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, 2019~~March 31, 2020

Commission file number 000-54863

EATON CORPORATION plc

(Exact name of registrant as specified in its charter)



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

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



			+353	1637 2900
	(Registrant's telephone number, including area code)

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


Securities registered pursuant to Section 12(b) of the Act:

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 ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 ☑ No ☐

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



Large ~~accelerated filer~~Accelerated Filer	☑	Accelerated filer	☐	Non-accelerated filer	☐
Smaller reporting company	☐	Emerging growth company	☐	(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. ☐

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

There were ~~413.4~~400.0 million Ordinary Shares outstanding as of ~~September 30, 2019~~March 31, 2020.

PART I — FINANCIAL INFORMATION


ITEM 1.	FINANCIAL STATEMENTS.

EATON CORPORATION plc

CONSOLIDATED STATEMENTS OF INCOME


	Three months ended September 30					Nine months ended September 30					Three months ended March 31
(In millions except for per share data)	2019			2018		2019			2018		2020		2019
Net sales	$	5,314		$	5,412	$	16,152		$	16,150	$	4,789	$	5,305

Cost of products sold	3,512			3,597		10,782			10,841		3,302		3,573
Selling and administrative expense	885			889		2,709			2,679		865		917
Research and development expense	147			138		454			439		153		156
Interest expense - net	54			67		183			205		34		60
Arbitration decision expense	—			275		—			275
Other (income) expense - net	(2		)	7		(35		)	13
Gain on sale of business											221		—
Other expense (income) - net											35		(4		)
Income before income taxes	718			439		2,059			1,698		621		603
Income tax expense	116			23		299			184		183		81
Net income	602			416		1,760			1,514		438		522
Less net income for noncontrolling interests	(1		)	—		(1		)	—		—		—
Net income attributable to Eaton ordinary shareholders	$	601		$	416	$	1,759		$	1,514	$	438	$	522

Net income per share attributable to Eaton ordinary shareholders
Diluted	$	1.44		$	0.95	$	4.16		$	3.45	$	1.07	$	1.23
Basic	1.44			0.96		4.18			3.47		1.07		1.23

Weighted-average number of ordinary shares outstanding
Diluted	418.4			436.3		422.5			438.4		411.1		425.9
Basic	416.6			433.5		420.7			435.8		409.3		424.0

Cash dividends declared per ordinary share	$	0.71		$	0.66	$	2.13		$	1.98	$	0.73	$	0.71

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

EATON CORPORATION plc

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


	Three months ended September 30						Nine months ended September 30						Three months ended March 31
(In millions)	2019			2018			2019			2018			2020			2019
Net income	$	602		$	416		$	1,760		$	1,514		$	438		$	522
Less net income for noncontrolling interests	(1		)	—			(1		)	—			—			—
Net income attributable to Eaton ordinary shareholders	601			416			1,759			1,514			438			522

Other comprehensive (loss) income, net of tax
Other comprehensive income (loss), net of tax
Currency translation and related hedging instruments	(252		)	(132		)	(235		)	(546		)	(609		)	53
Pensions and other postretirement benefits	35			40			88			122			86			21
Cash flow hedges	(42		)	(6		)	(75		)	(2		)	(153		)	(7		)
Other comprehensive loss attributable to Eaton ordinary shareholders	(259		)	(98		)	(222		)	(426		)
Other comprehensive income (loss) attributable to Eaton ordinary shareholders													(676		)	67

Total comprehensive income attributable to Eaton ordinary shareholders	$	342		$	318		$	1,537		$	1,088
Total comprehensive income (loss) attributable to Eaton ordinary shareholders													$	(238	)	$	589

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

EATON CORPORATION plc

CONSOLIDATED BALANCE SHEETS


(In millions)	September 30, 2019			December 31, 2018			March 31, 2020			December 31, 2019
Assets
Current assets
Cash	$	549		$	283		$	239		$	370
Short-term investments	281			157			178			221
Accounts receivable - net	3,787			3,858			2,951			3,437
Inventory	2,901			2,785			2,346			2,805
Assets held for sale							2,440			1,377
Prepaid expenses and other current assets	494			507			516			518
Total current assets	8,012			7,590			8,670			8,728

Property, plant and equipment
Land and buildings	2,436			2,466			2,081			2,440
Machinery and equipment	6,257			6,106			5,215			6,266
Gross property, plant and equipment	8,693			8,572			7,296			8,706
Accumulated depreciation	(5,210		)	(5,105		)	(4,357		)	(5,210		)
Net property, plant and equipment	3,483			3,467			2,939			3,496

Other noncurrent assets
Goodwill	13,337			13,328			12,397			13,456
Other intangible assets	4,657			4,846			4,319			4,638
Operating lease assets	444			—			434			436
Deferred income taxes	294			293			346			372
Other assets	1,668			1,568			1,740			1,679
Total assets	$	31,895		$	31,092		$	30,845		$	32,805

Liabilities and shareholders’ equity
Current liabilities
Short-term debt	$	2		$	414		$	337		$	255
Current portion of long-term debt	6			339			250			248
Accounts payable	2,290			2,130			1,785			2,114
Accrued compensation	421			457			274			449
Liabilities held for sale							458			325
Other current liabilities	1,942			1,814			1,840			1,741
Total current liabilities	4,661			5,154			4,944			5,132

Noncurrent liabilities
Long-term debt	8,013			6,768			7,842			7,819
Pension liabilities	1,239			1,304			1,324			1,462
Other postretirement benefits liabilities	322			321			322			328
Operating lease liabilities	333			—			334			331
Deferred income taxes	309			349			354			396
Other noncurrent liabilities	1,118			1,054			1,437			1,204
Total noncurrent liabilities	11,334			9,796			11,613			11,540

Shareholders’ equity
Ordinary shares (413.4 million outstanding in 2019 and 423.6 million in 2018)	4			4
Ordinary shares (400.0 million outstanding in 2020 and 413.3 million in 2019)							4			4
Capital in excess of par value	12,151			12,090			12,203			12,200
Retained earnings	8,062			8,161			7,007			8,170
Accumulated other comprehensive loss	(4,367		)	(4,145		)	(4,966		)	(4,290		)
Shares held in trust	(2		)	(3		)	(3		)	(2		)
Total Eaton shareholders’ equity	15,848			16,107			14,245			16,082
Noncontrolling interests	52			35			43			51
Total equity	15,900			16,142			14,288			16,133
Total liabilities and equity	$	31,895		$	31,092		$	30,845		$	32,805

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

EATON CORPORATION plc

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Nine months ended September 30						Three months ended March 31
(In millions)	2019			2018			2020			2019
Operating activities
Net income	$	1,760		$	1,514		$	438		$	522
Adjustments to reconcile to net cash provided by operating activities
Depreciation and amortization	668			680			199			221
Deferred income taxes	(71		)	(211		)	(16		)	(3		)
Pension and other postretirement benefits expense	115			123			54			36
Contributions to pension plans	(89		)	(99		)	(38		)	(39		)
Contributions to other postretirement benefits plans	(11		)	(26		)	(4		)	(5		)
Gain on sale of business							(91		)	—
Changes in working capital	6			62			(246		)	(198		)
Other - net	136			(205		)	27			17
Net cash provided by operating activities	2,514			1,838			323			551

Investing activities
Capital expenditures for property, plant and equipment	(441		)	(411		)	(112		)	(149		)
Proceeds from sale of business							1,402			—
Cash paid for acquisitions of businesses, net of cash acquired	(277		)	—			(195		)	—
Sales (purchases) of short-term investments - net	(132		)	329
Sales of short-term investments - net							30			16
Proceeds (payments) for settlement of currency exchange contracts not designated as hedges - net	26			(122		)	(16		)	51
Other - net	(8		)	(52		)	(9		)	14
Net cash used in investing activities	(832		)	(256		)
Net cash provided by (used in) investing activities							1,100			(68		)

Financing activities
Proceeds from borrowings	1,232			80			83			342
Payments on borrowings	(757		)	(486		)	(4		)	(315		)
Cash dividends paid	(907		)	(864		)	(291		)	(302		)
Exercise of employee stock options	40			28			14			20
Repurchase of shares	(978		)	(600		)	(1,300		)	(180		)
Employee taxes paid from shares withheld	(45		)	(24		)	(29		)	(35		)
Other - net	(8		)	(2		)	(3		)	(1		)
Net cash used in financing activities	(1,423		)	(1,868		)	(1,530		)	(471		)

Effect of currency on cash	7			52			(23		)	8
Total increase (decrease) in cash	266			(234		)
Less: Increase in cash classified as held for sale							(1		)	—
Increase (decrease) in cash							(131		)	20
Cash at the beginning of the period	283			561			370			283
Cash at the end of the period	$	549		$	327		$	239		$	303

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).


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 ~~2018~~2019 Form 10-K. The interim period results are not necessarily indicative of the results to be expected for the full year. Management has evaluated subsequent events through the date this Form 10-Q was filed with the Securities and Exchange Commission.

~~Leases~~During the first quarter of 2020, Eaton re-segmented certain reportable operating segments due to a reorganization of the Company's businesses. The new reportable segments are Electrical Americas and Electrical Global, which include the legacy Electrical Products and Electrical Systems and Services segments. Additionally, the Filtration and Golf Grip businesses previously included in the Hydraulics segment, and the electrical aerospace connectors business previously included in the Electrical Products segment, have been added to the Aerospace reportable segment as part of the reorganization. Previously reported financial information for these reportable segments has been updated for 2018 and 2019 in Note 13.

The Company ~~determines if an arrangement is~~recorded $6 of net gains for the quarter ended March 31, 2019 related primarily to the remeasurement of intercompany loans denominated in a ~~lease at inception. Operating lease assets~~foreign currency and ~~liabilities are recognized at~~ the ~~commencement date~~currency exchange derivative contracts used to hedge these exposures. In the first quarter of 2020, Eaton changed the presentation of these gains from Other (income) expense - net to Interest expense - net, and reclassified all prior periods to conform to the current year presentation.

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

The non-cash gains and losses associated with currency exchange derivative contracts have been moved from Changes in working capital to Other-net. This puts the non-cash impact of these derivatives on the ~~present value of lease payments over~~same line as the ~~lease term. Lease assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising~~non-cash impact from the ~~lease. As most leases do not provide an implicit interest rate, Eaton uses its incremental borrowing rate based~~balance sheet currency exposures they are used to hedge.

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

These cash flow reclassifications have been made to prior period amounts to conform to the lease commencement date in determining the present value of lease payments. The length of a lease term includes options to extend or terminate the lease when it is reasonably certain that the Company will exercise those options. The Company made an accounting policy election to not recognize lease assets or liabilities for leases with a term of 12 months or less. Additionally, when accounting for leases, the Company combines payments for leased assets, related services and other components of a lease.current year presentation as follows:



	Three months ended March 31, 2019
Condensed Consolidated Statements of Cash Flows	As originally reported			As adjusted			Effect of change
Changes in working capital	$	(306	)	$	(198	)	$	108
Other - net	125			17			(108		)
Net cash provided by operating activities	551			551			—

Adoption of New Accounting ~~Standards~~Standard

Eaton adopted Accounting Standard Update ~~2016-02, Leases~~2016-13, Financial Instruments - Credit Losses (Topic ~~842), and related amendments,~~326): Measurement of Credit Losses on Financial Instruments, in the first quarter of ~~2019 using the optional transition method and has not restated prior periods.~~2020. This standard introduces new guidance for accounting for credit losses on receivables. The Company elected to use the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the carry forward of historical lease classification of existing leases. The Company recordeddid not recognize a cumulative-effect adjustment ~~of less than $1~~ to retained earnings as of January 1, ~~2019. Additionally,~~2020, as the adoption of ~~the new standard resulted in the recording of lease assets and lease liabilities for operating leases of $435 and $446,~~ ~~respectively,~~ ~~as of January 1, 2019. The adoption of the~~this standard did not have a material impact to the Condensed Consolidated ~~Statements of Income or Cash Flows.~~

Eaton adopted Accounting Standard Update 2017-12, Derivatives and Hedging (Topic 815) - Targeted Improvements to Accounting for Hedging Activities, in the first quarter 2019 using the modified retrospective approach for hedge instruments that existed at the date of adoption. ASU 2017-12 is intended to better align the Company's risk management activities with financial reporting for hedging relationships. The standard eliminates the requirement to separately measure and report hedge ineffectiveness, expands the ability to hedge specific risk components, and generally requires the change in value of the hedge instrument and hedged item to be presented in the same income statement line. The new disclosure requirements were applied on a prospective basis and comparative information has not been restated. The adoption of the standard did not have a material impact on the consolidated financial statements.Financial Statements.


Note 2.	ACQUISITIONS AND DIVESTITURES OF BUSINESSES

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

On April 15, 2019, Eaton completed the acquisition of an 82.275% controlling interest in Ulusoy Elektrik Imalat Taahhut ve Ticaret A.S. (Ulusoy Elektrik), a leading manufacturer of electrical switchgear based in Ankara, Turkey, with a primary focus on medium-voltage solutions for industrial and utility customers. Its sales for the 12 months ended September 30, 2018 were $126. The purchase price for the shares ~~is approximately~~was $214 on a cash and debt free basis. As required by the Turkish capital markets legislation, Eaton filed an application to execute a mandatory tender offer for the remaining shares shortly after the transaction closed. During the tender offer, Eaton purchased additional shares for $33 through July 2019 to increase its ownership interest to 93.7%. Ulusoy Elektrik is reported within the Electrical ~~Systems and Services~~Global business segment.

Acquisition of Innovative Switchgear Solutions, Inc.

On July 19, 2019, Eaton acquired Innovative Switchgear Solutions, Inc. (ISG), a specialty manufacturer of medium-voltage electrical equipment serving the North American utility, commercial and industrial markets. Its 2018 sales were approximately $18. ISG ~~will be~~is reported within the Electrical ~~Systems and Services~~Americas business segment.

~~Agreement to acquire~~Acquisition of Souriau-Sunbank Connection Technologies

On ~~July 22,~~December 20, 2019, Eaton ~~committed to acquire~~acquired the Souriau-Sunbank Connection Technologies (Souriau-Sunbank) business of TransDigm Group Inc. for ~~$920.~~a cash purchase price of $906, net of cash received. Headquartered in Versailles, France, Souriau-Sunbank is a global leader in highly engineered electrical interconnect solutions for harsh environments in the aerospace, defense, industrial, energy, and transport markets. Its sales for the 12 months ended June 30, 2019 were $363. Souriau-Sunbank is reported within the Aerospace business segment.

The acquisition of Souriau-Sunbank has been accounted for using the acquisition method of accounting which requires the assets acquired and liabilities assumed be recognized at their respective fair values on the acquisition date. The table below summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed on the acquisition date, as well as measurement period adjustments recorded as of March 31, 2020. These preliminary estimates will continue to be revised during the measurement period as third-party valuations are received and finalized, further information becomes available and additional analyses are performed, and these differences could have a material impact on Eaton's preliminary purchase ~~agreement was signed~~price allocation. The current measurement period adjustments did not have a material impact to the Consolidated Statements of Income.



	Preliminary Allocation			Measurement Period Adjustments		Adjusted Preliminary Allocation
Accounts Receivables	$	60		$	—	$	60
Inventory	121			—		121
Prepaid expenses and other current assets	5			—		5
Property, plant and equipment	101			—		101
Other intangible assets	385			—		385
Other assets	8			—		8
Accounts payable	(34		)	—		(34		)
Other current liabilities	(51		)	1		(50		)
Other noncurrent liabilities	(130		)	—		(130		)
Total identifiable net assets	465			1		466
Noncontrolling interests	(4		)	—		(4		)
Goodwill	442			2		444
Total consideration, net of cash received	$	903		$	3	$	906

Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the anticipated synergies of acquiring Souriau-Sunbank. Goodwill recognized as a result of the acquisition is not deductible for tax purposes. Other intangible assets of $385 are expected to include customer relationships, trademarks and technology. Given the timing of the acquisition, Eaton utilized a benchmarking approach based on ~~October 28, 2019.~~similar acquisitions to determine the preliminary fair values for intangible assets. See Note 6 for additional information about goodwill.

