UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2017March 31, 2023
Commission file number 000-54863
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EATON CORPORATION plc |
(Exact name of registrant as specified in its charter) |
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Ireland | | 98-1059235 |
(State or other jurisdiction of incorporation or organization) | | (IRS Employer Identification Number) |
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Eaton House, | 30 Pembroke Road, | Dublin 4, Ireland | Ireland | | D04 Y0C2 |
(Address of principal executive offices) | | (Zip Code) |
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| | | | | +353 | 1637 2900 | | | | |
| | (Registrant's telephone number, including area code) | | |
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| | Not applicable | +353 1637 2900 | | | |
| | | (Registrant's telephone number, including area code) | | | |
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| | | Not applicable | | | |
| | | (Former name, former address and former fiscal year if changed since last report) | | | |
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Securities registered pursuant to Section 12(b) of the Act: |
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Title of each class | | Trading Symbol | | Name of each exchange on which registered |
Ordinary shares ($0.01 par value) | | ETN | | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ☑ No o☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes þ☑ No o☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer," “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
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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
Act. o☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐ No þ☑
There were 440.6398.6 million Ordinary Shares outstanding as of September 30, 2017.March 31, 2023.
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TABLE OF CONTENTS |
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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 | |
PART I — FINANCIAL INFORMATION
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ITEM 1. | FINANCIAL STATEMENTS. |
ITEM 1.FINANCIAL STATEMENTS.
EATON CORPORATION plc
CONSOLIDATED STATEMENTS OF INCOME
| | | | | | | | | | | | | | | |
| | | Three months ended March 31 |
(In millions except for per share data) | | | | | 2023 | | 2022 |
Net sales | | | | | $ | 5,483 | | | $ | 4,843 | |
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Cost of products sold | | | | | 3,599 | | | 3,269 | |
Selling and administrative expense | | | | | 904 | | | 790 | |
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Research and development expense | | | | | 179 | | | 165 | |
Interest expense - net | | | | | 50 | | | 32 | |
Gain on sale of business | | | | | — | | | 24 | |
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Other income - net | | | | | (11) | | | (8) | |
Income before income taxes | | | | | 762 | | | 619 | |
Income tax expense | | | | | 123 | | | 86 | |
Net income | | | | | 639 | | | 533 | |
Less net income for noncontrolling interests | | | | | (1) | | | (1) | |
Net income attributable to Eaton ordinary shareholders | | | | | $ | 638 | | | $ | 532 | |
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Net income per share attributable to Eaton ordinary shareholders | | | | | | | |
Diluted | | | | | $ | 1.59 | | | $ | 1.33 | |
Basic | | | | | 1.60 | | | 1.33 | |
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Weighted-average number of ordinary shares outstanding | | | | | | | |
Diluted | | | | | 400.5 | | | 401.8 | |
Basic | | | | | 398.5 | | | 399.2 | |
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Cash dividends declared per ordinary share | | | | | $ | 0.86 | | | $ | 0.81 | |
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| 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 |
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Cost of products sold | 3,469 |
| | 3,371 |
| | 10,229 |
| | 10,081 |
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Selling and administrative expense | 916 |
| | 853 |
| | 2,703 |
| | 2,642 |
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Research and development expense | 147 |
| | 146 |
| | 440 |
| | 444 |
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Interest expense - net | 60 |
| | 59 |
| | 181 |
| | 173 |
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Gain on sale of business | 1,077 |
| | — |
| | 1,077 |
| | — |
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Other expense (income) - net | 5 |
| | (15 | ) | | (10 | ) | | (28 | ) |
Income before income taxes | 1,691 |
| | 573 |
| | 2,725 |
| | 1,568 |
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Income tax expense | 292 |
| | 51 |
| | 378 |
| | 151 |
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Net income | 1,399 |
| | 522 |
| | 2,347 |
| | 1,417 |
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Less net (income) loss for noncontrolling interests | — |
| | 1 |
| | (1 | ) | | 1 |
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Net income attributable to Eaton ordinary shareholders | $ | 1,399 |
| | $ | 523 |
| | $ | 2,346 |
| | $ | 1,418 |
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Net income per share attributable to Eaton ordinary shareholders | | | | | | | |
Diluted | $ | 3.14 |
| | $ | 1.15 |
| | $ | 5.23 |
| | $ | 3.09 |
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Basic | 3.16 |
| | 1.15 |
| | 5.26 |
| | 3.10 |
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Weighted-average number of ordinary shares outstanding | | | | | | | |
Diluted | 445.2 |
| | 455.6 |
| | 448.3 |
| | 457.9 |
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Basic | 442.6 |
| | 453.9 |
| | 445.9 |
| | 456.5 |
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Cash dividends declared per ordinary share | $ | 0.60 |
| | $ | 0.57 |
| | $ | 1.80 |
| | $ | 1.71 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
EATON CORPORATION plc
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
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| | | Three months ended March 31 |
(In millions) | | | | | 2023 | | 2022 |
Net income | | | | | $ | 639 | | | $ | 533 | |
Less net income for noncontrolling interests | | | | | (1) | | | (1) | |
Net income attributable to Eaton ordinary shareholders | | | | | 638 | | | 532 | |
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Other comprehensive income (loss), net of tax | | | | | | | |
Currency translation and related hedging instruments | | | | | 119 | | | (62) | |
Pensions and other postretirement benefits | | | | | (2) | | | 77 | |
Cash flow hedges | | | | | 15 | | | 101 | |
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Other comprehensive income attributable to Eaton ordinary shareholders | | | | | 132 | | | 116 | |
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Total comprehensive income attributable to Eaton ordinary shareholders | | | | | $ | 770 | | | $ | 648 | |
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| 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 |
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Less net (income) loss for noncontrolling interests | — |
| | 1 |
| | (1 | ) | | 1 |
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Net income attributable to Eaton ordinary shareholders | 1,399 |
| | 523 |
| | 2,346 |
| | 1,418 |
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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 |
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Cash flow hedges | (12 | ) | | 1 |
| | (11 | ) | | (33 | ) |
Other comprehensive income (loss) attributable to Eaton ordinary shareholders | 199 |
| | 24 |
| | 785 |
| | 42 |
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Total comprehensive income attributable to Eaton ordinary shareholders | $ | 1,598 |
| | $ | 547 |
| | $ | 3,131 |
| | $ | 1,460 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
EATON CORPORATION plc
CONDENSED CONSOLIDATED BALANCE SHEETS
| | (In millions) | September 30, 2017 | | December 31, 2016 | (In millions) | March 31, 2023 | | December 31, 2022 |
Assets | | | | Assets | | | |
Current assets | | | | Current assets | | | |
Cash | $ | 791 |
| | $ | 543 |
| Cash | $ | 235 | | | $ | 294 | |
Short-term investments | 843 |
| | 203 |
| Short-term investments | 289 | | | 261 | |
Accounts receivable - net | 3,962 |
| | 3,560 |
| Accounts receivable - net | 4,239 | | | 4,076 | |
Inventory | 2,457 |
| | 2,254 |
| Inventory | 3,604 | | | 3,430 | |
| Prepaid expenses and other current assets | 396 |
| | 381 |
| Prepaid expenses and other current assets | 772 | | | 685 | |
Total current assets | 8,449 |
| | 6,941 |
| Total current assets | 9,138 | | | 8,746 | |
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Property, plant and equipment | | | | Property, plant and equipment | |
Land and buildings | 2,498 |
| | 2,369 |
| Land and buildings | 2,174 | | | 2,129 | |
Machinery and equipment | 5,940 |
| | 5,670 |
| Machinery and equipment | 6,021 | | | 5,885 | |
Gross property, plant and equipment | 8,438 |
| | 8,039 |
| Gross property, plant and equipment | 8,195 | | | 8,013 | |
Accumulated depreciation | (4,952 | ) | | (4,596 | ) | Accumulated depreciation | (4,989) | | | (4,867) | |
Net property, plant and equipment | 3,486 |
| | 3,443 |
| Net property, plant and equipment | 3,206 | | | 3,146 | |
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Other noncurrent assets | | | | Other noncurrent assets | |
Goodwill | 13,545 |
| | 13,201 |
| Goodwill | 14,894 | | | 14,796 | |
Other intangible assets | 5,354 |
| | 5,514 |
| Other intangible assets | 5,386 | | | 5,485 | |
| Operating lease assets | | Operating lease assets | 579 | | | 570 | |
Deferred income taxes | 264 |
| | 360 |
| Deferred income taxes | 340 | | | 330 | |
Other assets | 1,627 |
| | 960 |
| Other assets | 1,975 | | | 1,940 | |
Total assets | $ | 32,725 |
| | $ | 30,419 |
| Total assets | $ | 35,517 | | | $ | 35,014 | |
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Liabilities and shareholders’ equity | | | | Liabilities and shareholders’ equity | | | |
Current liabilities | | | | Current liabilities | | | |
Short-term debt | $ | 5 |
| | $ | 14 |
| Short-term debt | $ | 87 | | | $ | 324 | |
Current portion of long-term debt | 1,494 |
| | 1,552 |
| Current portion of long-term debt | 8 | | | 10 | |
Accounts payable | 2,039 |
| | 1,718 |
| Accounts payable | 3,118 | | | 3,072 | |
Accrued compensation | 434 |
| | 379 |
| Accrued compensation | 350 | | | 467 | |
| Other current liabilities | 1,928 |
| | 1,822 |
| Other current liabilities | 2,524 | | | 2,488 | |
Total current liabilities | 5,900 |
| | 5,485 |
| Total current liabilities | 6,087 | | | 6,360 | |
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Noncurrent liabilities | | | | Noncurrent liabilities | | | |
Long-term debt | 7,273 |
| | 6,711 |
| Long-term debt | 8,701 | | | 8,321 | |
Pension liabilities | 1,328 |
| | 1,659 |
| Pension liabilities | 651 | | | 649 | |
Other postretirement benefits liabilities | 366 |
| | 368 |
| Other postretirement benefits liabilities | 174 | | | 177 | |
Operating lease liabilities | | Operating lease liabilities | 466 | | | 459 | |
Deferred income taxes | 327 |
| | 321 |
| Deferred income taxes | 537 | | | 530 | |
Other noncurrent liabilities | 895 |
| | 934 |
| Other noncurrent liabilities | 1,417 | | | 1,444 | |
Total noncurrent liabilities | 10,189 |
| | 9,993 |
| Total noncurrent liabilities | 11,946 | | | 11,580 | |
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Shareholders’ equity | | | | Shareholders’ equity | | | |
Eaton shareholders’ equity | 16,593 |
| | 14,897 |
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Ordinary shares (398.6 million outstanding in 2023 and 397.8 million in 2022) | | Ordinary shares (398.6 million outstanding in 2023 and 397.8 million in 2022) | 4 | | | 4 | |
Capital in excess of par value | | Capital in excess of par value | 12,502 | | | 12,512 | |
Retained earnings | | Retained earnings | 8,757 | | | 8,468 | |
Accumulated other comprehensive loss | | Accumulated other comprehensive loss | (3,814) | | | (3,946) | |
Shares held in trust | | Shares held in trust | — | | | (1) | |
Total Eaton shareholders’ equity | | Total Eaton shareholders’ equity | 17,449 | | | 17,038 | |
Noncontrolling interests | 43 |
| | 44 |
| Noncontrolling interests | 36 | | | 38 | |
Total equity | 16,636 |
| | 14,941 |
| Total equity | 17,485 | | | 17,075 | |
Total liabilities and equity | $ | 32,725 |
| | $ | 30,419 |
| Total liabilities and equity | $ | 35,517 | | | $ | 35,014 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
EATON CORPORATION plc
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | |
| Three months ended March 31 |
(In millions) | 2023 | | 2022 |
Operating activities | | | |
Net income | $ | 639 | | | $ | 533 | |
Adjustments to reconcile to net cash provided by operating activities | | | |
Depreciation and amortization | 238 | | | 244 | |
Deferred income taxes | 17 | | | 15 | |
Pension and other postretirement benefits expense | 4 | | | 6 | |
Contributions to pension plans | (29) | | | (32) | |
Contributions to other postretirement benefits plans | (5) | | | (6) | |
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Gain on sale of business | — | | | (24) | |
Changes in working capital | (498) | | | (785) | |
Other - net | (31) | | | 91 | |
Net cash provided by operating activities | 335 | | | 42 | |
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Investing activities | | | |
Capital expenditures for property, plant and equipment | (126) | | | (115) | |
Cash paid for acquisition of a business, net of cash acquired | — | | | (612) | |
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Proceeds from sales of property, plant and equipment | 3 | | | 4 | |
Investments in associate companies | — | | | (17) | |
Purchases of short-term investments - net | (27) | | | (1) | |
Proceeds from settlement of currency exchange contracts not designated as hedges - net | 41 | | | — | |
Other - net | (14) | | | (21) | |
Net cash used in investing activities | (124) | | | (762) | |
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Financing activities | | | |
Proceeds from borrowings | 318 | | | — | |
Payments on borrowings | (3) | | | (4) | |
Short-term debt, net | (236) | | | 1,105 | |
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Cash dividends paid | (334) | | | (320) | |
Exercise of employee stock options | 17 | | | 8 | |
Repurchase of shares | — | | | (86) | |
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Employee taxes paid from shares withheld | (40) | | | (50) | |
Other - net | (1) | | | (1) | |
Net cash provided by (used in) financing activities | (281) | | | 652 | |
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Effect of currency on cash | 11 | | | 8 | |
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Total decrease in cash | (59) | | | (60) | |
Cash at the beginning of the period | 294 | | | 297 | |
Cash at the end of the period | $ | 235 | | | $ | 237 | |
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| Nine months ended September 30 |
(In millions) | 2017 | | 2016 |
Operating activities | | | |
Net income | $ | 2,347 |
| | $ | 1,417 |
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Adjustments to reconcile to net cash provided by operating activities | | | |
Depreciation and amortization | 685 |
| | 700 |
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Deferred income taxes | (181 | ) | | (105 | ) |
Pension and other postretirement benefits expense | 161 |
| | 177 |
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Contributions to pension plans | (447 | ) | | (114 | ) |
Contributions to other postretirement benefits plans | (14 | ) | | (26 | ) |
Gain on sale of business | (843 | ) | | — |
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Changes in working capital | (144 | ) | | (206 | ) |
Other - net | 223 |
| | 89 |
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Net cash provided by operating activities | 1,787 |
| | 1,932 |
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Investing activities | |
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Capital expenditures for property, plant and equipment | (351 | ) | | (346 | ) |
Proceeds from sale of business | 600 |
| | — |
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Cash received from acquisitions of businesses, net of cash acquired | — |
| | 1 |
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Purchases of short-term investments - net | (621 | ) | | (29 | ) |
Other - net | (63 | ) | | 3 |
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Net cash used in investing activities | (435 | ) | | (371 | ) |
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Financing activities | | | |
Proceeds from borrowings | 1,000 |
| | 633 |
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Payments on borrowings | (553 | ) | | (666 | ) |
Cash dividends paid | (803 | ) | | (780 | ) |
Exercise of employee stock options | 59 |
| | 60 |
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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 | ) |
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Effect of currency on cash | 11 |
| | 8 |
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Total increase in cash | 248 |
| | 226 |
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Cash at the beginning of the period | 543 |
| | 268 |
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Cash at the end of the period | $ | 791 |
| | $ | 494 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
EATON CORPORATION plc
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Amounts are in millions unless indicated otherwise (per share data assume dilution). Columns and rows may not add and the sum of components may not equal total amounts reported due to rounding.
