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ETN Eaton

Filed: 4 May 21, 12:17pm
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 March 31, 2021
Commission file number 000-54863
EATON CORPORATION plc
(Exact name of registrant as specified in its charter)
Ireland98-1059235
(State or other jurisdiction of incorporation or organization)(IRS Employer Identification Number)
Eaton House,30 Pembroke Road,Dublin 4,IrelandD04 Y0C2
(Address of principal executive offices)(Zip Code)
+3531637 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 classTrading SymbolName of each exchange on which registered
Ordinary shares ($0.01 par value)ETNNew 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 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 398.5 million Ordinary Shares outstanding as of March 31, 2021.





PART I — FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS.

EATON CORPORATION plc
CONSOLIDATED STATEMENTS OF INCOME
Three months ended
March 31
(In millions except for per share data)20212020
Net sales$4,692 $4,789 
Cost of products sold3,184 3,302 
Selling and administrative expense795 865 
Research and development expense148 153 
Interest expense - net38 34 
Gain on sale of business221 
Other (income) expense - net(11)35 
Income before income taxes538 621 
Income tax expense79 183 
Net income459 438 
Less net income for noncontrolling interests(1)
Net income attributable to Eaton ordinary shareholders$458 $438 
Net income per share attributable to Eaton ordinary shareholders
Diluted$1.14 $1.07 
Basic1.15 1.07 
Weighted-average number of ordinary shares outstanding
Diluted400.9 411.1 
Basic398.3 409.3 
Cash dividends declared per ordinary share$0.76 $0.73 

The accompanying notes are an integral part of these condensed consolidated financial statements.
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EATON CORPORATION plc
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three months ended
March 31
(In millions)20212020
Net income$459 $438 
Less net income for noncontrolling interests(1)
Net income attributable to Eaton ordinary shareholders458 438 
Other comprehensive income (loss), net of tax
Currency translation and related hedging instruments(172)(609)
Pensions and other postretirement benefits47 86 
Cash flow hedges95 (153)
Other comprehensive income (loss) attributable to Eaton
   ordinary shareholders
(30)(676)
Total comprehensive income (loss) attributable to Eaton
  ordinary shareholders
$428 $(238)

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

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EATON CORPORATION plc
CONSOLIDATED BALANCE SHEETS
(In millions)March 31,
2021
December 31,
2020
Assets  
Current assets  
Cash$354 $438 
Short-term investments945 664 
Accounts receivable - net3,065 2,904 
Inventory2,399 2,109 
Assets held for sale2,537 2,487 
Prepaid expenses and other current assets605 576 
Total current assets9,905 9,178 
Property, plant and equipment
Land and buildings2,181 2,184 
Machinery and equipment5,363 5,404 
Gross property, plant and equipment7,544 7,588 
Accumulated depreciation(4,622)(4,624)
Net property, plant and equipment2,922 2,964 
Other noncurrent assets
Goodwill13,757 12,903 
Other intangible assets4,722 4,175 
Operating lease assets429 428 
Deferred income taxes436 426 
Other assets1,909 1,750 
Total assets$34,080 $31,824 
Liabilities and shareholders’ equity  
Current liabilities  
Short-term debt$464 $
Current portion of long-term debt1,012 1,047 
Accounts payable2,172 1,987 
Accrued compensation334 351 
Liabilities held for sale501 468 
Other current liabilities2,098 2,027 
Total current liabilities6,581 5,881 
Noncurrent liabilities  
Long-term debt8,682 7,010 
Pension liabilities1,283 1,588 
Other postretirement benefits liabilities326 330 
Operating lease liabilities328 326 
Deferred income taxes445 277 
Other noncurrent liabilities1,398 1,439 
Total noncurrent liabilities12,462 10,970 
Shareholders’ equity  
Ordinary shares (398.5 million outstanding in 2021 and 398.1 million in 2020)
Capital in excess of par value12,335 12,329 
Retained earnings6,883 6,794 
Accumulated other comprehensive loss(4,225)(4,195)
Shares held in trust(2)(2)
Total Eaton shareholders’ equity14,995 14,930 
Noncontrolling interests42 43 
Total equity15,037 14,973 
Total liabilities and equity$34,080 $31,824 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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EATON CORPORATION plc
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended
March 31
(In millions)20212020
Operating activities  
Net income$459 $438 
Adjustments to reconcile to net cash provided by operating activities  
Depreciation and amortization208 199 
Deferred income taxes(39)(16)
Pension and other postretirement benefits expense14 54 
Contributions to pension plans(243)(38)
Contributions to other postretirement benefits plans(6)(4)
Gain on sale of business(91)
Changes in working capital(108)(246)
Other - net(25)27 
Net cash provided by operating activities260 323 
Investing activities  
Capital expenditures for property, plant and equipment(119)(112)
Cash paid for acquisitions of businesses, net of cash acquired(1,700)(195)
Proceeds from sale of business1,402 
Sales (purchases) of short-term investments - net(280)30 
Payments for settlement of currency exchange contracts not designated as hedges - net(17)(16)
Other - net(85)(9)
Net cash provided by (used in) investing activities(2,201)1,100 
Financing activities  
Proceeds from borrowings2,261 83 
Payments on borrowings(3)(4)
Cash dividends paid(300)(291)
Exercise of employee stock options21 14 
Repurchase of shares(59)(1,300)
Employee taxes paid from shares withheld(37)(29)
Other - net(8)(3)
Net cash provided by (used in) financing activities1,875 (1,530)
Effect of currency on cash(11)(23)
Less: Increase in cash classified as held for sale(7)(1)
Decrease in cash(84)(131)
Cash at the beginning of the period438 370 
Cash at the end of the period$354 $239 