Eaton’s 2020 Condensed Consolidated Financial Statements include Souriau-Sunbank’s results of operations. Souriau-Sunbank’s sales in the first quarter were $85.

Sale of Automotive Fluid Conveyance business

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

Acquisition of Power Distribution, Inc.

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

Sale of Lighting business

On March ~~1, 2019,~~2, 2020, Eaton ~~announced it plans to pursue a tax-free spin-off of its Lighting business. On October 15, 2019, Eaton entered into an agreement to sell~~sold its Lighting business to Signify N.V. for a cash purchase price of $1.4 billion. The ~~decision to sell the Lighting business comes after completing~~Company recognized a ~~comprehensive review~~pre-tax gain of ~~various potential transaction alternatives.~~$221. The Lighting business, which had sales of ~~$1.7~~$1.6 billion in ~~2018~~2019 as part of the Electrical ~~Products~~Americas business segment, serves customers in commercial, industrial, residential, and municipal markets.

Pending sale of Hydraulics business

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

Assets and liabilities held for sale

During the fourth quarter of 2019 and first quarter of ~~2020.~~

~~Plan~~2020, the Company determined the Lighting business and Hydraulics business, respectively, met the criteria to ~~divest Automotive Fluid Conveyance~~be classified as held for sale. Therefore, assets and liabilities of these businesses have been presented as held for sale in the Consolidated Balance Sheets as of December 31, 2019 and March 31, 2020, respectively. Assets and liabilities classified as held for sale are measured at the lower of carrying value or fair value less costs to sell. There was no write-down as fair values of both the Lighting business

~~On March 1, 2019, Eaton announced it plans~~ and Hydraulics business assets less their costs to sell ~~its Automotive Fluid Conveyance business.~~exceeded their respective carrying values. Depreciation and amortization expense is not recorded for the period in which Other long-lived assets are classified as held for sale.


~~Note 3.~~	~~ACQUISITION INTEGRATION AND DIVESTITURE CHARGES~~

~~Eaton incurs integration charges related~~The Company used the relative fair value method to ~~acquired businesses,~~allocate goodwill to both the Lighting and ~~transaction and other charges to divest and exit~~Hydraulics businesses. ~~A summary of these charges follows:~~

Three months ended
September 30 Nine months ended
September 30
2019 2018 2019 2018
Electrical Products $ 4
$ —
$ 6
$ —
Electrical Systems and Services 3
—
4
—
Corporate 32
—
55
—
Total acquisition integration and divestiture charges before income tax 39
—
65
—
Income taxes 4
—
5
—
Total after income taxes $ 35
$ —
$ 60
$ —
Per ordinary share - diluted $ 0.08
$ —
$ 0.14
$ —

~~Business segment charges in 2019 related to the planned divestiture~~The fair values of the Lighting business and ~~the acquisitions of Ulusoy Elektrik and ISG, and~~Hydraulics business were ~~included in Cost of products sold, Selling and administrative expense or Research and development expense. In Business Segment Information, the charges reduced Operating profit~~estimated based on a combination of the ~~related~~prices paid to Eaton by Signify N.V. and Danfoss A/S, respectively, and a discounted cash flow model. The model includes estimates of future cash flows, future growth rates, terminal value amounts, and the applicable weighted-average cost of capital used to discount those estimated cash flows. The weighted-average cost of capital is an estimate of the overall after-tax rate of return required by equity and debt market holders of a business ~~segment.~~enterprise. These analyses require the exercise of judgments, including judgments about appropriate discount rates, perpetual growth rates, revenue growth, and margin assumptions.

~~Corporate charges in 2019 are primarily related to the planned divestiture of~~The assets and liabilities classified as held for sale for the Lighting business on the December 31, 2019 Consolidated Balance Sheet and ~~other charges~~the Hydraulics business on the March 31, 2020 Consolidated Balance Sheet are as follows:



	March 31, 2020		December 31, 2019
	(Hydraulics business)		(Lighting business)
Cash	$	1	$	—
Accounts receivable - net	361		220
Inventory	412		161
Prepaid expenses and other current assets	3		10
Net property, plant and equipment	443		155
Goodwill	908		470
Other intangible assets	250		330
Operating lease assets	46		25
Deferred income taxes	3		—
Other noncurrent assets	13		6
Assets held for sale - current	$	2,440	$	1,377

Accounts payable	$	221	$	184
Accrued compensation	25		7
Other current liabilities	110		102
Pension liabilities	69		3
Operating lease liabilities	30		17
Deferred income taxes	3		(1		)
Other noncurrent liabilities	—		13
Liabilities held for sale - current	$	458	$	325

The Lighting business and Hydraulics business did not meet the criteria to ~~exit businesses, and were included in Selling and administrative expense and Other (income) expense-net. In Business Segment Information,~~be classified as discontinued operations as neither of these sales represent a strategic shift that will have a major effect on the ~~charges were included in Other corporate expense - net.~~

~~See Note 15 for additional information about business segments.~~Company's operations.


Note 4.3.	REVENUE RECOGNITION

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

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

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

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

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

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

In the Vehicle segment, sales contracts are primarily for drivetrains, powertrain systems and critical components that reduce emissions and improve fuel economy, stability, performance, and safety of cars, light trucks and commercial vehicles. These sales contracts are primarily based on a customer’s purchase order or a blanket purchase order subject to firm releases, frequently covered by terms and conditions included in a master supply agreement. In this segment, performance obligations are generally satisfied at a point in time either when we ship the product from our facility, or when it arrives at the customer’s facility.

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

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

The Company’s 6 operating segments and the following tables disaggregate sales by lines of businesses, geographic destination, market channel or end market.

Three months ended September 30, 2019
Net sales United States Rest of World Total
Electrical Products $ 1,073
$ 713
$ 1,786
Electrical Systems and Services 1,034
538
1,572
Hydraulics 267
336
603

Original Equipment Manufacturers Aftermarket, Distribution and End User
Aerospace $ 298
$ 215
513

Commercial Passenger and Light Duty
Vehicle $ 371
$ 390
761

eMobility 79

Total $ 5,314

Three months ended September 30, 2018
Net sales United States Rest of World Total
Electrical Products $ 1,055
$ 734
$ 1,789
Electrical Systems and Services 1,000
519
1,519
Hydraulics 301
369
670

Original Equipment Manufacturers Aftermarket, Distribution and End User
Aerospace $ 269
$ 209
478

Commercial Passenger and Light Duty
Vehicle $ 451
$ 425
876

eMobility 80

Total $ 5,412


	Nine months ended September 30, 2019						Three months ended March 31, 2020
Net sales	United States		Rest of World		Total				Products		Systems		Total
Electrical Products	$	3,235	$	2,160	$	5,395
Electrical Systems and Services	3,059		1,559		4,618
Electrical Americas									$	724	$	1,064	$	1,788
Electrical Global									657		487		1,144

									United States		Rest of World
Hydraulics	863		1,124		1,987				$	227	$	280	507

	Original Equipment Manufacturers		Aftermarket, Distribution and End User				Original Equipment Manufacturers		Aftermarket		Industrial and Other
Aerospace	$	884	$	648	1,532		$	325	$	220	$	135	680

	Commercial		Passenger and Light Duty						Commercial		Passenger and Light Duty
Vehicle	$	1,227	$	1,147	2,374				$	292	$	306	598

eMobility					246								72

Total					$	16,152							$	4,789


	Nine months ended September 30, 2018						Three months ended March 31, 2019
Net sales	United States		Rest of World		Total				Products		Systems		Total
Electrical Products	$	3,048	$	2,279	$	5,327
Electrical Systems and Services	2,877		1,536		4,413
Electrical Americas									$	905	$	1,056	$	1,961
Electrical Global									696		546		1,242

									United States		Rest of World
Hydraulics	907		1,196		2,103				$	266	$	339	605

	Original Equipment Manufacturers		Aftermarket, Distribution and End User				Original Equipment Manufacturers		Aftermarket		Industrial and Other
Aerospace	$	799	$	600	1,399		$	290	$	211	$	103	604

	Commercial		Passenger and Light Duty						Commercial		Passenger and Light Duty
Vehicle	$	1,333	$	1,335	2,668				$	431	$	379	810

eMobility					240								83

Total					$	16,150							$	5,305

The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (revenue recognized exceeds amount billed to the customer), and deferred revenue (advance payments and billings in excess of revenue recognized). Accounts receivables from customers were ~~$3,384~~$2,669 and ~~$3,402~~$3,090 at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. Amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals or upon achievement of contractual milestones. These assets and liabilities are reported on the Consolidated Balance Sheets on a contract-by-contract basis at the end of each reporting period. Unbilled receivables were ~~$104~~$96 and ~~$94~~$101 at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively, and are recorded in Prepaid expenses and other current assets. The ~~increase~~decrease in unbilled receivables was primarily due to billings to customers during the quarter, partially offset by revenue recognized and not yet ~~billed, partially offset by billings to customers during the quarter.~~

billed.

Changes in the deferred revenue liabilities are as follows:


	Deferred Revenue			Deferred Revenue
Balance at December 31, 2018	$	248
Balance at January 1, 2020				$	234
Customer deposits and billings	680			245
Revenue recognized in the period	(683		)	(240		)
Translation	1			(4		)
Balance at September 30, 2019	$	246
Deferred revenue reclassified to held for sale				(11		)
Balance at March 31, 2020				$	224


	Deferred Revenue			Deferred Revenue
Balance at January 1, 2018	$	227
Balance at January 1, 2019				$	248
Customer deposits and billings	696			208
Revenue recognized in the period	(676		)	(205		)
Translation	(6		)	6
Balance at September 30, 2018	$	241
Balance at March 31, 2019				$	257

A significant portion of open orders placed with Eaton are by original equipment manufacturers or distributors. These open orders are not considered firm as they have been historically subject to releases by customers. In measuring backlog of unsatisfied or partially satisfied obligations, only the amount of orders to which customers are firmly committed are included. Using this criterion, total backlog at ~~September 30, 2019 and December~~March 31, ~~2018~~2020 was approximately $5.4 ~~billion and $5.3 billion, respectively.~~billion. At ~~September 30, 2019 and December~~March 31, ~~2018,~~2020, Eaton expects to recognize approximately ~~86% and~~ 87%~~, respectively,~~ of this backlog in the next twelve months and the rest thereafter.

Note 4. CREDIT LOSSES FOR RECEIVABLES

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

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

Accounts receivable are net of an allowance for credit losses of $46 and $49 at March 31, 2020 and December 31, 2019. The change in the allowance for credit losses includes expense and net write-offs, none of which is significant.

Note 5. INVENTORY

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



	March 31, 2020		December 31, 2019
Raw materials	$	821	$	986
Work-in-process	605		640
Finished goods	920		1,179
Total inventory	$	2,346	$	2,805


Note 5.6.	GOODWILL

Change in the carrying amount of goodwill by segment follows:


	December 31, 2018		Additions		Translation			September 30, 2019		January 1, 2020		Additions		Goodwill reclassified to held for sale			Translation			March 31, 2020
Electrical Products	$	6,562	$	—	$	(97	)	$	6,465
Electrical Systems and Services	4,241		164		(29		)	4,376
Electrical Americas										$	6,352	$	89	$	—		$	(39	)	$	6,402
Electrical Global										4,106		3		—			(164		)	3,945
Hydraulics	1,212		—		(23		)	1,189		921		—		(908		)	(13		)	—
Aerospace	941		—		(3		)	938		1,706		2		—			(26		)	1,682
Vehicle	292		—		(3		)	289		291		—		—			(3		)	288
eMobility	80		—		—			80		80		—		—			—			80
Total	$	13,328	$	164	$	(155	)	$	13,337	$	13,456	$	94	$	(908	)	$	(245	)	$	12,397

During the first quarter of 2020, Eaton re-segmented certain reportable operating segments due to a reorganization of the Company's businesses. The ~~2019~~Company used the relative fair value method to reallocate goodwill to the associated reporting units impacted by the reorganization. The Company’s reporting units are equivalent to the reportable operating segments, except for the Aerospace segment which has 2 reporting units.

The fair values of the Electrical Americas and Electrical Global reportable segments were estimated based on a discounted cash flow model. The model includes estimates of future cash flows, future growth rates, terminal value amounts, and the applicable weighted-average cost of capital used to discount those estimated cash flows. The weighted-average cost of capital is an estimate of the overall after-tax rate of return required by equity and debt market holders of a business enterprise. These analyses require the exercise of judgments, including judgments about appropriate discount rates, perpetual growth rates, revenue growth, and margin assumptions.

The fair value of the Hydraulics reportable segment was estimated based on a combination of the price paid to Eaton by Danfoss A/S and a discounted cash flow model. See Note 2 for additional information about the allocation of goodwill to the Hydraulics reportable segment.

The Filtration and Golf Grip businesses previously included in the Hydraulics reportable segment, and the electrical aerospace connectors business previously included in the Electrical Products segment, have been added to the Aerospace segment as part of the reorganization.

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

The 2020 additions to goodwill relate to the anticipated synergies of acquiring ~~Ulusoy Elektrik and ISG.~~Power Distribution, Inc. The ~~allocations~~allocation of the purchase price from ~~these acquisitions are~~this acquisition is preliminary and will be completed during the measurement period.


~~Note 6.~~	~~LEASES~~

Eaton leases certain manufacturing facilities, warehouses, distribution centers, office space, vehicles and equipment. Most real estate leases contain renewal options. The exercise of lease renewal options is at the Company's sole discretion. The Company's lease agreements typically do not contain any significant guarantees of asset values at the end of a lease or restrictive covenants. Payments within certain lease agreements are adjusted periodically for changes in an index or rate.

~~The components of lease expense follows:~~

Three months ended September 30, 2019 Nine months ended September 30, 2019
Operating lease cost $ 41
$ 119
Finance lease cost:
Amortization of lease assets 1
3
Interest on lease liabilities —
1
Short-term lease cost 13
40
Variable lease cost 6
17
Sublease income (1 ) (3 )
Total lease cost $ 60
$ 177

~~The net gain recorded on sale leaseback transactions for the nine months ended September 30, 2019 was $16.~~

~~Supplemental cash flow information related to leases follows:~~

Nine months ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows - payments on operating leases $ (118 )
Operating cash outflows - interest payments on finance leases (1 )
Financing cash outflows - payments on finance lease obligations (3 )

Lease assets obtained in exchange for new lease obligations:
Operating leases $ 95
Finance leases 17

~~Supplemental balance sheet information related to leases follows:~~

September 30, 2019
Operating Leases
Operating lease assets $ 444

Other current liabilities 124
Operating lease liabilities 333
Total operating lease liabilities $ 457

Finance Leases
Land and buildings $ 16
Machinery and equipment 17
Accumulated depreciation (14 )
Net property, plant and equipment $ 19

Current portion of long-term debt $ 6
Long-term debt 14
Total finance lease liabilities $ 20

Weighted-average remaining lease term
Operating leases 5.1 years
Finance leases 3.6 years

Weighted-average discount rate
Operating leases 3.6 %
Finance leases 5.9 %

~~Maturities of lease liabilities at September 30, 2019 follows:~~

Operating Leases Finance Leases
2019 $ 40
$ 2
2020 137
7
2021 106
6
2022 75
4
2023 50
3
Thereafter 105
1
Total lease payments $ 513
$ 23
Less imputed interest 56
3
Total present value of lease liabilities $ 457
$ 20

A summary of minimum rental commitments at December 31, 2018 under noncancelable operating leases, which expire at various dates and in most cases contain renewal options, for each of the next five years and thereafter in the aggregate, follow:

Operating Leases
2019 $ 165
2020 133
2021 106
2022 75
2023 53
Thereafter 110
Total lease commitments $ 642


~~Note 7.~~	~~DEBT~~

On May 14, 2019, a subsidiary of Eaton issued euro denominated notes (2019 Euro Notes) with a face value of €1,100 ($1,232 based on the May 14, 2019 spot rate), in accordance with Regulation S promulgated under the Securities Act of 1933, as amended. The 2019 Euro Notes are comprised of two tranches of €600 and €500, which mature in 2021 and 2025, respectively, with interest payable annually at a respective rate of 0.02% and 0.70%. The issuer received proceeds totaling €1,097 ($1,229 based on the May 14, 2019 spot rate) from the issuance, net of financing costs and discounts. The 2019 Euro Notes are fully and unconditionally guaranteed on an unsubordinated, unsecured basis by Eaton and certain of its direct and indirect subsidiaries. The 2019 Euro Notes contain customary optional redemption and par call provisions. The 2019 Euro Notes also contain a change of control provision which requires the Company to make an offer to purchase all or any part of the 2019 Euro Notes at a purchase price of 101% of the principal amount plus accrued and unpaid interest. The capitalized deferred financing fees are amortized in Interest expense-net over the respective terms of the 2019 Euro Notes. The 2019 Euro Notes are subject to customary non-financial covenants.