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Note 1. | BASIS OF PRESENTATION |
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 20162022 Form 10-K. The interim period results are not necessarily indicative of the results to be expected for the full year. Management has evaluated subsequent events through the date this Form 10-Q was filed with the Securities and Exchange Commission.
During the first quarter of 2017, the Company adopted Accounting Standards Update 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, (ASU 2016-09). Upon adoption, the Company recorded deferred tax assets of $48 for all excess tax benefits that had not been previously recognized. This was accomplished through a cumulative-effect adjustment to retained earnings. ASU 2016-09 also requires that all excess tax benefits and deficiencies generated in the current and future periods be recorded as income tax benefit or expense in the reporting period in which they occur. These excess tax benefits and deficiencies, which were previously required to be presented as financing activities on the Company’s Condensed Consolidated Statements of Cash Flows, are now classified as operating activities prospectively. The Company also reclassified $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 forfeitures as part of recording equity-based compensation expense.
Certain prior year amounts have been reclassified to conform to the current year presentation.
Recently IssuedAdoption of New Accounting PronouncementsStandard
In May 2014, the Financial Accounting Standards Board (FASB) issuedEaton adopted Accounting Standards Update 2014-09, Revenue2022-04, Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations, in the first quarter of 2023. The standard requires disclosure of certain information about the Company's supply chain finance program, including key terms and a rollforward of confirmed amounts payable. The adoption of the standard did not have a material impact on the condensed consolidated financial statements.
Note 2.ACQUISITIONS AND DIVESTITURE OF BUSINESSES
Sale of Hydraulics business
On August 2, 2021, Eaton completed the sale of the Hydraulics business to Danfoss A/S and recognized a pre-tax gain of $617 million in 2021. The Company finalized negotiations of post-closing adjustments with Danfoss A/S and recognized an additional pre-tax gain of $24 million in the first quarter of 2022 and received cash of $22 million in the second quarter of 2022 from Contracts with Customers (ASU 2014-09). ThisDanfoss A/S to fully settle all post-closing adjustments.
Acquisition of Royal Power Solutions
On January 5, 2022, Eaton acquired Royal Power Solutions for $610 million, net of cash received. Royal Power Solutions is a U.S. based manufacturer of high-precision electrical connectivity components used in electric vehicle, energy management, industrial and mobility markets. Royal Power Solutions is reported within the eMobility business segment.
Eaton's 2022 Condensed Consolidated Financial Statements include Royal Power Solutions' results of operations, including segment operating profit of $5 million on sales of $38 million, from the date of acquisition through March 31, 2022.
Acquisition of a 50%stake in Jiangsu Huineng Electric Co., Ltd’s circuit breaker business
On July 1, 2022, Eaton acquired a 50 percent stake in Jiangsu Huineng Electric Co., Ltd’s circuit breaker business, which manufactures and markets low-voltage circuit breakers in China. Eaton accounts for this investment on the equity method of accounting standard supersedes all existing US GAAP revenue recognition guidance. Under ASU 2014-09,and is reported within the Electrical Global business segment.
Acquisition of a company49% stake in Jiangsu Ryan Electrical Co. Ltd.
On April 23, 2023, Eaton acquired a 49 percent stake in Jiangsu Ryan Electrical Co. Ltd., a manufacturer of power distribution and sub-transmission transformers in China. Eaton will recognize revenueaccount for this investment on the equity method of accounting and will report it within the Electrical Global business segment.
Note 3. REVENUE RECOGNITION
Sales are recognized when it transfersobligations under the terms of the contract are satisfied and control of promised goods or services have transferred to customers in anour customers. Control is transferred when the customer has the ability to direct the use of and obtain benefits from the goods or services. Sales are measured at the amount that reflectsof consideration the consideration which the companyCompany expects to collectbe paid in exchange for those goodsthese products or services. ASU 2014-09 will require additional disclosures
The following table provides disaggregated sales by lines of businesses, geographic destination, market channel or end market, as applicable, for the Company's operating segments:
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| | | Three months ended March 31 |
(In millions) | | | | | 2023 | | 2022 |
Electrical Americas | | | | | | | |
Products | | | | | $ | 716 | | | $ | 603 | |
Systems | | | | | 1,578 | | | 1,288 | |
Total | | | | | $ | 2,294 | | | $ | 1,891 | |
| | | | | | | |
Electrical Global | | | | | | | |
Products | | | | | $ | 882 | | | $ | 876 | |
Systems | | | | | 618 | | | 561 | |
Total | | | | | $ | 1,500 | | | $ | 1,437 | |
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Aerospace | | | | | | | |
Original Equipment Manufacturers | | | | | $ | 314 | | | $ | 293 | |
Aftermarket | | | | | 264 | | | 221 | |
Industrial and Other | | | | | 225 | | | 204 | |
Total | | | | | $ | 803 | | | $ | 718 | |
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Vehicle | | | | | | | |
Commercial | | | | | $ | 448 | | | $ | 402 | |
Passenger and Light Duty | | | | | 291 | | | 269 | |
Total | | | | | $ | 739 | | | $ | 671 | |
| | | | | | | |
eMobility | | | | | $ | 147 | | | $ | 126 | |
| | | | | | | |
Total net sales | | | | | $ | 5,483 | | | $ | 4,843 | |
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 receivable from customers were $3,726 million and $3,581 million at March 31, 2023 and December 31, 2022, respectively. Amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals or upon achievement of contractual milestones. These assets and liabilities are reported on the Consolidated Balance Sheets on a contract-by-contract basis at the end of each reporting period. Unbilled receivables were $251 million and $233 million at March 31, 2023 and December 31, 2022, respectively, and are recorded in Prepaid expenses and other current assets. The increase in unbilled receivables reflects higher revenue recognized from increased business activity in 2023.
Changes 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 adoptiondeferred revenue liabilities are as of the original effective date.follows:
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.
| | | | | |
(In millions) | Deferred Revenue |
Balance at January 1, 2023 | $ | 508 | |
Customer deposits and billings | 514 | |
Revenue recognized in the period | (421) | |
| |
Note 2.Translation | SALE OF A BUSINESS4 | |
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 $843. The fair value is based on the price paid to Eaton for the 50% interest sold to Cummins, Inc. and further supported by a discounted cash flow model. Eaton will account for its investment on the equity method of accounting.
| |
Note 3.Balance at March 31, 2023 | ACQUISITION INTEGRATION CHARGES$ | 605 | |
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. See Note 14 for additional information about business segments.
| | | | | |
(In millions) | Deferred Revenue |
Balance at January 1, 2022 | $ | 422 | |
Customer deposits and billings | 342 | |
Revenue recognized in the period | (334) | |
| |
Note 4.Translation | RESTRUCTURING CHARGES(2) | |
Balance at March 31, 2022 | $ | 428 | |
During 2015, Eaton announced its commitment to undertake actions to reduce its cost structure in all business segmentsDeferred revenue liabilities of $586 million and at corporate. Restructuring charges incurred for the three$489 million as of March 31, 2023 and nine months ended September 30, 2017, were $22 and $75,December 31, 2022, respectively, and were $23 and $121 for the three and nine months ended September 30, 2016, respectively. The charges associated with restructuring activities are anticipated to be $100 in 2017.
A summary of restructuring charges by type follows:
|
| | | | | | | | | | | | | | | |
| Three months ended 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 |
|
A summary of restructuring charges by segment follows:
|
| | | | | | | | | | | | | | | |
| 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 |
|
A summary of liabilities related to workforce reductions, plant closings and other associated costs announced in 2015 follows:
|
| | | | | | | | | | | |
| Workforce reductions | | Plant closings and other | | Total |
Balance at December 31, 2015 | $ | 54 |
| | $ | — |
| | $ | 54 |
|
Liability recognized | 177 |
| | 34 |
| | 211 |
|
Payments | (116 | ) | | (13 | ) | | (129 | ) |
Other adjustments | (2 | ) | | (20 | ) | | (22 | ) |
Balance at December 31, 2016 | 113 |
| | 1 |
| | 114 |
|
Liability recognized | 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 CostOther current liabilities with the remaining balance presented in Other noncurrent liabilities.
A significant portion of products sold, Sellingopen orders placed with Eaton are by original equipment manufacturers or distributors. These open orders are not considered firm as they have been historically subject to releases by customers. In measuring backlog of unsatisfied or partially satisfied obligations, only the amount of orders to which customers are firmly committed are included. Using this criterion, total backlog at March 31, 2023 was approximately $12.3 billion. At March 31, 2023, approximately 82% of this backlog is targeted for delivery to customers in the next twelve months and administrative expensesthe rest thereafter.
Note 4. CREDIT LOSSES FOR RECEIVABLES
Receivables are exposed to credit risk based on the customers’ ability to pay which is influenced by, among other factors, their financial liquidity position. Eaton’s receivables are generally short-term in nature with a majority outstanding less than 90 days.
Eaton performs ongoing credit evaluation of its customers and maintains sufficient allowances for potential credit losses. The Company evaluates the collectability of its receivables based on the length of time the receivable is past due, and any anticipated future write-off based on historic experience adjusted for market conditions. The Company's segments, supported by our global credit department, perform the credit evaluation and monitoring process to estimate and manage credit risk. The process includes an evaluation of credit losses for both the overall segment receivable and specific customer balances. The process also includes review of customer financial information and credit ratings, approval and monitoring of customer credit limits, and an assessment of market conditions. The Company may also require prepayment from customers to mitigate credit risk. Receivable balances are written off against an allowance for credit losses after a final determination of collectability has been made.
Accounts receivable are net of an allowance for credit losses of $39 million and $31 million at March 31, 2023 and December 31, 2022, respectively. The change in the allowance for credit losses includes expense and net write-offs, none of which are significant.