The accompanying notes are an integral part of these condensed consolidated financial statements.
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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 2020 Form 10-K. The interim period results are not necessarily indicative of the results to be expected for the full year. Management has evaluated subsequent events through the date this Form 10-Q was filed with the Securities and Exchange Commission.
Note 2.ACQUISITIONS AND DIVESTITURES OF BUSINESSES
Acquisition of Power Distribution, Inc.
On February 25, 2020, Eaton acquired Power Distribution, Inc. a leading supplier of mission critical power distribution, static switching, and power monitoring equipment and services for data centers and industrial and commercial customers. The company is headquartered in Richmond, Virginia, and had 2019 sales of $125. Power Distribution, Inc. is reported within the Electrical Americas business segment.
Sale of Lighting business
On March 2, 2020, Eaton sold its Lighting business to Signify N.V. for a cash purchase price of $1.4 billion. As a result of the sale, the Company recognized a pre-tax gain of $221 in 2020. The Lighting business, which had sales of $1.6 billion in 2019 as part of the Electrical Americas business segment, served customers in commercial, industrial, residential, and municipal markets.
Pending sale of Hydraulics business
On January 21, 2020, Eaton entered into an agreement to sell its Hydraulics business to Danfoss A/S, a Danish industrial company, for $3.3 billion in cash. Eaton’s Hydraulics business is a global leader in hydraulics components, systems, and services for industrial and mobile equipment. The business had sales of $1.8 billion in 2020. The transaction is subject to customary closing conditions and regulatory approvals and is expected to close in the second quarter of 2021.
During the first quarter of 2020, the Company determined the Hydraulics business met the criteria to be classified as held for sale. Therefore, assets and liabilities of the business have been presented as held for sale in the Consolidated Balance Sheets as of December 31, 2020 and March 31, 2021. Assets and liabilities classified as held for sale are measured at the lower of carrying value or fair value less costs to sell. No write-down has been required as fair value of the Hydraulics business assets less the costs to sell exceed their respective carrying values. Depreciation and amortization expense is not recorded for the period in which Other long-lived assets are classified as held for sale.
The Company used the relative fair value method to allocate goodwill to the Hydraulics business. The fair value of the Hydraulics business was estimated based on a combination of the price paid to Eaton by Danfoss A/S and a discounted cash flow model. The model includes estimates of future cash flows, future growth rates, terminal value amounts, and the applicable weighted-average cost of capital used to discount those estimated cash flows. The weighted-average cost of capital is an estimate of the overall after-tax rate of return required by equity and debt market holders of a business enterprise. These analyses require the exercise of judgments, including judgments about appropriate discount rates, perpetual growth rates, revenue growth, and margin assumptions.
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The assets and liabilities classified as held for sale for the Hydraulics business on the March 31, 2021 and December 31, 2020 Consolidated Balance Sheets are as follows:
March 31, 2021December 31, 2020
Cash$$
Accounts receivable - net397 345 
Inventory378 369 
Prepaid expenses and other current assets18 
Net property, plant and equipment505 504 
Goodwill909 920 
Other intangible assets247 248 
Operating lease assets63 61 
Deferred income taxes
Other noncurrent assets17 16 
Assets held for sale - current$2,537 $2,487 
Accounts payable$276 $241 
Accrued compensation25 26 
Other current liabilities105 101 
Pension liabilities57 60 
Operating lease liabilities32 35 
Deferred income taxes
Other noncurrent liabilities
Liabilities held for sale - current$501 $468 
The Hydraulics business did not meet the criteria to be classified as discontinued operations as the sale does not represent a strategic shift that will have a major effect on the Company's operations.
Agreement to Acquire Cobham Mission Systems
On January 31, 2021, Eaton signed an agreement to acquire Cobham Mission Systems (CMS), a leading manufacturer of air-to-air refueling systems, environmental systems, and actuation primarily for defense markets. Under the terms of the agreement, Eaton will pay $2.83 billion. CMS had sales of over $700 in 2020. The transaction is subject to customary closing conditions and is expected to close the beginning of the fourth quarter of 2021. CMS will be reported within the Aerospace business segment.
Acquisition of Tripp Lite
On March 17, 2021, Eaton acquired Tripp Lite for $1.65 billion, net of cash received. Tripp Lite is a leading supplier of power quality products and connectivity solutions including single-phase uninterruptible power supply systems, rack power distribution units, surge protectors, and enclosures for data centers, industrial, medical, and communications markets in the Americas. Tripp Lite had sales of over $400 in 2020. Tripp Lite is reported within the Electrical Americas business segment.
The acquisition of Tripp Lite has been accounted for using the acquisition method of accounting which requires the assets acquired and liabilities assumed be recognized at their respective fair values on the acquisition date. The table below summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed on the acquisition date. These preliminary estimates will continue to be revised during the measurement period as third-party valuations are received and finalized, further information becomes available and additional analyses are performed, and these differences could have a material impact on Eaton's preliminary purchase price allocation.
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March 17, 2021
Short-term investments$
Accounts receivable94 
Inventory184 
Prepaid expenses and other current assets
Property, plant and equipment
Other intangible assets630 
Accounts payable(13)
Other current liabilities(32)
Other noncurrent liabilities(157)
Total identifiable net assets723 
Goodwill928 
Total consideration, net of cash received$1,651 
Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the anticipated synergies of acquiring Tripp Lite. Goodwill recognized as a result of the acquisition is not deductible for tax purposes. Other intangible assets of $630 are expected to include customer relationships, trademarks and technology. Given the timing of the acquisition, Eaton utilized a benchmarking approach based on similar acquisitions to determine the preliminary fair values for intangible assets. See Note 6 for additional information about goodwill.
Eaton's 2021 Condensed Consolidated Financial Statements include Tripp Lite’s results of operations, including sales of $26, from date the of acquisition through March 31, 2021.
Acquisition of Green Motion SA
On March 22, 2021, Eaton acquired Green Motion SA, a leading designer and manufacturer of electric vehicle charging hardware and related software based in Switzerland. Green Motion SA was acquired for $105, including $49 of cash paid at closing and $56 of estimated fair value of contingent future consideration based on 2023 and 2024 revenue performance. The fair value of contingent consideration liabilities is estimated by discounting contingent payments expected to be made, and may increase or decrease based on changes in revenue estimates and discount rates, with a maximum possible undiscounted value of $109. Green Motion SA is reported within the Electrical Global business segment.
Acquisition of a 50% stake in HuanYu High Tech
On March 29, 2021, Eaton acquired a 50 percent stake in HuanYu High Tech, a subsidiary of HuanYu Group that manufactures and markets low-voltage circuit breakers and contactors in China, and throughout the Asia-Pacific region. HuanYu High Tech had 2019 sales of $106 and has production operations in Wenzhou, China. Eaton accounts for this investment on the equity method of accounting and is reported within the Electrical Global business segment.

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Note 3.    REVENUE RECOGNITION
Sales are recognized when obligations under the terms of the contract are satisfied and control of promised goods or services have transferred to our customers. Sales are measured at the amount of consideration the Company expects to be paid in exchange for these products or services.
The Company’s 6 operating segments and the following tables disaggregate sales by lines of businesses, geographic destination, market channel or end market.
Three months ended March 31, 2021
Net salesProductsSystemsTotal
Electrical Americas$520 $1,102 $1,622 
Electrical Global713 540 1,253 
United StatesRest of World
Hydraulics$222 $339 561 
Original Equipment ManufacturersAftermarketIndustrial and Other
Aerospace$208 $146 $165 519 
Commercial Passenger and Light Duty
Vehicle$342 $312 654 
eMobility83 
Total$4,692 
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Three months ended March 31, 2020
Net salesProductsSystemsTotal
Electrical Americas$724 $1,064 $1,788 
Electrical Global657 487 1,144 
United StatesRest of World
Hydraulics$227 $280 507 
Original Equipment ManufacturersAftermarketIndustrial and Other
Aerospace$325 $220 $135 680 
Commercial Passenger and Light Duty
Vehicle$292 $306 598 
eMobility72 
Total$4,789 
The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (revenue recognized exceeds amount billed to the customer), and deferred revenue (advance payments and billings in excess of revenue recognized). Accounts receivables from customers were $2,708 and $2,539 at March 31, 2021 and December 31, 2020, respectively. Amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals or upon achievement of contractual milestones. These assets and liabilities are reported on the Consolidated Balance Sheets on a contract-by-contract basis at the end of each reporting period. Unbilled receivables were $106 and $90 at March 31, 2021 and December 31, 2020, respectively, and are recorded in Prepaid expenses and other current assets. The increase in unbilled receivables reflects higher revenue recognized and not yet billed during the quarter.
Changes in the deferred revenue liabilities are as follows:
Deferred Revenue
Balance at January 1, 2021$257 
Customer deposits and billings276 
Revenue recognized in the period(262)
Translation and other(3)
Balance at March 31, 2021$268 
Deferred Revenue
Balance at January 1, 2020$234 
Customer deposits and billings245 
Revenue recognized in the period(240)
Translation(4)
Deferred revenue reclassified to held for sale(11)
Balance at March 31, 2020$224 
A significant portion of open orders placed with Eaton are by original equipment manufacturers or distributors. These open orders are not considered firm as they have been historically subject to releases by customers. In measuring backlog of unsatisfied or partially satisfied obligations, only the amount of orders to which customers are firmly committed are included. Using this criterion, total backlog at March 31, 2021 was approximately $6.4 billion. At March 31, 2021, Eaton expects to recognize approximately 88% of this backlog in the next twelve months and the rest thereafter.
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Note 4. CREDIT LOSSES FOR RECEIVABLES
Receivables are exposed to credit risk based on the customers’ ability to pay which is influenced by, among other factors, their financial liquidity position. Eaton’s receivables are generally short-term in nature with a majority outstanding less than 90 days.
Eaton performs ongoing credit evaluation of its customers and maintains sufficient allowances for potential credit losses. The Company evaluates the collectability of its receivables based on the length of time the receivable is past due, and any anticipated future write-offs based on historic experience adjusted for market conditions. The Company’s segments, supported by our global credit department, perform the credit evaluation and monitoring process to estimate and manage credit risk. The process includes an evaluation of credit losses for both the overall segment receivable and specific customer balances. The process also includes review of customer financial information and credit ratings, approval and monitoring of customer credit limits, and an assessment of market conditions. The Company may also require prepayment from customers to mitigate credit risk. Receivable balances are written off against an allowance for credit losses after a final determination of collectability has been made.
Accounts receivable are net of an allowance for credit losses of $52 and $48 at March 31, 2021 and December 31, 2020. The change in the allowance for credit losses includes expense and net write-offs, none of which are significant.