Note 8.7. RETIREMENT BENEFITS PLANS

The components of retirement benefits expense follow:

United States
pension benefit expense Non-United States
pension benefit expense Other postretirement
benefits expense
Three months ended September 30
2019 2018 2019 2018 2019 2018
Service cost $ 22
$ 25
$ 14
$ 16
$ —
$ 1
Interest cost 35
30
13
13
3
3
Expected return on plan assets (59 ) (63 ) (25 ) (27 ) —
—
Amortization 15
24
10
9
(3 ) (4 )
13
16
12
11
—
—
Settlements, curtailments and special termination benefits 13
13
2
1
—
—
Total expense $ 26
$ 29
$ 14
$ 12
$ —
$ —

United States
pension benefit expense Non-United States
pension benefit expense Other postretirement
benefits expense
Nine months ended September 30
2019 2018 2019 2018 2019 2018
Service cost $ 68
$ 75
$ 43
$ 48
$ 1
$ 2
Interest cost 103
91
42
40
10
10
Expected return on plan assets (176 ) (190 ) (79 ) (80 ) (1 ) (2 )
Amortization 46
71
29
29
(10 ) (10 )
41
47
35
37
—
—
Settlements, curtailments and special termination benefits 36
38
3
1
—
—
Total expense $ 77
$ 85
$ 38
$ 38
$ —
$ —



	United States pension benefit expense						Non-United States pension benefit expense						Other postretirement benefits expense
	Three months ended March 31
	2020			2019			2020			2019			2020			2019
Service cost	$	24		$	23		$	18		$	14		$	—		$	—
Interest cost	26			34			11			15			2			3
Expected return on plan assets	(57		)	(58		)	(27		)	(27		)	—			—
Amortization	25			15			15			10			(3		)	(3		)
	18			14			17			12			(1		)	—
Settlements, curtailments and special termination benefits	17			10			3			—			—			—
Total expense	$	35		$	24		$	20		$	12		$	(1	)	$	—

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


Note 9.8.	LEGAL CONTINGENCIES

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

In December 2011, Pepsi-Cola Metropolitan Bottling Company, Inc. (“Pepsi”) filed an action against (a) Cooper Industries, LLC, Cooper Industries, Ltd., Cooper Holdings, Ltd., Cooper US, Inc., and Cooper Industries plc (collectively, “Cooper”), (b) M&F Worldwide Corp., Mafco Worldwide Corp., Mafco Consolidated Group LLC, and PCT International Holdings, Inc. (collectively, “Mafco”), and (c) the Pneumo Abex Asbestos Claims Settlement Trust (the “Trust”) in Texas state court. Pepsi alleged that it was harmed by a 2011 settlement agreement (“2011 Settlement”) among Cooper, Mafco, and Pneumo Abex, LLC (“Pneumo,” which prior to the 2011 Settlement was a Mafco subsidiary), which settlement resolved litigation that Pneumo had previously brought against Cooper involving, among other things, a guaranty related to Pneumo’s friction products business. In November 2015, after a Texas court ruled that Pepsi's claims should be heard in arbitration, Pepsi filed a demand for arbitration against Cooper, Mafco, the Trust, and Pneumo. Pepsi subsequently dropped claims against all parties except Cooper. An arbitration under the auspices of the American Arbitration Association commenced in October 2017. Pepsi’s experts opined, among other things, that the value contributed to the Trust for a release of the guaranty was below reasonably equivalent value, and that an inability of Pneumo to satisfy future liabilities could result in plaintiffs suing Pepsi under various theories. Cooper submitted various expert reports and, among other things, Cooper’s experts opined that Pepsi had no basis to seek any damages and that Cooper paid reasonably equivalent value for the release of its indemnity obligations under the guaranty. The arbitration proceedings closed in December 2017. On July 11, 2018, the arbitration panel made certain findings and concluded that the value contributed to the Trust did not constitute reasonably equivalent value, but ordered the parties to recalculate the amount that should have been contributed to the Trust as of the date of the 2011 transaction. Based on the findings made by the panel and the recalculation ordered by the panel, Cooper believed that no additional amount should be contributed. Pepsi argued that an additional $347 should be contributed. Cooper and its expert disagreed with Pepsi’s argument and believed that Pepsi’s recalculation was flawed and failed to comply with the instructions of the panel. On August 23, 2018, the panel issued its final award and ordered Cooper to pay $293 to Pneumo Abex. On August 30, 2018, Pepsi sought to confirm the award in Texas state court, which Cooper opposed on October 9, 2018. Cooper further requested that the court vacate the award on various grounds, including that Cooper was prejudiced by the conduct of the proceedings, the panel exceeded its powers, and because the panel denied Cooper a full and fair opportunity to present certain evidence. The court confirmed the award at the confirmation hearing, which was held on October 12, 2018. On November 2, 2018, the Company appealed. On November 28, 2018, the Company paid $297, the full judgment plus accrued post-judgment interest, to Pneumo Abex and preserved its rights, including to appeal. On April 25, 2019, the appeal that Cooper filed was dismissed.


Note ~~10.~~9.	INCOME TAXES

The effective income tax rate for the ~~third~~first quarter ~~and the first nine months~~ of ~~2019~~2020 was expense of ~~16.0% and 14.5%~~29.5% compared to expense of ~~5.2% and 10.8%~~13.5% for the ~~third~~first quarter ~~and first nine months~~ of ~~2018.~~2019. The increase in the effective tax rate in the ~~third~~first quarter ~~and first nine months~~ of ~~2019~~2020 was primarily due to the ~~inclusion of $69 of~~ tax ~~benefit~~impact on the ~~arbitration decision expense recorded during~~gain from the ~~third quarter~~sale of ~~2018 (discussed~~the Lighting business described in Note ~~9), as well as greater levels of income in higher tax jurisdictions.~~2.

As the Company has previously disclosed, Eaton's United States subsidiaries ("Eaton US") received a Notice in 2014 from the Internal Revenue Service ("IRS") for tax years 2007 through 2010 which included proposed assessments involving two issues: the recognition of income for several of Eaton US's controlled foreign corporations, and transfer pricing adjustments for products manufactured in the Company's facilities in Puerto Rico and the Dominican Republic and sold to affiliated companies located in the United States. The Company believed the proposed assessments were without merit and contested both matters in the United States Tax Court ("Tax Court"). Eaton US and the IRS both moved for partial summary judgment on the controlled foreign corporation income recognition issue. The Tax Court heard oral arguments on the motions in January 2018, following which the Court ordered further briefing, which was completed in March 2018. On February 25, 2019, the Tax Court granted the IRS's motion for partial summary judgment and denied Eaton's. The Company intends to appeal the Tax Court's partial summary judgment decision to the United States Sixth Circuit Court of Appeals. The Company believes that it will be successful on appeal and has not recorded any additional impact of the Tax Court's decision in its consolidated financial statements. As previously disclosed, the transfer pricing issue included in the Notice remains unresolved at this point. The total potential impact of the Tax Court's partial summary judgment decision on the controlled foreign corporation income recognition issue is not estimable until all matters in the open tax years have been resolved.

Note ~~11.~~10. EQUITY

On February 24, 2016, the Board of Directors adopted a share repurchase program for share repurchases up to $2,500 of ordinary shares (2016 Program). During the nine months ended September 30, 2018, 7.7 million ordinary shares were repurchased under the 2016 Program in the open market at a total cost of $600. No ordinary shares were repurchased during the three months ended September 30, 2018. On February 27, 2019, the Board of Directors adopted a ~~new~~ share repurchase program for share repurchases up to $5,000 of ordinary shares (2019 Program). Under the 2019 Program, the ordinary shares are expected to be repurchased over time, depending on market conditions, the market price of ordinary shares, capital levels, and other considerations. During the ~~three~~first quarter of 2020 and ~~nine months ended September 30,~~ 2019, ~~6.8~~14.2 million and ~~11.9~~1.9 million ordinary shares, respectively, were repurchased under the 2019 Program in the open market at a total cost of ~~$539~~$1,300 and ~~$949,~~$150, respectively.

The changes in Shareholders’ equity follow:



	Ordinary shares				Capital in excess of par value		Retained earnings			Accumulated other comprehensive loss			Shares held in trust			Total Eaton shareholders' equity			Noncontrolling interests			Total equity
	Ordinary shares
(In millions)	Shares		Dollars
Balance at January 1, 2020	413.3		$	4	$	12,200	$	8,170		$	(4,290	)	$	(2	)	$	16,082		$	51		$	16,133
Net income	—		—		—		438			—			—			438			—			438
Other comprehensive loss, net of tax										(676		)				(676		)	—			(676		)
Cash dividends paid and accrued	—		—		—		(300		)	—			—			(300		)	(5		)	(305		)
Issuance of shares under equity-based compensation plans	0.9		—		3		(1		)	—			(1		)	1			—			1
Changes in noncontrolling interest of consolidated subsidiaries - net	—		—		—		—			—			—			—			(3		)	(3		)
Repurchase of shares	(14.2	)	—		—		(1,300		)	—			—			(1,300		)	—			(1,300		)
Balance at March 31, 2020	400.0		$	4	$	12,203	$	7,007		$	(4,966	)	$	(3	)	$	14,245		$	43		$	14,288

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 December 31, 2018 423.6
$ 4
$ 12,090
$ 8,161
$ (4,145 ) $ (3 ) $ 16,107
$ 35
$ 16,142
Net income —
—
—
522
—
—
522
—
522
Other comprehensive income, net of tax 67
67
—
67
Cash dividends paid and accrued —
—
—
(309 ) —
—
(309 ) (1 ) (310 )
Issuance of shares under equity-based compensation plans 1.4
—
(5 ) 1
—
—
(4 ) —
(4 )
Repurchase of shares (1.9 ) —
—
(150 ) —
—
(150 ) —
(150 )
Balance at March 31, 2019 423.1
$ 4
$ 12,085
$ 8,225
$ (4,078 ) $ (3 ) $ 16,233
$ 34
$ 16,267
Net income —
—
—
636
—
—
636
—
636
Other comprehensive loss, net of tax (30 ) (30 ) (30 )
Cash dividends paid —
—
—
(300 ) —
—
(300 ) (1 ) (301 )
Issuance of shares under equity-based compensation plans 0.1
—
27
(1 ) —
1
27
—
27
Acquisition of a business —
—
—
—
—
—
—
51
51
Acquisition of noncontrolling interest obtained through tender offer —
—
—
—
—
—
—
(29 ) (29 )
Repurchase of Shares (3.2 ) —
—
(260 ) —
—
(260 ) —
(260 )
Balance at June 30, 2019 420.0
$ 4
$ 12,112
$ 8,300
$ (4,108 ) $ (2 ) $ 16,306
$ 55
$ 16,361
Net income —
—
—
601
—
—
601
1
602
Other comprehensive loss, net of tax (259 ) (259 ) (259 )
Cash dividends paid —
—
—
(298 ) —
—
(298 ) —
(298 )
Issuance of shares under equity-based compensation plans 0.2
—
39
(2 ) —
—
37
—
37
Acquisition of noncontrolling interest obtained through tender offer —
—
—
—
—
—
—
(4 ) (4 )
Repurchase of Shares (6.8 ) —
—
(539 ) —
—
(539 ) —
(539 )
Balance at September 30, 2019 413.4
$ 4
$ 12,151
$ 8,062
$ (4,367 ) $ (2 ) $ 15,848
$ 52
$ 15,900



	Ordinary shares				Capital in excess of par value			Retained earnings			Accumulated other comprehensive loss			Shares held in trust			Total Eaton shareholders' equity			Noncontrolling interests			Total equity
	Ordinary shares
(In millions)	Shares		Dollars
Balance at January 1, 2019	423.6		$	4	$	12,090		$	8,161		$	(4,145	)	$	(3	)	$	16,107		$	35		$	16,142
Net income	—		—		—			522			—			—			522			—			522
Other comprehensive income, net of tax											67						67			—			67
Cash dividends paid and accrued	—		—		—			(309		)	—			—			(309		)	(1		)	(310		)
Issuance of shares under equity-based compensation plans	1.4		—		(5		)	1			—			—			(4		)	—			(4		)
Repurchase of shares	(1.9	)	—		—			(150		)	—			—			(150		)	—			(150		)
Balance at March 31, 2019	423.1		$	4	$	12,085		$	8,225		$	(4,078	)	$	(3	)	$	16,233		$	34		$	16,267

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 December 31, 2017 439.9
$ 4
$ 11,987
$ 8,669
$ (3,404 ) $ (3 ) $ 17,253
$ 37
$ 17,290
Cumulative-effect adjustment upon adoption of ASU 2014-09 —
—
—
(2 ) —
—
(2 ) —
(2 )
Cumulative-effect adjustment upon adoption of ASU 2016-16 —
—
—
(199 ) —
—
(199 ) —
(199 )
Net income —
—
—
488
—
—
488
(1 ) 487
Other comprehensive income, net of tax

296

296
—
296
Cash dividends paid and accrued —
—
—
(290 ) —
—
(290 ) —
(290 )
Issuance of shares under equity-based compensation plans 1.1
—
18
(1 ) —
—
17
—
17
Changes in noncontrolling interest of consolidated subsidiaries - net —
—
—
—
—
—
—
2
2
Repurchase of shares (3.7 ) —
—
(300 ) —
—
(300 ) —
(300 )
Balance at March 31, 2018 437.3
$ 4
$ 12,005
$ 8,365
$ (3,108 ) $ (3 ) $ 17,263
$ 38
$ 17,301
Net income —
—
—
610
—
—
610
1
611
Other comprehensive loss, net of tax —
(624 ) (624 ) (624 )
Cash dividends paid —
—
—
(288 ) —
—
(288 ) (1 ) (289 )
Issuance of shares under equity-based compensation plans —
—
28
—
—
1
29
—
29
Changes in noncontrolling interest of consolidated subsidiaries - net —
—
—
—
—
—
—
(3 ) (3 )
Repurchase of Shares (4.0 ) —
—
(300 ) —
—
(300 ) —
(300 )
Balance at June 30, 2018 433.3
$ 4
$ 12,033
$ 8,387
$ (3,732 ) $ (2 ) $ 16,690
$ 35
$ 16,725
Net income —
—
—
416
—
—
416
—
416
Other comprehensive loss, net of tax

(98 ) —
(98 ) —
(98 )
Cash dividends paid —
—
—
(286 ) —
—
(286 ) —
(286 )
Issuance of shares under equity-based compensation plans 0.1
—
33
—
—
(1 ) 32
—
32
Balance at September 30, 2018 433.4
$ 4
$ 12,066
$ 8,517
$ (3,830 ) $ (3 ) $ 16,754
$ 35
$ 16,789

The changes in Accumulated other comprehensive loss follow:


	Currency translation and related hedging instruments			Pensions and other postretirement benefits			Cash flow hedges			Total			Currency translation and related hedging instruments			Pensions and other postretirement benefits			Cash flow hedges			Total
Balance at December 31, 2018	$	(2,864	)	$	(1,278	)	$	(3	)	$	(4,145	)
Balance at January 1, 2020													$	(2,848	)	$	(1,408	)	$	(34	)	$	(4,290	)
Other comprehensive (loss) income before reclassifications	(235		)	7			(72		)	(300		)	(646		)	41			(151		)	(756		)
Amounts reclassified from Accumulated other comprehensive loss	—			81			(3		)	78			37			45			(2		)	80
Net current-period Other comprehensive (loss) income	(235		)	88			(75		)	(222		)	(609		)	86			(153		)	(676		)
Balance at September 30, 2019	$	(3,099	)	$	(1,190	)	$	(78	)	$	(4,367	)
Balance at March 31, 2020													$	(3,457	)	$	(1,322	)	$	(187	)	$	(4,966	)

The reclassifications out of Accumulated other comprehensive loss follow:


						Three months ended March 31, 2020				Consolidated statements of income classification
Currency translation losses
Sale of business						$	(37	)		Gain on sale of business
Tax expense						—
Total, net of tax						(37		)
	Nine months ended September 30, 2019				Consolidated statements of income classification
Amortization of defined benefit pensions and other postretirement benefits items
Actuarial loss and prior service cost	$	(104	)	¹		(57		)	¹
Tax benefit	23					12
Total, net of tax	(81		)			(45		)

Gains and (losses) on cash flow hedges
Currency exchange contracts	4				Net sales and Cost of products sold	3				Net sales and Cost of products sold
Tax expense	(1		)			(1		)
Total, net of tax	3					2

Total reclassifications for the period	$	(78	)			$	(80	)

¹ These components of Accumulated other comprehensive loss are included in the computation of net periodic benefit cost. See Note 87 for additional information about pension and other postretirement benefits items.