Note 5. INVENTORY
Inventory is carried at lower of cost or Other income-net,net realizable value. The components of inventory are as appropriate. In Business Segment Information, the charges reduced Operating profit of the related business segment. See follows:
| | | | | | | | | | | |
(In millions) | March 31, 2023 | | December 31, 2022 |
Raw materials | $ | 1,407 | | | $ | 1,275 | |
Work-in-process | 916 | | | 781 | |
Finished goods | 1,281 | | | 1,375 | |
Total inventory | $ | 3,604 | | | $ | 3,430 | |
Note 14 for additional information about business segments.6. GOODWILL
ChangeChanges in the carrying amount of goodwill by segment are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(In millions) | | January 1, 2023 | | | | | | | | | | Translation | | March 31, 2023 |
Electrical Americas | | $ | 7,402 | | | | | | | | | | | $ | 8 | | | $ | 7,411 | |
Electrical Global | | 3,929 | | | | | | | | | | | 58 | | | 3,987 | |
| | | | | | | | | | | | | | |
Aerospace | | 2,844 | | | | | | | | | | | 30 | | | 2,873 | |
Vehicle | | 287 | | | | | | | | | | | 1 | | | 288 | |
eMobility | | 334 | | | | | | | | | | | — | | | 334 | |
Total | | $ | 14,796 | | | | | | | | | | | $ | 98 | | | $ | 14,894 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 |
|
Note 6.7. SUPPLY CHAIN FINANCE PROGRAM
The Company negotiates payment terms directly with its suppliers for the purchase of goods and services. In addition, a third-party financial institution offers a voluntary supply chain finance (SCF) program that enables certain of the Company’s suppliers, at the supplier’s sole discretion, to sell receivables due from the Company to the financial institution on terms directly negotiated with the financial institution. If a supplier elects to participate in the SCF program, the supplier decides which invoices are sold to the financial institution and the Company has no economic interest in a supplier’s decision to sell an invoice. Payments by the Company to participating suppliers are paid to the financial institution on the invoice due date, regardless of whether an individual invoice is sold by the supplier to the financial institution. The amounts due to the financial institution for suppliers that participate in the SCF program are included in Accounts payable on the Consolidated Balance Sheets, and the associated payments are included in operating activities on the Condensed Consolidated Statements of Cash Flows.
The changes in SCF obligations are as follows: | | | | | | | |
(In millions) | SCF Obligations | | |
Balance at January 1, 2023 | $ | 208 | | | |
Invoices confirmed during the period | 297 | | | |
Invoices paid during the period | (234) | | | |
Translation | 12 | | | |
Balance at March 31, 2023 | $ | 283 | | | |
Note 8. DEBT
On September 15, 2017,March 3, 2023, a subsidiary of Eaton issued seniorEuro denominated notes (the(2023 Euro Notes) in a private issuance with a face amountvalue of $1,000.€300 million ($318 million). The Notesfloating rate notes are comprised of two tranches of $700 and $300, which mature in 2027 and 2047, respectively,due June 3, 2024 with interest payable semi-annually at a respective rate of 3.1% and 3.9%.quarterly based on the three-month Euro Interbank Offered Rate plus 25 basis points. The issuer received proceeds totaling $993 from the issuance, net of financing costs. The2023 Euro Notes are fully and unconditionally guaranteed on an unsubordinated, unsecured basis by Eaton and certain of its direct and indirect subsidiaries.Eaton. The 2023 Euro Notes contain customary optional redemption and par call provisions. The Notes also contain a change of control provision which requires the Company to make an offer to purchase all or any part of the 2023 Euro Notes at a purchase price of 101%100.5% 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. The2023 Euro Notes are subject to customary non-financial covenants.
Note 7.9. RETIREMENT BENEFITS PLANS
The components of retirement benefits expense follow:(income) are as follows:
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|
|
| United States pension benefit expense (income) | | Non-United States pension benefit expense (income) | | Other postretirement benefits expense (income) |
| Three months ended March 31 |
(In millions) | 2023 | | 2022 | | 2023 | | 2022 | | 2023 | | 2022 |
Service cost | $ | 5 | | | $ | 8 | | | $ | 11 | | | $ | 16 | | | $ | — | | | $ | — | |
Interest cost | 36 | | | 20 | | | 21 | | | 12 | | | 2 | | | 2 | |
Expected return on plan assets | (49) | | | (53) | | | (30) | | | (31) | | | — | | | — | |
Amortization | 1 | | | 8 | | | 1 | | | 12 | | | (4) | | | (2) | |
| (7) | | | (17) | | | 3 | | | 9 | | | (2) | | | — | |
| | | | | | | | | | | |
Settlements | 9 | | | 14 | | | 1 | | | — | | | — | | | — | |
Total expense (income) | $ | 2 | | | $ | (3) | | | $ | 4 | | | $ | 9 | | | $ | (2) | | | $ | — | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 |
|
The components of retirement benefits expense (income) other than service costs are included in Other income - net.
In 2017, Eaton expects to make contributions toDuring 2020, the Company announced it was freezing its United States pension plans for its non-union employees. The freeze was effective January 1, 2021 for non-union U.S. employees whose retirement benefit was determined under a cash balance formula and is effective January 1, 2026 for non-union U.S. employees whose retirement benefit is determined under a final average pay formula.
During the first quarter of $375, including $370 contributed through September 30, 2017.2023 and 2022, the Company recognized settlement losses from lump-sum distributions of $10 million and $14 million, respectively. During the first quarter of 2022, the Company remeasured certain pension plans as a result of lump-sum distributions exceeding or expected to exceed the sum of service and interest costs for the year. These remeasurements resulted in an increase of $47 million in funded status and corresponding decrease in Accumulated other comprehensive loss in the first quarter of 2022.
Note 10. LEGAL CONTINGENCIES
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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 and indemnity claims, tax audits, patent infringement, personal injuries, antitrust matters, and employment-related matters. Eaton is also subject to asbestoslegal 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.Condensed 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 11. INCOME TAXES
The effective income tax rate for the thirdfirst quarter and first nine months of 20172023 was expense of 17.3% and 13.9%, respectively,16.1% compared to expense of 8.8% and 9.6%13.9% for the thirdfirst quarter and first nine months of 2016. 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.2022. The increase in the effective tax rate in the thirdfirst quarter of 20172023 was primarily due to greater levels of income in higher tax jurisdictions. The decrease in the effective tax rate in the first nine months of 2017 was due to the resolution of tax contingencies in lower tax jurisdictions and a smaller impact from the excess tax benefits recognized for employee share-based payments pursuant toin the adoptionquarter.
Note 12. EQUITY
The changes in Shareholders’ equity are as discussed in Note 1.follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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, 2023 | 397.8 | | | $ | 4 | | | $ | 12,512 | | | $ | 8,468 | | | $ | (3,946) | | | $ | (1) | | | $ | 17,038 | | | $ | 38 | | | $ | 17,075 | |
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Net income | — | | | — | | | — | | | 638 | | | — | | | — | | | 638 | | | 1 | | | 639 | |
Other comprehensive income, net of tax | | | | | | | | | 132 | | | | | 132 | | | — | | | 132 | |
Cash dividends paid and accrued | — | | | — | | | — | | | (348) | | | — | | | — | | | (348) | | | (4) | | | (352) | |
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Issuance of shares under equity-based compensation plans | 0.7 | | | — | | | (11) | | | (1) | | | — | | | 1 | | | (11) | | | — | | | (11) | |
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Changes in noncontrolling interest of consolidated subsidiaries - net | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 1 | | | 1 | |
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Balance at March 31, 2023 | 398.6 | | | $ | 4 | | | $ | 12,502 | | | $ | 8,757 | | | $ | (3,814) | | | $ | — | | | $ | 17,449 | | | $ | 36 | | | $ | 17,485 | |
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| 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, 2022 | 398.8 | | | $ | 4 | | | $ | 12,449 | | | $ | 7,594 | | | $ | (3,633) | | | $ | (1) | | | $ | 16,413 | | | $ | 38 | | | $ | 16,451 | |
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Net income | — | | | — | | | — | | | 532 | | | — | | | — | | | 532 | | | 1 | | | 533 | |
Other comprehensive income, net of tax | | | | | | | | | 116 | | | | | 116 | | | — | | | 116 | |
Cash dividends paid and accrued | — | | | — | | | — | | | (331) | | | — | | | — | | | (331) | | | (2) | | | (333) | |
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Issuance of shares under equity-based compensation plans | 0.8 | | | — | | | (22) | | | (2) | | | — | | | — | | | (24) | | | — | | | (24) | |
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Changes in noncontrolling interest of consolidated subsidiaries - net | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (1) | | | (1) | |
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Repurchase of shares | (0.6) | | | — | | | — | | | (86) | | | — | | | — | | | (86) | | | — | | | (86) | |
Balance at March 31, 2022 | 399.0 | | | $ | 4 | | | $ | 12,427 | | | $ | 7,707 | | | $ | (3,517) | | | $ | (1) | | | $ | 16,620 | | | $ | 36 | | | $ | 16,656 | |
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On July 26, 2017,February 27, 2019, the United States Tax Court issued a ruling in the previously-disclosed dispute between Eaton Corporation, a subsidiary 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.
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 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$5.0 billion of ordinary shares (2016(2019 Program). On February 23, 2022, the Board renewed the 2019 Program by providing authority for up to $5.0 billion in repurchases to be made during the three-year period commencing on that date (2022 Program). Under the 20162022 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 million and 10.7March 31, 2023, no ordinary shares were repurchased. During the three months ended March 31, 2022, 0.6 million ordinary shares respectively, were repurchased under the 2016 Program2022 program in the open market at a total cost of $324 and $789, respectively. During the three and nine months ended September 30, 2016, 3.7 million and 7.7 million ordinary shares, respectively, were repurchased under the 2016 Program in the open market at a total cost of $243 and $485, respectively.