Note 5.    INVENTORY
Inventory is carried at lower of cost or net realizable value. The components of inventory follow:
March 31,
2021
December 31,
2020
Raw materials$824 $803 
Work-in-process530 498 
Finished goods1,045 808 
Total inventory$2,399 $2,109 

Note 6.    GOODWILL
Change in the carrying amount of goodwill by segment follows:
January 1,
2021
AdditionsTranslationMarch 31,
2021
Electrical Americas$6,456 $928 $(3)$7,381 
Electrical Global4,295 61 (101)4,255 
Aerospace1,777 (28)1,749 
Vehicle293 (2)291 
eMobility82 (1)81 
Total$12,903 $989 $(135)$13,757 
The 2021 additions to goodwill relate to the anticipated synergies of acquiring Tripp Lite and Green Motion SA. The allocations of the purchase price from these acquisitions are preliminary and will be completed during the measurement periods.
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Note 7. DEBT
On March 8, 2021, a subsidiary of Eaton issued Euro denominated notes (2021 Euro Notes) with a face value of €1,500 ($1,798), in accordance with Regulation S promulgated under the Securities Act of 1933, as amended. The 2021 Euro Notes are comprised of 2 tranches of €900 and €600, which mature in 2026 and 2030, respectively, with interest payable annually at a respective rate of 0.128% and 0.577%. The issuer received proceeds totaling €1,494 ($1,790) from the issuance, net of financing costs and discounts. The senior 2021 Euro Notes are fully and unconditionally guaranteed on an unsubordinated, unsecured basis by Eaton and certain of its direct and indirect subsidiaries. The 2021 Euro Notes contain customary optional redemption and par call provisions. The 2021 Euro Notes also contain a change of control provision which requires the Company to make an offer to purchase all or any part of the 2021 Euro Notes at a purchase price of 101% of the principal amount plus accrued and unpaid interest. The capitalized deferred financing fees are amortized in Interest expense-net over the respective terms of the 2021 Euro Notes. The 2021 Euro Notes are subject to customary non-financial covenants.

Note 8.    RETIREMENT BENEFITS PLANS
The components of retirement benefits expense (income) follow:
United States
pension benefit expense (income)
Non-United States
pension benefit expense (income)
Other postretirement
benefits expense (income)
Three months ended March 31
 202120202021202020212020
Service cost$10 $24 $19 $18 $$
Interest cost17 26 10 11 
Expected return on plan assets(56)(57)(30)(27)
Amortization10 25 19 15 (1)(3)
(19)18 18 17 (1)
Settlements, curtailments and special termination benefits14 17 
Total expense (income)$(5)$35 $18 $20 $$(1)
During 2020, the Company announced it was freezing its United States pension plans for its non-union employees. The freeze was effective January 1, 2021 for non-union U.S. employees whose retirement benefit was determined under a cash balance formula and is effective January 1, 2026 for non-union U.S. employees whose retirement benefit is determined under a final average pay formula.
The components of retirement benefits expense (income) other than service costs are included in Other (income) expense - net.

Note 9.    LEGAL CONTINGENCIES
Eaton is subject to a broad range of claims, administrative and legal proceedings such as lawsuits that relate to contractual allegations, tax audits, patent infringement, personal injuries, antitrust matters, and employment-related matters. Eaton is also subject to asbestos claims from historic products which may have contained asbestos. Insurance may cover some of the costs associated with these claims and proceedings. Although it is not possible to predict with certainty the outcome or cost of these matters, the Company believes they will not have a material adverse effect on the consolidated financial statements.
 
Note 10.     INCOME TAXES
The effective income tax rate for the first quarter of 2021 was expense of 14.7% compared to expense of 29.5% for the first quarter of 2020. The decrease in the effective tax rate in the first quarter of 2021 was primarily due to the tax impact on the gain from the sale of the Lighting business in 2020 described in Note 2.
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Note 11. EQUITY
On February 27, 2019, the Board of Directors adopted a share repurchase program for share repurchases up to $5,000 of ordinary shares (2019 Program). Under the 2019 Program, the ordinary shares are expected to be repurchased over time, depending on market conditions, the market price of ordinary shares, capital levels, and other considerations. During the three months ended March 31, 2021 and 2020, 0.5 million and 14.2 million ordinary shares, respectively, were repurchased under the 2019 Program in the open market at a total cost of $59 and $1,300, respectively.
The changes in Shareholders’ equity follow:
Ordinary sharesCapital in excess of par valueRetained earningsAccumulated other comprehensive lossShares held in trustTotal Eaton shareholders' equityNoncontrolling interestsTotal equity
(In millions)SharesDollars
Balance at January 1, 2021398.1 $$12,329 $6,794 $(4,195)$(2)$14,930 $43 $14,973 
Net income— — — 458 — — 458 459 
Other comprehensive loss, net of tax(30)(30)— (30)
Cash dividends paid and accrued— — — (309)— — (309)— (309)
Issuance of shares under equity-based compensation plans0.9 — (1)— — — 
Changes in noncontrolling interest of consolidated subsidiaries - net— — — — — — — (2)(2)
Repurchase of shares(0.5)— — (59)— — (59)— (59)
Balance at March 31, 2021398.5 $$12,335 $6,883 $(4,225)$(2)$14,995 $42 $15,037 
Ordinary sharesCapital in excess of par valueRetained earningsAccumulated other comprehensive lossShares held in trustTotal Eaton shareholders' equityNoncontrolling interestsTotal equity
(In millions)SharesDollars
Balance at January 1, 2020413.3 $$12,200 $8,170 $(4,290)$(2)$16,082 $51 $16,133 
Net income— — — 438 — — 438 — 438 
Other comprehensive loss, net of tax(676)(676)— (676)
Cash dividends paid and accrued— — — (300)— — (300)(5)(305)
Issuance of shares under equity-based compensation plans0.9 — (1)— (1)— 
Changes in noncontrolling interest of consolidated subsidiaries - net— — — — — — — (3)(3)
Repurchase of shares(14.2)— — (1,300)— — (1,300)— (1,300)
Balance at March 31, 2020400.0 $$12,203 $7,007 $(4,966)$(3)$14,245 $43 $14,288 

