit 856
799
2,357
2,247

Corporate
Amortization of intangible assets (98 ) (99 ) (288 ) (297 )
Interest expense - net (60 ) (59 ) (181 ) (173 )
Pension and other postretirement benefits expense (16 ) (18 ) (38 ) (45 )
Gain on sale of business 1,077
—
1,077
—
Other corporate expense - net (68 ) (50 ) (202 ) (164 )
Income before income taxes 1,691
573
2,725
1,568
Income tax expense 292
51
378
151
Net income 1,399
522
2,347
1,417
Less net (income) loss for noncontrolling interests —
1
(1 ) 1
Net income attributable to Eaton ordinary shareholders $ 1,399
$ 523
$ 2,346
$ 1,418


~~Note 15.~~	~~CONDENSED CONSOLIDATING FINANCIAL STATEMENTS~~

~~On November 14, 2013~~exclude goodwill, other intangible assets, and ~~September 15, 2017, Eaton Corporation registered senior notes under the Securities Act~~general corporate assets, which principally consist of ~~1933 (the Senior Notes). Eaton~~certain cash, short-term investments, deferred income taxes, certain accounts receivable, certain property, plant and equipment, and certain other of Eaton's 100% owned direct and indirect subsidiaries (the Guarantors) fully and unconditionally guaranteed (subject, in the case of the Guarantors, other than Eaton, to customary release provisions as described below), on a joint and several basis, the Senior Notes. The following condensed consolidating financial statements are included so that separate financial statements of Eaton, Eaton Corporation and each of the Guarantors are not required to be filed with the Securities and Exchange Commission. The consolidating adjustments primarily relate to eliminations of investments in subsidiaries and intercompany balances and transactions. The condensed consolidating financial statements present investments in subsidiaries using the equity method of accounting.assets.

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.


	Three months ended September 30				Nine months ended September 30
	2020		2019		2020		2019
Net sales
Electrical Americas	$	1,699	$	2,040	$	4,977	$	6,086
Electrical Global	1,196		1,295		3,451		3,861
Hydraulics	439		519		1,357		1,727
Aerospace	540		620		1,681		1,858
Vehicle	573		761		1,498		2,374
eMobility	79		79		207		246
Total net sales	$	4,526	$	5,314	$	13,171	$	16,152

Segment operating profit (loss)
Electrical Americas	$	377	$	395	$	993	$	1,133
Electrical Global	198		251		542		674
Hydraulics	43		51		135		163
Aerospace	100		153		315		445
Vehicle	80		139		140		397
eMobility	(2)		4		(3)		16
Total segment operating profit	796		993		2,122		2,828

Corporate
Amortization of intangible assets	(90)		(93)		(265)		(280)
Interest expense - net	(41)		(47)		(113)		(157)
Pension and other postretirement benefits expense	(9)		(5)		(29)		(7)


Restructuring program charges	(10)		0		(197)		0
Other expense - net	(121)		(130)		(325)		(325)
Income before income taxes	525		718		1,193		2,059
Income tax expense	78		116		254		299
Net income	447		602		939		1,760
Less net income for noncontrolling interests	(1)		(1)		(4)		(1)
Net income attributable to Eaton ordinary shareholders	$	446	$	601	$	935	$	1,759

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

CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2017

Eaton
Corporation
plc

Eaton
Corporation
Guarantors
Other
subsidiaries

Consolidating
adjustments
Total
Net sales $ —
$ 1,695
$ 1,669
$ 3,223
$ (1,376 ) $ 5,211

Cost of products sold —
1,322
1,225
2,294
(1,372 ) 3,469
Selling and administrative expense 32
330
200
354
—
916
Research and development expense —
53
54
40
—
147
Interest expense (income) - net —
62
5
(7 ) —
60
Gain on Sale of Business —
560
—
517
—
1,077
Other expense (income) - net 23
1
(31 ) 12
—
5
Equity in loss (earnings) of
   subsidiaries, net of tax
(1,573 ) (237 ) (1,900 ) (706 ) 4,416
—
Intercompany expense (income) - net 119
(33 ) 335
(421 ) —
—
Income (loss) before income taxes 1,399
757

1,781

2,174

(4,420 )
1,691
Income tax expense (benefit) —
120
18
154
—
292
Net income (loss) 1,399
637

1,763

2,020

(4,420 )
1,399
Less net loss (income) for
   noncontrolling interests
—
—
—
(1 ) 1
—
Net income (loss) attributable to
   Eaton ordinary shareholders
$ 1,399
$ 637

$ 1,763

$ 2,019

$ (4,419 )
$ 1,399

Other comprehensive income (loss) $ 199
$ (15 ) $ 200
$ 267
$ (452 ) $ 199
Total comprehensive income
  (loss) attributable to Eaton
  ordinary shareholders
$ 1,598
$ 622
$ 1,963
$ 2,286
$ (4,871 ) $ 1,598

Table of Contents

CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2016

Eaton
Corporation
plc

Eaton
Corporation
Guarantors
Other
subsidiaries

Consolidating
adjustments
Total
Net sales $ —
$ 1,660
$ 1,592
$ 3,032
$ (1,297 ) $ 4,987

Cost of products sold —
1,329
1,168
2,168
(1,294 ) 3,371
Selling and administrative expense 2
332
195
324
—
853
Research and development expense —
59
44
43
—
146
Interest expense (income) - net —
59
4
(3 ) (1 ) 59
Other expense (income) - net (1 ) 2
6
(22 ) —
(15 )
Equity in loss (earnings) of
   subsidiaries, net of tax
(628 ) (173 ) (914 ) (228 ) 1,943
—
Intercompany expense (income) - net 104
(34 ) 333
(403 ) —
—
Income (loss) before income taxes 523
86

756

1,153

(1,945 )
573
Income tax expense (benefit) —
(11 ) 11
52
(1 ) 51
Net income (loss) 523
97

745

1,101

(1,944 )
522
Less net loss (income) for
   noncontrolling interests
—
—
—
—
1
1
Net income (loss) attributable to
   Eaton ordinary shareholders
$ 523
$ 97

$ 745

$ 1,101

$ (1,943 )
$ 523

Other comprehensive income (loss) $ 24
$ 24
$ 29
$ 3
$ (56 ) $ 24
Total comprehensive income
   (loss) attributable to Eaton
   ordinary shareholders
$ 547
$ 121
$ 774
$ 1,104
$ (1,999 ) $ 547
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017

Eaton
Corporation
plc

Eaton
Corporation
Guarantors
Other
subsidiaries

Consolidating
adjustments
Total
Net sales $ —
$ 4,963
$ 4,936
$ 9,378
$ (4,086 ) $ 15,191

Cost of products sold —
3,948
3,638
6,723
(4,080 ) 10,229
Selling and administrative expense 98
998
591
1,016
—
2,703
Research and development expense —
164
154
122
—
440
Interest expense (income) - net —
180
16
(15 ) —
181
Gain on Sale of Business —
560
—
517
—
1,077
Other expense (income) - net 71
8
(69 ) (20 ) —
(10 )
Equity in loss (earnings) of
   subsidiaries, net of tax
(2,858 ) (612 ) (3,625 ) (931 ) 8,026
—
Intercompany expense (income) - net 343
(106 ) 1,007
(1,244 ) —
—
Income (loss) before income taxes 2,346
943
3,224
4,244
(8,032 ) 2,725
Income tax expense (benefit) —
120
37
222
(1 ) 378
Net income (loss) 2,346
823
3,187
4,022
(8,031 ) 2,347
Less net loss (income) for
   noncontrolling interests
—
—
—
(3 ) 2
(1 )
Net income (loss) attributable to
   Eaton ordinary shareholders
$ 2,346
$ 823
$ 3,187
$ 4,019
$ (8,029 ) $ 2,346

Other comprehensive income (loss) $ 785
$ 35
$ 792
$ 998
$ (1,825 ) $ 785
Total comprehensive income
   (loss) attributable to Eaton
   ordinary shareholders
$ 3,131
$ 858
$ 3,979
$ 5,017
$ (9,854 ) $ 3,131

CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016
Eaton Corporation plc
Eaton
Corporation
Guarantors
Other
subsidiaries

Consolidating
adjustments
Total
Net sales $ —
$ 4,842
$ 4,815
$ 8,962
$ (3,739 ) $ 14,880

Cost of products sold —
3,788
3,571
6,462
(3,740 ) 10,081
Selling and administrative expense 6
1,048
589
999
—
2,642
Research and development expense —
176
140
128
—
444
Interest expense (income) - net —
169
13
(13 ) 4
173
Other expense (income) - net (1 ) 3
10
(40 ) —
(28 )
Equity in loss (earnings) of
   subsidiaries, net of tax
(1,726 ) (495 ) (2,398 ) (457 ) 5,076
—
Intercompany expense (income) - net 303
(104 ) 901
(1,100 ) —
—
Income (loss) before income taxes 1,418
257
1,989
2,983
(5,079 ) 1,568
Income tax expense (benefit) —
9
24
119
(1 ) 151
Net income (loss) 1,418
248
1,965
2,864
(5,078 ) 1,417
Less net loss (income) for
   noncontrolling interests
—
—
—
(2 ) 3
1
Net income (loss) attributable to
   Eaton ordinary shareholders
$ 1,418
$ 248
$ 1,965
$ 2,862
$ (5,075 ) $ 1,418

Other comprehensive income (loss) $ 42
$ 68
$ 59
$ (7 ) $ (120 ) $ 42
Total comprehensive income (loss) attributable to Eaton
ordinary shareholders $ 1,460
$ 316
$ 2,024
$ 2,855
$ (5,195 ) $ 1,460