Net Income Per Share Attributable to Eaton Ordinary Shareholders

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


	Three months ended September 30				Nine months ended September 30				Three months ended March 31
(Shares in millions)	2019		2018		2019		2018		2020		2019
Net income attributable to Eaton ordinary shareholders	$	601	$	416	$	1,759	$	1,514	$	438	$	522

Weighted-average number of ordinary shares outstanding - diluted	418.4		436.3		422.5		438.4		411.1		425.9
Less dilutive effect of equity-based compensation	1.8		2.8		1.8		2.6		1.8		1.9
Weighted-average number of ordinary shares outstanding - basic	416.6		433.5		420.7		435.8		409.3		424.0

Net income per share attributable to Eaton ordinary shareholders
Diluted	$	1.44	$	0.95	$	4.16	$	3.45	$	1.07	$	1.23
Basic	1.44		0.96		4.18		3.47		1.07		1.23

For the ~~third~~first quarter of 2020 and ~~first nine months of~~ 2019, ~~0.8~~0.3 million and 1.1 million stock options, respectively, were excluded from the calculation of diluted net income per share attributable to Eaton ordinary shareholders because the exercise price of the options exceeded the average market price of the ordinary shares during the period and their effect, accordingly, would have been antidilutive. For the third quarter and first nine months of 2018, 0.5 million and 0.41.6 million stock options, respectively, were excluded from the calculation of diluted net income per share attributable to Eaton ordinary shareholders because the exercise price of the options exceeded the average market price of the ordinary shares during the period and their effect, accordingly, would have been antidilutive.


Note ~~12.~~11.	FAIR VALUE MEASUREMENTS

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

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


	Total			Level 1		Level 2			Level 3		Total			Level 1		Level 2			Level 3
September 30, 2019
March 31, 2020
Cash	$	549		$	549	$	—		$	—	$	239		$	239	$	—		$	—
Short-term investments	281			281		—			—		178			178		—			—
Net derivative contracts	(52		)	—		(52		)	—		(206		)	—		(206		)	—

December 31, 2018
December 31, 2019
Cash	$	283		$	283	$	—		$	—	$	370		$	370	$	—		$	—
Short-term investments	157			157		—			—		221			221		—			—
Net derivative contracts	14			—		14			—		53			—		53			—

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

Other Fair Value Measurements

Long-term debt and the current portion of long-term debt had a carrying value of ~~$8,019~~$8,092 and fair value of ~~$8,600~~$8,383 at ~~September 30, 2019~~March 31, 2020 compared to ~~$7,107~~$8,067 and ~~$7,061,~~$8,638, respectively, at December 31, ~~2018.~~2019. The fair value of Eaton's debt instruments were estimated using prevailing market interest rates on debt with similar creditworthiness, terms and maturities, and are considered a Level 2 fair value measurement.


Note ~~13.~~12.	DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

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

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

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

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

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

The gain or loss from a derivative financial instrument designated as a hedge is classified in the same line of the Consolidated Statements of Income as the offsetting loss or gain on the hedged item. The cash flows resulting from these financial instruments are classified in operating activities on the Condensed Consolidated Statements of Cash Flows.

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

Eaton uses certain of its debt denominated in foreign currency to hedge portions of its net investments in foreign operations against foreign currency exposure (net investment hedges). Foreign currency denominated debt designated as a non-derivative net investment hedging instrument had a carrying value on ~~a pre-tax~~an after-tax basis of ~~$1,788~~$1,802 at ~~September 30, 2019~~March 31, 2020 and ~~$623~~$1,845 at December 31, ~~2018.~~2019.

Derivative Financial Statement Impacts

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


	Notional amount		Other current assets		Other noncurrent assets		Other current liabilities		Other noncurrent liabilities		Type of hedge	Term	Notional amount		Other current assets		Other noncurrent assets		Other current liabilities		Other noncurrent liabilities		Type of hedge	Term
September 30, 2019
March 31, 2020
Derivatives designated as hedges
Fixed-to-floating interest rate swaps	$	2,225	$	—	$	71	$	—	$	—	Fair value	15 months to 16 years	$	2,225	$	2	$	123	$	—	$	—	Fair value	9 months to 15 years
Forward starting floating-to-fixed interest rate swaps	500		—		1		—		77		Cash flow	14 to 34 years	850		—		2		—		188		Cash flow	13 to 33 years
Currency exchange contracts	1,104		11		—		17		14		Cash flow	1 to 36 months	1,133		18		3		52		14		Cash flow	1 to 36 months
Commodity contracts	11		—		—		—		—		Cash flow	1 to 7 months	15		—		—		2		—		Cash flow	1 to 10 months
Total			$	11	$	72	$	17	$	91					$	20	$	128	$	54	$	202

Derivatives not designated as hedges
Currency exchange contracts	$	4,364	$	14			$	41				1 to 12 months	$	5,460	$	35			$	133				1 to 12 months
Commodity contracts													4		—				—					1 month
Total			$	14			$	41							$	35			$	133

December 31, 2018
December 31, 2019
Derivatives designated as hedges
Fixed-to-floating interest rate swaps	$	2,550	$	—	$	22	$	1	$	26	Fair value	3 months to 16 years	$	2,225	$	—	$	57	$	—	$	—	Fair value	12 months to 15 years
Forward starting floating-to-fixed interest rate swaps	100		—		—		—		3		Cash flow	34 years	500		—		3		—		42		Cash flow	13 to 33 years
Currency exchange contracts	951		19		2		11		8		Cash flow	1 to 36 months	1,146		14		3		11		6		Cash flow	1 to 36 months
Commodity contracts													9		—		—		—		—		Cash flow	1 to 9 months
Total			$	19	$	24	$	12	$	37					$	14	$	63	$	11	$	48

Derivatives not designated as hedges
Currency exchange contracts	$	3,886	$	40			$	20				1 to 12 months	$	4,975	$	48			$	13				1 to 12 months
Commodity contracts													3		—				—					1 month
Total			$	40			$	20							$	48			$	13

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

As of ~~September 30, 2019,~~March 31, 2020, the volume of outstanding commodity contracts that were entered into to hedge forecasted transactions:



	~~September 30, 2019~~
Commodity	~~(millions of pounds)~~March 31, 2020		Term
Copper	45	millions of pounds	1 to 710 months
Gold	1,390	Troy ounces	1 to 6 months

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


	Carrying amount of the hedged assets (liabilities)			Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged asset (liabilities)^(a)			Carrying amount of the hedged assets (liabilities)						Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged asset (liabilities)^(a)
Location on Consolidated Balance Sheets	September 30, 2019			September 30, 2019			March 31, 2020			December 31, 2019			March 31, 2020			December 31, 2019
Long-term debt	$	(2,838	)	$	(112	)	$	(2,838	)	$	(2,838	)	$	(164	)	$	(97	)

^(a) At ~~September 30,~~March 31, 2020 and December 31, 2019, these amounts include the cumulative liability amount of fair value hedging adjustments remaining for which the hedge accounting has been discontinued of ~~$41.~~$39 and $40, respectively.

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


	Three months ended September 30, 2019									Three months ended March 31, 2020
	Net Sales			Cost of products sold			Interest expense - net			Net Sales		Cost of products sold			Interest expense - net
Amounts from Consolidated Statements of Income	$	5,314		$	3,512		$	54		$	4,789	$	3,302		$	34

Gain (loss) on derivatives designated as cash flow hedges
Currency exchange contracts
Hedged item	$	1		$	(1	)	$	—		$	—	$	(3	)	$	—
Derivative designated as hedging instrument	(1		)	1			—			—		3			—

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

Gain (loss) on derivatives designated as fair value hedges
Fixed-to-floating interest rate swaps
Hedged item	$	—		$	—		$	(13	)	$	—	$	—		$	(68	)
Derivative designated as hedging instrument	—			—			13			—		—			68


	Nine months ended September 30, 2019									Three months ended March 31, 2019
	Net Sales			Cost of products sold			Interest expense - net			Net Sales			Cost of products sold			Interest expense - net
Amounts from Consolidated Statements of Income	$	16,152		$	10,782		$	183		$	5,305		$	3,573		$	60

Gain (loss) on derivatives designated as cash flow hedges
Currency exchange contracts
Hedged item	$	6		$	(10	)	$	—		$	3		$	(5	)	$	—
Derivative designated as hedging instrument	(6		)	10			—			(3		)	5			—

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

Gain (loss) on derivatives designated as fair value hedges
Fixed-to-floating interest rate swaps
Hedged item	$	—		$	—		$	(76	)	$	—		$	—		$	(23	)
Derivative designated as hedging instrument	—			—			76			—			—			23

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


	Gain (loss) recognized in Consolidated Statements of Income			Consolidated Statements of Income classification	Gain (loss) recognized in Consolidated Statements of Income					Consolidated Statements of Income classification
	Three months ended September 30				Three months ended March 31
	2019				2020			2019
Gain (loss) on derivatives not designated as hedges
Currency exchange contracts	$	(40	)	Other expense - net	$	(149	)	$	40	Interest expense - net
Commodity Contracts	1			Cost of products sold	—			1		Cost of products sold
Total	$	(39	)		$	(149	)	$	41

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

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


	Gain (loss) recognized in other comprehensive (loss) income						Location of gain (loss) reclassified from Accumulated other comprehensive loss	Gain (loss) reclassified from Accumulated other comprehensive loss					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					Three months ended March 31							Three months ended March 31
	2019			2018				2019		2018			2020			2019				2020		2019
Derivatives designated as cash flow hedges
Forward starting floating-to-fixed interest rate swaps	$	(46	)	$	—		Interest expense - net	$	—	$	—		$	(147	)	$	(9	)	Interest expense - net	$	—	$	—
Currency exchange contracts	(8		)	(12		)	Net sales and Cost of products sold	—		(4		)	(42		)	—			Net sales and Cost of products sold	3		2
Commodity contracts	—			—			Cost of products sold	—		—			(2		)	2			Cost of products sold	—		—
Non-derivative designated as net investment hedges
Foreign currency denominated debt	3			5			Other income - net	—		—			43			12			Interest expense - net	—		—
Total	$	(51	)	$	(7	)		$	—	$	(4	)	$	(148	)	$	5			$	3	$	2


	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
	2019			2018				2019		2018
Derivatives designated as cash flow hedges
Forward starting floating-to-fixed interest rate swaps	$	(73	)	$	—		Interest expense - net	$	—	$	—
Currency exchange contracts	(18		)	(14		)	Net sales and Cost of products sold	4		(12		)
Commodity contracts	—			—			Cost of products sold	—		—
Non-derivative designated as net investment hedges
Foreign currency denominated debt	15			22			Other income - net	—		—
Total	$	(76	)	$	8			$	4	$	(12	)

At ~~September 30, 2019 and September 30, 2018, losses~~March 31, 2020, a loss of ~~$5 and $9, respectively,~~$35 of estimated unrealized net gains or losses associated with our cash flow hedges were expected to be reclassified to income from Accumulated other comprehensive loss within the next twelve months. These reclassifications relate to our designated foreign currency and commodity hedges that will mature in the next 12 months.

~~Note 14. INVENTORY~~

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

September 30,
2019 December 31,
2018
Raw materials $ 1,094
$ 1,077
Work-in-process 578
500
Finished goods 1,229
1,208
Total inventory $ 2,901
$ 2,785


Note ~~15.~~13.	BUSINESS SEGMENT INFORMATION

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

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

Electrical Americas and Electrical Global

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

Hydraulics

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

Aerospace

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

Vehicle

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

eMobility

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

Other information

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

For ~~additional information regarding Eaton’s~~purposes of business segment performance measurement, the Company does not allocate items that are of a non-operating nature or are of a corporate or functional governance nature. Corporate expenses consist of all of the Company’s costs associated with acquisitions, divestitures, and gains and losses on the sale of certain businesses, and corporate office expenses including compensation, benefits, occupancy, depreciation, and other administrative costs. Identifiable assets of the business segments ~~see Note 16 to the Consolidated Financial Statements contained in the 2018 Form 10-K.~~exclude goodwill, other intangible assets, and general corporate assets, which principally consist of certain cash, short-term investments, deferred income taxes, certain accounts receivable, certain property, plant and equipment, and certain other assets.


	Three months ended September 30						Nine months ended September 30						Three months ended March 31
	2019			2018			2019			2018			2020			2019
Net sales
Electrical Products	$	1,786		$	1,789		$	5,395		$	5,327
Electrical Systems and Services	1,572			1,519			4,618			4,413
Electrical Americas													$	1,788		$	1,961
Electrical Global													1,144			1,242
Hydraulics	603			670			1,987			2,103			507			605
Aerospace	513			478			1,532			1,399			680			604
Vehicle	761			876			2,374			2,668			598			810
eMobility	79			80			246			240			72			83
Total net sales	$	5,314		$	5,412		$	16,152		$	16,150		$	4,789		$	5,305

Segment operating profit
Electrical Products	$	358		$	343		$	1,050		$	984
Electrical Systems and Services	284			234			751			628
Electrical Americas													$	308		$	334
Electrical Global													166			190
Hydraulics	72			94			232			285			55			59
Aerospace	129			105			372			284			147			137
Vehicle	139			166			397			464			81			122
eMobility	4			10			16			35			1			5
Total segment operating profit	986			952			2,818			2,680			758			847

Corporate
Amortization of intangible assets	(93		)	(95		)	(280		)	(289		)	(87		)	(93		)
Interest expense - net	(54		)	(67		)	(183		)	(205		)	(34		)	(60		)
Pension and other postretirement benefits expense	(5		)	(3		)	(7		)	(4		)	(8		)	—
Arbitration decision expense	—			(275		)	—			(275		)
Other corporate expense - net	(116		)	(73		)	(289		)	(209		)	(8		)	(91		)
Income before income taxes	718			439			2,059			1,698			621			603
Income tax expense	116			23			299			184			183			81
Net income	602			416			1,760			1,514			438			522
Less net income for noncontrolling interests	(1		)	—			(1		)	—			—			—
Net income attributable to Eaton ordinary shareholders	$	601		$	416		$	1,759		$	1,514		$	438		$	522



	March 31, 2020		December 31, 2019
Identifiable assets
Electrical Americas	$	2,356	$	2,360
Electrical Global	2,314		2,319
Hydraulics	—		1,293
Aerospace	1,532		1,562
Vehicle	1,991		2,145
eMobility	146		141
Total identifiable assets	8,339		9,820
Goodwill	12,397		13,456
Other intangible assets	4,319		4,638
Corporate	3,350		3,514
Assets held for sale	2,440		1,377
Total assets	$	30,845	$	32,805


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

New Business Segments - Results of Operations

For the reportable segments that were re-segmented, previously reported segment financial information has been updated for all periods reported in 2018 and 2019. The ~~Registered Senior Notes issued by Eaton Corporation are registered under the Securities Act~~re-segmentation did not impact previously reported consolidated results of 1933. Eaton and certain of Eaton's 100% owned direct and indirect subsidiaries (the Guarantors) fully and unconditionally guaranteed (subject, in the case of the Guarantors, other than Eaton, to customary release provisions as described below), on a joint and several basis, the Registered Senior Notes. The following condensed consolidating financial statements are included so that separate financial statements of Eaton, Eaton Corporation and each of the Guarantors are not required to be filed with the Securities and Exchange Commission. The consolidating adjustments primarily relate to eliminations of investments in subsidiaries and intercompany balances and transactions. The condensed consolidating financial statements present investments in subsidiaries using the equity method of accounting. See Note 7 of Eaton's 2018 Form 10-K for additional information related to the Registered Senior Notes.operations.