The changes in Accumulated other comprehensive loss follow:
Currency translation and related hedging instrumentsPensions and other postretirement benefitsCash flow
hedges
Total
Balance at January 1, 2021$(2,647)$(1,481)$(67)$(4,195)
Other comprehensive (loss) income
   before reclassifications
(173)13 94 (66)
Amounts reclassified from Accumulated other
   comprehensive loss (income)
34 36 
Net current-period Other comprehensive
   (loss) income
(172)47 95 (30)
Balance at March 31, 2021$(2,819)$(1,434)$28 $(4,225)
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The reclassifications out of Accumulated other comprehensive loss follow:
Three months ended March 31, 2021Consolidated statements
of income classification
Currency translation losses
Sale of shares in associate company$(1)Other (income) expense - net
Tax benefit
Total, net of tax(1)
Amortization of defined benefit pensions and other postretirement benefits items
Actuarial loss and prior service cost(42)1
Tax benefit
Total, net of tax(34)
Gains and (losses) on cash flow hedges
Currency exchange contracts(4)Net sales and Cost of products sold
Commodity contractsCost of products sold
Tax benefit
Total, net of tax(1)
Total reclassifications for the period$(36)
1 These components of Accumulated other comprehensive loss are included in the computation of net periodic benefit cost. See Note 8 for additional information about pension and other postretirement benefits items.

Net Income Per Share Attributable to Eaton Ordinary Shareholders
A summary of the calculation of net income per share attributable to Eaton ordinary shareholders follows:
Three months ended
March 31
(Shares in millions)20212020
Net income attributable to Eaton ordinary shareholders$458 $438 
Weighted-average number of ordinary shares outstanding - diluted400.9 411.1 
Less dilutive effect of equity-based compensation2.6 1.8 
Weighted-average number of ordinary shares outstanding - basic398.3 409.3 
Net income per share attributable to Eaton ordinary shareholders
Diluted$1.14 $1.07 
Basic1.15 1.07 
For the first quarter of 2021 and 2020, 0.1 million and 0.3 million stock options, respectively, were excluded from the calculation of diluted net income per share attributable to Eaton ordinary shareholders because the exercise price of the options exceeded the average market price of the ordinary shares during the period and their effect, accordingly, would have been antidilutive.

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Note 12.    FAIR VALUE MEASUREMENTS
Fair value is measured based on an exit price, representing the amount that would be received to sell an asset or paid to satisfy a liability in an orderly transaction between market participants. Fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, a fair value hierarchy is established, which categorizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
A summary of financial instruments and contingent consideration recognized at fair value, and the fair value measurements used, follows:
TotalLevel 1Level 2Level 3
March 31, 2021    
Cash$354 $354 $$
Short-term investments945 945 
Net derivative contracts105 105 
Contingent consideration from acquisition of Green Motion (Note 2)(56)(56)
December 31, 2020    
Cash$438 $438 $$
Short-term investments664 664 
Net derivative contracts31 31 
Eaton values its financial instruments using an industry standard market approach, in which prices and other relevant information is generated by market transactions involving identical or comparable assets or liabilities.
Other Fair Value Measurements
Long-term debt and the current portion of long-term debt had a carrying value of $9,694 and fair value of $10,337 at March 31, 2021 compared to $8,057 and $9,075, respectively, at December 31, 2020. The fair value of Eaton's debt instruments were estimated using prevailing market interest rates on debt with similar creditworthiness, terms and maturities, and are considered a Level 2 fair value measurement.

15

Note 13.    DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
In the normal course of business, Eaton is exposed to certain risks related to fluctuations in interest rates, currency exchange rates and commodity prices. The Company uses various derivative and non-derivative financial instruments, primarily interest rate swaps, currency forward exchange contracts, currency swaps and, commodity contracts to manage risks from these market fluctuations. The instruments used by Eaton are straightforward, non-leveraged instruments. The counterparties to these instruments are financial institutions with strong credit ratings. Eaton maintains control over the size of positions entered into with any one counterparty and regularly monitors the credit rating of these institutions. Such instruments are not purchased and sold for trading purposes.
Derivative financial instruments are accounted for at fair value and recognized as assets or liabilities in the Consolidated Balance Sheets. Accounting for the gain or loss resulting from the change in the fair value of the derivative financial instrument depends on whether it has been designated, and is effective, as part of a hedging relationship and, if so, as to the nature of the hedging activity. Eaton formally documents all relationships between derivative financial instruments accounted for as designated hedges and the hedged item, as well as its risk-management objective and strategy for undertaking the hedge transaction. This process includes linking derivative financial instruments to a recognized asset or liability, specific firm commitment, forecasted transaction, or net investment in a foreign operation. These financial instruments can be designated as:
Hedges of the change in the fair value of a recognized fixed-rate asset or liability, or the firm commitment to acquire such an asset or liability (a fair value hedge); for these hedges, the gain or loss from the derivative financial instrument, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk, are recognized in income during the period of change in fair value.
Hedges of the variable cash flows of a recognized variable-rate asset or liability, or the forecasted acquisition of such an asset or liability (a cash flow hedge); for these hedges, the gain or loss from the derivative financial instrument is recognized in Accumulated other comprehensive income and reclassified to income in the same period when the gain or loss on the hedged item is included in income.
Hedges of the currency exposure related to a net investment in a foreign operation (a net investment hedge); for these hedges, the gain or loss from the derivative financial instrument is recognized in Accumulated other comprehensive income and reclassified to income in the same period when the gain or loss related to the net investment in the foreign operation is included in income.
The gain or loss from a derivative financial instrument designated as a hedge is classified in the same line of the Consolidated Statements of Income as the offsetting loss or gain on the hedged item. The cash flows resulting from these financial instruments are classified in operating activities on the Condensed Consolidated Statements of Cash Flows.
For derivatives that are not designated as a hedge, any gain or loss is immediately recognized in income. The majority of derivatives used in this manner relate to risks resulting from assets or liabilities denominated in a foreign currency and certain commodity contracts that arise in the normal course of business.
Eaton uses certain of its debt denominated in foreign currency to hedge portions of its net investments in foreign operations against foreign currency exposure (net investment hedges). Foreign currency denominated debt designated as a non-derivative net investment hedging instruments had a carrying value on an after-tax basis of $2,973 at March 31, 2021 and $2,020 at December 31, 2020.
16

Derivative Financial Statement Impacts
The fair value of derivative financial instruments recognized in the Consolidated Balance Sheets follows:
Notional
amount
Other
 current
assets
Other
noncurrent
assets
Other
current
liabilities
Other
noncurrent
liabilities
Type of
hedge
Term
March 31, 2021      
Derivatives designated as hedges      
Fixed-to-floating interest rate
 swaps
$2,075 $$82 $$Fair value
3 months to
13 years
Forward starting floating-to-fixed
 interest rate swaps
900 67 29 Cash flow11 to 31 years
Currency exchange contracts1,295 15 25 Cash flow1 to 36 months
Commodity contracts23 Cash flow1 to 11 months
Total $21 $155 $25 $30   
Derivatives not designated as
 hedges
      
Currency exchange contracts$5,667 $29 $47  1 to 12 months
Commodity contracts37  1 month
Total $31 $47   
December 31, 2020      
Derivatives designated as hedges      
Fixed-to-floating interest rate
 swaps
$2,075 $$100 $$Fair value6 months to 14 years
Forward starting floating-to-fixed
 interest rate swaps
900 17 108 Cash flow12 to 32 years
Currency exchange contracts946 20 20 Cash flow1 to 36 months
Commodity contracts24 Cash flow1 to 12 months
Total $26 $123 $20 $109   
Derivatives not designated as
 hedges
      
Currency exchange contracts$5,227 $43 $34  1 to 12 months
Commodity contracts18  1 month
Total $45 $34   
The currency exchange contracts shown in the table above as derivatives not designated as hedges are primarily contracts entered into to manage currency volatility or exposure on intercompany receivables, payables and loans. While Eaton does not elect hedge accounting treatment for these derivatives, Eaton targets managing 100% of the intercompany balance sheet exposure to minimize the effect of currency volatility related to the movement of goods and services in the normal course of its operations. This activity represents the great majority of these currency exchange contracts. The cash flows resulting from the settlement of these derivatives have been classified in investing activities in the Condensed Consolidated Statements of Cash Flows.