CONDENSED CONSOLIDATING BALANCE SHEETS
SEPTEMBER 30, 2017

Eaton
Corporation
plc

Eaton
Corporation
Guarantors
Other
subsidiaries

Consolidating
adjustments
Total
Assets
Current assets
Cash $ 1
$ 181
$ 15
$ 594
$ —
$ 791
Short-term investments —
—
—
843
—
843
Accounts receivable - net —
386
1,404
2,172
—
3,962
Intercompany accounts
   receivable
1
1,136
3,616
3,802
(8,555 ) —
Inventory —
330
683
1,529
(85 ) 2,457
Prepaid expenses and
   other current assets
—
89
45
233
29
396
Total current assets 2
2,122

5,763

9,173
(8,611 ) 8,449

Property, plant and
   equipment - net
—
835
687
1,964
—
3,486

Other noncurrent assets
Goodwill —
1,303
6,293
5,949
—
13,545
Other intangible assets —
159
3,305
1,890
—
5,354
Deferred income taxes —
692
—
270
(698 ) 264
Investment in subsidiaries 35,826
14,062
77,001
13,661
(140,550 ) —
Intercompany loans receivable —
7,459
2,655
58,045
(68,159 ) —
Other assets —
794
153
680
—
1,627
Total assets $ 35,828
$ 27,426
$ 95,857
$ 91,632
$ (218,018 ) $ 32,725

Liabilities and
   shareholders’ equity

Current liabilities
Short-term debt $ —
$ —
$ —
$ 5
$ —
$ 5
Current portion of
   long-term debt
—
1,455
36
3
—
1,494
Accounts payable —
382
456
1,201
—
2,039
Intercompany accounts payable 262
3,739
3,614
940
(8,555 ) —
Accrued compensation —
111
57
266
—
434
Other current liabilities 1
636
283
1,009
(1 ) 1,928
Total current liabilities 263
6,323
4,446
3,424
(8,556 ) 5,900

Noncurrent liabilities
Long-term debt —
6,295
969
9
—
7,273
Pension liabilities —
331
76
921
—
1,328
Other postretirement
   benefits liabilities
—
195
98
73
—
366
Deferred income taxes —
—
677
348
(698 ) 327
Intercompany loans payable 18,972
2,013
45,719
1,455
(68,159 ) —
Other noncurrent liabilities —
287
230
378
—
895
Total noncurrent liabilities 18,972
9,121

47,769

3,184

(68,857 )
10,189

Shareholders’ equity
Eaton shareholders' equity 16,593
11,982
43,642
84,985
(140,609 ) 16,593
Noncontrolling interests —
—
—
39
4
43
Total equity 16,593
11,982
43,642
85,024
(140,605 ) 16,636
Total liabilities and equity $ 35,828
$ 27,426

$ 95,857

$ 91,632

$ (218,018 )
$ 32,725

CONDENSED CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 2016

Eaton
Corporation
plc

Eaton
Corporation
Guarantors
Other
subsidiaries

Consolidating
adjustments
Total
Assets
Current assets
Cash $ 1
$ 92
$ 4
$ 446
$ —
$ 543
Short-term investments —
—
—
203
—
203
Accounts receivable - net —
536
1,049
1,975
—
3,560
Intercompany accounts
   receivable
5
954
4,023
3,633
(8,615 ) —
Inventory —
342
642
1,349
(79 ) 2,254
Prepaid expenses and
   other current assets
—
77
42
237
25
381
Total current assets 6
2,001
5,760
7,843
(8,669 ) 6,941

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

Other noncurrent assets
Goodwill —
1,355
6,293
5,553
—
13,201
Other intangible assets —
169
3,442
1,903
—
5,514
Deferred income taxes —
904
—
228
(772 ) 360
Investment in subsidiaries 32,795
13,743
72,938
12,577
(132,053 ) —
Intercompany loans receivable —
7,605
2,061
56,598
(66,264 ) —
Other assets —
491
134
335
—
960
Total assets $ 32,801
$ 27,125
$ 91,334
$ 86,917
$ (207,758 ) $ 30,419

Liabilities and
   shareholders’ equity

Current liabilities
Short-term debt $ —
$ —
$ 8
$ 6
$ —
$ 14
Current portion of
   long-term debt
—
1,250
296
6
—
1,552
Accounts payable 1
372
252
1,093
—
1,718
Intercompany accounts payable 281
3,870
3,115
1,349
(8,615 ) —
Accrued compensation —
98
58
223
—
379
Other current liabilities 1
591
291
941
(2 ) 1,822
Total current liabilities 283
6,181
4,020
3,618
(8,617 ) 5,485

Noncurrent liabilities
Long-term debt —
5,767
936
8
—
6,711
Pension liabilities —
610
161
888
—
1,659
Other postretirement
   benefits liabilities
—
198
99
71
—
368
Deferred income taxes —
—
732
361
(772 ) 321
Intercompany loans payable 17,621
2,603
44,788
1,252
(66,264 ) —
Other noncurrent liabilities —
327
211
396
—
934
Total noncurrent liabilities 17,621
9,505

46,927

2,976

(67,036 )
9,993

Shareholders’ equity
Eaton shareholders' equity 14,897
11,439
40,387
80,285
(132,111 ) 14,897
Noncontrolling interests —
—
—
38
6
44
Total equity 14,897
11,439
40,387
80,323
(132,105 ) 14,941
Total liabilities and equity $ 32,801
$ 27,125

$ 91,334

$ 86,917

$ (207,758 )
$ 30,419

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017

Eaton
Corporation
plc

Eaton
Corporation
Guarantors
Other
subsidiaries

Consolidating
adjustments
Total
Net cash provided by (used in)
   operating activities
$ 528
$ (296 ) $ 802
$ 2,365
$ (1,612 ) $ 1,787

Investing activities
Capital expenditures for property,
   plant and equipment
—
(63 ) (75 ) (213 ) —
(351 )
Cash received from sales (paid for acquisitions) of affiliates —
—
(92 ) 92
—
—
Purchases of short-term investments - net —
—
—
(621 ) —
(621 )
Investments in affiliates (90 ) (108 ) —
(90 ) 288
—
Return of investments in affiliates —
—
20
—
(20 ) —
Loans to affiliates —
(29 ) —
(4,754 ) 4,783
—
Repayments of loans from affiliates —
303
46
3,816
(4,165 ) —
Proceeds from sale of business —
330
—
270
—
600
Other - net —
(36 ) 2
(29 ) —
(63 )
Net cash provided by (used in) investing activities (90 ) 397

(99 )
(1,529 )
886

(435 )

Financing activities
Proceeds from borrowings —
1,000
—
—
—
1,000
Payments on borrowings —
(250 ) (297 ) (6 ) —
(553 )
Proceeds from borrowings from
   affiliates
1,917
1,873
965
28
(4,783 ) —
Payments on borrowings from
   affiliates
(822 ) (2,904 ) (352 ) (87 ) 4,165
—
Capital contributions from affiliates —
—
90
198
(288 ) —
Return of capital to affiliates —
—
—
(20 ) 20
—
Other intercompany financing
   activities
—
287
(290 ) 3
—
—
Cash dividends paid (803 ) —
—
—
—
(803 )
Cash dividends paid to affiliates —
—
(803 ) (809 ) 1,612
—
Exercise of employee stock options 59
—
—
—
—
59
Repurchase of shares (789 ) —
—
—
—
(789 )
Employee taxes paid from shares withheld —
(14 ) (4 ) (3 ) —
(21 )
Other - net —
(4 ) (1 ) (3 ) —
(8 )
Net cash provided by (used in)
   financing activities
(438 ) (12 )
(692 )
(699 )
726

(1,115 )

Effect of currency on cash —
—
—
11
—
11
Total increase (decrease) in cash —
89

11

148

—

248
Cash at the beginning of the period 1
92
4
446
—
543
Cash at the end of the period $ 1
$ 181

$ 15

$ 594

$ —

$ 791

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016

Eaton
Corporation
plc

Eaton
Corporation
Guarantors
Other
subsidiaries

Consolidating
adjustments
Total
Net cash provided by (used in)
   operating activities
$ (158 ) $ (17 ) $ (285 ) $ 2,392
$ —
$ 1,932

Investing activities
Capital expenditures for property,
   plant and equipment
—
(62 ) (75 ) (209 ) —
(346 )
Cash received from acquisitions of businesses, net of cash acquired —
—
1
—
—
1
Sales (purchases) of short-term
investments - net —
—
2
(31 ) —
(29 )
Investments in affiliates (1,250 ) —
(120 ) (1,370 ) 2,740
—
Return of investments in affiliates —
—
47
—
(47 ) —
Loans to affiliates —
(287 ) (655 ) (6,457 ) 7,399
—
Repayments of loans from affiliates —
1,288
—
4,501
(5,789 ) —
Other - net —
—
30
(27 ) —
3
Net cash provided by (used in)
   investing activities
(1,250 ) 939

(770 )
(3,593 )
4,303

(371 )

Financing activities
Proceeds from borrowings —
22
611
—
—
633
Payments on borrowings —
(408 ) (240 ) (18 ) —
(666 )
Proceeds from borrowings from
   affiliates
3,333
2,815
1,059
192
(7,399 ) —
Payments on borrowings from
   affiliates
(637 ) (3,453 ) (1,658 ) (41 ) 5,789
—
Capital contributions from affiliates —
—
1,370
1,370
(2,740 ) —
Return of capital to affiliates —
—
—
(47 ) 47
—
Other intercompany financing activities —
158
(81 ) (77 ) —
—
Cash dividends paid (780 ) —
—
—
—
(780 )
Exercise of employee stock options 60
—
—
—
—
60
Repurchase of shares (567 ) —
—
—
—
(567 )
Employee taxes paid from shares withheld —
(12 ) (4 ) (2 ) —
(18 )
Other - net —
—
(3 ) (2 ) —
(5 )
Net cash provided by (used in)
   financing activities
1,409
(878 )
1,054

1,375

(4,303 )
(1,343 )

Effect of currency on cash —
—
—
8
—
8
Total increase (decrease) in cash 1
44

(1 )
182

—

226
Cash at the beginning of the period —
26
7
235
—
268
Cash at the end of the period $ 1
$ 70

$ 6

$ 417

$ —

$ 494


~~ITEM 2.~~	~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.~~

Amounts are in millions of dollars or shares unless indicated otherwise (per share data assume dilution).

