2022 Annual Report
2022 Annual Report
Powering
what matters
At Eaton, we make what matters work
and we power what matters next
Yesterday
We were founded on a spirit of innovation.
We began in an era of dramatic change in
transportation, where our products made
trucks safer, more reliable and more efficient.
Today
In 2023, we’re celebrating 100 years
as a public company.
In that time, we’ve never stopped transforming.
As we’ve evolved, we’ve stayed focused on our
responsibility to our key stakeholders – our employees,
customers, shareholders, communities – and all of society.
Tomorrow
We’re looking ahead to what’s next.
Trends like the energy transition and digitalization
are positioning us for a growth super cycle that
will put us on the leading edge of solving the
world’s intelligent power management needs.
100 years of creating
value for our stakeholders,
for society
To our shareholders:
This year marks an extraordinary milestone in Eaton’s history: the
100th anniversary of our listing on the New York Stock Exchange
(NYSE). Of the 2,400 companies currently being traded on the
NYSE, only 32 have been listed for 100 consecutive years or more.
We’d like to take this moment to reflect on Eaton’s progress
since first becoming a public company, and to consider how our
progress over the years reflects our resiliency and ability to adapt
to a rapidly changing world. While much about Eaton has changed
over the last 100 years, our values have remained the same. And
at the center of those values lies our relentless focus on serving
our customers.
Sustaining this focus over the past century has required that
we reinvent ourselves time and again, driven by our customers’
need for technologies and solutions that solve the world’s
most urgent power management challenges. Over time, we’ve
created value for our shareholders, customers, communities and
employees and made good on the broader promise we’ve made
to society: to improve the environment and the quality of life for
people everywhere.
Our latest transformation is our most significant yet. With $13
billion in capital expenditures and investments in R&D, and more
than $20 billion in acquisitions over the past decade, we’re a
profoundly different company than we were 10 years ago. Today,
we’re a global intelligent power management company delivering
faster growth and higher margins, and better earnings consistency.
In a dramatic shift from our vehicle beginnings, approximately
90% of our profits now come from our Electrical and Aerospace
businesses. And we’re the company we are today because of the
confidence that you, our shareholders, continue to show in our
management team.
While we’re proud of our history and all we’ve achieved, the best
days for our company are still to come. We’re only now beginning
to realize the benefits that powerful global trends will have on our
company: energy transition, the electrification of the economy and
digitalization will drive growth in our markets for years to come.
In 2022, we remained committed to the formula that has
led to our success: doing business right, focusing on our
customers, investing in differentiated technology, delivering
high-quality products, and serving all our stakeholders. When
we get this right, our shareholders are rewarded and continue
to invest in us.
Some of our most notable accomplishments in the year follow.
3
EATON 2022 Annual Report We created value for our shareholders.
Despite the year’s inflationary environment, labor shortages
and supply chain challenges, we delivered record segment
margins and adjusted earnings per share. And we once again
delivered strong total shareholder returns compared to our
peers and the S&P 500.
Our financial results for the year include
the following:
• Earnings per share for 2022 were $6.14. Excluding
charges of $0.99 per share related to intangible
amortization, $0.37 per share from acquisitions and
divestitures, and $0.07 per share related to a multi-year
restructuring program, adjusted earnings per share
were $7.57, up 14% over 2021.
• Segment margins for 2022 were 20.2%, a full-year record.
• Operating cash flow for 2022 was $2.5 billion.
• For the full year, 2022 sales were $20.8 billion, up 6%
from 2021.
• Finally, we posted 13% growth in organic revenue, which
was more than 60% above the midpoint of our original
guidance for the year.
While we exceeded the midpoint of our original guidance for
the year in three out of four of our financial metrics – organic
revenue, segment margins and adjusted EPS – we missed
on free cash flow due to our efforts to protect customers
with higher levels of inventory. We know we must and will do
better in 2023.
We created value for our customers.
• We expanded partnerships to enhance grid reliability
and began work with the U.S. federal government to
make electric transportation safer and more efficient.
We secured a growing number of wins tied to our
customers’ goals around electrification and energy
transition, including significant orders for our Breaktor®
power protection technology and solutions to support
electric vehicle charging stations and needed upgrades
to electrical infrastructure.
• We also helped customers address critical power
management challenges through our BrightlayerTM suite
of digital solutions. Our wins in the year moved us
closer to our target of achieving $500 million in revenue
from our smart and connected hardware, software and
digital services. In support of this goal, we enabled
13 existing Eaton hardware products to be smart and
connected and launched 9 new software offerings to
strengthen our Brightlayer suite.
We’re only now beginning to
realize the benefits that powerful
global trends will have on our company:
energy transition, the electrification of
the economy and digitalization will drive
growth in our markets for years to come.”