The changes in Shareholders’ equity follow:
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| Eaton shareholders’ equity | | Noncontrolling interests | | Total equity |
Balance at December 31, 2016 | $ | 14,897 |
| | $ | 44 |
| | $ | 14,941 |
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Cumulative-effect adjustment upon adoption of ASU 2016-09 | 48 |
| | — |
| | 48 |
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Net income | 2,346 |
| | 1 |
| | 2,347 |
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Other comprehensive income | 785 |
| | — |
| | 785 |
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Cash dividends paid | (803 | ) | | (3 | ) | | (806 | ) |
Issuance of shares under equity-based compensation plans - net | 109 |
| | — |
| | 109 |
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Repurchase of shares | (789 | ) | | — |
| | (789 | ) |
Changes in noncontrolling interest - net | — |
| | 1 |
| | 1 |
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Balance at September 30, 2017 | $ | 16,593 |
| | $ | 43 |
| | $ | 16,636 |
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$86 million.The changes in Accumulated other comprehensive loss follow:are as follows:
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(In millions) | Currency translation and related hedging instruments | | Pensions and other postretirement benefits | | Cash flow hedges | | Total |
Balance at January 1, 2023 | $ | (3,264) | | | $ | (810) | | | $ | 129 | | | $ | (3,946) | |
Other comprehensive income (loss) before reclassifications | 121 | | | (11) | | | 26 | | | 136 | |
Amounts reclassified from Accumulated other comprehensive loss (income) | (1) | | | 8 | | | (11) | | | (4) | |
Net current-period Other comprehensive income (loss) | 119 | | | (2) | | | 15 | | | 132 | |
Balance at March 31, 2023 | $ | (3,145) | | | $ | (813) | | | $ | 144 | | | $ | (3,814) | |
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| 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 |
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Amounts reclassified from Accumulated other comprehensive loss (income) | — |
| | 99 |
| | 8 |
| | 107 |
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Net current-period Other comprehensive income (loss) | 743 |
| | 53 |
| | (11 | ) | | 785 |
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Balance at September 30, 2017 | $ | (2,319 | ) | | $ | (1,327 | ) | | $ | (17 | ) | | $ | (3,663 | ) |
The reclassifications out of Accumulated other comprehensive loss follow:are as follows:
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(In millions) | Three months ended March 31, 2023 | | Consolidated Statements of Income classification |
Gains and (losses) on net investment hedges (amount excluded from effectiveness testing) | | | |
Currency exchange contracts | $ | 1 | | | Interest expense - net |
Tax expense | — | | | |
Total, net of tax | 1 | | | |
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Amortization of defined benefits pensions and other postretirement benefits items | | | |
Actuarial loss and prior service cost | (8) | | 1 | |
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Tax benefit | — | | | |
Total, net of tax | (8) | | | |
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Gains and (losses) on cash flow hedges | | | |
Floating-to-fixed interest rate swaps | 3 | | | Interest expense - net |
Currency exchange contracts | 11 | | | Net sales and Cost of products sold |
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Tax expense | (3) | | | |
Total, net of tax | 11 | | | |
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Total reclassifications for the period | $ | 4 | | | |
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| 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 |
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Total, net of tax | (99 | ) | | |
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Gains and (losses) on cash flow hedges | | | |
Currency exchange contracts | (12 | ) | | Cost of products sold |
Tax benefit | 4 |
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Total, net of tax | (8 | ) | | |
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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 79 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 is as follows:
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| | | Three months ended March 31 |
(In millions except for per share data) | | | | | 2023 | | 2022 |
Net income attributable to Eaton ordinary shareholders | | | | | $ | 638 | | | $ | 532 | |
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Weighted-average number of ordinary shares outstanding - diluted | | | | | 400.5 | | | 401.8 | |
Less dilutive effect of equity-based compensation | | | | | 2.0 | | | 2.6 | |
Weighted-average number of ordinary shares outstanding - basic | | | | | 398.5 | | | 399.2 | |
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Net income per share attributable to Eaton ordinary shareholders | | | | | | | |
Diluted | | | | | $ | 1.59 | | | $ | 1.33 | |
Basic | | | | | 1.60 | | | 1.33 | |
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| 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 |
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Weighted-average number of ordinary shares outstanding - diluted | 445.2 |
| | 455.6 |
| | 448.3 |
| | 457.9 |
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Less dilutive effect of equity-based compensation | 2.6 |
| | 1.7 |
| | 2.4 |
| | 1.4 |
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Weighted-average number of ordinary shares outstanding - basic | 442.6 |
| | 453.9 |
| | 445.9 |
| | 456.5 |
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Net income per share attributable to Eaton ordinary shareholders | | | | | | | |
Diluted | $ | 3.14 |
| | $ | 1.15 |
| | $ | 5.23 |
| | $ | 3.09 |
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Basic | 3.16 |
| | 1.15 |
| | 5.26 |
| | 3.10 |
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For the thirdfirst quarter of 2023 and first nine months of 2017, 0.2 million and 0.6 million2022, all 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
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Note 11. | FAIR VALUE MEASUREMENTS |
Note 13. FAIR VALUE MEASUREMENTS
Fair value is measured based on an exit price, representing the amount that would be received to sell an asset or paid to satisfy a liability in an orderly transaction between market participants. Fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, a fair value hierarchy is established, which categorizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
A summary of financial instruments and contingent consideration recognized at fair value, and the fair value measurements used, is as follows:
| | | Total | | Level 1 | | Level 2 | | Level 3 | |
September 30, 2017 | | | | | | | | |
(In millions) | | (In millions) | Total | | Level 1 | | Level 2 | | Level 3 |
March 31, 2023 | | March 31, 2023 | | | | | | | |
Cash | $ | 791 |
| | $ | 791 |
| | $ | — |
| | $ | — |
| Cash | $ | 235 | | | $ | 235 | | | $ | — | | | $ | — | |
Short-term investments | 843 |
| | 843 |
| | — |
| | — |
| Short-term investments | 289 | | | 289 | | | — | | | — | |
Net derivative contracts | 28 |
| | — |
| | 28 |
| | — |
| Net derivative contracts | 44 | | | — | | | 44 | | | — | |
Contingent future payments from acquisition of Green Motion | | Contingent future payments from acquisition of Green Motion | (45) | | | — | | | — | | | (45) | |
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December 31, 2016 | | | | | | | | |
December 31, 2022 | | December 31, 2022 | | | | | | | |
Cash | $ | 543 |
| | $ | 543 |
| | $ | — |
| | $ | — |
| Cash | $ | 294 | | | $ | 294 | | | $ | — | | | $ | — | |
Short-term investments | 203 |
| | 203 |
| | — |
| | — |
| Short-term investments | 261 | | | 261 | | | — | | | — | |
Net derivative contracts | (3 | ) | | — |
| | (3 | ) | | — |
| Net derivative contracts | 29 | | | — | | | 29 | | | — | |
Contingent future payments from acquisition of Green Motion | | Contingent future payments from acquisition of Green Motion | (44) | | | — | | | — | | | (44) | |
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.
On March 22, 2021, Eaton acquired Green Motion SA, a leading designer and manufacturer of electric vehicle charging hardware and related software based in Switzerland. Green Motion SA was acquired for $106 million, including $49 million of cash paid at closing and an initial estimate of $57 million for the fair value of contingent future consideration based on 2023 and 2024 revenue performance. The fair value of contingent consideration liabilities is estimated by discounting contingent payments expected to be made, and may increase or decrease based on changes in revenue estimates and discount rates, with a maximum possible undiscounted value of $112 million. As of March 31, 2023, the fair value of the contingent future payments has been reduced to $45 million based primarily on anticipated reductions in projected 2023 revenue compared to the initial estimate.
Other Fair Value Measurements
Long-term debt and the current portion of long-term debt had a carrying value of $8,767$8,709 million and fair value of $9,078$8,181 million at September 30, 2017March 31, 2023 compared to $8,263$8,331 million and $8,477,$7,625 million, respectively, at December 31, 2016.2022. The fair value of Eaton's debt instruments werewas estimated using prevailing market interest rates on debt with similar creditworthiness, terms and maturities and areis 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
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Note 12. | DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES |
Note 14. 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, is effective 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 lossincome 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 lossincome 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 changecash flows resulting from these financial instruments are classified in fair valueoperating 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 currency exchange contracts and 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). ForeignThe Company uses the spot rate method to assess hedge effectiveness when currency denominated debt designated as non-derivativeexchange contracts are used in net investment hedges. Under this method, changes in the spot exchange rate are recognized in Accumulated other comprehensive loss. Changes related to the forward rate are excluded from the hedging instruments on an after-tax basis was $89 at September 30, 2017relationship and $86 at December 31, 2016, and designatedthe forward points are amortized to Interest expense - net on a pre-taxstraight-line basis was $643 at September 30, 2017 and $572 at December 31, 2016.over the term of the contract. The cash flows resulting from these currency exchange contracts are classified in investing activities on the Condensed Consolidated Statements of Cash Flows.
Derivative Financial Statement Impacts
The fair value of derivative financial instruments recognized in the Condensed Consolidated Balance Sheets is as follows:
| (In millions) | | (In millions) | Notional amount | | Other current assets | | Other noncurrent assets | | Other current liabilities | | Other noncurrent liabilities | | Type of hedge | | Term |
March 31, 2023 | | March 31, 2023 | | | | | | | | | | | | | |
Derivatives designated as hedges | | Derivatives designated as hedges | | | | | | | | | | | |
| | | 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 | | Currency exchange contracts | $ | 1,138 | | | $ | 49 | | | $ | 3 | | | $ | 14 | | | $ | 5 | | | Cash flow | | 1 to 34 months |
Commodity contracts | | Commodity contracts | 48 | | | 4 | | | — | | | 1 | | | — | | | Cash flow | | 1 to 12 months |
Currency exchange contracts | 921 |
| | 4 |
| | 6 |
| | 25 |
| | 5 |
| | Cash flow | | 1 to 36 months | Currency exchange contracts | 587 | | | 1 | | | — | | | — | | | — | | | Net investment | | 3 months |
Total | | | $ | 6 |
| | $ | 62 |
| | $ | 25 |
| | $ | 12 |
| | | | | Total | | | $ | 53 | | | $ | 3 | | | $ | 15 | | | $ | 5 | | | | | |
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Derivatives not designated as hedges | | | | | | | | | | | | | | Derivatives not designated as hedges | | | | | | | | | | | |
Currency exchange contracts | $ | 3,022 |
| | $ | 21 |
| | | | $ | 24 |
| | | | | | 1 to 12 months | Currency exchange contracts | $ | 4,977 | | | $ | 22 | | | $ | 14 | | | | | 1 to 12 months |
| | December 31, 2022 | | December 31, 2022 | | | | | | | | | | | |
Derivatives designated as hedges | | Derivatives designated as hedges | | | | | | | | | | | |
| Currency exchange contracts | | Currency exchange contracts | $ | 1,240 | | | $ | 35 | | | $ | 2 | | | $ | 17 | | | $ | 9 | | | Cash flow | | 1 to 36 months |
Commodity contracts | 1 |
| | — |
| | | | — |
| | | | | | 1 to 12 months | Commodity contracts | 64 | | | 4 | | | — | | | 2 | | | — | | | Cash flow | | 1 to 12 months |
Total | | | $ | 21 |
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| | $ | 24 |
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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 |
| | | | | Total | | | $ | 39 | | | $ | 2 | | | $ | 19 | | | $ | 9 | | | | | |
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Derivatives not designated as hedges | | | | | | | | | | | | | | Derivatives not designated as hedges | | | | | | | | | | | |
Currency exchange contracts | $ | 5,333 |
| | $ | 31 |
| | | | $ | 85 |
| | | | | | 1 to 12 months | Currency exchange contracts | $ | 4,683 | | | $ | 30 | | | $ | 14 | | | | | 1 to 12 months |
Commodity contracts | 10 |
| | 2 |
| | | | — |
| | | | | | 1 to 12 months | |
Total | | | $ | 33 |
| |
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| | $ | 85 |
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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 salesreceivables, payables and loans. While Eaton does not elect hedge accounting treatment for these derivatives, Eaton targets managing 100% of the intercompany balance sheet exposure to minimize the effect of currency volatility related to the movement of goods and services in the normal course of its operations. This activity represents the great majority of these currency exchange contracts. The cash flows resulting from the settlement of these derivatives have been classified in investing activities in the Condensed Consolidated Statements of Cash Flows.
Foreign currency denominated debt designated as non-derivative net investment hedging instruments had a carrying value on an after-tax basis of $3,092 million at March 31, 2023 and $2,711 million at December 31, 2022.
As of March 31, 2023, the volume of outstanding commodity contracts that were entered into to hedge forecasted transactions: | | | | | | | | | | | | | | | | | | | | | | |
Commodity | | March 31, 2023 | | | | | | Term |
Aluminum | | 4 | | | | | Millions of pounds | | 1 to 12 months |
Copper | | 7 | | | | | Millions of pounds | | 1 to 12 months |
Gold | | 1,690 | | | | | Troy ounces | | 1 to 12 months |
Silver | | 510,167 | | | | | Troy ounces | | 1 to 12 months |
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The following amounts were recorded on the Consolidated Balance Sheets related to fixed-to-floating interest rate swaps: | | | | | | | | | | | | | | | | | | | | | | | | | |
(In millions) | Carrying amount of the hedged assets (liabilities) | | Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged asset (liabilities) (a) |
Location on Consolidated Balance Sheets | March 31, 2023 | | | December 31, 2022 | | March 31, 2023 | | December 31, 2022 | |
Long-term debt | $ | (713) | | | | $ | (713) | | | $ | (47) | | | $ | (48) | | |
(a) At March 31, 2023 and December 31, 2022, these amounts include the cumulative liability amount of fair value hedging adjustments remaining for which the hedge accounting has been discontinued of $47 million and $48 million, respectively. The impact of cash flow and fair value hedging activities to the Consolidated Statements of Income is as follows: | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, 2023 |
(In millions) | Net sales | | Cost of products sold | | Interest expense - net | | |
Amounts from Consolidated Statements of Income | $ | 5,483 | | | $ | 3,599 | | | $ | 50 | | | |
| | | | | | | |
Gain (loss) on derivatives designated as cash flow hedges | | | | | | | |
Forward starting floating-to-fixed interest rate swaps | | | | | | | |
Hedged item | $ | — | | | $ | — | | | $ | (3) | | | |
Derivative designated as hedging instrument | — | | | — | | | 3 | | | |
| | | | | | | |
Currency exchange contracts | | | | | | | |
Hedged item | $ | 2 | | | $ | (15) | | | $ | — | | | |
Derivative designated as hedging instrument | (2) | | | 15 | | | — | | | |
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| Three months ended March 31, 2022 |
(In millions) | Net sales | | Cost of products sold | | Interest expense - net | | |
Amounts from Consolidated Statements of Income | $ | 4,843 | | | $ | 3,269 | | | $ | 32 | | | |
| | | | | | | |
Gain (loss) on derivatives designated as cash flow hedges | | | | | | | |
Currency exchange contracts | | | | | | | |
Hedged item | $ | 2 | | | $ | (3) | | | $ | — | | | |
Derivative designated as hedging instrument | (2) | | | 3 | | | — | | | |
| | | | | | | |
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Commodity contracts | | | | | | | |
Hedged item | $ | — | | | $ | (1) | | | $ | — | | | |
Derivative designated as hedging instrument | — | | | 1 | | | — | | | |
| | | | | | | |
| | | | | | | |
Gain (loss) on derivatives designated as fair value hedges | | | | | | | |
Fixed-to-floating interest rate swaps | | | | | | | |
Hedged item | $ | — | | | $ | — | | | $ | 8 | | | |
Derivative designated as hedging instrument | — | | | — | | | (8) | | | |
| | | | | | | |
The impact of derivatives not designated as hedges to the Consolidated Statements of Income is as follows: | | | | | | | | | | | | | | | | | | | |
| Gain (loss) recognized in Consolidated Statements of Income | | | | Consolidated Statements of Income classification |
| Three months ended March 31 | | |
(In millions) | 2023 | | 2022 | | | | |
Gain (loss) on derivatives not designated as hedges | | | | | | | |
Currency exchange contracts | $ | 11 | | | $ | (8) | | | | | Interest expense - net |
Commodity contracts | — | | | 1 | | | | | Other expense (income) - net and Cost of products sold (a) |
Total | $ | 11 | | | $ | (7) | | | | | |
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(a) In the second quarter of 2022, Eaton changed the presentation of gains and losses associated with derivative contracts for commodities that are not designated as hedges from Cost of product sold to Other expense (income) - net on the Consolidated Statements of Income. Prior period amounts have not been reclassified as they are not material. The impact of derivative and non-derivative instruments designated as hedges to the Consolidated StatementStatements of Income and Comprehensive Income follow:is as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| Gain (loss) recognized in other comprehensive income (loss) | | Location of gain (loss) reclassified from Accumulated other comprehensive loss | | Gain (loss) reclassified from Accumulated other comprehensive loss |
| Three months ended March 31 | | | | Three months ended March 31 |
(In millions) | 2023 | | 2022 | | | | 2023 | | 2022 |
Derivatives designated as cash flow hedges | | | | | | | | | |
Forward starting floating-to-fixed interest rate swaps | $ | — | | | $ | 124 | | | Interest expense - net | | $ | 3 | | | $ | — | |
| | | | | | | | | |
Currency exchange contracts | 31 | | | — | | | Net sales and Cost of products sold | | 11 | | | — | |
Commodity contracts | 2 | | | 5 | | | Cost of products sold | | — | | | 1 | |
| | | | | | | | | |
Derivatives designated as net investment hedges | | | | | | | | | |
Currency exchange contracts | | | | | | | | | |
Effective portion | (14) | | | — | | | Gain (loss) on sale of business | | — | | | — | |
Amount excluded from effectiveness testing | 5 | | | — | | | Interest expense - net | | 1 | | | — | |
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Non-derivative designated as net investment hedges | | | | | | | | | |
Foreign currency denominated debt | (63) | | | 62 | | | Gain (loss) on sale of business | | — | | | — | |
Total | $ | (39) | | | $ | 191 | | | | | $ | 15 | | | $ | 1 | |
The pre-tax portion of the fair value of currency exchange contracts designated as net investment hedges included in Accumulated other comprehensive loss were net losses of $14 million at March 31, 2023. The pre-tax portion of the fair value of the forward points included in Accumulated other comprehensive loss were net gains of $4 million at March 31, 2023.