COMPANY OVERVIEW

Eaton Corporation plc (Eaton or the Company) is a power management company with ~~2016~~2019 net sales of ~~$19.7~~$21.4 billion. ~~The Company provides energy-efficient~~Eaton's mission is to improve the quality of life and environment through the use of power management technologies and services. We provide sustainable solutions that help ~~its~~our customers effectively manage electrical, hydraulic, and mechanical power - more safely, more efficiently ~~safely,~~ and ~~sustainably.~~more reliably. Eaton has approximately ~~96,000~~92,000 employees in ~~over 60~~61 countries and sells products to customers in more than 175 countries.

Summary of Results of Operations

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


	Three months ended September 30				Nine months ended September 30
	2020		2019		2020		2019
Net sales	$	4,526	$	5,314	$	13,171	$	16,152
Net income attributable to Eaton ordinary shareholders	446		601		935		1,759
Net income per share attributable to Eaton ordinary shareholders - diluted	$	1.11	$	1.44	$	2.31	$	4.16

Three months ended
September 30 Nine months ended
September 30
2017 2016 2017 2016
Net sales $ 5,211
$ 4,987
$ 15,191
$ 14,880
Net income attributable to Eaton ordinary shareholders 1,399
523
2,346
1,418
Net income per share attributable to Eaton ordinary shareholders - diluted $ 3.14
$ 1.15
$ 5.23
$ 3.09

~~On July 31, 2017,~~In the second quarter of 2020, Eaton ~~sold a 50% interest in its heavy-duty and medium-duty commercial vehicle automated transmission business for $600 in cash~~decided 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 will account for its investment on the equity method of accounting.

~~During 2015, Eaton announced~~undertake a multi-year restructuring ~~initiative~~program 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 charges incurred under this program for the three and nine months ended September 30, 2020, were $10 and $197, respectively. These restructuring activities are expected to incur additional expenses of $18 in the fourth quarter of 2020, $60 in 2021, and $5 in 2022, primarily comprised of plant closing costs, resulting in total estimated charges of $280 for the entire program. The projected mature year savings from these restructuring actions are expected to be $200 when fully implemented in 2023. Additional information related to this restructuring is presented in Note 13.

During the first quarter of 2020, Eaton re-segmented certain reportable operating segments due to a reorganization of the Company's businesses. The new reportable segments are Electrical Americas and Electrical Global, which include the legacy Electrical Products and Electrical Systems and Services segments. Additionally, the Filtration and Golf Grip businesses previously included in the Hydraulics segment, and the electrical aerospace connectors business previously included in the Electrical Products segment, have been added to the Aerospace reportable segment as part of the reorganization. The Company also changed how it measures business segment performance in 2020 as it no longer allocates acquisition and divestiture charges to its operating segments. Previously reported financial information for these reportable segments has been updated for 2019 in Note 14. The re-segmentation did not impact previously reported consolidated results of operations.

COVID-19

The Company continued to be impacted by the COVID-19 pandemic in the third quarter of 2020. Organic sales were down 9% for the third quarter primarily due to the impact from the COVID-19 pandemic. The Company monitors the pandemic’s impact throughout the world, including guidance from governmental authorities and world health organizations. Our businesses are focused on cost control to offset the volume declines. During the third quarter, the Company implemented the following actions:

•Continued reduction of senior executive base salaries in the third quarter

•25% reduction in cash retainer for non-employee members of the Board of Directors in the third quarter

•Continued implementation of unpaid leave programs

•Reduction of discretionary expenses and ~~first nine months~~implementation of ~~2017 were $22~~travel and ~~$75, respectively,~~hiring freezes

•Elimination of nonessential capital spending

We anticipate that several of our markets will take some time to recover. Therefore in the second quarter of 2020, we decided to undertake a multi-year restructuring program discussed in Note 13 to deal with that weakness. The principal end markets affected are commercial aerospace, oil and ~~were $23~~gas, NAFTA Class 8 trucks, and ~~$121~~North American/European light vehicles.

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 businesses are deemed essential to continue operating by almost all governments around the world, and all of the Company's plants are currently operating.

The Company is doing the following to protect the safety and health of its workforce, as well as support customer's needs during this pandemic:

Protect our employees

•Trained our employees at sites around the world in ~~2016, respectively. Charges from this initiative~~cleaning and disinfecting protocols

•Enacted social distancing procedures, staggered shifts, implemented a rotating office work schedule, and modified workspace and meeting space layouts

•Requiring employees to stay at home if they are ~~primarily comprised~~feeling ill, and encouraging increased hand washing and hygiene practices across all sites

•Advised employees to take advantage of ~~severance costs. Restructuring charges~~flexible work options

•Restricting visitors to all sites

•Consulting regularly with doctors and health care organizations

•Updating the Company's response plans as new information becomes available

In the event an employee suspects they have been exposed to COVID-19, or testing confirms it, sites will implement a response plan that includes:

•Mandatory quarantines

•Communication with all who may have been exposed

•Disinfecting work stations and common areas

•Shutting down the facility if warranted

These actions are ~~anticipated~~aligned with our preventive health protocols and those of governmental authorities and health organizations including the Centers for Disease Control (U.S.) and the World Health Organization.

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Support our customers

Eaton has activated its business continuity management plans across the organization, which includes:

•Staying in close contact with our suppliers to ~~be $100 in 2017~~manage the supply chain

•Equipping our service technicians with additional personal protective equipment as needed

•Coordinating with local, state, and ~~incremental savings in 2017 are anticipated to be $155.~~national governments

•Following governmental and health authorities' guidelines

RESULTS OF OPERATIONS

Non-GAAP Financial Measures

The following discussion of Consolidated Financial Results ~~and Business Segment Results of Operations~~ includes certain non-GAAP financial measures. These financial measures include ~~operating~~adjusted earnings ~~operating~~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 ~~operating~~adjusted earnings and ~~operating~~adjusted earnings per ordinary share to the most directly comparable GAAP measure is included in the table ~~below. Operating profit before acquisition integration charges is reconciled in the discussion of the operating results of each business segment,~~below, and excludes acquisition ~~integration~~and divestiture expense related primarily to ~~integration~~the planned divestiture of ~~Ephesus~~the Hydraulics business, the divestiture of the Lighting business, the acquisitions of Souriau-Sunbank, Ulusoy Elektrik and Innovative Switchgear Solutions, Inc. (ISG), and other charges to exit businesses, and restructuring program expense discussed in ~~2017 and 2016 and Oxalis Group Ltd. in 2016.~~Note 13. 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 businesses, and transaction costs and other charges to divest and exit businesses. Eaton also recognizes gains and losses on the sale of businesses. A summary of these Corporate items follows:


	Three months ended September 30				Nine months ended September 30
	2020		2019		2020		2019
Acquisition integration, divestiture charges, and transaction costs	$	28	$	39	$	263	$	65
Gain on the sale of the Lighting business	—		—		(221)		—
Total before income taxes	28		39		42		65
Income tax expense (benefit)	(7)		(4)		68		(5)
Total after income taxes	$	21	$	35	$	110	$	60
Per ordinary share - diluted	$	0.05	$	0.08	$	0.27	$	0.14

Acquisition integration, divestiture charges, and transaction costs in 2020 are primarily related to the ~~Consolidated Financial Statements.~~planned divestiture of the Hydraulics business, the divestiture of the Lighting business, the acquisitions of Souriau-Sunbank and Ulusoy Elektrik, and other charges to exit businesses, and were included in Cost of products sold, Selling and administrative expense, Research and development expense, or Other expense (income) - net. Charges in 2019 related to the divestiture of the Lighting business, the acquisitions of Ulusoy Elektrik and ISG, and other charges to exit businesses, and were included in Cost of products sold, Selling and administrative expense, Research and development expense, and Other expense (income) - net. In Business Segment Information in Note 14, these charges were included in Other expense - net.