• We continued to invest in high-growth, high-margin
businesses to meet the changing needs of our
customers and strengthen our portfolio, closing the
acquisitions of Royal Power Solutions and a 50% stake
in the circuit breaker business of Jiangsu Huineng
Electric Co., Ltd.
We created value for our people.
• We maintained a strong focus on workplace safety,
delivering a safety performance that remained at
world-class levels, including a days-away injury rate that
improved by 6% over 2021. But our total recordable
injury rate was flat for the year at 0.39%, which shows
we’ll need to work harder to deliver our 2030 world-
leading target rate of 0.25%.
• We appointed leaders from inside Eaton to our topmost
leadership roles, naming Heath Monesmith and Paulo
Ruiz to lead our Electrical and Industrial Sectors,
respectively, and Terry Szmagala to lead our Legal
function. And early in 2023, Mike Yelton and
Pete Denk were named to succeed Brian Brickhouse
and João Faria following their retirements later this
year and will lead our Electrical Sector Americas Region
and Vehicle Group, respectively. These appointments
reflect the rigor of our succession planning efforts and
commitment to talent development across the enterprise.
• We strengthened our reputation as a values-driven
company, earning a 100% score on the Human Rights
2022 highlights
9
6% 18% $1.7B
new products added
to our Brightlayer suite
of digital solutions
improvement in
days-away injury rate
estimated reduction in
greenhouse gas emissions
since 2018
in goods and services
purchased from small and
diverse suppliers
Campaign’s 2022 Corporate Equality Index in the U.S.
for the seventh consecutive year. In addition, Eaton
was named one of the World’s Most Ethical Companies
by Ethisphere magazine, one of the World’s Most
Admired Companies by Fortune magazine, one of the
100 Best Corporate Citizens by 3BL Media and, for
the second year in a row, a Best Place to Work for
Disability Inclusion, earning a score of 100 out of 100
on the Disability Equality Index. Finally, our Legal team
achieved Mansfield Rule certification in recognition of
our efforts to elevate traditionally underrepresented
lawyers in our company.
We created value for society.
• We aggressively pursued our 2030 sustainability
targets and made substantial progress toward reducing
Eaton’s carbon footprint. At year’s end, we had reduced
greenhouse gas emissions from our operations by
an estimated 18% since 2018, keeping us on target
to meet our goal of a 50% reduction by 2030. We
also certified 20 additional Eaton sites as zero waste-
to-landfill, bringing us to 75% of our 2030 goal, and
certified nine additional Eaton sites as zero-water
discharge, representing 84% of our 2030 goal. Finally,
Eaton issued its first sustainability-linked bond, a
historic action that provides a financial incentive to meet
our emissions reduction goals.
100% SCORE
> 2022 Corporate Equality Index in the U.S.
> Human Rights Campaign
• We purchased approximately $1.7 billion in goods and
services from small and diverse suppliers, representing
32% of our overall spend with U.S. suppliers in the
year. Our goal remains to increase our spend with
small and diverse suppliers to 40% by 2030. And in
acknowledgment of our diverse business practices, we
were named among the Best-of-the-Best Corporations
in America for Inclusion by the National LGBT Chamber
of Commerce and its partners in the National Business
Inclusion Consortium.
• We celebrated our legacy of giving back to our
communities, marking the 30th anniversary of our
Stover Awards program, which honors our colleagues
for extraordinary acts of service. And our teams around
the world stepped up to provide vital support to those
impacted by the war in Ukraine, to deliver food and critical
supplies to Eaton employees who faced extended COVID
lockdowns in China, and to support relief efforts for those
affected by a series of deadly natural disasters in the year.
commitments with the publication of our annual
Sustainability, Task Force on Climate-related Financial
Disclosures (TCFD), and Global Inclusion and Diversity
Transparency reports.
OVER THE PAST DECADE
MORE THAN
$20B
$13B
IN ACQUISITIONS
IN CAPITAL
EXPENDITURES
AND INVESTMENTS
IN R&D
We’ve positioned Eaton for future value creation.
As we shift our focus to what comes next for Eaton, we do
so in a world that is going through a digital transformation
– a transformation that will drive the need for more of our
intelligent products and more data centers, a significant
growth segment for our company. Our Electrical business
will also benefit from secular growth trends tied to energy
transition. In addition, we’re gearing up to support our
Aerospace customers as they get ready for the coming
growth cycle in the commercial aerospace and defense
markets. And as the world continues to adopt electric
vehicles, our eMobility business will see transformative
growth. Finally, governments worldwide are investing heavily
in clean energy spending programs, important investments
that will increase the size of our served markets. We’re
well positioned in growth markets now and will be for years
to come.