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 2019 and 2018, 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. These restructurings have been reflected as of the beginning of the earliest period presented below.

Electrical Americas

CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2019

Eaton
Corporation
plc

Eaton
Corporation
Guarantors
Other
subsidiaries

Consolidating
adjustments
Total
Net sales $ —
$ 1,744
$ 1,826
$ 2,996
$ (1,252 ) $ 5,314

Cost of products sold —
1,339
1,301
2,127
(1,255 ) 3,512
Selling and administrative expense 2
368
199
316
—
885
Research and development expense —
37
35
75
—
147
Interest expense (income) - net —
59
5
(10 ) —
54
Other expense (income) - net 1
3
2
(8 ) —
(2 )
Equity in loss (earnings) of
   subsidiaries, net of tax
(611 ) (217 ) (797 ) (677 ) 2,302
—
Intercompany expense (income) - net 7
(50 ) 513
(470 ) —
—
Income (loss) before income taxes 601
205

568

1,643

(2,299 )
718
Income tax expense (benefit) —
3
(27 ) 139
1
116
Net income (loss) 601
202

595

1,504

(2,300 )
602
Less net loss (income) for
   noncontrolling interests
—
—
—
(1 ) —
(1 )
Net income (loss) attributable to
   Eaton ordinary shareholders
$ 601
$ 202

$ 595

$ 1,503

$ (2,300 )
$ 601

Other comprehensive income (loss) $ (259 ) $ (26 ) $ (268 ) $ (705 ) $ 999
$ (259 )
Total comprehensive income
  (loss) attributable to Eaton
  ordinary shareholders
$ 342
$ 176
$ 327
$ 798
$ (1,301 ) $ 342



	Year ended December 31, 2019			Quarter ended in 2019												Year ended December 31, 2018			Quarter ended in 2018
	Year ended December 31, 2019			Dec. 31			Sept. 30			June 30			Mar. 31			Year ended December 31, 2018			Dec. 31			Sept. 30			June 30			Mar. 31
Net sales	$	8,175		$	2,089		$	2,040		$	2,085		$	1,961		$	7,914		$	2,094		$	2,008		$	1,974		$	1,838

Operating profit	$	1,549		$	416		$	395		$	404		$	334		$	1,372		$	383		$	356		$	346		$	287
Operating margin	18.9		%	19.9		%	19.4		%	19.4		%	17.0		%	17.3		%	18.3		%	17.7		%	17.5		%	15.6		%

Electrical Global

CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2018

Eaton
Corporation
plc

Eaton
Corporation
Guarantors
Other
subsidiaries

Consolidating
adjustments
Total
Net sales $ —
$ 1,808
$ 1,814
$ 3,134
$ (1,344 ) $ 5,412

Cost of products sold —
1,419
1,320
2,202
(1,344 ) 3,597
Selling and administrative expense 3
356
197
333
—
889
Research and development expense —
33
37
68
—
138
Interest expense (income) - net —
68
3
(4 ) —
67
Arbitration decision expense —
—
275
—
—
275
Other expense (income) - net (3 ) 11
4
(5 ) —
7
Equity in loss (earnings) of
   subsidiaries, net of tax
(430 ) (191 ) (892 ) (433 ) 1,946
—
Intercompany expense (income) - net 14
33
579
(626 ) —
—
Income (loss) before income taxes 416
79

291

1,599

(1,946 )
439
Income tax expense (benefit) —
(10 ) (91 ) 124
—
23
Net income (loss) 416
89

382

1,475

(1,946 )
416
Less net loss (income) for
   noncontrolling interests
—
—
—
—
—
—
Net income (loss) attributable to
   Eaton ordinary shareholders
$ 416
$ 89

$ 382

$ 1,475

$ (1,946 )
$ 416

Other comprehensive income (loss) $ (98 ) $ (22 ) $ (94 ) $ (240 ) $ 356
$ (98 )
Total comprehensive income
   (loss) attributable to Eaton
   ordinary shareholders
$ 318
$ 67
$ 288
$ 1,235
$ (1,590 ) $ 318



	Year ended December 31, 2019			Quarter ended in 2019												Year ended December 31, 2018			Quarter ended in 2018
	Year ended December 31, 2019			Dec. 31			Sept. 30			June 30			Mar. 31			Year ended December 31, 2018			Dec. 31			Sept. 30			June 30			Mar. 31
Net sales	$	5,172		$	1,311		$	1,295		$	1,324		$	1,242		$	5,159		$	1,292		$	1,282		$	1,327		$	1,258

Operating profit	$	897		$	223		$	251		$	233		$	190		$	833		$	211		$	221		$	212		$	189
Operating margin	17.3		%	17.0		%	19.4		%	17.6		%	15.3		%	16.1		%	16.3		%	17.2		%	16.0		%	15.0		%

Hydraulics

CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019

Eaton
Corporation
plc

Eaton
Corporation
Guarantors
Other
subsidiaries

Consolidating
adjustments
Total
Net sales $ —
$ 5,326
$ 5,548
$ 9,168
$ (3,890 ) $ 16,152

Cost of products sold —
4,150
3,967
6,552
(3,887 ) 10,782
Selling and administrative expense 8
1,089
609
1,003
—
2,709
Research and development expense —
113
110
231
—
454
Interest expense (income) - net —
194
14
(23 ) (2 ) 183
Other expense (income) - net (12 ) 1
(20 ) (4 ) —
(35 )
Equity in loss (earnings) of
   subsidiaries, net of tax
(1,785 ) (699 ) (2,359 ) (2,072 ) 6,915
—
Intercompany expense (income) - net 30
(48 ) 1,386
(1,368 ) —
—
Income (loss) before income taxes 1,759
526
1,841
4,849
(6,916 ) 2,059
Income tax expense (benefit) —
18
(62 ) 343
—
299
Net income (loss) 1,759
508
1,903
4,506
(6,916 ) 1,760
Less net loss (income) for
   noncontrolling interests
—
—
—
(1 ) —
(1 )
Net income (loss) attributable to
   Eaton ordinary shareholders
$ 1,759
$ 508
$ 1,903
$ 4,505
$ (6,916 ) $ 1,759

Other comprehensive income (loss) $ (222 ) $ (22 ) $ (215 ) $ (612 ) $ 849
$ (222 )
Total comprehensive income
   (loss) attributable to Eaton
   ordinary shareholders
$ 1,537
$ 486
$ 1,688
$ 3,893
$ (6,067 ) $ 1,537



	Year ended December 31, 2019			Quarter ended in 2019												Year ended December 31, 2018			Quarter ended in 2018
	Year ended December 31, 2019			Dec. 31			Sept. 30			June 30			Mar. 31			Year ended December 31, 2018			Dec. 31			Sept. 30			June 30			Mar. 31
Net sales	$	2,204		$	477		$	519		$	603		$	605		$	2,392		$	562		$	579		$	633		$	618

Operating profit	$	193		$	30		$	51		$	53		$	59		$	267		$	60		$	68		$	75		$	64
Operating margin	8.8		%	6.3		%	9.8		%	8.8		%	9.8		%	11.2		%	10.7		%	11.7		%	11.8		%	10.4		%

Aerospace

CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018
Eaton Corporation plc
Eaton
Corporation
Guarantors
Other
subsidiaries

Consolidating
adjustments
Total
Net sales $ —
$ 5,306
$ 5,304
$ 9,567
$ (4,027 ) $ 16,150

Cost of products sold —
4,198
3,845
6,824
(4,026 ) 10,841
Selling and administrative expense 8
1,093
575
1,003
—
2,679
Research and development expense —
109
113
217
—
439
Interest expense (income) - net —
203
11
(11 ) 2
205
Arbitration decision expense —
—
275
—
—
275
Other expense (income) - net (22 ) 25
31
(21 ) —
13
Equity in loss (earnings) of
   subsidiaries, net of tax
(1,531 ) (628 ) (2,588 ) (1,716 ) 6,463
—
Intercompany expense (income) - net 31
35
1,623
(1,689 ) —
—
Income (loss) before income taxes 1,514
271
1,419
4,960
(6,466 ) 1,698
Income tax expense (benefit) —
(23 ) (119 ) 327
(1 ) 184
Net income (loss) 1,514
294
1,538
4,633
(6,465 ) 1,514
Less net loss (income) for
   noncontrolling interests
—
—
—
—
—
—
Net income (loss) attributable to
   Eaton ordinary shareholders
$ 1,514
$ 294
$ 1,538
$ 4,633
$ (6,465 ) $ 1,514

Other comprehensive income (loss) $ (426 ) $ (37 ) $ (394 ) $ (1,012 ) $ 1,443
$ (426 )
Total comprehensive income (loss) attributable to Eaton
ordinary shareholders $ 1,088
$ 257
$ 1,144
$ 3,621
$ (5,022 ) $ 1,088

CONDENSED CONSOLIDATING BALANCE SHEETS
SEPTEMBER 30, 2019

Eaton
Corporation
plc

Eaton
Corporation
Guarantors
Other
subsidiaries

Consolidating
adjustments
Total
Assets
Current assets
Cash $ —
$ 222
$ —
$ 327
$ —
$ 549
Short-term investments —
—
—
281
—
281
Accounts receivable - net —
475
1,289
2,023
—
3,787
Intercompany accounts
   receivable
9
855
1,957
2,681
(5,502 ) —
Inventory —
577
857
1,546
(79 ) 2,901
Prepaid expenses and
   other current assets
—
100
32
347
15
494
Total current assets 9
2,229

4,135

7,205
(5,566 ) 8,012

Property, plant and
   equipment - net
—
851
669
1,963
—
3,483

Other noncurrent assets
Goodwill —
1,330
6,705
5,302
—
13,337
Other intangible assets —
123
2,941
1,593
—
4,657
Operating lease assets —
159
62
223
—
444
Deferred income taxes —
351
—
278
(335 ) 294
Investment in subsidiaries 16,939
26,627
73,052
27,306
(143,924 ) —
Intercompany loans receivable 9
5,736
7,334
60,233
(73,312 ) —
Other assets —
778
159
731
—
1,668
Total assets $ 16,957
$ 38,184
$ 95,057
$ 104,834
$ (223,137 ) $ 31,895

Liabilities and
   shareholders’ equity

Current liabilities
Short-term debt $ —
$ —
$ —
$ 2
$ —
$ 2
Current portion of
   long-term debt
—
4
—
2
—
6
Accounts payable —
494
508
1,288
—
2,290
Intercompany accounts payable 9
1,355
2,981
1,157
(5,502 ) —
Accrued compensation —
99
59
263
—
421
Other current liabilities 1
588
269
1,086
(2 ) 1,942
Total current liabilities 10
2,540
3,817
3,798
(5,504 ) 4,661

Noncurrent liabilities
Long-term debt —
5,900
2,107
6
—
8,013
Pension liabilities —
378
127
734
—
1,239
Other postretirement
   benefits liabilities
—
167
82
73
—
322
Operating lease liabilities —
116
47
170
—
333
Deferred income taxes —
—
458
186
(335 ) 309
Intercompany loans payable 1,099
5,272
65,822
1,119
(73,312 ) —
Other noncurrent liabilities —
454
304
360
—
1,118
Total noncurrent liabilities 1,099
12,287

68,947

2,648

(73,647 )
11,334

Shareholders’ equity
Eaton shareholders' equity 15,848
23,357
22,293
98,336
(143,986 ) 15,848
Noncontrolling interests —
—
—
52
—
52
Total equity 15,848
23,357
22,293
98,388
(143,986 ) 15,900
Total liabilities and equity $ 16,957
$ 38,184

$ 95,057

$ 104,834

$ (223,137 )
$ 31,895

CONDENSED CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 2018

Eaton
Corporation
plc

Eaton
Corporation
Guarantors
Other
subsidiaries

Consolidating
adjustments
Total
Assets
Current assets
Cash $ 1
$ 21
$ —
$ 261
$ —
$ 283
Short-term investments —
—
—
157
—
157
Accounts receivable - net —
483
1,400
1,975
—
3,858
Intercompany accounts
   receivable
—
1,575
1,851
2,968
(6,394 ) —
Inventory —
540
766
1,555
(76 ) 2,785
Prepaid expenses and
   other current assets
—
107
32
354
14
507
Total current assets 1
2,726
4,049
7,270
(6,456 ) 7,590

Property, plant and
   equipment - net
—
843
678
1,946
—
3,467

Other noncurrent assets
Goodwill —
1,330
6,705
5,293
—
13,328
Other intangible assets —
128
3,054
1,664
—
4,846
Deferred income taxes —
340
—
288
(335 ) 293
Investment in subsidiaries 16,476
25,956
71,334
25,557
(139,323 ) —
Intercompany loans receivable 1,508
5,912
8,406
59,078
(74,904 ) —
Other assets —
746
117
705
—
1,568
Total assets $ 17,985
$ 37,981
$ 94,343
$ 101,801
$ (221,018 ) $ 31,092

Liabilities and
   shareholders’ equity

Current liabilities
Short-term debt $ —
$ 388
$ —
$ 26
$ —
$ 414
Current portion of
   long-term debt
—
338
—
1
—
339
Accounts payable —
476
416
1,238
—
2,130
Intercompany accounts payable 32
1,127
3,206
2,029
(6,394 ) —
Accrued compensation —
135
71
251
—
457
Other current liabilities 30
525
259
1,002
(2 ) 1,814
Total current liabilities 62
2,989
3,952
4,547
(6,396 ) 5,154

Noncurrent liabilities
Long-term debt —
5,814
945
7
2
6,768
Pension liabilities —
383
130
791
—
1,304
Other postretirement
   benefits liabilities
—
166
83
72
—
321
Deferred income taxes —
1
508
175
(335 ) 349
Intercompany loans payable 1,816
5,182
66,507
1,399
(74,904 ) —
Other noncurrent liabilities —
389
291
374
—
1,054
Total noncurrent liabilities 1,816
11,935

68,464

2,818

(75,237 )
9,796

Shareholders’ equity
Eaton shareholders' equity 16,107
23,057
21,927
94,401
(139,385 ) 16,107
Noncontrolling interests —
—
—
35
—
35
Total equity 16,107
23,057
21,927
94,436
(139,385 ) 16,142
Total liabilities and equity $ 17,985
$ 37,981

$ 94,343

$ 101,801

$ (221,018 )
$ 31,092

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019

Eaton
Corporation
plc

Eaton
Corporation
Guarantors
Other
subsidiaries

Consolidating
adjustments
Total
Net cash provided by (used in)
   operating activities
$ (67 ) $ 980
$ 415
$ 1,186
$ —
$ 2,514