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Consolidated Financial Results


	Three months ended September 30						Increase (decrease)			Nine months ended September 30							Increase (decrease)				Three months ended September 30									Increase (decrease)					Nine months ended September 30								Increase (decrease)
	2017			2016					2017				2016						2020						2019								2020					2019
Net sales	$	5,211		$	4,987			4.5	%		$	15,191			$	14,880			2	%	Net sales		$	4,526				$	5,314			(15)		%			$	13,171			$	16,152			(18)		%
Gross profit	1,742			1,616			8	%		4,962				4,799			3	%	Gross profit		1,475					1,802					(18)		%			3,941				5,370				(27)		%
Percent of net sales	33.4		%	32.4		%				32.7		%		32.3		%			Percent of net sales		32.6		%			33.9		%							29.9		%		33.2		%
Income before income taxes	1,691			573			195	%		2,725				1,568			74	%	Income before income taxes		525					718				(27)		%			1,193				2,059				(42)		%
Net income	1,399			522			168	%		2,347				1,417			66	%	Net income		447					602				(26)		%			939				1,760				(47)		%
Less net loss (income) for noncontrolling interests	—			1						(1		)		1
Less net income for noncontrolling interests																			Less net income for noncontrolling interests		(1)					(1)									(4)				(1)
Net income attributable to Eaton ordinary shareholders	1,399			523			167	%		2,346				1,418			65	%	Net income attributable to Eaton ordinary shareholders		446					601				(26)		%			935				1,759				(47)		%
Excluding acquisition integration charges, after-tax (Note 3)	1			1						2				2
Operating earnings	$	1,400		$	524		167	%		$	2,348			$	1,420		65	%
Excluding acquisition and divestiture charges, after-tax																			Excluding acquisition and divestiture charges, after-tax		21					35									110				60
Excluding restructuring program charges, after-tax																			Excluding restructuring program charges, after-tax		8					—									156				—
Adjusted earnings																			Adjusted earnings		$	475				$	636			(25)		%			$	1,201			$	1,819			(34)		%

Net income per share attributable to Eaton ordinary shareholders - diluted	$	3.14		$	1.15		173	%		$	5.23			$	3.09		69	%	Net income per share attributable to Eaton ordinary shareholders - diluted		$	1.11				$	1.44			(23)		%			$	2.31			$	4.16			(44)		%
Excluding per share impact of acquisition integration charges, after-tax (Note 3)	—			—						—				—
Operating earnings per ordinary share	$	3.14		$	1.15		173	%		$	5.23			$	3.09		69	%
Excluding per share impact of acquisition and divestiture charges, after-tax																			Excluding per share impact of acquisition and divestiture charges, after-tax		0.05					0.08									0.27				0.14
Excluding per share impact of restructuring program charges, after-tax																			Excluding per share impact of restructuring program charges, after-tax		0.02					—									0.39				—
Adjusted earnings per ordinary share																			Adjusted earnings per ordinary share		$	1.18				$	1.52			(22)		%			$	2.97			$	4.30			(31)		%

Net Sales

Net sales ~~increased 4.5%~~decreased 15% in the third quarter of ~~2017~~2020 compared to the third quarter of ~~2016~~2019 due to ~~an increase~~a decrease of ~~3.5%~~9% in organic sales and a decrease of 8% from divestitures of businesses, partially offset by an increase of 1%2% from acquisitions of businesses. The decrease in organic sales in the third quarter of 2020 was primarily due to the impact from the ~~impact of positive currency translation.~~COVID-19 pandemic with lower sales in the Electrical Global, Hydraulics, Aerospace, and Vehicle business segments, partially offset by higher organic sales in the Electrical Americas business segment. Net sales ~~increased 2%~~decreased 18% in the first nine months of ~~2017~~2020 compared to the first nine months of ~~2016~~2019 due to a decrease of 13% in organic sales, a decrease of 6% from divestitures of businesses, and a decrease of 1% from the impact of negative currency translation, partially offset by an increase of 2% ~~in organic sales.~~from acquisitions of businesses. The ~~increase~~decrease in organic sales in the ~~third quarter and~~ first nine months of ~~2017~~2020 was primarily due to ~~higher~~the impact from the COVID-19 pandemic with lower sales ~~volumes~~ in ~~the Electrical Products, Hydraulics, and Vehicle~~all business segments.

Gross Profit

Gross profit margin ~~increased~~decreased from ~~32.4%~~33.9% in the third quarter of ~~2016~~2019 to ~~33.4%~~32.6% in the third quarter of ~~2017,~~2020. The decrease in gross profit margin in the third quarter of 2020 was primarily due to the impact from the COVID-19 pandemic with lower sales in the Electrical Global, Hydraulics, Aerospace, and Vehicle business segments, partially offset by higher sales in the Electrical Americas business segment. Gross profit margin decreased from ~~32.3%~~33.2% in first nine months of 2019 to 29.9% in first nine months of 2020. The decrease in gross profit margin in the first nine months of ~~2016 to 32.7% in the first nine months of 2017. The increase in gross profit margin~~2020 was primarily due to ~~higher sales volumes, savings from restructuring actions, and lower restructuring charges, partially offset by commodity inflation and~~ the impact from the COVID-19 pandemic with lower sales in all business segments.

Table of ~~three recent hurricanes and the earthquake in Mexico City.~~Contents

Income Taxes

Net Income

Net income attributable to Eaton ordinary shareholders of ~~$1,399~~$446 in the third quarter of ~~2017 increased 167%~~2020 decreased 26% compared to Net income attributable to Eaton ordinary shareholders of ~~$523~~$601 in the third quarter of ~~2016.~~2019. Net income ~~attributable~~attributable to Eaton ordinary shareholders of $935 in the first nine months of ~~2017 was $2,346, an increase~~ of~~65%~~2020 decreased 47% compared t~~o $1,418~~to Net income attributable to Eaton ordinary shareholders of $1,759 in the first nine months of ~~2016.~~2019. Net income in the first nine months of 2020 included an after-tax gain of $91 on the sale of the Lighting business discussed in Note 2. The ~~increase~~decrease in the third quarter and first nine months of ~~2017~~2020 was primarily due to the ~~$843 after-tax gain~~impact from the COVID-19 pandemic with lower sales volumes.

Net income per ordinary share decreased to $1.11 in the third quarter of 2020 compared to $1.44 in the third quarter of 2019. Net income per ordinary share decreased to $2.31 in the first nine months of 2020 compared to $4.16 in the first nine months of 2019. Net income per ordinary share in the first nine months of 2020 included $0.22 from the sale of ~~business discussed~~the Lighting business. The decrease in Note 2, higher sales volumes, savings from restructuring actions, and lower restructuring charges, partially offset by a higher tax rate, commodity inflation, and the impact of three recent hurricanes and the earthquake in Mexico City.

Net income per ordinary share in the third quarter and first nine months of ~~2017 included $1.89 and $1.88, respectively, from~~2020 was due to lower net income, partially offset by the ~~gain on~~impact of the ~~sale~~Company's share repurchases over the past year.

Adjusted Earnings

Adjusted earnings of ~~business discussed in Note 2. Net income per ordinary share increased to $3.14~~$475 in the third quarter of ~~2017~~2020 decreased 25% compared to ~~$1.15~~Adjusted earnings of $636 in the third quarter of ~~2016.~~2019. The decrease in Adjusted earnings in the third quarter of 2020 was primarily due to lower Net in~~come per~~income attributable to Eaton ordinary ~~share~~ ~~increased~~ to ~~$5.23 in the first nine months~~shareholders. Adjusted earnings of ~~2017 compared to $3.09~~$1,201 in the first nine months of ~~2016. The increase~~2020 decreased 34% compared to Adjusted earnings of $1,819 in the ~~Net income per ordinary share in the third quarter and~~ first nine months of ~~2017~~ 2019. The decrease in Adjusted earnings in the first nine months of 2020 was primarily due to ~~higher~~ lower Net income attributable to Eaton ordinary shareholders, adjusted for higher restructuring program charges, and ~~the Company's~~acquisition and divestiture charges.

Adjusted earnings per ordinary share ~~repurchases over the past year.~~

~~Operating Earnings~~

~~Operating earnings of $1,400~~decreased to $1.18 in the third quarter of ~~2017 increased 167%~~2020 compared to ~~Operating earnings of $524~~$1.52 in the third quarter of ~~2016.~~ ~~Operating~~2019. Adjusted earnings per ordinary share decreased to $2.97 in the first nine months of ~~2017 was~~ ~~$2,348, an~~ ~~increase of 65%~~2020 compared to ~~$1,420~~$4.30 in the first nine months of ~~2016.~~2019. The ~~increase~~decrease in ~~Operating earnings in the third quarter and the first nine months of 2017 was primarily due to higher Net income attributable to Eaton ordinary shareholders.~~

Operating earnings per ordinary share increased to $3.14 in the third quarter of 2017 compared to $1.15 in the third quarter of 2016. Operating earnings per ordinary share increased to $5.23 in the first nine months of 2017 compared to $3.09 in the first nine months of 2016. The increase in OperatingAdjusted earnings per ordinary share in the third quarter and first nine months of ~~2017~~2020 was due to ~~higher Operating~~lower Adjusted earnings, ~~and~~adjusted for the impact of the Company's share repurchases over the past year.