17

As of March 31, 2021, the volume of outstanding commodity contracts that were entered into to hedge forecasted transactions:
CommodityMarch 31, 2021Term
Coppermillions of pounds1 to 11 months
Gold1,346 Troy ounces1 to 11 months
The following amounts were recorded on the Consolidated Balance Sheets related to fixed-to-floating interest rate swaps:
Carrying amount of the hedged assets (liabilities)
Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged asset (liabilities) (a)
Location on Consolidated Balance SheetsMarch 31, 2021December 31, 2020March 31, 2021December 31, 2020
Long-term debt$(2,688)$(2,688)$(119)$(139)
(a) At March 31, 2021 and December 31, 2020, these amounts include the cumulative liability amount of fair value hedging adjustments remaining for which the hedge accounting has been discontinued of $36 and $37, respectively.
The impact of hedging activities to the Consolidated Statements of Income are as follow:
Three months ended March 31, 2021
Net SalesCost of products soldInterest expense - net
Amounts from Consolidated Statements of Income$4,692 $3,184 $38 
Gain (loss) on derivatives designated as cash flow hedges
Currency exchange contracts
Hedged item$$$
Derivative designated as hedging instrument(3)(1)
Commodity contracts
Hedged item$$(2)$
Derivative designated as hedging instrument
Gain (loss) on derivatives designated as fair value hedges
Fixed-to-floating interest rate swaps
Hedged item$$$19 
Derivative designated as hedging instrument(19)
18

Three months ended March 31, 2020
Net SalesCost of products soldInterest expense - net
Amounts from Consolidated Statements of Income$4,789 $3,302 $34 
Gain (loss) on derivatives designated as cash flow hedges
Currency exchange contracts
Hedged item$$(3)$
Derivative designated as hedging instrument
Commodity contracts
Hedged item$$$
Derivative designated as hedging instrument
Gain (loss) on derivatives designated as fair value hedges
Fixed-to-floating interest rate swaps
Hedged item$$$(68)
Derivative designated as hedging instrument68 

The impact of derivatives not designated as hedges to the Consolidated Statements of Income are as follow:
Gain (loss) recognized in Consolidated Statements of IncomeConsolidated Statements of Income classification
 Three months ended
March 31
 20212020
Gain (loss) on derivatives not designated as hedges 
Currency exchange contracts$(63)$(149)Interest expense - net
Commodity ContractsCost of products sold
Total$(61)$(149)


19

The impact of derivative and non-derivative instruments designated as hedges to the Consolidated Statements of Income and Comprehensive Income follow:
Gain (loss) recognized in
other comprehensive
(loss) income
Location of gain (loss)
reclassified from
Accumulated other
comprehensive loss
Gain (loss) reclassified
from Accumulated other
comprehensive loss
Three months ended
March 31
Three months ended
March 31
2021202020212020
Derivatives designated as cash
   flow hedges
Forward starting floating-to-fixed
interest rate swaps
$129 $(147)Interest expense - net$$
Currency exchange contracts(13)(42)Net sales and Cost of products sold(4)
Commodity contracts(2)Cost of products sold
Non-derivative designated as net
   investment hedges
Foreign currency denominated debt144 43 Interest expense - net
Total$263 $(148)$(2)$
At March 31, 2021, a loss of $5 of estimated unrealized net gains or losses associated with our cash flow hedges were expected to be reclassified to income from Accumulated other comprehensive loss within the next twelve months. These reclassifications relate to our designated foreign currency and commodity hedges that will mature in the next 12 months.

20

Note 14.    RESTRUCTURING CHARGES
In the second quarter of 2020, Eaton decided to undertake a multi-year restructuring program to reduce its cost structure and gain efficiencies in its business segments and at corporate in order to respond to declining market conditions. Restructuring charges incurred under this program were $214 in 2020 and $16 for the three months ended March 31, 2021. These restructuring activities are expected to incur additional expenses of $45 in 2021, and $5 in 2022, primarily comprised of plant closing costs and other costs, resulting in total estimated charges of $280 for the entire program.
A summary of restructuring program charges by type follows:
Three months ended March 31, 2021
Workforce reductions$
Plant closing and other14 
Total before income taxes16 
Income tax benefit
Total after income taxes$12 
Per ordinary share - diluted$0.03 

Restructuring program charges related to the following segments:
Three months ended March 31, 2021
Electrical Americas$
Electrical Global
Aerospace
Vehicle
Corporate
Total$16 

A summary of liabilities related to workforce reductions, plant closing and other associated costs follows:
Workforce reductionsPlant closing and otherTotal
Balance at January 1, 2020$$$
  Liability recognized172 42 214 
  Payments, utilization and translation(33)(39)(72)
Balance at December 31, 2020139 142 
  Liability recognized14 16 
  Payments, utilization and translation(25)(6)(31)
Balance at March 31, 2021$116 $11 $127 
These restructuring program charges were included in Cost of products sold, Selling and administrative expense, Research and development expense, or Other (income) expense - net, as appropriate. In Business Segment Information, these restructuring program charges are treated as Corporate items. See Note 15 for additional information about business segments.

21

Note 15.    BUSINESS SEGMENT INFORMATION
Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated on a regular basis by the chief operating decision maker, or decision making group, in deciding how to allocate resources to an individual segment and in assessing performance. Eaton's operating segments are Electrical Americas, Electrical Global, Hydraulics, Aerospace, Vehicle, and eMobility. Operating profit includes the operating profit from intersegment sales. For additional information regarding Eaton's business segments, see Note 17 to the Consolidated Financial Statements contained in the 2020 Form 10-K.
Three months ended
March 31
20212020
Net sales
Electrical Americas$1,622 $1,788 
Electrical Global1,253 1,144 
Hydraulics561 507 
Aerospace519 680 
Vehicle654 598 
eMobility83 72 
Total net sales$4,692 $4,789 
Segment operating profit (loss)
Electrical Americas$332 $308 
Electrical Global213 166 
Hydraulics84 55 
Aerospace96 147 
Vehicle113 81 
eMobility(7)
Total segment operating profit831 758 
Corporate
Intangible asset amortization expense(92)(87)
Interest expense - net(38)(34)
Pension and other postretirement benefits income (expense)14 (8)
Restructuring program charges(16)
Other expense - net(161)(8)
Income before income taxes538 621 
Income tax expense79 183 
Net income459 438 
Less net income for noncontrolling interests(1)
Net income attributable to Eaton ordinary shareholders$458 $438 


22

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 2020 net sales of $17.9 billion. 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 our customers effectively manage electrical, hydraulic, and mechanical power - more safely, more efficiently and more reliably. Eaton has approximately 92,000 employees in 60 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
March 31
 20212020
Net sales$4,692 $4,789 
Net income attributable to Eaton ordinary shareholders458 438 
Net income per share attributable to Eaton ordinary shareholders - diluted$1.14 $1.07 