Investing activities
Capital expenditures for property,
   plant and equipment
—
(74 ) (88 ) (279 ) —
(441 )
Cash paid for acquisitions of businesses, net of cash acquired —
—
(30 ) (247 ) —
(277 )
Sales (purchases) of short-term
investments - net —
—
—
(132 ) —
(132 )
Loans to affiliates —
(470 ) (280 ) (5,044 ) 5,794
—
Repayments of loans from affiliates —
663
—
3,156
(3,819 ) —
Proceeds (payments) for settlement of currency exchange contracts not designated as hedges - net —
—
—
26
—
26
Other - net —
(21 ) 32
(19 ) —
(8 )
Net cash provided by (used in) investing activities —
98

(366 )
(2,539 )
1,975

(832 )

Financing activities
Proceeds from borrowings —
—
1,232
—
—
1,232
Payments on borrowings —
(726 ) —
(31 ) —
(757 )
Proceeds from borrowings from
   affiliates
1,927
2,689
428
750
(5,794 ) —
Payments on borrowings from
   affiliates
(16 ) (2,781 ) (458 ) (564 ) 3,819
—
Other intercompany financing
   activities
—
(23 ) (1,239 ) 1,262
—
—
Cash dividends paid (907 ) —
—
—
—
(907 )
Exercise of employee stock options 40
—
—
—
—
40
Repurchase of shares (978 ) —
—
—
—
(978 )
Employee taxes paid from shares withheld —
(36 ) (6 ) (3 ) —
(45 )
Other - net —
—
(6 ) (2 ) —
(8 )
Net cash provided by (used in)
   financing activities
66
(877 )
(49 )
1,412

(1,975 )
(1,423 )

Effect of currency on cash —
—
—
7
—
7
Total increase (decrease) in cash (1 ) 201

—

66

—

266
Cash at the beginning of the period 1
21
—
261
—
283
Cash at the end of the period $ —
$ 222

$ —

$ 327

$ —

$ 549

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018

Eaton
Corporation
plc

Eaton
Corporation
Guarantors
Other
subsidiaries

Consolidating
adjustments
Total
Net cash provided by (used in)
   operating activities
$ (11 ) $ (174 ) $ 393
$ 1,718
$ (88 ) $ 1,838

Investing activities
Capital expenditures for property,
   plant and equipment
—
(75 ) (74 ) (262 ) —
(411 )
Sales (purchases) of short-term
investments - net —
—
—
329
—
329
Investments in affiliates —
(36 ) —
—
36
—
Loans to affiliates —
(100 ) (84 ) (4,764 ) 4,948
—
Repayments of loans from affiliates —
647
956
3,893
(5,496 ) —
Proceeds (payments) for settlement of currency exchange contracts not designated as hedges - net —
11
—
(133 ) —
(122 )
Other - net —
(26 ) 3
(29 ) —
(52 )
Net cash provided by (used in)
   investing activities
—
421

801

(966 )
(512 )
(256 )

Financing activities
Proceeds from borrowings 4
65
—
11
—
80
Payments on borrowings —
(450 ) (35 ) (1 ) —
(486 )
Proceeds from borrowings from
   affiliates
2,671
1,995
183
99
(4,948 ) —
Payments on borrowings from
   affiliates
(1,227 ) (2,775 ) (654 ) (840 ) 5,496
—
Capital contributions from affiliates —
—
—
36
(36 ) —
Other intercompany financing activities —
788
(687 ) (101 ) —
—
Cash dividends paid (864 ) —
—
—
—
(864 )
Cash dividends paid to affiliates —
—
—
(88 ) 88
—
Exercise of employee stock options 28
—
—
—
—
28
Repurchase of shares (600 ) —
—
—
—
(600 )
Employee taxes paid from shares withheld —
(16 ) (5 ) (3 ) —
(24 )
Other - net —
(1 ) —
(1 ) —
(2 )
Net cash provided by (used in)
   financing activities
12
(394 )
(1,198 )
(888 )
600

(1,868 )

Effect of currency on cash —
—
—
52
—
52
Total increase (decrease) in cash 1
(147 )
(4 )
(84 )
—

(234 )
Cash at the beginning of the period —
183
18
360
—
561
Cash at the end of the period $ 1
$ 36

$ 14

$ 276

$ —

$ 327



	Year ended December 31, 2019			Quarter ended in 2019												Year ended December 31, 2018			Quarter ended in 2018
	Year ended December 31, 2019			Dec. 31			Sept. 30			June 30			Mar. 31			Year ended December 31, 2018			Dec. 31			Sept. 30			June 30			Mar. 31
Net sales	$	2,480		$	622		$	620		$	634		$	604		$	2,335		$	610		$	587		$	571		$	567

Operating profit	$	595		$	150		$	153		$	155		$	137		$	503		$	140		$	131		$	119		$	113
Operating margin	24.0		%	24.1		%	24.7		%	24.4		%	22.7		%	21.5		%	23.0		%	22.3		%	20.8		%	19.9		%


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

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

COMPANY OVERVIEW

Eaton Corporation plc (Eaton or the Company) is a power management company with ~~2018~~2019 net sales of ~~$21.6~~$21.4 billion. ~~The Company provides energy-efficient~~Eaton's mission is to improve the quality of life and environment through the use of power management technologies and services. We provide sustainable solutions that help ~~its~~our customers effectively manage electrical, hydraulic, and mechanical power - more ~~reliably,~~ safely, more efficiently and ~~sustainably.~~more reliably. Eaton has approximately ~~100,000~~95,000 employees in ~~over 59~~61 countries and sells products to customers in more than 175 countries.

Summary of Results of Operations

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


	Three months ended September 30				Nine months ended September 30				Three months ended March 31
	2019		2018		2019		2018		2020		2019
Net sales	$	5,314	$	5,412	$	16,152	$	16,150	$	4,789	$	5,305
Net income attributable to Eaton ordinary shareholders	601		416		1,759		1,514		438		522
Net income per share attributable to Eaton ordinary shareholders - diluted	$	1.44	$	0.95	$	4.16	$	3.45	$	1.07	$	1.23

During the first quarter of 2020, Eaton re-segmented certain reportable operating segments due to a reorganization of the Company's businesses. The new reportable segments are Electrical Americas and Electrical Global, which include the legacy Electrical Products and Electrical Systems and Services segments. Additionally, the Filtration and Golf Grip businesses previously included in the Hydraulics segment, and the electrical aerospace connectors business previously included in the Electrical Products segment, have been added to the Aerospace reportable segment as part of the reorganization. The Company also changed how it measures business segment performance in 2020 as it no longer allocates acquisition and divestiture charges to its operating segments. Previously reported financial information for these reportable segments has been updated for 2018 and 2019 in Note 13. The re-segmentation did not impact previously reported consolidated results of operations.

On ~~April 15, 2019,~~February 25, 2020, Eaton ~~completed the acquisition of an 82.275% controlling interest in Ulusoy Elektrik Imalat Taahhut ve Ticaret A.S. (Ulusoy Elektrik),~~acquired Power Distribution, Inc. a leading ~~manufacturer~~supplier of ~~electrical switchgear based in Ankara, Turkey, with a primary focus on medium-voltage solutions~~mission critical power distribution, static switching, and power monitoring equipment and services for data centers and industrial and ~~utility~~commercial customers. ~~Its~~The company is headquartered in Richmond, Virginia, and had 2019 sales for the 12 months ended September 30, 2018 were $126. The purchase price for the shares is approximately $214 on a cash and debt free basis. As required by the Turkish capital markets legislation, Eaton filed an application to execute a mandatory tender offer for the remaining shares shortly after the transaction closed. During the tender offer, Eaton purchased additional shares for $33 through July 2019 to increase its ownership interest to 93.7%. Ulusoy Elektrikof $125. Power Distribution, Inc. is reported within the Electrical ~~Systems and Services~~Americas business segment.

On ~~July 19, 2019,~~March 2, 2020, Eaton acquired Innovative Switchgear Solutions, Inc. (ISG), a specialty manufacturer of medium-voltage electrical equipment serving the North American utility, commercial and industrial markets. Its 2018 sales were approximately $18. ISG will be reported within the Electrical Systems and Services business segment.

On July 22, 2019, Eaton committed to acquire the Souriau-Sunbank Connection Technologies (Souriau-Sunbank) business of TransDigm Group Inc. for $920. Headquartered in Versailles, France, Souriau-Sunbank is a global leader in highly engineered electrical interconnect solutions for harsh environments in the aerospace, defense, industrial, energy, and transport markets. Its sales for the 12 months ended June 30, 2019 were $363. The purchase agreement was signed on October 28, 2019. The transaction is subject to customary closing conditions and is expected to close by the end of 2019.

~~On March 1, 2019, Eaton announced it plans to pursue a tax-free spin-off of its Lighting business. On October 15, 2019, Eaton entered into an agreement to sell~~sold its Lighting business to Signify N.V. for a cash purchase price of $1.4 billion. The ~~decision to sell the Lighting business comes after completing~~Company recognized a ~~comprehensive review~~pre-tax gain of ~~various potential transaction alternatives.~~$221. The Lighting business, which had sales of ~~$1.7~~$1.6 billion in ~~2018~~2019 as part of the Electrical ~~Products~~Americas business segment, serves customers in commercial, industrial, residential and municipal markets.

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

COVID-19

The first quarter of 2020 was impacted by the COVID-19 pandemic. Organic sales were down 7% for the first quarter, driven by a reduction of ~~2020.~~4% from the estimated impact of the COVID-19 pandemic. The impact started in China with factory closures, with further impacts throughout the world as the pandemic drove governments to mandate shutdowns. The Company is monitoring the situation daily and expects the second quarter to bring additional uncertainties. Our businesses are focused on cost control to offset the volume declines. The Company has implemented the following actions:

~~On March 1, 2019,~~ Reduction of senior executive base salaries in the second quarter

Implementation of unpaid leave programs

Eliminated merit increases for all of 2020

Reduction of discretionary expenses and implementation of travel and hiring freezes

Elimination of nonessential capital spending

Eaton's products and support services are vital to hospitals, emergency services, military sites, utilities, public works, transportation and shipping providers. In addition, data centers, retail outlets, airports and governments, as well as the networks that support schools and remote workers, rely on the Company's products to serve their customers and communities. As a result, the Company's businesses are deemed essential to keep operating by almost all governments around the world, and most of the Company's plants are still operating.

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

Protect our employees

Trained our sites around the world in cleaning and disinfecting protocols

Enacted social distancing procedures, including staggering shifts, implementing a rotating office work schedule, and modifying workspace and meeting space layouts

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

Advised employees to take advantage of flexible work options

Restricting visitors to all sites

Consulting regularly with doctors and health care organizations

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

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

•Mandatory quarantines

Communication with all who may have been exposed

Disinfecting work stations and common areas

Shutting down the facility if warranted

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

Support our customers

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

Staying in close contact with our suppliers to ~~sell its Automotive Fluid Conveyance business.~~manage the supply chain

Equipping our service technicians with additional personal protective equipment as needed

Coordinating with local, state and national governments

Following governmental and health authorities' guidelines

RESULTS OF OPERATIONS

Non-GAAP Financial Measures

The following discussion of Consolidated Financial Results ~~and Business Segment Results of Operations~~ includes certain non-GAAP financial measures. These financial measures include adjusted earnings and adjusted earnings per ordinary share, ~~and operating profit before acquisition integration and divestiture charges for each business segment as well as corporate,~~ each of which differs from the most directly comparable measure calculated in accordance with generally accepted accounting principles (GAAP). A reconciliation of adjusted earnings and adjusted earnings per ordinary share to the most directly comparable GAAP measure is included in the table ~~below. Operating profit before acquisition integration and divestiture charges is reconciled in the discussion of the operating results of each business segment,~~below, and excludes acquisition ~~integration~~ and divestiture expense related primarily to the planned divestiture of the Hydraulics business, the divestiture of the Lighting business, and the acquisitions of Ulusoy Elektrik and ~~ISG~~Souriau-Sunbank discussed in Note 2. Management believes that these financial measures are useful to investors because they exclude certain transactions, allowing investors to more easily compare Eaton’s financial performance period to period. Management uses this information in monitoring and evaluating the on-going performance of Eaton.

Acquisition and Divestiture Charges

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



	Three months ended March 31
	2020			2019
Acquisition integration, divestiture charges and transaction costs	$	132		$	12
Gain on the sale of the Lighting business	(221		)	—
Total before income taxes	(89		)	12
Income tax expense (benefit)	98			(1		)
Total after income taxes	$	9		$	11
Per ordinary share - diluted	$	0.02		$	0.03

Acquisition integration, ~~and~~ divestiture charges ~~see Note 3~~and transaction costs in 2020 are primarily related to the ~~Condensed Consolidated Financial Statements.~~planned divestiture of the Hydraulics business, the divestiture of the Lighting business, and the acquisitions of Ulusoy Elektrik and Souriau-Sunbank, and were included in Cost of products sold, Selling and administrative expense, Research and development expense, or Other expense (income) - net. Charges in 2019 related to the divestiture of the Lighting business and were included in Selling and administrative expense. In Business Segment Information in Note 13, the charges were included in Other corporate expense - net.

Consolidated Financial Results


	Three months ended September 30						Increase (decrease)			Nine months ended September 30								Increase (decrease)		Three months ended March 31								Increase (decrease)
	2019			2018					2019				2018				2020				2019							Increase (decrease)
Net sales	$	5,314		$	5,412		Increase (decrease)	(2	)%		$	16,152			$	16,150		Increase (decrease)			—	%	$	4,789			$	5,305		(10	)%
Gross profit	1,802			1,815			(1	)%		5,370				5,309				1	%	1,487				1,732				(14	)%
Percent of net sales	33.9		%	33.5		%				33.2		%		32.9		%				31.1		%		32.6		%
Income before income taxes	718			439			64	%		2,059				1,698				21	%	621				603				3	%
Net income	602			416			45	%		1,760				1,514				16	%	438				522				(16	)%
Less net income for noncontrolling interests	(1		)	—						(1		)		—						—				—
Net income attributable to Eaton ordinary shareholders	601			416			44	%		1,759				1,514				16	%	438				522				(16	)%
Excluding acquisition integration and divestiture charges, after-tax (Note 3)	35			—						60				—
Excluding acquisition and divestiture charges, after-tax																				9				11
Adjusted earnings	$	636		$	416		53	%		$	1,819			$	1,514			20	%	$	447			$	533			(16	)%

Net income per share attributable to Eaton ordinary shareholders - diluted	$	1.44		$	0.95		52	%		$	4.16			$	3.45			21	%	$	1.07			$	1.23			(13	)%
Excluding per share impact of acquisition integration and divestiture charges, after-tax (Note 3)	0.08			—						0.14				—
Excluding per share impact of acquisition and divestiture charges, after-tax																				0.02				0.03
Adjusted earnings per ordinary share	$	1.52		$	0.95		60	%		$	4.30			$	3.45			25	%	$	1.09			$	1.26			(13	)%

Net Sales

Net sales decreased 2%10% in the ~~third~~first quarter of ~~2019~~2020 compared to the ~~third~~first quarter of ~~2018~~2019 due to a decrease of 1%7% in organic sales, a decrease of 3.5% from divestitures of businesses, and a decrease of 1.5% from the impact of negative currency translation, partially offset by an increase of ~~0.5%~~2% from ~~the~~ acquisitions of businesses. The decrease in organic sales in the ~~third~~first quarter of 2020 was primarily due to an estimated 4% impact from the COVID-19 pandemic, as well as lower sales volumes in the Vehicle and Hydraulic business segments.