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Business Segment Results of Operations

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

Electrical ~~Products~~Americas


	Three months ended September 30						Increase (decrease)			Nine months ended September 30							Increase (decrease)				Three months ended September 30									Increase (decrease)					Nine months ended September 30								Increase (decrease)
	2017			2016					2017				2016						2020						2019								2020					2019
Net sales	$	1,857		$	1,767			5	%		$	5,371			$	5,231			3	%	Net sales		$	1,699				$	2,040			(17)		%			$	4,977			$	6,086			(18)		%

Operating profit	$	346		$	331		5	%		$	957			$	924		4	%	Operating profit		$	377				$	395				(5)		%			$	993			$	1,133			(12)		%
Operating margin	18.6		%	18.7		%				17.8		%		17.7		%			Operating margin		22.2		%			19.4		%							20.0		%		18.6		%

Acquisition integration charges	$	1		$	1					$	3			$	2

Before acquisition integration charges
Operating profit	$	347		$	332		5	%		$	960			$	926		4	%
Operating margin	18.7		%	18.8		%				17.9		%		17.7		%

Net sales ~~increased 5%~~decreased 17% in the third quarter of ~~2017~~2020 compared to the third quarter of ~~2016~~2019 due to a decrease of 20% from the divestiture of the Lighting business and a decrease of 1% from the impact of negative currency translation, partially offset by an increase of 4%3% in organic sales and an increase of 1% from the ~~impact~~acquisitions of ~~positive currency translation.~~Power Distribution, Inc. and ISG. The increase in organic sales in the third quarter of 2020 was primarily driven by growth in residential and utility markets. Net sales ~~increased 3%~~decreased 18% in the first nine months of ~~2017~~2020 compared to the first nine months of ~~2016 due to an increase of 3% in organic sales. Organic sales growth in the third quarter and first nine months of 2017 was driven by growth in the Americas and Europe.~~

Operating margin decreased from 18.7% in the third quarter of 2016 to 18.6% in the third quarter of 2017 primarily due to the impact of recent natural disasters and commodity inflation, partially offset by higher sales volumes and savings from restructuring actions. ~~Operating margin~~ ~~increased~~ ~~from17.7% in the first nine months of~~ ~~2016~~ ~~to 17.8% in the first nine months of~~ ~~2017 primarily due to higher sales volumes, savings from restructuring actions and lower restructuring charges, partially offset by commodity inflation and the impact of recent natural disasters.~~

Operating margin before acquisition integration charges decreased from 18.8% in the third quarter of 2016 to 18.7% in the third quarter of 2017 due to a decrease in operating margin. Operating margin before acquisition integration charges increased from 17.7% in the first nine months of 2016 to 17.9% in the first nine months of 2017 due to an increase in operating margin.

~~Electrical Systems and Services~~

Three months ended
September 30 Increase (decrease) Nine months ended
September 30 Increase (decrease)
2017 2016 2017 2016
Net sales $ 1,421
$ 1,436
(1 )% $ 4,168
$ 4,207
(1 )%

Operating profit $ 196
$ 197
(1 )% $ 545
$ 534
2 %
Operating margin 13.8 % 13.7 % 13.1 % 12.7 %

Acquisition integration charges $ —
$ —
$ —
$ 1

Before acquisition integration charges
Operating profit $ 196
$ 197
(1 )% $ 545
$ 535
2 %
Operating margin 13.8 % 13.7 % 13.1 % 12.7 %

~~Net sales decreased 1% in the third quarter of 2017 compared to the third quarter of 2016~~2019 due to a decrease of 2%16% from the divestiture of the Lighting business and a decrease of 3% in organic sales, partially offset by an increase of 1% from the acquisitions of Power Distribution, Inc. and ISG. The decrease in organic sales in the first nine months of 2020 was primarily driven by the impact of the COVID-19 pandemic, partially offset by growth in residential markets.

The operating margin increased from 19.4% in the third quarter of 2019 to 22.2% in the third quarter of 2020. The increase in operating margin in the third quarter of 2020 was primarily due to the favorable impact from the divestiture of the Lighting business, higher organic sales volumes, and cost containment actions to counteract the impact of the COVID-19 pandemic. The operating margin increased from 18.6% in the first nine months of 2019 to 20.0% in the first nine months of 2020. The increase in operating margin in the first nine months of 2020 was primarily due to the favorable impact from the divestiture of the Lighting business and cost containment actions to counteract the impact of the COVID-19 pandemic, partially offset by lower sales volumes.


	Three months ended September 30						Increase (decrease)		Nine months ended September 30						Increase (decrease)
	2020			2019					2020			2019
Net sales	$	1,196		$	1,295		(8)	%	$	3,451		$	3,861		(11)	%

Operating profit	$	198		$	251		(21)	%	$	542		$	674		(20)	%
Operating margin	16.6		%	19.4		%			15.7		%	17.5		%

Operating margin increased from 13.7% in the third quarter of 2016 to 13.8% in the third quarter of 2017. Operating margin increased from 12.7% in the first nine months of 2016 to 13.1% in the first nine months of 2017. These increases are primarily due to savings from restructuring actions and lower restructuring charges, partially offset by commodity inflation.

~~Operating margin before acquisition integration charges increased from 12.7% in the first nine months of 2016 to 13.1% in the first nine months of 2017 due to an increase in operating margin.~~

Three months ended
September 30 Increase (decrease) Nine months ended
September 30 Increase (decrease)
2017 2016 2017 2016
Net sales $ 634
$ 562
13 % $ 1,854
$ 1,702
9 %

Operating profit $ 80
$ 61
31 % $ 214
$ 161
33 %
Operating margin 12.6 % 10.9 % 11.5 % 9.5 %

Net sales increased 13% in the third quarter of 2017 compared to the third quarter of 2016 due to an increase of 13% in organic sales. Net sales increased 9% in the first nine months of 2017 compared to the first nine months of 2016 due to an increase of 10% in organic sales, partially offset by a decrease of 1% from the impact of negative currency translation. The increase in organic sales in the third quarter and first nine months of 2017 was due to strength in global OEM markets and distribution channels.

Operating margin increased from 10.9% in the third quarter of 2016 to 12.6% in the third quarter of 2017 primarily due to higher sales volumes partially offset by commodity inflation. Operating margin increased ~~from 9.5% in the first nine months of~~ ~~2016~~ ~~to 11.5% in the first nine months of~~ ~~2017 primarily due to higher sales volumes, savings from restructuring actions and lower restructuring charges, partially offset by commodity inflation.~~

Three months ended
September 30 Increase (decrease) Nine months ended
September 30 Increase (decrease)
2017 2016 2017 2016
Net sales $ 438
$ 436
— % $ 1,303
$ 1,328
(2 )%

Operating profit $ 84
$ 88
(5 )% $ 244
$ 251
(3 )%
Operating margin 19.2 % 20.2 % 18.7 % 18.9 %

Net sales were flat in the third quarter of 2017 compared to the third quarter of 2016 with no change in organic sales or currency translation. Net sales decreased 2% in the first nine months of 2017 compared to the first nine months of 2016 due to a decrease of 1% in organic sales and a decrease of 1% from the impact of negative currency translation. The decrease in organic sales in the third quarter and first nine months of ~~2017~~2020 was primarily ~~due to lower sales~~driven by the impact of the COVID-19 pandemic, with particular weakness in ~~military aftermarket, business~~global oil and ~~regional jets,~~gas markets and ~~lower cost reimbursements on certain engineering programs, partially offset by growth in commercial transports.~~industrial applications.

~~Operating~~The operating margin decreased from ~~20.2%~~19.4% in the third quarter of ~~2016~~2019 to ~~19.2%~~16.6% in the third quarter of ~~2017 primarily due to unfavorable product mix. Operating margin decreased~~2020 and from ~~18.9%~~17.5% in the first nine months of ~~2016~~2019 to ~~18.7%~~15.7% in the first nine months of ~~2017~~2020 primarily due to lower sales volumes and unfavorable product mix, partially offset by ~~savings from restructuring actions.~~

~~Vehicle~~cost containment actions to mitigate the impact of the COVID-19 pandemic.


	Three months ended September 30						Increase (decrease)		Nine months ended September 30						Increase (decrease)
	2020			2019					2020			2019
Net sales	$	439		$	519		(15)	%	$	1,357		$	1,727		(21)	%

Operating profit	$	43		$	51		(16)	%	$	135		$	163		(17)	%
Operating margin	9.8		%	9.8		%			9.9		%	9.4		%

Net sales ~~increased 10%~~decreased 15% in the third quarter of ~~2017~~2020 compared to the third quarter of ~~2016~~2019 due to ~~an increase~~a decrease of 9%15% in organic sales. Net sales decreased 21% in the first nine months of 2020 compared to the first nine months of 2019 due to a decrease of 20% in organic sales and ~~an increase of 2% from the impact of positive currency translation, partially offset by~~ a decrease of 1% from the ~~sale~~impact of ~~a business discussed in Note 2.~~negative currency translation. The ~~increase~~decrease in organic sales in the third quarter and first nine months of ~~2017~~2020 was ~~driven by growth~~primarily due to the impact from the COVID-19 pandemic with weakness at both OEMs and distributors globally.

The operating margin was 9.8% in ~~all regions, with particular strength~~both the third quarter of 2019 and 2020. Operating margin in the ~~North American Class 8 truck market. Net~~third quarter of 2020 was favorably impacted by 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, fully offset by lower sales volumes. The operating margin increased 3%from 9.4% in the first nine months of ~~2017 compared~~2019 to 9.9% in the first nine months of ~~2016~~2020. The increase in operating margin in the first nine months of 2020 was primarily due to depreciation expense no longer being charged as a result of the business being classified as held for sale and cost containment actions to counteract the impact of the COVID-19 pandemic, partially offset by lower sales volumes.


	Three months ended September 30						Increase (decrease)		Nine months ended September 30						Increase (decrease)
	2020			2019					2020			2019
Net sales	$	540		$	620		(13)	%	$	1,681		$	1,858		(10)	%

Operating profit	$	100		$	153		(35)	%	$	315		$	445		(29)	%
Operating margin	18.5		%	24.7		%			18.7		%	24.0		%

Net sales decreased 13% in the third quarter of 2020 compared to the third quarter of 2019 due to a decrease of 26% in organic sales, partially offset by an increase of ~~2% in organic sales~~12% from the acquisition of Souriau-Sunbank Connection Technologies (Souriau-Sunbank), and an increase of 1% from the impact of positive currency translation. Net sales decreased 10% in the first nine months of 2020 compared to the first nine months of 2019 due to a decrease of 21% in organic sales, partially offset by an increase of 11% from the acquisition of Souriau-Sunbank. The ~~increase~~decrease in organic sales in the third quarter and first nine months of 2020 was primarily due to the impact of the COVID-19 pandemic on commercial aviation, partially offset by growth in military sales.