In the second quarter of 2020, Eaton decided to undertake a multi-year restructuring program to reduce its cost structure and gain efficiencies in its business segments and at corporate in order to respond to declining market conditions. Restructuring charges incurred under this program were $214 in 2020 and $16 for the three months ended March 31, 2021. These restructuring activities are expected to incur additional expenses of $45 in 2021, and $5 in 2022, primarily comprised of plant closing costs and other costs, resulting in total estimated charges of $280 for the entire program. The projected mature year savings from these restructuring actions are expected to be $200 when fully implemented in 2023. Additional information related to this restructuring is presented in Note 14.
On February 25, 2020, Eaton acquired Power Distribution, Inc. a leading supplier of mission critical power distribution, static switching, and power monitoring equipment and services for data centers and industrial and commercial customers. The company is headquartered in Richmond, Virginia, and had 2019 sales of $125. Power Distribution, Inc. is reported within the Electrical Americas business segment.
On March 2, 2020, Eaton sold its Lighting business to Signify N.V. for a cash purchase price of $1.4 billion. As a result of the sale, the Company recognized a pre-tax gain of $221 in 2020. The Lighting business, which had sales of $1.6 billion in 2019 as part of the Electrical Americas business segment, served customers in commercial, industrial, residential, and municipal markets.
On January 21, 2020, Eaton entered into an agreement to sell its Hydraulics business to Danfoss A/S, a Danish industrial company, for $3.3 billion in cash. Eaton’s Hydraulics business is a global leader in hydraulics components, systems, and services for industrial and mobile equipment. The business had sales of $1.8 billion in 2020. The transaction is subject to customary closing conditions and regulatory approvals and is expected to close in the second quarter of 2021.
On January 31, 2021, Eaton signed an agreement to acquire Cobham Mission Systems (CMS), a leading manufacturer of air-to-air refueling systems, environmental systems, and actuation primarily for defense markets. Under the terms of the agreement, Eaton will pay $2.83 billion. CMS had sales of over $700 in 2020. The transaction is subject to customary closing conditions and is expected to close the beginning of the fourth quarter of 2021. CMS will be reported within the Aerospace business segment.
On March 17, 2021, Eaton acquired Tripp Lite for $1.65 billion, net of cash received. Tripp Lite is a leading supplier of power quality products and connectivity solutions including single-phase uninterruptible power supply systems, rack power distribution units, surge protectors, and enclosures for data centers, industrial, medical, and communications markets in the Americas. Tripp Lite had sales of over $400 in 2020. Tripp Lite is reported within the Electrical Americas business segment.
23


On March 22, 2021, Eaton acquired Green Motion SA, a leading designer and manufacturer of electric vehicle charging hardware and related software based in Switzerland. Green Motion SA was acquired for $105, including $49 of cash paid at closing and $56 of estimated fair value of contingent future consideration based on 2023 and 2024 revenue performance, with a maximum possible undiscounted value of $109. Green Motion SA is reported within the Electrical Global business segment.
On March 29, 2021, Eaton acquired a 50 percent stake in HuanYu High Tech, a subsidiary of HuanYu Group that manufactures and markets low-voltage circuit breakers and contactors in China, and throughout the Asia-Pacific region. HuanYu High Tech had 2019 sales of $106 and has production operations in Wenzhou, China. Eaton accounts for this investment on the equity method of accounting and is reported within the Electrical Global business segment.

COVID-19
The Company has been impacted by the COVID-19 pandemic and continues to be impacted in select markets and industries. The Company monitors the pandemic’s impact throughout the world, including guidance from governmental authorities and world health organizations. Our businesses are focused on cost control measures where appropriate to offset the volume declines in addition to executing on our multi-year restructuring program we decided to undertake in the second quarter of 2020.
Eaton's products and support services are vital to hospitals, emergency services, military sites, utilities, public works, transportation, and shipping providers. In addition, data centers, retail outlets, airports, and governments, as well as the networks that support schools and remote workers, rely on the Company's products to serve their customers and communities. As a result, the Company's businesses are deemed essential to continue operating by almost all governments around the world, and our plants are generally not subject to extended shutdowns.
The Company’s actions to protect the safety and health of its workforce are aligned with its preventive health protocols and those of governmental authorities and health organizations including the Centers for Disease Controls (U.S.) and the World Health Organization.

RESULTS OF OPERATIONS
Non-GAAP Financial Measures
The following discussion of Consolidated Financial Results includes certain non-GAAP financial measures. These financial measures include adjusted earnings and adjusted earnings per ordinary share, each of which differs from the most directly comparable measure calculated in accordance with generally accepted accounting principles (GAAP). A reconciliation of adjusted earnings and adjusted earnings per ordinary share to the most directly comparable GAAP measure is included in the Consolidated Financial Results table below. During the first quarter of 2021, the Company revised its definition of adjusted earnings to exclude intangible asset amortization expense and prior periods have been retrospectively adjusted to apply this change. Management believes that these financial measures are useful to investors because they exclude certain transactions, allowing investors to more easily compare Eaton’s financial performance period to period. Management uses this information in monitoring and evaluating the on-going performance of Eaton.
24

Acquisition and Divestiture Charges
Eaton incurs integration charges and transaction costs to acquire businesses, and transaction costs and other charges to divest and exit businesses. Eaton also recognizes gains and losses on the sale of businesses. A summary of these Corporate items follows:
Three months ended
March 31
 20212020
Acquisition integration, divestiture charges and transaction costs$46 $132 
Gain on the sale of the Lighting business— (221)
Total before income taxes46 (89)
Income tax expense (benefit)(9)98 
Total after income taxes$37 $
Per ordinary share - diluted$0.09 $0.02 
Acquisition integration, divestiture charges and transaction costs in 2021 are primarily related to the planned divestiture of the Hydraulics business, the acquisitions of Tripp Lite, Souriau-Sunbank Connection Technologies, and Ulusoy Elektrik Imalat Taahhut ve Ticaret A.S., the planned acquisition of Cobham Mission Systems, and other charges to exit businesses. Charges in 2020 are primarily related to the planned divestiture of the Hydraulics business, the divestiture of the Lighting business, and the acquisitions of Ulusoy Elektrik and Souriau-Sunbank. These charges were included in Cost of products sold, Selling and administrative expense, Research and development expense, or Other (income) expense - net. In Business Segment Information in Note 15, the charges were included in Other expense - net.
Intangible Asset Amortization Expense
Intangible asset amortization expense follows:
Three months ended
March 31
 20212020
Intangible asset amortization expense$92 $87 
Income tax benefit22 20 
Total after income taxes$70 $67 
Per ordinary share - diluted$0.18 $0.16 

25

Consolidated Financial Results
Three months ended
March 31
Increase (decrease)
 20212020
Net sales$4,692 $4,789 (2)%
Gross profit1,508 1,487 %
Percent of net sales32.1 %31.1 %
Income before income taxes538 621 (13)%
Net income459 438 %
Less net income for noncontrolling interests(1)— 
Net income attributable to Eaton ordinary shareholders458 438 %
Excluding acquisition and divestiture charges, after-tax37 
Excluding restructuring program charges, after-tax12 — 
Excluding intangible asset amortization expense, after-tax70 67 
Adjusted earnings$577 $514 12 %
Net income per share attributable to Eaton ordinary shareholders - diluted$1.14 $1.07 %
Excluding per share impact of acquisition and divestiture charges, after-tax0.09 0.02 
 Excluding per share impact of restructuring program charges, after-tax0.03 — 
Excluding per share impact of intangible asset amortization expense, after-tax0.18 0.16 
Adjusted earnings per ordinary share$1.44 $1.25 15 %