At March 31, 2023, a gain of $38 million 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.
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| | | | | | | | | | | | | | | | | |
| 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 | ) |
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| 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 | ) |
Note 15. RESTRUCTURING CHARGES
Amounts recognizedIn the second quarter of 2020, Eaton initiated a multi-year restructuring program to reduce its cost structure and gain efficiencies in its business segments and at corporate in order to respond to declining market conditions brought on by the COVID-19 pandemic. Since the inception of the program, the Company has incurred charges of $335 million. These restructuring activities are expected to be completed in 2023 with total estimated charges of $350 million cumulatively for the entire program. The remaining charges in 2023 are expected to relate primarily to plant closing and other costs.
A summary of restructuring program charges is as follows: | | | | | | | | | | | | | | | |
| | | Three months ended March 31 |
(In millions except for per share data) | | | | | 2023 | | 2022 |
Workforce reductions | | | | | $ | 2 | | | $ | 5 | |
Plant closing and other | | | | | 7 | | | 13 | |
Total before income taxes | | | | | 10 | | | 18 | |
Income tax benefit | | | | | 2 | | | 4 | |
Total after income taxes | | | | | $ | 8 | | | $ | 14 | |
Per ordinary share - diluted | | | | | $ | 0.02 | | | $ | 0.03 | |
Restructuring program charges related to the following segments: | | | | | | | | | | | | | | | | | | | |
| | | Three months ended March 31 | | |
(In millions) | | | | | 2023 | | 2022 | | | | |
Electrical Americas | | | | | $ | 2 | | | $ | 5 | | | | | |
Electrical Global | | | | | 3 | | | 5 | | | | | |
Aerospace | | | | | 1 | | | 3 | | | | | |
Vehicle | | | | | 2 | | | 3 | | | | | |
| | | | | | | | | | | |
Corporate | | | | | 1 | | | 2 | | | | | |
Total | | | | | $ | 10 | | | $ | 18 | | | | | |
A summary of liabilities related to workforce reductions, plant closing and other associated costs is as follows: | | | | | | | | | | | | | | | | | |
(In millions) | Workforce reductions | | Plant closing and other | | Total |
Balance at January 1, 2020 | $ | — | | | $ | — | | | $ | — | |
Liability recognized | 172 | | | 42 | | | 214 | |
Payments, utilization and translation | (33) | | | (39) | | | (72) | |
Balance at December 31, 2020 | 139 | | | 3 | | | 142 | |
Liability recognized | 21 | | | 57 | | | 78 | |
Payments, utilization and translation | (64) | | | (52) | | | (116) | |
Balance at December 31, 2021 | 96 | | | 8 | | | 104 | |
Liability recognized, net1 | (13) | | | 47 | | | 33 | |
Payments, utilization and translation | (45) | | | (51) | | | (96) | |
Balance at December 31, 2022 | 38 | | | 4 | | | 41 | |
Liability recognized | 2 | | | 7 | | | 10 | |
Payments | (5) | | | (8) | | | (13) | |
Balance at March 31, 2023 | $ | 35 | | | $ | 3 | | | $ | 38 | |
1The restructuring program liability was adjusted by $30 million in 2022 related to true-ups for completed workforce reductions and the decision not to close a facility in the Vehicle segment that was previously included in the program.
These restructuring program charges were included in Cost of products sold, Selling and administrative expense, Research and development expense, or Other income - net, income follow:as appropriate. In Business Segment Information, these restructuring program charges are treated as Corporate items. See Note 16 for additional information about business segments.
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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 | ) |
| $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Gains and losses described above were recognized in Interest expense - net.
|
| | | | | | | |
| 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 |
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Note 16. BUSINESS SEGMENT INFORMATION
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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’sEaton's operating segments are Electrical Products,Americas, Electrical SystemsGlobal, Aerospace, Vehicle, and Services, Hydraulics, Aerospace and Vehicle.eMobility. Operating profit includes the operating profit from intersegment sales. For additional information regarding Eaton’sEaton's business segments, see Note 1517 to the Consolidated Financial Statements contained in the 20162022 Form 10-K. | | | | | | | | | | | | | | | |
| | | Three months ended March 31 |
(In millions) | | | | | 2023 | | 2022 |
Net sales | | | | | | | |
Electrical Americas | | | | | $ | 2,294 | | | $ | 1,891 | |
Electrical Global | | | | | 1,500 | | | 1,437 | |
| | | | | | | |
Aerospace | | | | | 803 | | | 718 | |
Vehicle | | | | | 739 | | | 671 | |
eMobility | | | | | 147 | | | 126 | |
Total net sales | | | | | $ | 5,483 | | | $ | 4,843 | |
| | | | | | | |
Segment operating profit (loss) | | | | | | | |
Electrical Americas | | | | | $ | 525 | | | $ | 361 | |
Electrical Global | | | | | 274 | | | 279 | |
| | | | | | | |
Aerospace | | | | | 180 | | | 159 | |
Vehicle | | | | | 107 | | | 113 | |
eMobility | | | | | (4) | | | (3) | |
Total segment operating profit | | | | | 1,082 | | | 909 | |
| | | | | | | |
Corporate | | | | | | | |
Intangible asset amortization expense | | | | | (124) | | | (128) | |
Interest expense - net | | | | | (50) | | | (32) | |
Pension and other postretirement benefits income | | | | | 11 | | | 19 | |
| | | | | | | |
| | | | | | | |
Restructuring program charges | | | | | (10) | | | (18) | |
Other expense - net | | | | | (148) | | | (131) | |
Income before income taxes | | | | | 762 | | | 619 | |
Income tax expense | | | | | 123 | | | 86 | |
Net income | | | | | 639 | | | 533 | |
Less net income for noncontrolling interests | | | | | (1) | | | (1) | |
Net income attributable to Eaton ordinary shareholders | | | | | $ | 638 | | | $ | 532 | |
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| | | | | | | | | | | | | | | |
| 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 and September 15, 2017, Eaton Corporation registered senior notes under the Securities ActTable of 1933 (the Senior Notes). Eaton and certain other of Eaton's 100% owned direct and indirect subsidiaries (the Guarantors) fully and unconditionally guaranteed (subject, in the case of the Guarantors, other than Eaton, to customary release provisions as described below), on a joint and several basis, the Senior Notes. The following condensed consolidating financial statements are included so that separate financial statements of Eaton, Eaton Corporation and each of the Guarantors are not required to be filed with the Securities and Exchange Commission. The consolidating adjustments primarily relate to eliminations of investments in subsidiaries and intercompany balances and transactions. The condensed consolidating financial statements present investments in subsidiaries using the equity method of accounting.
The guarantee of a Guarantor that is not a parent of the issuer will be automatically and unconditionally released and discharged in the event of any sale of the Guarantor or of all or substantially all of its assets, or in connection with the release or termination of the Guarantor as a guarantor under all other U.S. debt securities or U.S. syndicated credit facilities, subject to limitations set forth in the indenture. The guarantee of a Guarantor that is a direct or indirect parent of the issuer will only be automatically and unconditionally released and discharged in connection with the release or termination of such Guarantor as a guarantor under all other debt securities or syndicated credit facilities (in both cases, U.S. or otherwise), subject to limitations set forth in the indenture.
During 2017 and 2016, the Company undertook certain steps to restructure ownership of various subsidiaries. The transactions were entirely among wholly-owned subsidiaries under the common control of Eaton. This restructuring has been reflected as of the beginning of the earliest period presented below.
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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 |
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ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
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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 |
|
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). Columns and rows may not add and the sum of components may not equal total amounts reported due to rounding.
COMPANY OVERVIEW
Eaton Corporation plc (Eaton or the Company) is aan intelligent power management company with 2016 net salesdedicated to improving the quality of $19.7 billion. The Company provides energy-efficientlife and protecting the environment for people everywhere. We are guided by our commitment to do business right, to operate sustainably and to help our customers manage power – today and well into the future. By capitalizing on the global growth trends of electrification and digitalization, we're accelerating the planet's transition to renewable energy, helping to solve the world's most urgent power management challenges, and doing what's best for our stakeholders and all of society.
Eaton’s businesses are well-positioned to take advantage of secular growth trends related to the energy transition from fossil fuels to renewables. We are responding to these trends by innovating solutions that help its customers effectively managetransform the electrical hydraulic,power value chain, investing in electrical vehicle markets, increasing our focus on electrification, and mechanicalemploying digital technologies for power more efficiently, safely,management. The Company’s innovations are expected to enable the integration of renewables and sustainably.sustainability solutions, with new types of equipment, services, and software. These strategic focus areas are an important part of our response to climate change.
Additionally, over the past several years, Eaton has approximately 96,000 employeescompleted a number of transactions to add higher growth, better margin businesses to its portfolio. These portfolio updates have the Company better aligned with secular growth trends and well positioned for expected further growth. These changes to our portfolio of businesses along with double digit organic sales growth and operational performance has led to 20% growth in over 60 countriesour net income per share in the first quarter of 2023 compared to the first quarter of 2022.
Founded in 1911, 2023 marks Eaton's 100th anniversary of being listed on the New York Stock Exchange. We reported revenues of $20.8 billion in 2022 and sells products toserve customers in more than 175170 countries.
Summary of Results of OperationsPortfolio Changes
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 |
| 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, Eaton sold a 50% interest in its heavy-duty and medium-duty commercial vehicle automated transmission business for $600 in cash to Cummins, Inc. The Company recognized a pre-tax gaincontinues to actively manage its portfolio of $1,077, of which $533businesses to deliver on its strategic objectives. The Company is focused on deploying its capital toward businesses that provide opportunities for above-market growth, strong returns, and align with secular trends and its power management strategies. During 2022 and 2023, Eaton continued to selectively add businesses to strengthen its portfolio.
| | | | | | | | | | | | | | |
Acquisitions of businesses and investments in associate companies | | Date of acquisition | | Business segment |
Royal Power Solutions | | January 5, 2022 | | eMobility |
A manufacturer of high-precision electrical connectivity components used in electric vehicle, energy management, industrial and mobility markets. | | | | |
| | | | |
Jiangsu Huineng Electric Co., Ltd’s circuit breaker business | | July 1, 2022 | | Electrical Global |
| | | | |
A 50 percent stake in Jiangsu Huineng Electric Co., Ltd's circuit breaker business which manufactures and markets low-voltage circuit breakers in China. | | | | |
| | | | |
Jiangsu Ryan Electrical Co. Ltd. | | April 23, 2023 | | Electrical Global |
A 49 percent stake in Jiangsu Ryan Electrical Co. Ltd., a manufacturer of power distribution and sub-transmission transformers in China. | | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Additional information related to the pre-tax gain from the $600 proceeds from the saleacquisitions and $544 related to the Company’s remaining 50% investmentdivestiture of businesses is presented in the joint venture being remeasured to fair value. The after-tax gain was $843. Eaton will account for its investment on the equity methodNote 2.