Gross Profit

Gross profit margin decreased from 32.6% in the first quarter of 2019 to 31.1% in the first quarter of 2020. The decrease in gross profit margin in the first quarter of 2020 was primarily due to lower sales volumes in the Vehicle and Hydraulics business segments, partially offset by higher sales volumes in the Electrical Products, Electrical Systems and Services, and Aerospace business segments. Net sales were flat in the first nine months of 2019 compared to the first nine months of 2018 due to an increase of 2% in organic sales, offset by a decrease of 2% from the impact of ~~negative currency translation. Organic sales grew in~~ the ~~first nine months of 2019 due to higher sales volumes in the Electrical Products, Electrical Systems and Services, and Aerospace business segments, partially offset by~~COVID-19 pandemic, as well as lower sales volumes in ~~the~~our Vehicle ~~and Hydraulics~~ business ~~segments.~~

~~Gross Profit~~

Gross profit margin increased from 33.5% in the third quarter of 2018 to 33.9% in the third quarter of 2019, and from 32.9% in the first nine months of 2018 to 33.2% in the first nine months of 2019. The increase in gross profit margin in the third quarter and first nine months of 2019 was primarily due to higher sales volumes and other operating improvements in Electrical Products and Electrical Systems and Services business segments, and higher sales volumes and favorable product mix in the Aerospace business segment, partially offset by lower sales volumes in the Vehicle and Hydraulics business segments.segment.

Income Taxes

Net Income

Net income attributable to Eaton ordinary shareholders of $601 in the third quarter of 2019 increased 44% compared to Net income attributable to Eaton ordinary shareholders of $416 in the third quarter of 2018. Net income attributable to Eaton ordinary shareholders of $1,759$438 in the first ~~nine months~~quarter of ~~2019 increased~~2020 decreased 16% compared to Net income attributable to Eaton ordinary shareholders of ~~$1,514~~$522 in the first ~~nine months~~quarter of ~~2018.~~2019. Net income in ~~2018~~2020 included an after-tax ~~expense~~gain of ~~$206~~ ~~from~~$91 on the ~~arbitration decision~~ sale of the Lighting business discussed in Note 9. 2. Excluding this ~~item, t~~hegain, the decrease in the ~~third~~first quarter of ~~2019~~2020 was primarily due to lower sales volumes ~~higher acquisition integration and divestiture charges, and a higher effective~~from the impact of the COVID-19 pandemic, as well as lower sales volumes in our Vehicle business segment.

Net income ~~tax rate. Excluding the 2018 arbitration decision,~~ ~~the increase~~per ordinary share decreased to $1.07 in the first ~~nine months~~quarter of ~~2019 was primarily due~~2020 compared to ~~higher sales volumes, partially offset by a higher effective~~$1.23 in the first quarter of 2019. Net income ~~tax rate.~~

per ordinary share in 2020 included $0.22 from the sale of the Lighting business. The decrease in Net income per ordinary share in the ~~third quarter and~~ first ~~nine months of 2018 both included $0.48 from the impact of the arbitration decision discussed in Note 9. Net income per ordinary share increased to $1.44 in the third~~ quarter of 2019 compared to $0.95 in the third quarter of 2018. Net income per ordinary share increased to $4.16 in the first nine months of 2019 compared to $3.45 in the first nine months of 2018. The increase in the Net income per ordinary share in the third quarter and first nine months of 20192020 was due to ~~higher Net~~lower net income, ~~attributable to Eaton ordinary shareholders and~~partially offset by the impact of the Company's share repurchases over the past year.

Adjusted Earnings

Adjusted earnings of ~~$636~~$447 in the ~~third~~first quarter of ~~2019 increased 53%~~2020 decreased 16% compared to Adjusted earnings of ~~$416 in the third quarter of 2018. Adjusted earnings of $1,819~~$533 in the first ~~nine months~~quarter of ~~2019 increased 20% compared to Adjusted earnings of $1,514 in the first nine months of 2018.~~2019. The ~~increase~~decrease in Adjusted earnings in the ~~third~~first quarter ~~and first nine months~~ of ~~2019~~2020 was primarily due to ~~higher~~lower Net income attributable to Eaton ordinary ~~shareholders excluding higher acquisition integration and divestiture charges.~~shareholders.

Adjusted earnings per ordinary share ~~increased~~decreased to ~~$1.52 in the third quarter of 2019 compared to $0.95 in the third quarter of 2018. Adjusted earnings per ordinary share increased to $4.30 first nine months of 2019 compared to $3.45~~$1.09 in the first ~~nine months~~quarter of ~~2018.~~2020 compared to $1.26 in the first quarter of 2019. The ~~increase~~decrease in Adjusted earnings per ordinary share in the ~~third~~first quarter ~~and first nine months~~ of ~~2019~~2020 was due to ~~higher~~lower Adjusted earnings, ~~and~~partially offset by the impact of the Company's share repurchases over the past year.

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 and divestiture charges. For additional information related to acquisition integration and divestiture charges, see Note 3 to the Condensed Consolidated Financial Statements.segment.

Electrical ~~Products~~Americas


	Three months ended September 30						Increase (decrease)			Nine months ended September 30								Increase (decrease)		Three months ended March 31								Increase (decrease)
	2019			2018					2019				2018				2020				2019							Increase (decrease)
Net sales	$	1,786		$	1,789		Increase (decrease)	—	%		$	5,395			$	5,327		Increase (decrease)			1	%	$	1,788			$	1,961		(9	)%

Operating profit	$	358		$	343		4	%		$	1,050			$	984			7	%	$	308			$	334			(8	)%
Operating margin	20.0		%	19.2		%				19.5		%		18.5		%				17.2		%		17.0		%

Acquisition integration and divestiture charges	$	4		$	—					$	6			$	—

Before acquisition integration and divestiture charges
Operating profit	$	362		$	343		6	%		$	1,056			$	984			7	%
Operating margin	20.3		%	19.2		%				19.6		%		18.5		%

Net sales were flat in the third quarter of 2019 compared to the third quarter of 2018 due to an increase of 1% in organic sales, offset by a decrease of 1% from the impact of negative currency translation. Organic sales grew in the third quarter of 2019 primarily driven by strength in residential and commercial construction markets in North America, partially offset by a decline in industrial controls globally. Net sales increased 1%decreased 9% in the first ~~nine months~~quarter of ~~2019~~2020 compared to the first nine months of 2018 due to an increase of 3% in organic sales, partially offset by a decrease of 2% from the impact of negative currency translation. Organic sales grew in the first of nine months of 2019 in North America, primarily driven by growth in commercial, residential and industrial applications.

~~The operating margin increased from 19.2% in the third quarter of 2018 to 20.0% in the third~~ quarter of 2019 ~~and from 18.5% in the first nine months of 2018 to 19.5% in the first nine months of 2019 primarily due to higher sales volumes and other operating improvements.~~

The operating margin before acquisition integration and divestiture charges increased from 19.2% in the third quarter of 2018 to 20.3% in the third quarter of 2019 and from 18.5% in the first nine months of 2018 to 19.6% in the first nine months of 2019 primarily due to an increase in the operating margin.

~~Electrical Systems and Services~~

Three months ended
September 30 Increase (decrease) Nine months ended
September 30 Increase (decrease)
2019 2018 2019 2018
Net sales $ 1,572
$ 1,519
3 % $ 4,618
$ 4,413
5 %

Operating profit $ 284
$ 234
21 % $ 751
$ 628
20 %
Operating margin 18.1 % 15.4 % 16.3 % 14.2 %

Acquisition integration and divestiture charges $ 3
$ —
$ 4
$ —

Before acquisition integration and divestiture charges
Operating profit $ 287
$ 234
23 % $ 755
$ 628
20 %
Operating margin 18.3 % 15.4 % 16.3 % 14.2 %

Net sales increased 3% in the third quarter of 2019 compared to the third quarter of 2018 due to an increase of 3% in organic sales and an increase of 1.5% from the acquisitions of businesses, partially offset by a decrease of 1.5% from the impact of negative currency translation. The increase in organic sales in the third quarter of 2019 was primarily driven by strength in data centers, commercial construction and engineering services. Net sales increased 5%in the first nine months of 2019 compared to the first nine months of 2018 due to an increase of 5% in organic sales and an increase of 1% from the acquisition of a business, partially offset by a decrease of 1% from the impact of negative currency translation. The increase in organic sales in the first nine months of 2019 was primarily driven by strength in commercial construction, industrial projects and data centers.

The operating margin increased from 15.4% in the third quarter of 2018 to 18.1% in the third quarter of 2019 and from 14.2% in the first nine months of 2018 to 16.3% in the first nine months of 2019 primarily due to higher sales volumes and other operating improvements.

The operating margin before acquisition integration and divestiture charges increased from 15.4% in the third quarter of 2018 to 18.3% in the third quarter of 2019 and from 14.2% in the first nine months of 2018 to 16.3% in the first nine months of 2019 primarily due to an increase in the operating margin.

~~Hydraulics~~

Three months ended
September 30 Increase (decrease) Nine months ended
September 30 Increase (decrease)
2019 2018 2019 2018
Net sales $ 603
$ 670
(10 )% $ 1,987
$ 2,103
(6 )%

Operating profit $ 72
$ 94
(23 )% $ 232
$ 285
(19 )%
Operating margin 11.9 % 14.0 % 11.7 % 13.6 %

~~Net sales decreased 10% in the third quarter of 2019 compared to the third quarter of 2018~~ due to a decrease of ~~8% in organic sales and~~7% from the divestiture of the Lighting business, a decrease of 2% from the impact of negative currency translation. Net sales decreased 6% in the first nine months of 2019 compared to the first nine months of 2018 due to a decrease of 3% in organic sales and 3% from the impact of negative currency translation. The decrease in organic sales in the third quarter and first nine months of 2019 was primarily due to weakness in global mobile equipment markets and destocking at both OEMs and distributors.

The operating margin decreased from 14.0% in the third quarter of 2018 to 11.9% in the third quarter of 2019 and from 13.6% in the first nine months of 2018 to 11.7% in the first nine months of 2019 primarily due to lower sales volumes, unfavorable product mix and operating inefficiencies.

~~Aerospace~~

Three months ended
September 30 Increase (decrease) Nine months ended
September 30 Increase (decrease)
2019 2018 2019 2018
Net sales $ 513
$ 478
7 % $ 1,532
$ 1,399
10 %

Operating profit $ 129
$ 105
23 % $ 372
$ 284
31 %
Operating margin 25.1 % 22.0 % 24.3 % 20.3 %

Net sales increased 7% in the third quarter of 2019 compared to the third quarter of 2018 due to an increase of 8% in organic sales, partially offset by a decrease of 1% from the impact of negative currency translation. Net sales increased 10% in the first nine months of 2019 compared to the first nine months of 2018 due to an increase of 11% 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 2019 was primarily due to strength in the commercial OEM market and the commercial aftermarket.

The operating margin increased from 22.0% in the third quarter of 2018 to 25.1% in third quarter of 2019 and from 20.3% in the first nine months of 2018 to 24.3% in the first nine months of 2019 primarily due to higher sales volumes and favorable product mix.

~~Vehicle~~

Three months ended
September 30 Increase (decrease) Nine months ended
September 30 Increase (decrease)
2019 2018 2019 2018
Net sales $ 761
$ 876
(13 )% $ 2,374
$ 2,668
(11 )%

Operating profit $ 139
$ 166
(16 )% $ 397
$ 464
(14 )%
Operating margin 18.3 % 18.9 % 16.7 % 17.4 %

~~Net sales decreased 13% in the third quarter of 2019 compared to the third quarter of 2018 due to a decrease of 12%~~ in organic sales, and a decrease of 1% from the impact of negative currency ~~translation.~~ translation, partially offset by an increase of 1% from the acquisitions of ISG and Power Distribution, Inc. The decrease in organic sales in the first quarter of 2020 was primarily driven by the impact of the COVID-19 pandemic, partially offset by strength in commercial construction and utility end-markets.

The operating margin increased from 17.0% in the first quarter of 2019 to 17.2% in the first quarter of 2020 primarily due to the favorable impact from the divestiture of the Lighting business, cost containment actions to counteract the impact of the COVID-19 pandemic, and other operating improvements.

Electrical Global



	Three months ended March 31						Increase (decrease)
	2020			2019			Increase (decrease)
Net sales	$	1,144		$	1,242		(8	)%

Operating profit	$	166		$	190		(13	)%
Operating margin	14.5		%	15.3		%

Net sales decreased ~~11%~~8% in the first ~~nine months~~quarter of ~~2019~~2020 compared to the first ~~nine months~~quarter of ~~2018~~2019 due to a decrease of 9%6% in organic sales and a decrease of 3% from the impact of negative currency translation, partially offset by an increase of 1% from the acquisition of Ulusoy Elektrik. The decrease in organic sales in the first quarter of 2020 was primarily driven by the impact of the COVID-19 pandemic.

The operating margin decreased from 15.3% in the first quarter of 2019 to 14.5% in the first quarter of 2020 primarily due lower sales volumes and higher restructuring costs.

Hydraulics



	Three months ended March 31						Increase (decrease)
	2020			2019			Increase (decrease)
Net sales	$	507		$	605		(16	)%

Operating profit	$	55		$	59		(7	)%
Operating margin	10.8		%	9.8		%

Net sales decreased 16% in the first quarter of 2020 compared to the first quarter of 2019 due to a decrease of 14% in organic sales and a decrease of 2% from the impact of negative currency translation. The decrease in organic sales in the ~~third~~first quarter of 2020 was primarily due to weakness in the global mobile equipment market, with destocking at both OEMs and distributors, and an estimated 3% impact from the COVID-19 pandemic.

The operating margin increased from 9.8% in the first ~~nine months~~quarter of 2019 to 10.8% in the first quarter of 2020 primarily due to depreciation expense no longer being charged as a result of the business being classified as held for sale as discussed in Note 2, and other operating improvements, partially offset by lower sales volumes.

Aerospace



	Three months ended March 31						Increase (decrease)
	2020			2019			Increase (decrease)
Net sales	$	680		$	604		13	%

Operating profit	$	147		$	137		7	%
Operating margin	21.6		%	22.7		%

Net sales increased 13% in the first quarter of 2020 compared to the first quarter of 2019 due to an increase of 14% from the acquisition of Souriau-Sunbank, partially offset by a decrease of 1% in organic sales. The decrease in organic sales in the first quarter of 2020 was primarily due to weakness in the commercial OEM market and an estimated 3% impact from the COVID-19 pandemic.

The operating margin decreased from 22.7% in the first quarter of 2019 to 21.6% in first quarter of 2020 primarily due to the acquisition of Souriau-Sunbank.

Vehicle



	Three months ended March 31						Increase (decrease)
	2020			2019			Increase (decrease)
Net sales	$	598		$	810		(26	)%

Operating profit	$	81		$	122		(34	)%
Operating margin	13.5		%	15.1		%

Net sales decreased 26% in the first quarter of 2020 compared to the first quarter of 2019 due to a decrease of 20% in organic sales, a decrease of 4% from the divestiture of our Automotive Fluid Conveyance business, and a decrease of 2% from the impact of negative currency translation. The decrease in organic sales in the first quarter of 2020 was driven by an estimated 5% impact from plant shutdowns due to the COVID-19 pandemic, lower Class 8 OEM production, continued weakness in ~~global~~ light ~~vehicle markets~~vehicles, and revenues transferring over to the Eaton Cummins Automated Transmission Technologies joint venture.