Net Sales
Net sales decreased 2% in the first quarter of 2021 compared to the first quarter of 2020 due to a decrease of 5.5% from the divestiture of the Lighting business discussed in Note 2, partially offset by an increase of 2% from the impact of positive currency translation, an increase of 1% from acquisitions of businesses, and an increase of 0.5% in organic sales. The increase in organic sales in the first quarter of 2021 reflects organic growth in all business segments except for a decrease in the Aerospace business segment due to the impact of the COVID-19 pandemic on commercial aviation.
Gross Profit
Gross profit margin increased from 31.1% in the first quarter of 2020 to 32.1% in the first quarter of 2021. The increase in gross profit margin in the first quarter of 2021 was primarily due to Electrical Americas, Electrical Global, Hydraulics and Vehicle business segments had higher sales volumes, and savings from restructuring actions and other cost control measures, partially offset by lower sales volumes in the Aerospace business segment.
Income Taxes
The effective income tax rate for the first quarter of 2021 was expense of 14.7% compared to expense of 29.5% for the first quarter of 2020. The decrease in the effective tax rate in the first quarter of 2021 was primarily due to the tax impact on the gain from the sale of the Lighting business in 2020 described in Note 2.
Net Income
Net income attributable to Eaton ordinary shareholders of $458 in the first quarter of 2021 increased 5% compared to Net income attributable to Eaton ordinary shareholders of $438 in the first quarter of 2020. Net income in the first three months of 2020 included an after-tax gain of $91 on the sale of the Lighting business discussed in Note 2. The increase in the first quarter of 2021 was primarily due to higher sales volumes, savings from restructuring actions and other cost control measures, and a lower effective income tax rate.
Net income per ordinary share increased to $1.14 in the first quarter of 2021 compared to $1.07 in the first quarter of 2020. Net income per ordinary share in the first three months of 2020 included $0.22 from the sale of the Lighting business. The increase in Net income per ordinary share in the first quarter of 2021 was due to higher Net income attributable to Eaton ordinary shareholders and the impact of the Company's share repurchases over the past year.
26

Adjusted Earnings
Adjusted earnings of $577 in the first quarter of 2021 increased 12% compared to Adjusted earnings of $514 in the first quarter of 2020. The increase in Adjusted earnings in the first quarter of 2021 was primarily due to higher Net income attributable to Eaton ordinary shareholders, adjusted for higher acquisition and divestiture charges, restructuring program charges, and intangible asset amortization expense.
Adjusted earnings per ordinary share increased to $1.44 in the first quarter of 2021 compared to $1.25 in the first quarter of 2020. The increase in Adjusted earnings per ordinary share in the first quarter was due to higher Adjusted earnings and 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.
Electrical Americas
Three months ended
March 31
Increase (decrease)
 20212020
Net sales$1,622 $1,788 (9)%
Operating profit$332 $308 %
Operating margin20.5 %17.2 %
Net sales decreased 9% in the first quarter of 2021 compared to the first quarter of 2020 due to a decrease of 14% from the divestiture of the Lighting business, partially offset by an increase of 2% in organic sales, an increase of 2% from the acquisitions of Tripp Lite and Power Distribution, Inc., and an increase of 1% from the impact of positive currency translation. The increase in organic sales in the first quarter of 2021 was primarily due to growth in residential, data center and utility end-markets, partially offset by weakness in commercial and industrial markets.
The operating margin increased from 17.2% in the first quarter of 2020 to 20.5% in the first quarter of 2021. The increase in operating margin in the first quarter of 2021 was primarily due to savings from restructuring actions and other cost control measures, the favorable impact from the divestiture of the Lighting business, and higher organic sales volumes.
Electrical Global
Three months ended
March 31
Increase (decrease)
 20212020
Net sales$1,253 $1,144 10 %
Operating profit$213 $166 28 %
Operating margin17.0 %14.5 %
Net sales increased 10% in the first quarter of 2021 compared to the first quarter of 2020 due to an increase of 5% in organic sales and an increase of 5% from the impact of positive currency translation. The increase in organic sales in the first quarter of 2021 was primarily due to growth in residential, data center and utility end-markets, partially offset by weakness in global oil and gas markets.
The operating margin increased from 14.5% in the first quarter of 2020 to 17.0% in the first quarter of 2021 primarily due to higher sales volumes, and savings from restructuring actions and other cost control measures, partially offset by unfavorable product mix.
27

Hydraulics
Three months ended
March 31
Increase (decrease)
 20212020
Net sales$561 $507 11 %
Operating profit$84 $55 53 %
Operating margin15.0 %10.8 %
Net sales increased 11% in the first quarter of 2021 compared to the first quarter of 2020 due to an increase of 9% in organic sales, and an increase of 2% from the impact of positive currency translation. The increase in organic sales in the first quarter of 2021 was primarily due to growth in both OEMs and distributors in the Asia-Pacific and Europe regions.
The operating margin increased from 10.8% in the first quarter of 2020 to 15.0% in the first quarter of 2021 primarily due to higher sales volumes and savings from other cost control measures.
Aerospace
Three months ended
March 31
Increase (decrease)
 20212020
Net sales$519 $680 (24)%
Operating profit$96 $147 (35)%
Operating margin18.5 %21.6 %
Net sales decreased 24% in the first quarter of 2021 compared to the first quarter of 2020 due to a decrease of 26% in organic sales, partially offset by an increase of 2% from the impact of positive currency translation. The decrease in organic sales in the first quarter of 2021 was primarily due to the impact of the COVID-19 pandemic on commercial aviation.
The operating margin decreased from 21.6% in the first quarter of 2020 to 18.5% in first quarter of 2021 primarily due to lower sales volumes, partially offset by savings from restructuring actions and other cost control measures.
Vehicle
Three months ended
March 31
Increase (decrease)
 20212020
Net sales$654 $598 %
Operating profit$113 $81 40 %
Operating margin17.3 %13.5 %
Net sales increased 9% in the first quarter of 2021 compared to the first quarter of 2020 due to an increase of 9% in organic sales. The increase in organic sales in the first quarter of 2021 was due to growth in global commercial vehicle and China passenger car markets.
The operating margin increased from 13.5% in the first quarter of 2020 to 17.3% in the first quarter of 2021 primarily due to higher sales volumes, and savings from restructuring actions and other cost control measures.
28

eMobility
Three months ended
March 31
Increase (decrease)
 20212020
Net sales$83 $72 15 %
Operating profit (loss)$(7)$(800)%
Operating margin(8.4)%1.4 %
Net sales increased 15% in the first quarter of 2021 compared to the first quarter of 2020 due to an increase of 13% in organic sales, and an increase of 2% from the impact of positive currency translation. The increase in organic sales in the first quarter of 2021 was primarily due to growth in global markets which was driven by both high and low voltage products for a range of vehicles.
The operating margin decreased from 1.4% in the first quarter of 2020 to negative 8.4% in the first quarter of 2021. The decrease in operating margin in the first quarter of 2021 was primarily due to increased research and development costs and manufacturing start-up costs associated with new electric vehicle programs, partially offset by higher sales volumes.

Corporate Expense
Three months ended
March 31
Increase (decrease)
20212020
Intangible asset amortization expense$92 $87 %
Interest expense - net38 34 12 %
Pension and other postretirement benefits (income) expense(14)(275)%
Restructuring program charges16 — NM
Other expense - net161 1,913 %
Total corporate expense$293 $137 114 %
Total corporate expense was $293 in the first quarter of 2021 compared to Total corporate expense of $137 in the first quarter of 2020. The increase in Total corporate expense for the first quarter of 2021 was primarily due to higher Other expense - net, partially offset by the favorable impact of the freeze on the Company's United States pension plans discussed in Note 8. The increase in Other expense - net is primarily due to the gain on sale of a business recognized in the first quarter of 2020 discussed in Note 2, partially offset by lower acquisition and divestiture charges.