During 2015, Eaton announced a multi-year restructuring initiative to reduce its cost structure and gain efficiencies in all business segments and at corporate in order to respond to declining market conditions. Restructuring charges in the third quarter and first nine months of 2017 were $22 and $75, respectively, and were $23 and $121 in 2016, respectively. Charges from this initiative are primarily comprised of severance costs. Restructuring charges are anticipated to be $100 in 2017 and incremental savings in 2017 are anticipated to be $155.
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 operatingadjusted earnings operatingand 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 operatingadjusted earnings and operatingadjusted earnings per ordinary share to the most directly comparable GAAP measure is included in the Consolidated Financial Results table below. Operating profit before acquisition integration charges is reconciled in the discussion of the operating results of each business segment, and excludes acquisition integration expense related to integration of Ephesus Lighting, Inc. in 2017 and 2016 and Oxalis Group Ltd. in 2016. Management believes that these financial measures are useful to investors because they exclude certain transactions, allowingprovide additional meaningful financial information that should be considered when assessing our business performance and trends, and they allow 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 acquisitionincurs integration charges see Note 3and transaction costs to acquire and integrate businesses, and transaction, separation and other costs to divest and exit businesses. Eaton also recognizes gains and losses on the sale of businesses. A summary of these Corporate items is as follows: | | | | | | | | | | | | | | | |
| | | Three months ended March 31 |
(In millions except for per share data) | | | | | 2023 | | 2022 |
Acquisition integration, divestiture charges and transaction costs | | | | | $ | 13 | | | $ | 29 | |
Gain on the sale of the Hydraulics business | | | | | — | | | (24) | |
Total before income taxes | | | | | 13 | | | 5 | |
Income tax benefit | | | | | 3 | | | 1 | |
Total after income taxes | | | | | $ | 11 | | | $ | 4 | |
Per ordinary share - diluted | | | | | $ | 0.03 | | | $ | 0.01 | |
Acquisition integration, divestiture charges and transaction costs in 2023 and 2022 are primarily related to the Consolidated Financial Statements.acquisition of Royal Power Solutions and other acquisitions completed prior to 2022, and other charges and income to acquire and exit businesses. These charges were included in Cost of products sold, Selling and administrative expense, Research and development expense, or Other income - net. In Business Segment Information in Note 16, the charges were included in Other expense - net.
Restructuring
In the second quarter of 2020, Eaton initiated a multi-year restructuring program to reduce its cost structure and gain efficiencies in its business segments and at corporate in order to respond to declining market conditions brought on by the COVID-19 pandemic. Since the inception of the program, the Company has incurred charges of $335 million. These restructuring activities are expected to be completed in 2023 with total estimated charges of $350 million cumulatively for the entire program and projected mature year savings of $250 million when fully implemented. The remaining charges in 2023 are expected to relate primarily to plant closing and other costs. Additional information related to this restructuring is presented in Note 15.
Intangible Asset Amortization Expense
Intangible asset amortization expense is as follows: | | | | | | | | | | | | | | | |
| | | Three months ended March 31 |
(In millions except for per share data) | | | | | 2023 | | 2022 |
Intangible asset amortization expense | | | | | $ | 124 | | | $ | 128 | |
Income tax benefit | | | | | 27 | | | 29 | |
Total after income taxes | | | | | $ | 97 | | | $ | 99 | |
Per ordinary share - diluted | | | | | $ | 0.24 | | | $ | 0.25 | |
Consolidated Financial Results | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Three months ended March 31 | | Increase (decrease) |
(In millions except for per share data) | | | | | | 2023 | | 2022 | |
Net sales | | | | | | | $ | 5,483 | | | $ | 4,843 | | | 13 | % |
Gross profit | | | | | | | 1,884 | | | 1,574 | | | 20 | % |
Percent of net sales | | | | | | | 34.4 | % | | 32.5 | % | | |
Income before income taxes | | | | | | | 762 | | | 619 | | | 23 | % |
Net income | | | | | | | 639 | | | 533 | | | 20 | % |
Less net income for noncontrolling interests | | | | | | | (1) | | | (1) | | | |
Net income attributable to Eaton ordinary shareholders | | | | | | | 638 | | | 532 | | | 20 | % |
Excluding acquisition and divestiture charges, after-tax | | | | | | | 11 | | | 4 | | | |
Excluding restructuring program charges, after-tax | | | | | | | 8 | | | 14 | | | |
Excluding intangible asset amortization expense, after-tax | | | | | | | 97 | | | 99 | | | |
Adjusted earnings | | | | | | | $ | 753 | | | $ | 649 | | | 16 | % |
| | | | | | | | | | | |
Net income per share attributable to Eaton ordinary shareholders - diluted | | | | | | | $ | 1.59 | | | $ | 1.33 | | | 20 | % |
Excluding per share impact of acquisition and divestiture charges, after-tax | | | | | | | 0.03 | | | 0.01 | | | |
Excluding per share impact of restructuring program charges, after-tax | | | | | | | 0.02 | | | 0.03 | | | |
Excluding per share impact of intangible asset amortization expense, after-tax | | | | | | | 0.24 | | | 0.25 | | | |
Adjusted earnings per ordinary share | | | | | | | $ | 1.88 | | | $ | 1.62 | | | 16 | % |
|
| | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30 | | Increase (decrease) | | Nine months ended September 30 | | Increase (decrease) |
| 2017 | | 2016 | | | 2017 | | 2016 | |
Net sales | $ | 5,211 |
| | $ | 4,987 |
| | 4.5 | % | | $ | 15,191 |
| | $ | 14,880 |
| | 2 | % |
Gross profit | 1,742 |
| | 1,616 |
| | 8 | % | | 4,962 |
| | 4,799 |
| | 3 | % |
Percent of net sales | 33.4 | % | | 32.4 | % | | | | 32.7 | % | | 32.3 | % | | |
Income before income taxes | 1,691 |
| | 573 |
| | 195 | % | | 2,725 |
| | 1,568 |
| | 74 | % |
Net income | 1,399 |
| | 522 |
| | 168 | % | | 2,347 |
| | 1,417 |
| | 66 | % |
Less net loss (income) for noncontrolling interests | — |
| | 1 |
| | | | (1 | ) | | 1 |
| | |
Net income attributable to Eaton ordinary shareholders | 1,399 |
| | 523 |
| | 167 | % | | 2,346 |
| | 1,418 |
| | 65 | % |
Excluding acquisition integration charges, after-tax (Note 3) | 1 |
| | 1 |
| | | | 2 |
| | 2 |
| | |
Operating earnings | $ | 1,400 |
| | $ | 524 |
| | 167 | % | | $ | 2,348 |
| | $ | 1,420 |
| | 65 | % |
| | | | | | | | | | | |
Net income per share attributable to Eaton ordinary shareholders - diluted | $ | 3.14 |
| | $ | 1.15 |
| | 173 | % | | $ | 5.23 |
| | $ | 3.09 |
| | 69 | % |
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 | % |
Net Sales | | | | | | | | | | | | | | | |
Changes in Net sales are summarized as follows: | | | Three months ended March 31 | | | | | | | | |
| | | 2023 | | | | | | | | |
Organic growth | | | 15 | % | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Foreign currency | | | (2) | % | | | | | | | | |
Total increase (decrease) in Net sales | | | 13 | % | | | | | | | | |
NetOrganic sales increased 4.5%15% in the thirdfirst quarter of 2017 compared to the third quarter of 20162023 due to an increasebroad-based strength in end-markets of 3.5%the Electrical Americas and Electrical Global business segments, strength in organic sales to commercial OEM and an increase of 1%aftermarket in the Aerospace business segment, and higher sales volumes including inflationary pricing recovery for both Vehicle and eMobility business segments.
Gross Profit
Gross profit margin increased from the impact of positive currency translation. Net sales increased 2%32.5% in the first nine monthsquarter of 2017 compared2022 to 34.4% in the first nine monthsquarter of 2016 due to an increase of 2% in organic sales. The increase in organic sales in the third quarter and first nine months of 2017 was2023 primarily due to higher sales volumes in the Electrical Products, Hydraulics,including inflationary pricing recovery. Conversely, wage and Vehicle business segments.
Gross Profit
Gross profit margin increased from 32.4% in the third quarter of 2016 to 33.4% in the third quarter of 2017, and from 32.3% in the first nine months of 2016 to 32.7% in the first nine months of 2017. The increase in gross profit margin was primarily due to higher sales volumes, savings from restructuring actions, and lower restructuring charges, partially offset by commodity inflation, and theoperating inefficiencies had an unfavorable impact of three recent hurricanes and the earthquake in Mexico City.on gross margin, despite offsetting price actions.
Income Taxes
The effective income tax rate for the thirdfirst quarter and first nine months of 20172023 was expense of 17.3% and 13.9%, respectively,16.1% compared to expense of 8.8% and 9.6%13.9% for the thirdfirst quarter and first nine months of 2016. 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.2022. The increase in the effective tax rate in the thirdfirst quarter of 20172023 was primarily due to greater levels of income in higher tax jurisdictions. The decrease in the effective tax rate in the first nine months of 2017 was due to the resolution of tax contingencies in lower tax jurisdictions and a smaller impact from the excess tax benefits recognized for employee share-based payments pursuant toin the adoptionquarter.
Net Income
Net income attributable to Eaton ordinary shareholders of $1,399Changes in the third quarter of 2017 increased 167% compared to Net income attributable to Eaton ordinary shareholders of $523 in the third quarter of 2016. Net income attributable to Eaton ordinary shareholders in the first nine months of 2017 was $2,346, an increase of65% compared to $1,418 in the first nine months of 2016. The increase in the third quarter and first nine months of 2017 was primarily due to the $843 after-tax gain from the sale of business discussed 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 the gain on the sale of business discussed in Note 2. Net income per ordinary share increased to $3.14 in the third quarter of 2017 compared to $1.15 in the third quarter of 2016. Net income 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 the Net income per ordinary share in the third quarter and first nine months of 2017 was due to higher Net income attributable to Eaton ordinary shareholders and the Company's share repurchases over the past year.
Operating Earnings
Operating earnings of $1,400 in the third quarter of 2017 increased 167% compared to Operating earnings of $524 in the third quarter of 2016. Operating earnings in the first nine months of 2017 was $2,348, an increase of 65% compared to $1,420 in the first nine months of 2016. The increase in Operating earnings in the third quarter and the first nine months of 2017 was primarily due to higher Net income per share 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 Operating earnings per ordinary share in the third quarter and first nine months of 2017 was due to higher Operating earnings and the impact of the Company's share repurchases over the past year.shareholders - diluted are summarized as follows: | | | | | | | | | | | |
| Three months ended |
(In millions except for per share data) | Dollars | | Per share |
March 31, 2022 | $ | 532 | | | $ | 1.33 | |
Business segment results of operations | | | |
Performance | 160 | | | 0.40 | |
Foreign currency | (13) | | | (0.03) | |
Corporate | | | |
Intangible asset amortization expense | 2 | | | 0.01 | |
Restructuring program charges | 6 | | | 0.01 | |
Acquisition and divestiture charges | (7) | | | (0.02) | |
Other corporate items | (29) | | | (0.07) | |
Tax rate impact | (13) | | | (0.03) | |
| | | |
March 31, 2023 | $ | 638 | | | $ | 1.59 | |
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 ProductsAmericas
| | | | | | | | | | | | | | | | | Three months ended March 31 | | Increase (decrease) |
| Three months ended September 30 | | Increase (decrease) | | Nine months ended September 30 | | Increase (decrease) | |
| 2017 | | 2016 | | 2017 | | 2016 | | |
(In millions) | | (In millions) | | 2023 | | 2022 | Increase (decrease) | |
Net sales | $ | 1,857 |
| | $ | 1,767 |
| | 5 | % | | $ | 5,371 |
| | $ | 5,231 |
| | 3 | % | Net sales | | $ | 2,294 | | | 21 | % |
| | | | | | | | | | | | | | |
Operating profit | $ | 346 |
| | $ | 331 |
| | 5 | % | | $ | 957 |
| | $ | 924 |
| | 4 | % | Operating profit | | $ | 525 | | | $ | 361 | | | 45 | % |
Operating margin | 18.6 | % | | 18.7 | % | | | | 17.8 | % | | 17.7 | % | | | Operating margin | | 22.9 | % | | 19.1 | % | |
| | | | | | | | | | | | |
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% in the third quarter of 2017 compared to the third quarter of 2016 due to an increase of 4% in organic sales and an increase of 1% from the impact of positive currency translation. Net sales increased 3%21% in the first nine monthsquarter of 20172023 compared to the first nine monthsquarter of 20162022 due to ana 22% increase of 3% in organic sales. Organic sales growthwith a small offset from negative currency translation. The increase in organic sales reflects broad-based strength in end-markets, with particular strength in commercial & institutional, utility, and data center end-markets.