The operating margin decreased from ~~18.9% in the third quarter of 2018 to 18.3% in the third quarter of 2019and from 17.4%~~15.1% in the first ~~nine months~~quarter of ~~2018~~2019 to ~~16.7%~~13.5% in the first ~~nine months~~quarter of ~~2019~~ 2020primarily due to lower sales volumes.

eMobility


	Three months ended September 30						Increase (decrease)			Nine months ended September 30								Increase (decrease)		Three months ended March 31								Increase (decrease)
	2019			2018					2019				2018				2020				2019							Increase (decrease)
Net sales	$	79		$	80		Increase (decrease)	(1	)%		$	246			$	240		Increase (decrease)			3	%	$	72			$	83		(13	)%

Operating profit	$	4		$	10		(60	)%		$	16			$	35			(54	)%	$	1			$	5			(80	)%
Operating margin	5.1		%	12.5		%				6.5		%		14.6		%				1.4		%		6.0		%

Net sales decreased ~~1% in the third quarter of 2019 compared to the third quarter of 2018 due to decrease of 1% from the impact of negative currency translation. Net sales increased 3%~~13% in the first ~~nine months~~quarter of ~~2019~~2020 compared to the first ~~nine months~~quarter of ~~2018~~2019 due to ~~an increase~~a decrease of 4%12% in organic sales ~~partially offset by~~and a decrease of 1% from the impact of negative currency translation. The ~~increase~~decrease in organic sales in the first ~~nine months~~quarter of ~~2019~~2020 was primarily due to ~~growth~~lower sales volumes from continued weakness in ~~North America.~~legacy internal combustion engine platforms and an estimated 4% impact from the COVID-19 pandemic.

The operating margin decreased from ~~12.5%~~6.0% in the ~~third quarter of 2018 to 5.1% in the third~~first quarter of 2019 ~~and from 14.6%~~to 1.4% in the first ~~nine months~~quarter of ~~2018 to 6.5% in the first nine months of 2019~~2020 primarily due to ~~increased research~~lower sales volumes and ~~development costs.~~manufacturing start-up costs associated with new electric vehicle programs.

Corporate Expense


	Three months ended September 30				Increase (decrease)			Nine months ended September 30								Increase (decrease)		Three months ended March 31							Increase (decrease)
	2019		2018				2019				2018				2020				2019						Increase (decrease)
Amortization of intangible assets	$	93	$	95	Increase (decrease)	(2	)%		$	280			$	289		Increase (decrease)			(3	)%	$	87		$	93		(6	)%
Interest expense - net	54		67		(19	)%		183				205				(11	)%	34				60			(43	)%
Pension and other postretirement benefits expense	5		3		67	%		7				4				75	%	8				—			NM
Arbitration decision expense	—		275		NM			—				275				NM
Other corporate expense - net	116		73		59	%		289				209				38	%	8				91			(91	)%
Total corporate expense	$	268	$	513	(48	)%		$	759			$	982			(23	)%	$	137			$	244		(44	)%

Total corporate expense was ~~$268~~$137 in the ~~third~~first quarter of ~~2019~~2020 compared to corporate expense of ~~$513 in the third quarter of 2018. Total corporate expense was $759~~$244 in the first ~~nine months~~quarter of ~~2019 compared to corporate expense of $982 in the first nine months of 2018.~~2019. The decrease in Total corporate expense for the ~~third~~first quarter ~~and first nine months~~ of ~~2019~~2020 was primarily due to ~~the 2018 arbitration decision~~lower Other corporate expense - net and lower interest expense - net. The decrease in Other corporate expense - net is primarily due to a gain on sale of a business discussed in Note 9,2, partially offset by higher acquisition ~~integration~~ and divestiture ~~charges discussed in Note 2.~~charges.

LIQUIDITY, CAPITAL RESOURCES AND CHANGES IN FINANCIAL CONDITION

Financial Condition and Liquidity

Eaton’s objective is to finance its business through operating cash flow and an appropriate mix of equity and long-term and short-term debt. By diversifying its debt maturity structure, Eaton reduces liquidity risk. The Company maintains access to the commercial paper markets through a $2,000 commercial paper program, which is supported by credit facilities in the aggregate principal amount of $2,000. There were no borrowings outstanding under these revolving credit facilities at ~~September 30, 2019.~~March 31, 2020. Over the course of a year, cash, short-term investments and short-term debt may fluctuate in order to manage global liquidity. While the COVID-19 pandemic temporarily challenged commercial paper markets in mid-March, those markets have since recovered such that Eaton continues to be able to access on the same basis as in prior periods. Further, although we expect the pandemic to negatively impact second quarter results, our businesses continue to generate substantial cash. In addition, Eaton completed the $1.4 billion sale of our Lighting Business on March 2, 2020 and expects to complete the sale of our Hydraulics Business for $3.3 billion in cash by the end of 2020. Accordingly, Eaton believes it has the operating flexibility, cash flow, cash and short-term investment balances, and access to capital markets in excess of the liquidity necessary to meet future operating needs of the business as well as scheduled payments of long-term debt.

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

Sources and Uses of Cash

Operating Cash Flow

Net cash provided by operating activities was ~~$2,514~~$323 in the first ~~nine~~three months of ~~2019, an increase~~2020, a decrease of ~~$676~~$228 in the source of cash compared to ~~$1,838~~$551 in the first ~~nine~~three months of ~~2018. The increase~~2019. Excluding the gain on sale of the Lighting business discussed in Note 2, the decrease in net cash provided by operating activities in the first ~~nine~~three months of ~~2019~~2020 was driven by ~~higher~~lower net income and higher working capital balances compared to ~~2018. Other-net includes the impact of foreign currency gains and losses related to the remeasurement of intercompany balance sheet exposures, which have no impact on Operating cash flow.~~2019.

Investing Cash Flow

Net cash ~~used in~~provided by investing activities was ~~$832~~$1,100 in the first ~~nine~~three months of ~~2019,~~2020, an increase of $1,168 in the ~~use~~source of cash ~~of $576~~ compared to ~~$256~~net cash used of $68 in the first ~~nine~~three months of ~~2018.~~2019. The increase in the ~~use~~source of cash was primarily driven by ~~net purchases~~proceeds from the sale of ~~short-term investments of $132~~the Lighting business discussed in ~~2019 compared to net sales of $329 in 2018, and~~Note 2, partially offset by cash paid for business acquisitions discussed in Note 2, ~~partially offset by $26~~and $16 of net ~~proceeds~~payments in ~~2019~~2020 compared to net ~~payments~~proceeds of ~~$122~~$51 in ~~2018~~2019 from the settlement of currency exchange contracts not designated as ~~hedges discussed in Note 13.~~

hedges.

Financing Cash Flow

Net cash used in financing activities was ~~$1,423~~$1,530 in the first ~~nine~~three months of ~~2019, a decrease~~2020, an increase of ~~$445~~$1,059 in the use of cash compared to ~~$1,868~~$471 in the first ~~nine~~three months of ~~2018.~~2019. The ~~decrease~~increase in the use of cash was primarily due to higher share repurchases of $1,300 in 2020 compared to $180 in 2019 and lower proceeds from borrowings of ~~$1,232~~$83 in ~~2019~~2020 compared to ~~$80~~$342 in ~~2018,~~2019, partially offset by ~~higher share repurchases of $978 in 2019 compared to $600 in 2018, and higher~~lower payments on borrowings of ~~$757~~$4 in ~~2019~~2020 compared to ~~$486~~$315 in ~~2018.~~2019.

Guaranteed Debt

Issuers, Guarantors and Guarantor Structure

Eaton Corporation has issued senior notes pursuant to indentures dated April 1, 1994 (the 1994 Indenture), November 20, 2012 (the 2012 Indenture) and September 15, 2017 (the 2017 Indenture). Eaton Electric Holdings LLC, a subsidiary of Eaton, has issued senior notes pursuant to an indenture dated December 7, 2010 (the 2010 Indenture). These senior notes of both Eaton Corporation and Eaton Electrical Holdings LLC are registered under the Securities Act of 1933, as amended (the Registered Senior Notes). Eaton Corporation is also the issuer of two outstanding series of privately placed debt securities (the PPNs), and Eaton Capital Unlimited Company, another subsidiary of Eaton, is the issuer of three outstanding series of debt securities sold in offshore transactions under Regulation S promulgated under the Securities Act (the Eurobonds). The PPNs, the Eurobonds and the Registered Senior Notes (together, the Senior Notes) comprise substantially all of Eaton’s long-term indebtedness.

Substantially all of the Senior Notes, together with the credit facilities described above under Financial Condition and Liquidity (the Credit Facilities), are guaranteed by Eaton and 21 of its subsidiaries. Accordingly, they rank equally with each other. However, because these obligations are not secured, they would be effectively subordinated to any existing or future secured indebtedness of Eaton and its subsidiaries. As of March 31, 2020, Eaton has no material, long-term secured debt. The guaranteed Registered Senior Notes are also structurally subordinated to the liabilities of Eaton's subsidiaries that are not guarantors. Except as described below under Future Guarantors, Eaton is not obligated to cause its subsidiaries to guarantee the Registered Senior Notes.

The table set forth in Exhibit 22 filed with this Form 10-Q and incorporated herein by this reference, 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 in Exhibit 22. Each guarantee is full and unconditional, and joint and several. Each guarantor's guarantee is an unsecured obligation that ranks equally with all its other unsecured and unsubordinated indebtedness. The obligations of each guarantor under its guarantee of the Registered Senior Notes is subject to a customary savings clause or similar provision designed to prevent such guarantee from constituting a fraudulent conveyance or otherwise legally impermissible or voidable obligation.

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


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


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


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


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

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

The guarantee of Eaton does not contain any release provisions.

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

Future Guarantors

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

The 1994 Indenture and the 2010 Indenture do not contain provisions with respect to future guarantors.

Summarized Financial Information of Guarantors and Issuers



	March 31, 2020			December 31, 2019
Current assets	$	3,066		$	4,082
Noncurrent assets	12,969			13,181
Current liabilities	2,636			2,703
Noncurrent liabilities	10,175			10,023
Amounts due to subsidiaries that are non-issuers and non-guarantors - net	28,219			37,050

	Three months ended March 31			Year ended December 31
	2020			2019
Net sales	$	2,880		$	12,961
Sales to subsidiaries that are non-issuers and non-guarantors	251			1,161
Cost of products sold	2,365			10,524
Expense from subsidiaries that are non-issuers and non-guarantors - net	118			734
Net loss	(196		)	(90		)

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, and transactions with non-issuer and non-guarantor subsidiaries have been presented separately.

FORWARD-LOOKING STATEMENTS

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


ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

There have been no material changes in exposures to market risk since December 31, ~~2018.~~2019.


ITEM 4.	CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures - Pursuant to SEC Rule 13a-15, an evaluation was performed under the supervision and with the participation of Eaton’s management, including Craig Arnold - Principal Executive Officer; and Richard H. Fearon - Principal Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on that evaluation, management concluded that Eaton’s disclosure controls and procedures were effective as of ~~September 30, 2019~~March 31, 2020.

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

During the ~~third~~first quarter of ~~2019,~~2020, there was no change in Eaton’s internal control over financial reporting that materially affected, or is reasonably likely to materially affect, internal control over financial reporting. Management is currently evaluating the impact of businesses acquired in the past twelve months on Eaton's internal control over financial reporting.

PART II — OTHER INFORMATION


ITEM 1.	LEGAL PROCEEDINGS.

Information regarding the Company's current legal proceedings is presented in Note 98 of the Notes to the Condensed Consolidated Financial Statements.


ITEM 1A.	RISK FACTORS.

“Item 1A. Risk Factors” in Eaton's ~~2018~~2019 Form 10-K includes a discussion of the Company's risk factors. There have been no material changes from the risk factors described in the ~~2018~~2019 Form ~~10-K.~~10-K, except as follows:

The recent novel coronavirus (COVID -19) outbreak has negatively impacted our results of operations.

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


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

During the ~~third~~first quarter of ~~2019, 6.8~~2020, 14.2 million ordinary shares were repurchased in the open market at a total cost of ~~$539 million.~~$1.3 billion. These shares were repurchased under the program approved by the Board on February 27, 2019 (the 2019 Program). A summary of the shares repurchased in the ~~third~~first quarter of ~~2019~~2020 follows:

Month
Total number
of shares
purchased

Average
price paid
per share

Total number of
shares purchased as
part of publicly
announced
plans or programs
Approximate dollar value of shares that may yet be purchased under the plans or programs (in millions)
July 780,496
$ 82.87
780,496
$ 4,292
August 5,667,541
$ 78.32
5,667,541
$ 4,227
September 384,208
$ 78.08
384,208
$ 3,783
Total 6,832,245
$ 78.82
6,832,245
3,753



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)
January	—	$	—	—	$	3,702
February	5,787,992	$	100.02	5,787,992	$	3,123
March	8,388,887	$	85.93	8,388,887	$	2,402
Total	14,176,879	$	91.68	14,176,879


ITEM 6.	EXHIBITS.

Eaton Corporation plc

~~Third~~First Quarter ~~2019~~2020 Report on Form 10-Q



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

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

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

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

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

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

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

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

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

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

22		Table of Senior Notes, Issuer and Guarantors - Filed in conjunction with this Form 10-Q Report *

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

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

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

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

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

101.SCH		XBRL Taxonomy Extension Schema Document *

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document *

101.DEF		XBRL Taxonomy Extension Label Definition Document *

101.LAB		XBRL Taxonomy Extension Label Linkbase Document *

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document *

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



*		Submitted electronically herewith.

SIGNATURES

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



			EATON CORPORATION plc
			Registrant

Date:	~~October 29, 2019~~April 30, 2020	By:	/s/ Richard H. Fearon
			Richard H. Fearon
			Principal Financial Officer
			(On behalf of the registrant and as Principal Financial Officer)

4439



TABLE OF CONTENTS
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS	2
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	3427
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	4136
ITEM 4. CONTROLS AND PROCEDURES	4136
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS	4236
ITEM 1A. RISK FACTORS	4236
ITEM 2. UNRESTRICTED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	4237
ITEM 6. EXHIBITS	4338
SIGNATURES	4439



	Three months ended September 30, 2018
Net sales	United States		Rest of World		Total
Electrical Products	$	1,055	$	734	$	1,789
Electrical Systems and Services	1,000		519		1,519
Hydraulics	301		369		670

	Original Equipment Manufacturers		Aftermarket, Distribution and End User
Aerospace	$	269	$	209	478

	Commercial		Passenger and Light Duty
Vehicle	$	451	$	425	876

eMobility					80

Total					$	5,412



	Three months ended September 30, 2019			Nine months ended September 30, 2019
Operating lease cost	$	41		$	119
Finance lease cost:
Amortization of lease assets	1			3
Interest on lease liabilities	—			1
Short-term lease cost	13			40
Variable lease cost	6			17
Sublease income	(1		)	(3		)
Total lease cost	$	60		$	177



	Nine months ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows - payments on operating leases	$	(118	)
Operating cash outflows - interest payments on finance leases	(1		)
Financing cash outflows - payments on finance lease obligations	(3		)

Lease assets obtained in exchange for new lease obligations:
Operating leases	$	95
Finance leases	17




CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2019
	Eaton Corporation plc			Eaton Corporation			Guarantors			Other subsidiaries			Consolidating adjustments			Total
Net sales	$	—		$	1,744		$	1,826		$	2,996		$	(1,252	)	$	5,314

Cost of products sold	—			1,339			1,301			2,127			(1,255		)	3,512
Selling and administrative expense	2			368			199			316			—			885
Research and development expense	—			37			35			75			—			147
Interest expense (income) - net	—			59			5			(10		)	—			54
Other expense (income) - net	1			3			2			(8		)	—			(2		)
Equity in loss (earnings) of subsidiaries, net of tax	(611		)	(217		)	(797		)	(677		)	2,302			—
Intercompany expense (income) - net	7			(50		)	513			(470		)	—			—
Income (loss) before income taxes	601			205			568			1,643			(2,299		)	718
Income tax expense (benefit)	—			3			(27		)	139			1			116
Net income (loss)	601			202			595			1,504			(2,300		)	602
Less net loss (income) for noncontrolling interests	—			—			—			(1		)	—			(1		)
Net income (loss) attributable to Eaton ordinary shareholders	$	601		$	202		$	595		$	1,503		$	(2,300	)	$	601

Other comprehensive income (loss)	$	(259	)	$	(26	)	$	(268	)	$	(705	)	$	999		$	(259	)
Total comprehensive income (loss) attributable to Eaton ordinary shareholders	$	342		$	176		$	327		$	798		$	(1,301	)	$	342