The operating margin decreased from 24.7% in the third quarter of 2019 to 18.5% in third quarter of 2020 and from 24.0% in the first nine months of 2019 to 18.7% in the first nine months of 2020 primarily due to lower sales volumes and the acquisition of Souriau-Sunbank.


	Three months ended September 30						Increase (decrease)		Nine months ended September 30						Increase (decrease)
	2020			2019					2020			2019
Net sales	$	573		$	761		(25)	%	$	1,498		$	2,374		(37)	%

Operating profit	$	80		$	139		(42)	%	$	140		$	397		(65)	%
Operating margin	14.0		%	18.3		%			9.3		%	16.7		%

Net sales decreased 25% in the third quarter of 2020 compared to the third quarter of 2019 due to a decrease of 20% in organic sales, a decrease of 4% from the divestiture of our Automotive Fluid Conveyance business, and a decrease of 1% from the impact of negative currency translation. The decrease in organic sales in the third quarter of 2020 was driven by lower Class 8 OEM production and weakness in light vehicle sales primarily due to the impact from the COVID-19 pandemic. Net sales decreased 37% in the first nine months of 2020 compared to the first nine months of 2019 due to a decrease of 31% in organic sales, a decrease of 4% from the divestiture of our Automotive Fluid Conveyance business, and a decrease of 2% from the impact of negative currency translation. The decrease in organic sales in the first nine months of ~~2017~~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 ~~growth in North America.~~the impact from the COVID-19 pandemic.

~~Operating~~The operating margin ~~increased~~decreased from ~~15.5%~~18.3% in the third quarter of ~~2016~~2019 to ~~17.4%~~14.0% in the third quarter of ~~2017 primarily due to higher sales volumes. Operating m~~ar~~gin increased~~2020 and from ~~15.6%~~16.7% in the first nine months of ~~2016~~2019 to ~~15.9%~~9.3% in the first nine months of ~~2017~~ 2020 primarily due to ~~higher~~lower sales volumes, ~~savings from restructuring actions and~~ ~~lower restructuring costs,~~ partially offset by ~~unfavorable product mix and commodity inflation.~~cost containment actions to mitigate the impact of the COVID-19 pandemic.

~~Corporate Expense (Income)~~

Three months ended
September 30 Increase (decrease) Nine months ended
September 30 Increase (decrease)
2017 2016 2017 2016
Amortization of intangible assets $ 98
$ 99
(1 )% $ 288
$ 297
(3 )%
Interest expense - net 60
59
2 % 181
173
5 %
Pension and other postretirement
benefits expense
16
18
(11 )% 38
45
(16 )%
Gain on sale of business

(1,077 ) —
NM
(1,077 ) —
NM
Other corporate expense - net 68
50
36 % 202
164
23 %
Total corporate expense (income) $ (835 ) $ 226
(469 )% $ (368 ) $ 679
(154 )%

~~Total corporate income was $835~~Net sales were flat in the third quarter of ~~2017~~2020 compared to ~~corporate expense of $226 in~~ the third quarter of ~~2016. Total corporate income was $368~~2019 due to an increase of 1% from the impact of positive currency translation, offset by a decrease of 1% in organic sales. Net sales decreased 16% in the first nine months of ~~2017~~2020 compared to ~~corporate expense~~the first nine months of ~~$679~~2019 due to a decrease of 16% in organic sales. The decrease in organic sales in the third quarter and the first nine months of 2020 was primarily due to the impact from the COVID-19 pandemic, with particular weakness in legacy internal combustion engine platforms.

The operating margin decreased from 5.1% in the third quarter of 2019 to negative 2.5% in the third quarter of 2020. The decrease in operating margin in the third quarter of 2020 was primarily due to increased research and development costs. The operating margin decreased from 6.5% in the first nine months of ~~2016.~~2019 to negative 1.4% in the first nine months of 2020. The ~~change~~decrease in operating margin in the first nine months of 2020 was primarily due to lower sales volumes and increased research and development costs.


	Three months ended September 30				Increase (decrease)		Nine months ended September 30				Increase (decrease)
	2020		2019				2020		2019
Amortization of intangible assets	$	90	$	93	(3)	%	$	265	$	280	(5)	%
Interest expense - net	41		47		(13)	%	113		157		(28)	%
Pension and other postretirement benefits expense	9		5		80	%	29		7		314	%


Restructuring program charges	10		—		NM		197		—		NM
Other expense - net	121		130		(7)	%	325		325		—	%
Total corporate expense	$	271	$	275	(1)	%	$	929	$	769	21	%

Total corporate expense was $271 in the third quarter of 2020 compared to Total corporate expense of $275 in the third quarter of 2019. The decrease in Total corporate expense ~~(income)~~ for the third quarter ~~and first nine months of 2017~~ was primarily due to ~~a gain on sale of business discussed in Note 2, partially offset by an increase in other corporate~~Other expense - net, driven by anlower acquisition and divestiture charges. Total corporate expense was $929 in the first nine months of 2020 compared to Total corporate expense of $769 in the first nine months of 2019. The increase in Total corporate expense for the first nine months of 2020 was primarily due to the ~~LIFO inventory reserve and higher corporate~~multi-year restructuring ~~expenses.~~program discussed in Note 13, partially offset by lower Interest expense - net.

Financial Condition and Liquidity

Eaton’s objective is to finance its business through operating cash flow and an appropriate mix of equity and long-term and short-term debt. By diversifying its debt maturity structure, Eaton reduces liquidity risk. The Company maintains access to the commercial paper markets through a $2,000 commercial paper program, which is supported by credit facilities in the aggregate principal amount of $2,000. There were no borrowings outstanding under these revolving credit facilities at September 30, ~~2017.~~2020. Over the course of a year, cash, short-term investments, and short-term debt may fluctuate in order to manage global liquidity. Eaton continues to be able to access commercial paper markets on the same basis as in prior periods. Although the COVID-19 pandemic negatively impacted third quarter results and we expect it may also have an unfavorable impact on fourth quarter results, our businesses continue to generate substantial cash. In addition, Eaton completed the $1.4 billion sale of our Lighting Business on March 2, 2020 and expects to complete the sale of our Hydraulics Business for $3.3 billion in cash by the end of the first quarter of 2021. Accordingly, Eaton believes it has the operating flexibility, cash flow, cash and short-term investment balances, and access to capital markets in excess of the liquidity necessary to meet future operating needs of the business as well as scheduled payments of long-term debt.

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, 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.

Eaton was in compliance with each of its debt covenants for all periods presented.

Net cash provided by operating activities was ~~$1,787~~$2,001 in the first nine months of ~~2017,~~2020, a decrease of ~~$145~~$513 in the source of cash compared to ~~$1,932~~$2,514 in the first nine months of ~~2016.~~2019. The decrease in net cash provided by operating activities in the first nine months of ~~2017~~2020 was driven by ~~higher pension contributions, including $350 contributed to Eaton's U.S. qualified pension plans,~~lower net income, partially offset by a lower ~~increase in~~ working ~~capital.~~capital balances compared to 2019.

Net cash ~~used in~~provided by investing activities was ~~$435~~$709 in the first nine months of ~~2017,~~2020, an increase of $1,541 in the ~~use~~source of cash ~~of $64~~ compared to ~~$371~~net cash used of $832 in the first nine m~~onths~~months of ~~2016.~~2019. The increase in the ~~use~~source of cash was primarily driven by ~~an increase in net purchases of short-term investments of $621 in 2017 compared to $29 in 2016, partially offset by~~ proceeds ~~of $600~~ from the sale of athe Lighting business discussed in Note 2.2 and lower capital expenditures of $291 in 2020 compared to $441 in 2019.

Net cash used in financing activities was ~~$1,115~~$2,619 in the first nine months of ~~2017, a decrease~~2020, an increase of ~~$228~~$1,196 in the use of cash compared to ~~$1,343~~$1,423 in the first nine months of ~~2016.~~2019. The ~~decrease~~increase in the use of cash was primarily due to ~~an increase of $367 in~~lower proceeds from borrowings ~~which totaled $1,000~~of $2 in ~~2017~~2020 compared to $1,232 in 2019 and ~~$633~~higher share repurchases of $1,464 in ~~2016, and a decrease of $113~~2020 compared to $978 in 2019, partially offset by lower payments on borrowings ~~which totaled $553~~of $262 in 2020 compared to $757 in 2019.

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). Eaton Electric Holdings LLC, a subsidiary of Eaton, has issued senior notes pursuant to an indenture dated December 7, 2010 (the 2010 Indenture). These senior notes of both Eaton Corporation and ~~$666~~Eaton Electrical Holdings LLC are registered under the Securities Act of 1933, as amended (the Registered Senior Notes). Eaton Corporation is also the issuer of two outstanding series of privately placed debt securities (the PPNs), and Eaton Capital Unlimited Company, another subsidiary of Eaton, is the issuer of three outstanding series of debt securities sold in ~~2016. This was partially offset~~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 Senior Notes, together with the credit facilities described above under Financial Condition and Liquidity (the Credit Facilities), are guaranteed by Eaton and 21 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 secured indebtedness of Eaton and its subsidiaries. As of September 30, 2020, 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 Form 10-Q filed on April 30, 2020, 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 ~~$222 increase~~guarantor other than Eaton provides that it will be automatically and unconditionally released and discharged upon:

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

(b)such guarantee (so long as the ~~first nine months~~guarantor is not obligated under any other U.S. debt obligations), becoming prohibited by any applicable law, rule or 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 subparagraphs (b) and (c) above.

The guarantee of Eaton does not contain any release provisions.