The operating margin increased from 19.1% in the thirdfirst quarter and first nine months of 2017 was driven by growth2022 to 22.9% in the Americasfirst quarter of 2023 primarily due to higher sales volumes including inflationary pricing recovery, partially offset by wage and Europe.commodity inflation.
Electrical Global
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Three months ended March 31 | | Increase (decrease) |
(In millions) | | | | | | 2023 | | 2022 | |
Net sales | | | | | | | $ | 1,500 | | | $ | 1,437 | | | 4 | % |
| | | | | | | | | | | |
Operating profit | | | | | | | $ | 274 | | | $ | 279 | | | (2) | % |
Operating margin | | | | | | | 18.3 | % | | 19.4 | % | | |
| | | | | | | | | | | |
Changes in Net sales are summarized as follows: | | | | | | | | | | | Three months ended March 31 |
| | | | | | | | | | | 2023 |
Organic growth | | | | | | | | | | | 8 | % |
| | | | | | | | | | | |
Divestiture | | | | | | | | | | | (1) | % |
Foreign currency | | | | | | | | | | | (3) | % |
Total increase in Net sales | | | | | | | | | | | 4 | % |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
The increase in organic sales in the first quarter of 2023 was primarily due to strength in utility, data center and distributed IT end-markets.
The operating margin decreased from 18.7%19.4% in the thirdfirst quarter of 20162022 to 18.6%18.3% in the thirdfirst quarter of 20172023 primarily due to operating inefficiencies from ongoing, but improving, supply chain constraints and higher costs to support growth initiatives, partially offset by higher sales volumes including inflationary pricing recovery.
Aerospace
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Three months ended March 31 | | Increase (decrease) |
(In millions) | | | | | | 2023 | | 2022 | |
Net sales | | | | | | | $ | 803 | | | $ | 718 | | | 12 | % |
| | | | | | | | | | | |
Operating profit | | | | | | | $ | 180 | | | $ | 159 | | | 13 | % |
Operating margin | | | | | | | 22.5 | % | | 22.1 | % | | |
| | | | | | | | | | | |
Changes in Net sales are summarized as follows: | | | | | | | | | | | Three months ended March 31 |
| | | | | | | | | | | 2023 |
Organic growth | | | | | | | | | | | 13 | % |
| | | | | | | | | | | |
| | | | | | | | | | | |
Foreign currency | | | | | | | | | | | (1) | % |
Total increase in Net sales | | | | | | | | | | | 12 | % |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
The increase in organic sales in the impactfirst quarter of recent natural disasters2023 was primarily due to strength in sales to commercial OEM and aftermarket.
The operating margin increased from 22.1% in the first quarter of 2022 to 22.5% in the first quarter of 2023 primarily due to higher sales volumes including inflationary pricing recovery, partially offset by commodity and wage inflation.
Vehicle
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Three months ended March 31 | | Increase (decrease) |
(In millions) | | | | | | 2023 | | 2022 | |
Net sales | | | | | | | $ | 739 | | | $ | 671 | | | 10 | % |
| | | | | | | | | | | |
Operating profit | | | | | | | $ | 107 | | | $ | 113 | | | (5) | % |
Operating margin | | | | | | | 14.5 | % | | 16.8 | % | | |
| | | | | | | | | | | |
Changes in Net sales are summarized as follows: | | | | | | | | | | | Three months ended March 31 |
| | | | | | | | | | | 2023 |
Organic growth | | | | | | | | | | | 11 | % |
| | | | | | | | | | | |
| | | | | | | | | | | |
Foreign currency | | | | | | | | | | | (1) | % |
Total increase in Net sales | | | | | | | | | | | 10 | % |
The increase in organic sales in the first quarter of 2023 was primarily due to strength in the North America truck and light vehicle markets, South American truck, bus and agriculture markets, and European light vehicle markets.
The operating margin decreased from 16.8% in the first quarter of 2022 to 14.5% in the first quarter of 2023 primarily due to commodity and wage inflation, and operating inefficiencies, partially offset by higher sales volumes including inflationary pricing recovery.
eMobility
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Three months ended March 31 | | Increase (decrease) |
(In millions) | | | | | | 2023 | | 2022 | |
Net sales | | | | | | | $ | 147 | | | $ | 126 | | | 17 | % |
| | | | | | | | | | | |
Operating loss | | | | | | | $ | (4) | | | $ | (3) | | | (33) | % |
Operating margin | | | | | | | (2.7) | % | | (2.4) | % | | |
| | | | | | | | | | | |
Changes in Net sales are summarized as follows: | | | | | | | | | | | Three months ended March 31 |
| | | | | | | | | | | 2023 |
Organic growth | | | | | | | | | | | 18 | % |
| | | | | | | | | | |
| | | | | | | | | | | |
Foreign currency | | | | | | | | | | | (1) | % |
Total increase in Net sales | | | | | | | | | | | 17 | % |
The increase in organic sales in the first quarter of 2023 was due to strength in North American and European markets primarily due to robust demand for electric vehicles.
The operating margin decreased from negative 2.4% in the first quarter of 2022 to negative 2.7% in the first quarter of 2023 primarily due to manufacturing start-up costs associated with new electric vehicle programs, and wage and commodity inflation, partially offset by higher sales volumes and savings from restructuring actions. Operating margin increased from17.7%including inflationary pricing recovery.
Corporate Expense
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Three months ended March 31 | | Increase (decrease) |
(In millions) | | | | | | 2023 | | 2022 | |
Intangible asset amortization expense | | | | | | | $ | 124 | | | $ | 128 | | | (3) | % |
Interest expense - net | | | | | | | 50 | | | 32 | | | 56 | % |
Pension and other postretirement benefits income | | | | | | | (11) | | | (19) | | | (42) | % |
| | | | | | | | | | | |
| | | | | | | | | | | |
Restructuring program charges | | | | | | | 10 | | | 18 | | | (44) | % |
Other expense - net | | | | | | | 148 | | | 131 | | | 13 | % |
Total corporate expense | | | | | | | $ | 320 | | | $ | 290 | | | 10 | % |
Total corporate expense was $320 million in the first nine monthsquarter of 20162023 compared to 17.8%$290 million in the first nine monthsquarter of 20172022. The increase in Total corporate expense for the first quarter of 2023 was primarily due to higher sales volumes, savings from restructuring actionsInterest expense - net 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 anOther expense - net. The 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 due to a decrease of 2% in organic sales, partially offset by an increase of 1% from the impact of positive currency translation. Net sales decreased 1% in the first nine months of 2017 compared to the first nine months of 2016 due to a decrease of 1% in organic sales. The decrease in organic sales in the third quarter and first nine months of 2017 wasOther expense - net is primarily due to softness in North American assembly markets.
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.
Hydraulics
|
| | | | | | | | | | | | | | | | | | | | | |
| 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.
Aerospace
|
| | | | | | | | | | | | | | | | | | | | | |
| 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 first nine months of 2017 was primarily due to lower sales in military aftermarket, business and regional jets, and lower cost reimbursements2022 gain on certain engineering programs, partially offset by growth in commercial transports.
Operating margin decreased from 20.2% in the third quarter of 2016 to 19.2% in third quarter of 2017 primarily due to unfavorable product mix. Operating margin decreased from 18.9% in the first nine months of 2016 to 18.7% in the first nine months of 2017 primarily due to lower sales volumes and unfavorable product mix, partially offset by savings from restructuring actions.
Vehicle
|
| | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30 | | Increase (decrease) | | Nine months ended September 30 | | Increase (decrease) |
| 2017 | | 2016 | | | 2017 | | 2016 | |
Net sales | $ | 861 |
| | $ | 786 |
| | 10 | % | | $ | 2,495 |
| | $ | 2,412 |
| | 3 | % |
| | | | | | | | | | | |
Operating profit | $ | 150 |
| | $ | 122 |
| | 23 | % | | $ | 397 |
| | $ | 377 |
| | 5 | % |
Operating margin | 17.4 | % | | 15.5 | % | | | | 15.9 | % | | 15.6 | % | | |
Net sales increased 10% in the third quarter of 2017 compared to the third quarter of 2016 due to an increase of 9% 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 of athe Hydraulics business discussed in Note 2. The increase in organic sales in the third quarter
Operating margin increased from 15.5% in the third quarter of 2016 to 17.4% in the third quarter of 2017 primarily due to higher sales volumes. Operating margin increased from 15.6% in the first nine months of 2016 to 15.9% in the first nine months of 2017 primarily due to higher sales volumes, savings from restructuring actions and lower restructuring costs, partially offset by unfavorable product mix and commodity inflation.
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 in the third quarter of 2017 compared to corporate expense of $226 in the third quarter of 2016. Total corporate income was $368 in the first nine months of 2017 compared to corporate expense of $679 in the first nine months of 2016. The change 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 expense - net driven by an increase to the LIFO inventory reserve and higher corporate restructuring expenses.
LIQUIDITY, CAPITAL RESOURCES, AND CHANGES IN FINANCIAL CONDITION
Liquidity and Financial Condition and Liquidity
Eaton’s objective is to finance its business through operating cash flow and an appropriate mix of equity and long-term and short-term debt. By diversifying its debt maturity structure, Eaton reduces liquidity risk.
On March 3, 2023, a subsidiary of Eaton issued Euro denominated notes (2023 Euro Notes) in a private issuance with a face value of €300 million ($318 million). The floating rate notes are due June 3, 2024 with interest payable quarterly based on the three-month Euro Interbank Offered Rate plus 25 basis points. Proceeds from the Euro Notes were used to pay down outstanding U.S. dollar commercial paper. The 2023 Euro Notes are fully and unconditionally guaranteed on an unsubordinated, unsecured basis by Eaton. The 2023 Euro Notes contain a change of control provision which requires the Company to make an offer to purchase all or any part of the 2023 Euro Notes at a purchase price of 100.5% of the principal amount plus accrued and unpaid interest. The 2023 Euro Notes are subject to customary non-financial covenants.
The Company maintains revolving credit facilities consisting of a $500 million 364-day revolving credit facility that will expire on October 2, 2023 and a $2,500 million five-year revolving credit facility that will expire on October 1, 2027. The revolving credit facilities totaling $3,000 million are used to support commercial paper borrowings and are fully and unconditionally guaranteed by Eaton and certain of its direct and indirect subsidiaries on an unsubordinated, unsecured basis. There were no borrowings outstanding under Eaton’s revolving credit facilities at March 31, 2023. The Company maintains access to the commercial paper markets through a $2,000its $3,000 million commercial paper program, of which is supported by credit facilities$59 million was outstanding on March 31, 2023, used primarily to manage fluctuations in working capital.
In 2022, the aggregate principal amountCompany paid $610 million to acquire Royal Power Solutions and received cash of $2,000. There were no borrowings outstanding under these revolving credit facilities at September 30, 2017. $22 million from Danfoss A/S to fully settle all post-closing adjustments from the sale of the Hydraulics business.
Over the course of a year, cash, short-term investments, and short-term debt may fluctuate in order to manage global liquidity. As of March 31, 2023 and December 31, 2022, Eaton had cash of $235 million and $294 million, short-term investments of $289 million and $261 million, and short-term debt of $87 million and $324 million, respectively. Eaton believes it has the operating flexibility, cash flow, cash and short-term investment balances, availability under existing revolving credit facilities, and access to capital markets in excess of the liquidity necessary to meet future operating needs of the business, fund capital expenditures and acquisitions of businesses, as well as scheduled payments of long-term debt.
On September 15, 2017, a subsidiary of Eaton issued senior notes (the Notes) with a face amount of $1,000. The Notes are comprised of two tranches of $700 and $300 which mature in 2027 and 2047, 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.
