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OFFON

EATON CORPORATION PLC

(ETN)
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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)

05/04/2021 | 12:20pm EDT
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
                                                                                           2021             2020
Net sales                                                                               $ 4,692$ 4,789
Net income attributable to Eaton ordinary shareholders                                      458              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
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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
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  Table of Contents
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
                                                                                           2021             2020

Acquisition integration, divestiture charges and transaction costs

             $    46$   132
Gain on the sale of the Lighting business                                                     -             (221)
Total before income taxes                                                                    46              (89)
Income tax expense (benefit)                                                                 (9)              98
Total after income taxes                                                                $    37$     9
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
                                                                  2021      

2020

Intangible asset amortization expense                           $   92$   87
Income tax benefit                                                  22          20
Total after income taxes                                        $   70$   67
Per ordinary share - diluted                                    $ 0.18$ 0.16



                                       25

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