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MarketScreener Homepage  >  Equities  >  Nyse  >  Eaton Corporation plc    ETN   IE00B8KQN827

EATON CORPORATION PLC

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EATON : 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). (form 10-Q)

11/03/2020 | 12:35pm EST
COMPANY OVERVIEW
Eaton Corporation plc (Eaton or the Company) is a power management company with
2019 net sales of $21.4 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 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                     Nine months ended
                                                                    September 30                           September 30
                                                                2020                2019              2020              2019
Net sales                                                 $    4,526$ 5,314$  13,171$ 16,152
Net income attributable to Eaton ordinary shareholders           446                 601                935             1,759

Net income per share attributable to Eaton ordinary shareholders - diluted

                                    $     1.11

$ 1.44$ 2.31$ 4.16



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 for the three and
nine months ended September 30, 2020, were $10 and $197, respectively. These
restructuring activities are expected to incur additional expenses of $18 in the
fourth quarter of 2020, $60 in 2021, and $5 in 2022, primarily comprised of
plant closing costs, resulting in total estimated charges of $280 for the entire
program. The projected mature year savings from these restructuring actions are
expected to be $200 when fully implemented in 2023. Additional information
related to this restructuring is presented in Note 13.
During the first quarter of 2020, Eaton re-segmented certain reportable
operating segments due to a reorganization of the Company's businesses. The new
reportable segments are Electrical Americas and Electrical Global, which include
the legacy Electrical Products and Electrical Systems and Services segments.
Additionally, the Filtration and Golf Grip businesses previously included in the
Hydraulics segment, and the electrical aerospace connectors business previously
included in the Electrical Products segment, have been added to the Aerospace
reportable segment as part of the reorganization. The Company also changed how
it measures business segment performance in 2020 as it no longer allocates
acquisition and divestiture charges to its operating segments. Previously
reported financial information for these reportable segments has been updated
for 2019 in Note 14. The re-segmentation did not impact previously reported
consolidated results of operations.
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. The Company recognized a pre-tax gain of $221.
The Lighting business, which had sales of $1.6 billion in 2019 as part of the
Electrical Americas business segment, serves customers in commercial,
industrial, residential, and municipal markets.
On January 21, 2020, Eaton entered into an agreement to sell its Hydraulics
business to Danfoss A/S, a Danish industrial company, for $3.3 billion in cash.
Eaton's Hydraulics business is a global leader in hydraulics components,
systems, and services for industrial and mobile equipment. The business had
sales of $2.2 billion in 2019. The transaction is subject to customary closing
conditions and regulatory approvals and is expected to close by the end of the
first quarter of 2021.
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During the fourth quarter of 2019 and first quarter of 2020, the Company
determined the Lighting business and Hydraulics business, respectively, met the
criteria to be classified as held for sale. Therefore, assets and liabilities of
these businesses have been presented as held for sale in the Consolidated
Balance Sheets as of December 31, 2019 and September 30, 2020, respectively.
Assets and liabilities classified as held for sale are measured at the lower of
carrying value or fair value less costs to sell. There was no write-down as fair
values of both the Lighting business and Hydraulics business assets less their
costs to sell exceeded their respective carrying values. Depreciation and
amortization expense is not recorded for the period in which Other long-lived
assets are classified as held for sale.
COVID-19
The Company continued to be impacted by the COVID-19 pandemic in the third
quarter of 2020. Organic sales were down 9% for the third quarter primarily due
to the impact from the COVID-19 pandemic. The Company monitors the pandemic's
impact throughout the world, including guidance from governmental authorities
and world health organizations. Our businesses are focused on cost control to
offset the volume declines. During the third quarter, the Company implemented
the following actions:
•Continued reduction of senior executive base salaries in the third quarter
•25% reduction in cash retainer for non-employee members of the Board of
Directors in the third quarter
•Continued implementation of unpaid leave programs
•Reduction of discretionary expenses and implementation of travel and hiring
freezes
•Elimination of nonessential capital spending

We anticipate that several of our markets will take some time to recover.
Therefore in the second quarter of 2020, we decided to undertake a multi-year
restructuring program discussed in Note 13 to deal with that weakness. The
principal end markets affected are commercial aerospace, oil and gas, NAFTA
Class 8 trucks, and North American/European light vehicles.
Eaton's products and support services are vital to hospitals, emergency
services, military sites, utilities, public works, transportation, and shipping
providers. In addition, data centers, retail outlets, airports, and governments,
as well as the networks that support schools and remote workers, rely on the
Company's products to serve their customers and communities. As a result, the
Company's businesses are deemed essential to continue operating by almost all
governments around the world, and all of the Company's plants are currently
operating.
The Company is doing the following to protect the safety and health of its
workforce, as well as support customer's needs during this pandemic:
Protect our employees
•Trained our employees at sites around the world in cleaning and disinfecting
protocols
•Enacted social distancing procedures, staggered shifts, implemented a rotating
office work schedule, and modified workspace and meeting space layouts
•Requiring employees to stay at home if they are 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.
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  Table of Contents
Support our customers
Eaton has activated its business continuity management plans across the
organization, which includes:
•Staying in close contact with our suppliers to 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 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 table below, and excludes acquisition and divestiture expense
related primarily to the planned divestiture of the Hydraulics business, the
divestiture of the Lighting business, the acquisitions of Souriau-Sunbank,
Ulusoy Elektrik and Innovative Switchgear Solutions, Inc. (ISG), and other
charges to exit businesses, and restructuring program expense discussed in Note
13. Management believes that these financial measures are useful to investors
because they exclude certain transactions, allowing investors to more easily
compare Eaton's financial performance period to period. Management uses this
information in monitoring and evaluating the on-going performance of Eaton.
Acquisition and Divestiture Charges
Eaton 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                       Nine months ended
                                                                      September 30                            September 30
                                                                  2020                2019                2020                2019
Acquisition integration, divestiture charges, and
transaction costs                                          $       28$   39$      263$   65
Gain on the sale of the Lighting business                           -                    -                (221)                  -
Total before income taxes                                          28                   39                  42                  65
Income tax expense (benefit)                                       (7)                  (4)                 68                  (5)
Total after income taxes                                   $       21$   35$      110$   60
Per ordinary share - diluted                               $     0.05$ 0.08$     0.27$ 0.14


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



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© Edgar Online, source Glimpses

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