29

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 March 31, 2021. Over the course of a year, cash, short-term investments, and short-term debt may fluctuate in order to manage global liquidity. Eaton completed the $1.4 billion sale of our Lighting Business on March 2, 2020 and completed the acquisition of Tripp Lite for $1.65 billion on March 17, 2021. Eaton expects to complete the sale of our Hydraulics Business for $3.3 billion in cash in the second quarter of 2021 and expects to close the acquisition of Cobham Mission Systems for $2.83 billion the beginning of the fourth quarter of 2021. 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, fund acquisitions of businesses, as well as scheduled payments of long-term debt.
On March 8, 2021, a subsidiary of Eaton issued Euro denominated notes (2021 Euro Notes) with a face value of €1,500 ($1,798), in accordance with Regulation S promulgated under the Securities Act of 1933, as amended. The 2021 Euro Notes are comprised of two tranches of €900 and €600, which mature in 2026 and 2030, respectively, with interest payable annually at a respective rate of 0.128% and 0.577%. The issuer received proceeds totaling €1,494 ($1,790) from the issuance, net of financing costs and discounts.
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 $260 in the first three months of 2021, a decrease of $63 compared to $323 in the first three months of 2020. The decrease in net cash provided by operating activities in the first three months of 2021 was driven by a pension contribution to Eaton's U.S. qualified pension plan in 2021, partially offset by lower working capital balances compared to 2020.
Investing Cash Flow
Net cash used in investing activities was $2,201 in the first three months of 2021, an increase of $3,301 in the use of cash compared to net cash provided by investing activities of $1,100 in the first three months of 2020. The increase in the use of cash was primarily driven by cash paid for business acquisitions discussed in Note 2, proceeds received in 2020 from the sale of the Lighting business discussed in Note 2, and net purchases of short-term investments of $280 in 2021 compared to net sales of $30 in 2020.
Financing Cash Flow
Net cash provided by financing activities was $1,875 in the first three months of 2021, an increase of $3,405 in the source of cash compared to net cash used in investing activities of $1,530 in the first three months of 2020. The increase in the source of cash was primarily due to higher proceeds from borrowings of $2,261 in 2021 compared to $83 in 2020 and lower share repurchases of $59 in 2021 compared to $1,300 in 2020.

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Guaranteed Debt
Issuers, Guarantors and Guarantor Structure    
Eaton Corporation has issued senior notes pursuant to indentures dated April 1, 1994 (the 1994 Indenture), November 20, 2012 (the 2012 Indenture) and September 15, 2017 (the 2017 Indenture). The senior notes of Eaton Corporation are registered under the Securities Act of 1933, as amended (the Registered Senior Notes). Eaton Corporation is also the issuer of two outstanding series of privately placed debt securities (the PPNs), and Eaton Capital Unlimited Company, another subsidiary of Eaton, is the issuer of five outstanding series of debt securities sold in offshore transactions under Regulation S promulgated under the Securities Act (the Eurobonds). The 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 18 of its subsidiaries. Accordingly, they rank equally with each other. However, because these obligations are not secured, they would be effectively subordinated to any existing or future secured indebtedness of Eaton and its subsidiaries. As of March 31, 2021, Eaton has no material, long-term secured debt. The guaranteed Registered Senior Notes are also structurally subordinated to the liabilities of Eaton's subsidiaries that are not guarantors. Except as described below under Future Guarantors, Eaton is not obligated to cause its subsidiaries to guarantee the Registered Senior Notes.
The table set forth in Exhibit 22 filed with the Form 10-K filed on February 24, 2021, details the primary obligors and guarantors with respect to the guaranteed Registered Senior Notes.
Terms of Guarantees of Registered Securities
Payment of principal and interest on the Registered Senior Notes is guaranteed, on an unsecured, unsubordinated basis by the subsidiaries of Eaton set forth in the table referenced in Exhibit 22. Each guarantee is full and unconditional, and joint and several. Each guarantor's guarantee is an unsecured obligation that ranks equally with all its other unsecured and unsubordinated indebtedness. The obligations of each guarantor under its guarantee of the Registered Senior Notes is subject to a customary savings clause or similar provision designed to prevent such guarantee from constituting a fraudulent conveyance or otherwise legally impermissible or voidable obligation.
Generally, each guarantee of the Registered Senior Notes by a guarantor other than Eaton provides that it will be 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.
Future Guarantors
The 2012 and 2017 Indentures generally provide that, with certain limited exceptions, any subsidiary of Eaton must become a guarantor if it becomes obligated as borrower or guarantor under any series of debt securities or a syndicated credit facility. Further, any entity that becomes a direct or indirect parent entity of Eaton Corporation and holds any material assets, with certain limited exceptions, or owes any material liabilities must become a guarantor.
The 1994 Indenture does not contain provisions with respect to future guarantors.
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Summarized Financial Information of Guarantors and Issuers
March 31,
2021
December 31,
2020
Current assets$4,668 $4,031 
Noncurrent assets11,655 11,642 
Current liabilities3,491 2,916 
Noncurrent liabilities10,409 9,049 
Amounts due to subsidiaries that are non-issuers and non-guarantors - net16,495 15,938 
Three months ended
March 31
2021
Net sales$2,525 
Sales to subsidiaries that are non-issuers and non-guarantors236 
Cost of products sold2,143 
Expense from subsidiaries that are non-issuers and non-guarantors - net112 
Net income10 
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 Hydraulics business, the completion of the Cobham Mission Systems acquisition, anticipated additional charges and projected savings from restructuring actions, the future impact of COVID-19, the performance of our end markets 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, 2020.

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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 Thomas B. Okray - Principal Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on that evaluation, management concluded that Eaton’s disclosure controls and procedures were effective as of March 31, 2021.
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 first quarter of 2021, 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 9 of the Notes to the condensed consolidated financial statements.

ITEM 1A.RISK FACTORS.
“Item 1A. Risk Factors” in Eaton's 2020 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 2020 Form 10-K.

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
(c) Issuer's Purchases of Equity Securities
During the first quarter of 2021, 0.5 million ordinary shares were repurchased in the open market at a total cost of $59 million. 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 first quarter of 2021 follows:
MonthTotal 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— $— — $2,094 
February490,583 $120.09 490,583 $2,035 
March— $— — $2,035 
Total490,583 $120.09 490,583 

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ITEM 6.EXHIBITS.
Eaton Corporation plc
First Quarter 2021 Report on Form 10-Q
3 (i)
3 (ii)
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8Pursuant 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 (4.2 - 4.7) hereto
22
31.1
31.2
32.1
32.2
101.INSXBRL 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.SCHXBRL Taxonomy Extension Schema Document *
101.CALXBRL Taxonomy Extension Calculation Linkbase Document *
101.DEFXBRL Taxonomy Extension Label Definition Document *
101.LABXBRL Taxonomy Extension Label Linkbase Document *
101.PREXBRL Taxonomy Extension Presentation Linkbase Document *
104Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
_______________________________
*Submitted electronically herewith.
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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:May 4, 2021By:/s/ Thomas B. Okray
Thomas B. Okray
  Principal Financial Officer
  (On behalf of the registrant and as Principal Financial Officer)

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