In closing
As we celebrate Eaton’s 100th year as a public company,
we remain committed to maximizing the value we create
for our shareholders and for all those we serve. We’re
resolved to keep our promise to improve the quality of life
and the environment for people everywhere. And we’re
committed to earning the trust of our shareholders every
day, demonstrating that there’s never been a better time to
invest in Eaton.
Thank you for your continued confidence in our company.
• We transparently reported our progress on our
environmental, social and governance (ESG)
Craig Arnold
Chairman and Chief Executive Officer
5
$7.57
Adjusted earnings per
ordinary share
(Dollars per share)
$3.24
$20.8
$2.5
13%
Dividends per ordinary share
(Dollars per share)
Net sales
(Billions of dollars)
Cash flow from operations
(Billions of dollars)
Organic sales growth
Net income per share attributable to Eaton ordinary shareholders – diluted
$6.14
$5.34
$3.49
2022
2021
2020
Adjustments
Acquisition and divestiture charges
Restructuring program charges
Intangible asset amortization expense
Adjusted earnings per ordinary share
Company stock performance
0.37
0.07
0.99
$7.57
0.23
0.15
0.90
$6.62
0.33
0.42
0.67
$4.91
Eaton
S&P 500 Index
S&P 500 Industrials Index
$ 1 6 0
$ 1 4 0
$ 1 2 0
$ 1 0 0
$ 8 0
$ 6 0
$ 4 0
$ 2 0
$ 0
2 0 1 8
2 0 1 9
2 0 2 0
2 0 2 1
2 0 2 2
This graph compares the cumulative total return to shareholders for Eaton, the S&P 500 Index and the S&P 500 Industrials Index. The shareholder returns reflected on the graph assume dividends
were reinvested as of the ex-dividend date. Source: Bloomberg
6
EATON 2022 Annual Report
What’s good for the planet is good for Eaton
As an industry leader in environmental, social, and corporate
governance (ESG), we take our responsibilities to our
shareholders and to society seriously. ESG is an essential
part of our mission – to improve the quality of life and the
environment – and is critical to how we run the company
day to day.
We provide the world with products and solutions that help
customers manage power reliably, efficiently, safely, and
sustainably. And we’re actively working to decarbonize both
our operations and throughout our value chain in support
of the United Nations’ goal to be net zero by 2050. We’re
making good progress on our commitments and are on
track to realize our greenhouse gas reduction targets and to
become carbon neutral by 2030.
In our journey to optimize energy usage worldwide, we’re
focused on three key priorities: the energy transition to
renewables, electrification, and digitalization. Our alignment with
these trends will advance our mission to improve the planet and
society while driving significant growth within our businesses
and creating long-lasting value for all our stakeholders.
We know that to advance our sustainability initiatives, it
takes strong board and leadership oversight and a culture
of awareness, inclusion and engagement at all levels of the
organization. Fully engaged employees care about making a
difference, and they’re more productive and innovative in
their work.
It’s this innovative spirit that powers us to make sustainable
solutions for our future work – and allows us to keep our
promise to improve the lives of people today and the
generations who will follow.
We’ve made significant progress in advancing these initiatives through
our products and solutions. In our latest Sustainability Report, we reported:
More than
60%
More than
$500M
90%
of net sales are from sustainable solutions that enable electrification,
the energy transition to renewables, grid resilience, efficiency in
ground and air transportation or improved air quality.
invested in research and development to grow our sustainable
Positive Impact Solutions over the course of two years.
of our top new product development programs enabled a positive
sustainability impact.
7
EATON 2022 Annual Report
Shareholder information (This content was not included in our 10-K SEC filing.)
Annual general meeting of shareholders
The company’s 2023 Annual General Meeting of Shareholders will be held at 9:00 a.m., Dublin time, on Wednesday, April 26, 2023,
at Eaton House, 30 Pembroke Road, Dublin 4, Ireland. Formal notice of the meeting will be made available on or about March 17, 2023,
to each shareholder of record as of February 27, 2023.
Most Eaton shareholders will not receive a mailed copy of the Proxy Statement and Annual Report to Shareholders, but rather a
notice that these materials are available online. Eaton shareholders who currently receive paper copies, due to a prior election or due
to participation in an employee benefit plan, can register for electronic delivery of these materials as well as online proxy voting,
at http://enroll.icsdelivery.com/etn.
Annual report to shareholders
This 2022 Annual Report to Shareholders is available online at Eaton.com. Any shareholder may obtain at no charge a printed copy of
this Annual Report upon written request to the address shown below. Other public financial reports are also available on Eaton’s
website at Eaton.com.
Annual certifications
The most recent certifications required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 were filed as Exhibits 31.1,
31.2, 32.1 and 32.2 to Eaton’s Annual Report on Form 10-K for 2022. Additionally, Eaton submitted to the New York Stock Exchange
its 2022 Chief Executive Officer Certification regarding Eaton’s compliance with the corporate governance listing standards of the
Exchange.