Sources and UsesCash Flows
A summary of Cashcash flows is as follows: | | | | | | | | | | | | | | | | | |
| Three months ended March 31 | | |
(In millions) | 2023 | | 2022 | | Change from 2022 |
Net cash provided by operating activities | $ | 335 | | | $ | 42 | | | $ | 293 | |
Net cash used in investing activities | (124) | | | (762) | | | 638 | |
Net cash provided by (used in) financing activities | (281) | | | 652 | | | (933) | |
Effect of currency on cash | 11 | | | 8 | | | 3 | |
| | | | | |
Total decrease in cash | $ | (59) | | | $ | (60) | | | |
Operating Cash Flow
Net cash provided by operating activities was $1,787increased by $293 million in the first ninethree months of 2017, a decrease of $145 in the source of cash2023 compared to $1,9322022 primarily due to lower working capital balances and higher net income in the first nine months of 2016. The decrease in net cash provided by operating activities in the first nine months of 2017 was driven by higher pension contributions, including $350 contributed to Eaton's U.S. qualified pension plans,2023, partially offset by a lower increasecash received from the termination of interest rate swaps in working capital.2022.
Investing Cash Flow
Net cash used in investing activities was $435decreased by $638 million in the first ninethree months of 2017, an increase in the use of cash of $642023 compared to $371 in the first nine months of 2016. The increase in the use of cash was2022 primarily driven by an increaseno cash paid for business acquisitions in net purchases of short-term investments of $621 in 20172023 compared to $29cash paid for business acquisitions of $612 million in 2016, partially offset by proceeds2022.
Financing Cash Flow
Net cash used in financing activities was $1,115increased by $933 million in the first ninethree months of 2017, a decrease of $228 in the use of cash2023 compared to $1,3432022 primarily due to net payments of short-term debt of $236 million in 2023 compared to net proceeds of short-term debt of $1,105 million in 2022, partially offset by higher proceeds from borrowings of $318 million in 2023 compared to no proceeds from borrowings in 2022, and no repurchase of shares in 2023 compared to repurchase of shares of $86 million in 2022.
Uses of Cash
Capital Expenditures
Capital expenditures were $126 million and $115 million in the first ninethree months of 2016. The decrease2023 and 2022, respectively. Eaton expects approximately $700 million in capital expenditures in 2023.
Dividends
Cash dividend payments were $334 million and $320 million in the usefirst three months of 2023 and 2022, respectively. Payment of quarterly dividends in the future depends upon the Company’s ability to generate net income and operating cash was primarilyflows, among other factors, and is subject to declaration by the Eaton Board of Directors. The Company intends to continue to pay quarterly dividends in 2023.
Share Repurchases
On February 27, 2019, the Board of Directors adopted a share repurchase program for share repurchases up to $5.0 billion of ordinary shares (2019 Program). On February 23, 2022, the Board renewed the 2019 Program by providing authority for up to $5.0 billion in repurchases to be made during the three-year period commencing on that date (2022 Program). Under the 2022 Program, the ordinary shares are expected to be repurchased over time, depending on market conditions, the market price of ordinary shares, capital levels, and other considerations. During the three months ended March 31, 2023, no ordinary shares were repurchased. During the three months ended March 31, 2022, 0.6 million ordinary shares were repurchased under the 2022 program in the open market at a total cost of $86 million. At March 31, 2023, there is $4,714 million still available for share repurchases under the 2022 Program. The Company will continue to pursue share repurchases in 2023 depending on market conditions and capital levels.
Acquisition of Businesses
The Company paid cash of $612 million to acquire a business in the first three months of 2022. There were no business acquisitions in the first three months of 2023. The Company will continue to focus on deploying its capital toward businesses that provide opportunities for higher growth and strong returns, and align with secular trends and its power management strategies.
Debt
The Company manages a number of short-term and long-term debt instruments, including commercial paper. At March 31, 2023, the Company had Short-term debt of $87 million, Current portion of long-term debt of $8 million, and Long-term debt of $8,701 million.
Supply Chain Finance Program
A third-party financial institution offers a voluntary supply chain finance (SCF) program that enables certain of the Company’s suppliers, at the supplier’s sole discretion, to sell receivables due from the Company to the financial institution on terms directly negotiated with the financial institution. The SCF program does not have a significant impact on the Company’s liquidity as payments by the Company to participating suppliers are paid to the financial institution on the invoice due date, regardless of whether an individual invoice is sold by the supplier to the financial institution. For additional information on the SCF program, see Note 7.
Guaranteed Debt
Issuers, Guarantors and Guarantor Structure
Eaton Corporation has issued senior notes pursuant to indentures dated April 1, 1994 (the 1994 Indenture), November 20, 2012 (the 2012 Indenture), September 15, 2017 (the 2017 Indenture) and August 23, 2022 (as supplemented by the First and Second Supplemental Indentures of the same date, the 2022 Indenture). The senior notes of Eaton Corporation are registered under the Securities Act of 1933, as amended (the Registered Senior Notes). Eaton Capital Unlimited Company, a subsidiary of Eaton, is the issuer of five outstanding series of debt securities sold in offshore transactions under Regulation S promulgated under the Securities Act (the Eurobonds). 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 (with limited exceptions, for example, see Note 8 of the Financial Statements included herewith), together with the credit facilities described above under Liquidity and Financial Condition (the Credit Facilities), are guaranteed by Eaton and 17 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 March 31, 2023, 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-K filed on February 23, 2023 (10-K Exhibit 22) 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 the 10-K 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.
Though the terms of the indentures vary slightly, generally, each guarantee of the Registered Senior Notes by a guarantor that is a subsidiary of Eaton Corporation provides that it will be automatically and unconditionally released and discharged under certain circumstances, including, but not limited to:
(a)the consummation of certain types of transactions permitted under the applicable indenture, including one that results in such guarantor ceasing to be a subsidiary; and
(b)for Registered Senior Notes issued under the 2022 Indenture, when such guarantor is a guarantor or issuer of indebtedness in an aggregate outstanding principal amount of less than 25% of our total outstanding indebtedness.
Further, each guarantee by a direct or indirect parent of Eaton Corporation (other than Eaton) provides that it will also be released if:
(c)such guarantee (so long as the guarantor is not obligated under any other U.S. debt obligations), becomes prohibited by any applicable law, rule or regulation or by any contractual obligation; or
(d)such guarantee results 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).
The guarantee of Eaton does not contain any release provisions.
Future Guarantors
The 2012 and 2017 Indentures generally provide that, with certain limited exceptions, any subsidiary of Eaton must become a guarantor if it becomes obligated as borrower or guarantor under any series of debt securities or a syndicated credit facility. Further, the 2012 and 2017 Indentures provide that 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 2022 Indenture provides only that, with certain limited exceptions, any subsidiary of Eaton must become a guarantor if it becomes obligated as borrower or guarantor under indebtedness with an aggregate outstanding principal amount in excess of 25% of the Parent and its Subsidiaries' then-outstanding indebtedness.
The 1994 Indenture does not contain provisions with respect to future guarantors.
Summarized Financial Information of Guarantors and Issuers | | | | | | | | | | | | | | |
(In millions) | | March 31, 2023 | | December 31, 2022 |
Current assets | | $ | 3,206 | | | $ | 3,363 | |
Noncurrent assets | | 12,919 | | | 12,938 | |
Current liabilities | | 2,634 | | | 2,948 | |
Noncurrent liabilities | | 10,378 | | | 10,047 | |
Amounts due to subsidiaries that are non-issuers and non-guarantors - net | | 16,565 | | | 16,285 | |
| | | | |
(In millions) | | | | Three months ended March 31, 2023 |
Net sales | | | | $ | 3,144 | |
Sales to subsidiaries that are non-issuers and non-guarantors | | | | 256 | |
Cost of products sold | | | | 2,505 | |
Expense from subsidiaries that are non-issuers and non-guarantors - net | | | | 164 | |
Net income | | | | 28 | |
The financial information presented is that of Eaton Corporation and the Guarantors, which includes Eaton Corporation plc, on a combined basis and the financial information of non-issuer and non-guarantor subsidiaries has been excluded. Intercompany balances and transactions between Eaton Corporation and Guarantors have been eliminated, and amounts due from, amounts due to, an increase of $367 in proceeds from borrowings which totaled $1,000 in 2017 and $633 in 2016,transactions with non-issuer and a decrease of $113 in payments on borrowings which totaled $553 in 2017 and $666 in 2016. This was partially offset by a $222 increase in share repurchases during the first nine months of 2017 compared to the first nine months of 2016.non-guarantor subsidiaries have been presented separately.
FORWARD-LOOKING STATEMENTS
This Form 10-Q Report contains forward-looking statements concerning our acquisition strategy, litigation, expected pension contributions,capital expenditures, future dividend payments, anticipated stockshare repurchases, the impact of the adoption of ASU 2014-09, and the costsexpected restructuring program charges and benefits of restructuring actions, among other matters.benefits. 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 implementationcourse of ASU 2014-09,the COVID-19 pandemic, including government responses thereto and the rate of global economic recovery therefrom; 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; supply chain disruptions, competitive pressures on sales and pricing; unanticipated changes in the cost of material, labor and other production costs, or unexpected costs that cannot be recouped in product pricing; the introduction of competing technologies; unexpected technical or marketing difficulties; unexpected claims, charges, litigation or dispute resolutions; strikes or other labor unrest; the impact of acquisitions and divestitures; unanticipated difficulties integrating acquisitions; new laws and governmental regulations; interest rate changes; tax rate changes or exposure to additional income tax liability; stock market and currency fluctuations; war, natural disasters, civil or political unrest or terrorism; and unanticipated deterioration of economic and financial conditions in the United States and around the world. Eaton does not assume any obligation to update these forward-looking statements.
| |
ITEM 3.ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
There have been no material changes in exposures to market risk since December 31, 2016.2022.
| |
ITEM 4.CONTROLS AND PROCEDURES. 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. FearonThomas B. Okray - 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.March 31, 2023.
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 thirdfirst quarter of 2017,2023, there was no change in Eaton’s internal control over financial reporting that materially affected, or is reasonably likely to materially affect, internal control over financial reporting.
PART II — OTHER INFORMATION
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ITEM 1.ITEM 1.LEGAL PROCEEDINGS. | LEGAL PROCEEDINGS. |
Information regarding the Company's current legal proceedings is presented in Note 810 of the Notes to the Condensed Consolidated Financial Statements.condensed consolidated financial statements.
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ITEM 1A.ITEM 1A.RISK FACTORS. | RISK FACTORS. |
“Item 1A. Risk Factors” in Eaton's 20162022 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 20162022 Form 10-K.
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
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ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. |
(c) Issuer's Purchases of Equity Securities
During the thirdfirst quarter of 2017, 4.4 million ordinary2023, there were no shares were repurchased in the open market at a total costrepurchased.
ITEM 6.EXHIBITS.
Eaton Corporation plc
First Quarter 2023 Report on February 24, 2016. A summary of the shares repurchased in the third quarter of 2017 follows:Form 10-Q
|
| | | | | | | | | | | | | | |
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 |
| | |
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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.
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.
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| | | | |
| | | 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
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3 (i) | | | |
3 (i) | | |
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3 (ii) | | |
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4.1 | | |
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4.2 | | |
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4.24.3 | | |
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4.34.4 | | |
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4.44.5 | | |
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4.6 | | |
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4.7 | | |
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4.8 | | |
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4.9 | | |
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4.10 | | |
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4.11 | | 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 |
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1210.1 | | Ratio5-Year Revolving Credit Agreement, dated as of EarningsOctober 3, 2022, among Eaton Corporation, the guarantors from time to Fixed Charges — Filed in conjunction with this Form 10-Q Report *time party thereto, the several lenders from time to time parties thereto, Citibank, N.A., as Administrative Agent, Citibank, N.A., JPMorgan Chase Bank, N.A. and BofA Securities, Inc. as joint lead arrangers and joint bookrunners, JPMorgan Chase Bank, N.A., as syndication agent and Bank of America, N.A. as documentation agent. |
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31.110.2 | | 364-Day Revolving Credit Agreement, dated as of October 3, 2022, among Eaton Corporation, the guarantors from time to time party thereto, the several lenders from time to time parties thereto, Citibank, N.A., as Administrative Agent, Citibank, N.A., JPMorgan Chase Bank, N.A. and BofA Securities, Inc., as joint lead arrangers and joint bookrunners, JPMorgan Chase Bank, N.A., as syndication agent and Bank of America, N.A. as documentation agent. |
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31.1 | | |
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31.2 | | |
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32.1 | | |
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32.2 | | |
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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. * |
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101.SCH | | XBRL Taxonomy Extension Schema Document * |
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101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document * |
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101.DEF | | XBRL Taxonomy Extension Label Definition Document * |
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101.LAB | | XBRL Taxonomy Extension Label Linkbase Document * |
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101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document * |
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*104 | | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
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* | | Submitted electronically herewith. |
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 areto 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.
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| | | EATON CORPORATION plc | |
| | | Registrant | |
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Date: | May 2, 2023 | By: | /s/ Thomas B. Okray | |
| | | Thomas B. Okray | |
| | | Principal Financial Officer |
| | | (On behalf of the registrant and as Principal Financial Officer) |