Notwithstanding the provisions above, the 2010 Indenture provides that certain legacy Cooper subsidiaries may only be released from the Senior Notes issued under the 2010 Indenture upon ceasing to be a subsidiary of Eaton Electrical Holdings LLC (other than by consolidation with, or merger into, Eaton Electric Holdings LLC or another subsidiary thereof) or by conveying substantially all of its properties and assets to a person other than Eaton Electric Holdings LLC or another subsidiary thereof.

The 2012 and 2017 ~~compared~~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 and the 2010 Indenture do not contain provisions with respect to future guarantors.

Summarized Financial Information of Guarantors and Issuers


	September 30, 2020		December 31, 2019
Current assets	$	3,903	$	4,082
Noncurrent assets	11,685		13,181
Current liabilities	3,094		2,703
Noncurrent liabilities	8,918		10,023
Amounts due to subsidiaries that are non-issuers and non-guarantors - net	21,647		37,050

			Nine months ended September 30
			2020
Net sales			$	7,606
Sales to subsidiaries that are non-issuers and non-guarantors			614
Cost of products sold			6,389
Expense from subsidiaries that are non-issuers and non-guarantors - net			425
Net loss			(599)

The financial information presented is that of Eaton Corporation and the ~~first nine months~~Guarantors, which includes Eaton Corporation plc, on a combined basis and the financial information of ~~2016.~~non-issuer and non-guarantor subsidiaries has been excluded. Intercompany balances and transactions between Eaton Corporation and Guarantors have been eliminated, and amounts due from, amounts due to, and transactions with non-issuer and non-guarantor subsidiaries have been presented separately.

This Form 10-Q Report contains forward-looking statements concerning ~~expected pension contributions,~~the anticipated ~~stock repurchases,~~completion of the divestiture of our Hydraulics business, anticipated additional charges and projected savings from restructuring actions, the future impact of COVID-19, the ~~adoption~~performance of ~~ASU 2014-09,~~our end markets and ~~the costs and benefits of restructuring actions,~~legal contingencies, among other matters. These statements may discuss goals, intentions and expectations as to future trends, plans, events, results of operations or financial condition, or state other information relating to Eaton, based on current beliefs of management as well as assumptions made by, and information currently available to, management. Forward-looking statements generally will be accompanied by words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “guidance,” “intend,” “may,” “possible,” “potential,” “predict,” “project” or other similar words, phrases or expressions. These statements should be used with caution and are subject to various risks and uncertainties, many of which are outside Eaton’s control. The following factors could cause actual results to differ materially from those in the forward-looking statements: ~~unexpected results from the implementation of ASU 2014-09,~~ unanticipated changes in the markets for the Company’s business segments; unanticipated downturns in business relationships with customers or their purchases from us; the potential effects on our businesses from natural disasters; the availability of credit to customers and suppliers; competitive pressures on sales and pricing; unanticipated changes in the cost of material and other production costs, or unexpected costs that cannot be recouped in product pricing; the introduction of competing technologies; unexpected technical or marketing difficulties; unexpected claims, charges, litigation or dispute resolutions; strikes or other labor unrest; the impact of acquisitions and divestitures; unanticipated difficulties integrating acquisitions; new laws and governmental regulations; interest rate changes; tax rate changes or exposure to additional income tax liability; stock market and currency fluctuations; war, civil or political unrest or terrorism; the course of the COVID-19 pandemic and government responses thereto, and unanticipated deterioration of economic and financial conditions in the United States and around the world. Eaton does not assume any obligation to update these forward-looking statements.

~~ITEM 3.~~

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

There have been no material changes in exposures to market risk since December 31, ~~2016.~~2019.

ITEM 4.CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures - Pursuant to SEC Rule 13a-15, an evaluation was performed under the supervision and with the participation of Eaton’s management, including Craig Arnold - Principal Executive Officer; and Richard H. Fearon - Principal Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on that evaluation, management concluded that Eaton’s disclosure controls and procedures were effective as of September 30, ~~2017~~.2020.

Disclosure controls and procedures are designed to ensure that information required to be disclosed in Eaton’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in Eaton’s reports filed under the Exchange Act is accumulated and communicated to management, including Eaton’s Principal Executive Officer and Principal Financial Officer, to allow timely decisions regarding required disclosure.

During the third quarter of ~~2017,~~2020, there was no change in Eaton’s internal control over financial reporting that materially affected, or is reasonably likely to materially affect, internal control over financial reporting. Management is currently evaluating the impact of businesses acquired in the past twelve months on Eaton's internal control over financial reporting.

PART II — OTHER INFORMATION

~~ITEM 1.~~

ITEM 1.LEGAL PROCEEDINGS.

Information regarding the Company's current legal proceedings is presented in Note 8 of the Notes to the ~~Condensed Consolidated Financial Statements.~~condensed consolidated financial statements.

~~ITEM 1A.~~

ITEM 1A.RISK FACTORS.

“Item 1A. Risk Factors” in Eaton's ~~2016~~2019 Form 10-K includes a discussion of the Company's risk factors. There have been no material changes from the risk factors described in the ~~2016~~2019 Form ~~10-K.~~10-K, except as follows:

As a result of the COVID-19 pandemic outbreak, authorities have implemented measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter-in place-orders, and shut downs, and consumers have changed their demand patterns. As a result, our operations and financial results have been impacted. The degree to which COVID-19 impacts our future results will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions resume.

During the third quarter of ~~2017, 4.4~~2020, 1.7 million ordinary shares were repurchased in the open market at a total cost of ~~$324~~$177 million. These shares were repurchased under the program approved by the Board on February ~~24, 2016.~~27, 2019 (the 2019 Program). A summary of the shares repurchased in the third quarter of ~~2017~~2020 follows:


Month	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Approximate dollar value of shares that may yet be purchased under the plans or programs (in millions)
July	—	$	—	—	$	2,402
August	—	$	—	—	$	2,402
September	1,770,709	$	100.21	1,770,709	$	2,225
Total	1,770,709	$	100.21	1,770,709

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)
July —
$ —
—
$ 1,388
August 4,415,144
$ 73.29
4,415,144
$ 1,064
September —
$ —
—
$ 1,064
Total 4,415,144
$ 73.29
4,415,144

Eaton Corporation plc

Third Quarter 2020 Report on Form 10-Q


~~ITEM 5.~~	~~OTHER INFORMATION.~~

~~Disclosure Pursuant to Section 13r of the Exchange Act~~

Set forth below is a description of all matters reported by us pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 and Section 13(r) of the Exchange Act. Concurrently with the filing of this Quarterly Report, we are filing a notice pursuant to Section 13(r) of the Exchange Act that such matters have been disclosed in this Quarterly Report.

During the third quarter, certain of our wholly-owned non-U.S. subsidiaries sold various electrical products to customers in Iran. We received total revenue of approximately 1,015,072 Euros and realized net profits of approximately 282,649 Euros from the sales (approximately $1,197,983 and $333,581 in whole U.S. dollars, respectively). One or more of our non-U.S. subsidiaries intend to continue doing business in Iran under General License H in compliance with U.S. economic sanctions and export control laws, though the Company has no assets or employees in Iran.


~~ITEM 6.~~	~~EXHIBITS.~~

~~Exhibits — See Exhibit Index attached.~~

~~SIGNATURES~~

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



				~~EATON CORPORATION plc~~
			~~Registrant~~

~~Date:~~	~~October 31, 2017~~	~~By:~~	~~/s/ Richard H. Fearon~~
			~~Richard H. Fearon~~
			~~Principal Financial Officer~~
			~~(On behalf of the registrant and as Principal Financial Officer)~~

~~Eaton Corporation plc~~

~~Third Quarter~~ ~~2017~~ ~~Report on Form 10-Q~~

~~Exhibit Index~~


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

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

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 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 (incorporated by reference Exhibit 4.4 of the registrant's Form 10-K filed on February 28, 2018)

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 (incorporated by reference Exhibit 4.5 of the registrant's Form 10-K filed on February 28, 2018)

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 (incorporated by reference Exhibit 4.6 of the registrant's Form 10-K filed on February 28, 2018)

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 ~~4.1-4.3~~(4.2 - 4.7) hereto

1222		~~Ratio~~Table of ~~Earnings~~Senior Notes, Issuer and Guarantors (incorporated by reference to ~~Fixed Charges — Filed in conjunction with this~~the Form 10-Q Report *filed on April 30, 2020)

31.1		Certification of Principal Executive Officer (Pursuant to Rule 13a-14(a)) — Filed in conjunction with this Form 10-Q Report *

31.2		Certification of Principal Financial Officer (Pursuant to Rule 13a-14(a)) — Filed in conjunction with this Form 10-Q Report *

32.1		Certification of Principal Executive Officer (Pursuant to Rule 13a-14(b) as adopted pursuant to Section 906 of the Sarbanes-Oxley Act) — Filed in conjunction with this Form 10-Q Report *

32.2		Certification of Principal Financial Officer (Pursuant to Rule 13a-14(b) as adopted pursuant to Section 906 of the Sarbanes-Oxley Act) — Filed in conjunction with this Form 10-Q Report *

101.INS		XBRL Instance Document - 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 Label Definition Document *

101.LAB		XBRL Taxonomy Extension Label Linkbase Document *

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document *



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


*						Submitted electronically herewith.

~~Attached as Exhibit 101~~

Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report ~~are~~to be signed on its behalf by the ~~following formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Statements of Income for the~~ ~~three~~ ~~months ended~~ ~~September 30, 2017~~ ~~and~~ ~~2016, (ii) Consolidated Statements of Comprehensive Income for the~~ ~~three~~ ~~months ended~~ ~~September 30, 2017~~ ~~and~~ ~~2016, (iii) Condensed Consolidated Balance Sheets at~~ ~~September 30, 2017~~ ~~and~~ ~~December 31, 2016, (iv) Condensed Consolidated Statements of Cash Flows for the~~ ~~nine~~ ~~months ended~~ ~~September 30, 2017~~ ~~and~~ ~~2016~~ ~~and (v) Notes to Condensed Consolidated Financial Statements for the~~ ~~nine~~ ~~months ended~~ ~~September 30, 2017~~.undersigned, thereunto duly authorized.

EATON CORPORATION plc

Registrant

Date:

November 3, 2020

By:

/s/ Richard H. Fearon

Richard H. Fearon

Principal Financial Officer

(On behalf of the registrant and as Principal Financial Officer)



TABLE OF CONTENTS
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS		2
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		2628
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		3239
ITEM 4. CONTROLS AND PROCEDURES		3239
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS		3239
ITEM 1A. RISK FACTORS		3239
~~ITEM 2. UNRESTRICTED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS~~		33



~~ITEM 5. OTHER INFORMATION~~		33
ITEM 6. EXHIBITS	3341
SIGNATURES		3442
~~EXHIBIT INDEX~~		35
~~EX-12~~
~~EX-31.1~~
~~EX-31.2~~
~~EX-32.1~~
~~EX-32.2~~
~~EX-101 INSTANCE DOCUMENT~~
~~EX-101 SCHEMA DOCUMENT~~
~~EX-101 CALCULATION LINKBASE DOCUMENT~~
~~EX-101 DEFINITION LINKBASE DOCUMENT~~
~~EX-101 LABELS LINKBASE DOCUMENT~~
~~EX-101 PRESENTATION LINKBASE DOCUMENT~~



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


(In millions)	September 30, 2017			December 31, 2016			(In millions)	September 30, 2020		December 31, 2019
Assets							Assets
Current assets							Current assets
Cash	$	791		$	543		Cash	$	429	$	370
Short-term investments	843			203			Short-term investments	334		221
Accounts receivable - net	3,962			3,560			Accounts receivable - net	2,876		3,437
Inventory	2,457			2,254			Inventory	2,096		2,805
Assets held for sale							Assets held for sale	2,398		1,377
Prepaid expenses and other current assets	396			381			Prepaid expenses and other current assets	538		518
Total current assets	8,449			6,941			Total current assets	8,671		8,728

Property, plant and equipment							Property, plant and equipment
Land and buildings	2,498			2,369			Land and buildings	2,154		2,440
Machinery and equipment	5,940			5,670			Machinery and equipment	5,262		6,266
Gross property, plant and equipment	8,438			8,039			Gross property, plant and equipment	7,416		8,706
Accumulated depreciation	(4,952		)	(4,596		)	Accumulated depreciation	(4,500)		(5,210)
Net property, plant and equipment	3,486			3,443			Net property, plant and equipment	2,916		3,496

Other noncurrent assets							Other noncurrent assets
Goodwill	13,545			13,201			Goodwill	12,677		13,456
Other intangible assets	5,354			5,514			Other intangible assets	4,179		4,638

Operating lease assets							Operating lease assets	421		436
Deferred income taxes	264			360			Deferred income taxes	376		372
Other assets	1,627			960			Other assets	1,745		1,679
Total assets	$	32,725		$	30,419		Total assets	$	30,985	$	32,805

Liabilities and shareholders’ equity							Liabilities and shareholders’ equity
Current liabilities							Current liabilities
Short-term debt	$	5		$	14		Short-term debt	$	2	$	255
Current portion of long-term debt	1,494			1,552			Current portion of long-term debt	1,251		248
Accounts payable	2,039			1,718			Accounts payable	1,788		2,114
Accrued compensation	434			379			Accrued compensation	336		449
Liabilities held for sale							Liabilities held for sale	424		325
Other current liabilities	1,928			1,822			Other current liabilities	2,004		1,741
Total current liabilities	5,900			5,485			Total current liabilities	5,805		5,132

Noncurrent liabilities							Noncurrent liabilities
Long-term debt	7,273			6,711			Long-term debt	6,948		7,819
Pension liabilities	1,328			1,659			Pension liabilities	1,343		1,462
Other postretirement benefits liabilities	366			368			Other postretirement benefits liabilities	319		328
Operating lease liabilities							Operating lease liabilities	323		331
Deferred income taxes	327			321			Deferred income taxes	306		396
Other noncurrent liabilities	895			934			Other noncurrent liabilities	1,423		1,204
Total noncurrent liabilities	10,189			9,993			Total noncurrent liabilities	10,662		11,540

Shareholders’ equity							Shareholders’ equity
Eaton shareholders’ equity	16,593			14,897
Ordinary shares (398.6 million outstanding in 2020 and 413.3 million in 2019)							Ordinary shares (398.6 million outstanding in 2020 and 413.3 million in 2019)	4		4
Capital in excess of par value							Capital in excess of par value	12,266		12,200
Retained earnings							Retained earnings	6,741		8,170
Accumulated other comprehensive loss							Accumulated other comprehensive loss	(4,533)		(4,290)
Shares held in trust							Shares held in trust	(2)		(2)
Total Eaton shareholders’ equity							Total Eaton shareholders’ equity	14,476		16,082
Noncontrolling interests	43			44			Noncontrolling interests	42		51
Total equity	16,636			14,941			Total equity	14,518		16,133
Total liabilities and equity	$	32,725		$	30,419		Total liabilities and equity	$	30,985	$	32,805



	Workforce reductions			Plant closings and other			Total
Balance at December 31, 2015	$	54		$	—		$	54
Liability recognized	177			34			211
Payments	(116		)	(13		)	(129		)
Other adjustments	(2		)	(20		)	(22		)
Balance at December 31, 2016	113			1			114
Liability recognized	35			40			75
Payments	(78		)	(25		)	(103		)
Other adjustments	(3		)	(12		)	(15		)
Balance at September 30, 2017	$	67		$	4		$	71


~~Note 5.~~	~~GOODWILL~~Deferred Revenue
Balance at January 1, 2020	$	234
Customer deposits and billings	753
Revenue recognized in the period	(728)
Translation	1
Deferred revenue reclassified to held for sale	(11)
Balance at September 30, 2020	$	249



	Electrical Products		Electrical Systems and Services		Hydraulics		Aerospace		Vehicle			Total
December 31, 2016	$	6,497	$	4,203	$	1,221	$	938	$	342		$	13,201
Goodwill written off from sale of business	—		—		—		—		(52		)	(52		)
Translation	235		114		34		8		5			396
September 30, 2017	$	6,732	$	4,317	$	1,255	$	946	$	295		$	13,545



	Eaton shareholders’ equity			Noncontrolling interests			Total equity
Balance at December 31, 2016	$	14,897		$	44		$	14,941
Cumulative-effect adjustment upon adoption of ASU 2016-09	48			—			48
Net income	2,346			1			2,347
Other comprehensive income	785			—			785
Cash dividends paid	(803		)	(3		)	(806		)
Issuance of shares under equity-based compensation plans - net	109			—			109
Repurchase of shares	(789		)	—			(789		)
Changes in noncontrolling interest - net	—			1			1
Balance at September 30, 2017	$	16,593		$	43		$	16,636



	Nine months ended September 30, 2017				Consolidated statements of income classification
Amortization of defined benefit pensions and other postretirement benefits items
Actuarial loss and prior service cost	$	(146	)	¹
Tax benefit	47
Total, net of tax	(99		)

Gains and (losses) on cash flow hedges
Currency exchange contracts	(12		)		Cost of products sold
Tax benefit	4
Total, net of tax	(8		)

Total reclassifications for the period	$	(107	)




CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2017
	Eaton Corporation plc			Eaton Corporation			Guarantors			Other subsidiaries			Consolidating adjustments			Total
Net sales	$	—		$	1,695		$	1,669		$	3,223		$	(1,376	)	$	5,211

Cost of products sold	—			1,322			1,225			2,294			(1,372		)	3,469
Selling and administrative expense	32			330			200			354			—			916
Research and development expense	—			53			54			40			—			147
Interest expense (income) - net	—			62			5			(7		)	—			60
Gain on Sale of Business	—			560			—			517			—			1,077
Other expense (income) - net	23			1			(31		)	12			—			5
Equity in loss (earnings) of subsidiaries, net of tax	(1,573		)	(237		)	(1,900		)	(706		)	4,416			—
Intercompany expense (income) - net	119			(33		)	335			(421		)	—			—
Income (loss) before income taxes	1,399			757			1,781			2,174			(4,420		)	1,691
Income tax expense (benefit)	—			120			18			154			—			292
Net income (loss)	1,399			637			1,763			2,020			(4,420		)	1,399
Less net loss (income) for noncontrolling interests	—			—			—			(1		)	1			—
Net income (loss) attributable to Eaton ordinary shareholders	$	1,399		$	637		$	1,763		$	2,019		$	(4,419	)	$	1,399

Other comprehensive income (loss)	$	199		$	(15	)	$	200		$	267		$	(452	)	$	199
Total comprehensive income (loss) attributable to Eaton ordinary shareholders	$	1,598		$	622		$	1,963		$	2,286		$	(4,871	)	$	1,598


~~ITEM 3.~~ ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.	~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.~~


ITEM 4.CONTROLS AND PROCEDURES. ~~ITEM 4.~~	~~CONTROLS AND PROCEDURES.~~


~~ITEM 1.~~	~~FINANCIAL STATEMENTS.~~


~~Note 1.~~	~~BASIS OF PRESENTATION~~


~~Note 2.~~	~~SALE OF A BUSINESS~~


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


~~ITEM 2.~~	~~UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.~~