Dividend reinvestment plan
Our dividend reinvestment plan is available to shareholders of record of Eaton Ordinary Shares. Through the plan, shareholders of
record may buy additional shares by reinvesting their cash dividends. Shareholders should refer to the Eaton DRIP Prospectus for
more information and associated fees.
Direct deposit of dividends
Shareholders of record may have their dividends directly deposited into their bank accounts. Interested shareholders of record should
contact Broadridge, as shown below.
Forward-looking statements
This Annual Report to Shareholders, including the Chairman’s letter, contains forward-looking statements concerning expectations
for the future and our corporate strategy, in addition to the forward-looking statements made in the Form 10-K included in this Annual
Report. These statements should be used with caution and are subject to various risks and uncertainties, many of which are outside
of Eaton’s control. Please see the factors described in the paragraph under the heading “Forward-Looking Statements” on page 96
of the Form 10-K included in this Annual Report to Shareholders for a discussion of the factors that could cause actual results to differ
materially from these forward-looking statements.
Broadridge Corporate Issuer Solutions
Regular Mail: P.O. Box 1342, Brentwood, NY 11717
Registered/Overnight Packages: ATTN: IWS, 1155 Long Island Ave., Edgewood, NY 11717
Phone: +1 888.597.8625 (U.S. & Canada) +1 303.562.9631 (Toll)
TDD: +1 855.627.5080 (hearing impaired inside the U.S.) | TDD: +1 720.399.2074 (hearing impaired outside the U.S.)
Email: shareholder@broadridge.com | Website: https://shareholder.broadridge.com/eaton-corp/
Eaton shareholder contact information
Investor Relations, Eaton, 1000 Eaton Boulevard, Cleveland, OH 44122 USA +1 440.523.3634. Eaton.com
Quarterly financial releases
Eaton’s financial results are available approximately four weeks after the end of each quarter.
Releases are available on Eaton’s website at Eaton.com. Copies may also be obtained by calling +1 440.523.3634.
Common shares
Listed for trading: New York Stock Exchange (Ticker Symbol: ETN)
8
EATON 2022 Annual Report
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the year ended December 31, 2022
Commission file number 000-54863
EATON CORPORATION plc
(Exact name of registrant as specified in its charter)
Ireland
(State or other jurisdiction of incorporation or organization)
98-1059235
(IRS Employer Identification Number)
Eaton House, 30 Pembroke Road, Dublin 4, Ireland
(Address of principal executive offices)
D04 Y0C2
(Zip Code)
+353 1637 2900
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Ordinary shares ($0.01 par value)
Trading Symbol
ETN
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☑ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐ No ☑
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 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
Smaller reporting company
☑
☐
Accelerated filer
Emerging growth company
☐
☐
Non-accelerated filer
☐
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 has filed a report on and attestation to its management's assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.
7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑
The aggregate market value of Ordinary Shares held by non-affiliates of the registrant as of June 30, 2022 was $50.2 billion.
As of January 31, 2023, there were 398.0 million Ordinary Shares outstanding.
Portions of the Proxy Statement for the 2023 annual shareholders meeting are incorporated by reference into Part III.
Documents Incorporated By Reference
Part I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 4A.
Part II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
Part III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Part IV
Item 15.
Item 16.
TABLE OF CONTENTS
Business ..................................................................................................................................................................................................
Risk Factors ............................................................................................................................................................................................
Unresolved Staff Comments ..................................................................................................................................................................
Properties ................................................................................................................................................................................................
Legal Proceedings ..................................................................................................................................................................................
Mine Safety Disclosures .........................................................................................................................................................................
Information about our Executive Officers ..............................................................................................................................................
Market for the Registrant's Ordinary Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities ...............................................................................................................................................................
[Reserved] ..............................................................................................................................................................................................
Management's Discussion and Analysis of Financial Condition and Results of Operations .................................................................
Quantitative and Qualitative Disclosures about Market Risk ................................................................................................................
Financial Statements and Supplementary Data ......................................................................................................................................
Change in and Disagreements with Accountants on Accounting and Financial Disclosure ..................................................................
Controls and Procedures .........................................................................................................................................................................
Other Information ...................................................................................................................................................................................
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. ..................................................................................................
Directors, Executive Officers and Corporate Governance .....................................................................................................................
Executive Compensation ........................................................................................................................................................................
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ..............................................
Certain Relationships and Related Transactions, and Director Independence .......................................................................................
Principal Accounting Fees and Services ................................................................................................................................................
Exhibits, Financial Statement Schedules ................................................................................................................................................
Form 10-K Summary ..............................................................................................................................................................................
SIGNATURES ....................................................................................................................................................................................................................
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Part I
Item 1. Business.
Eaton Corporation plc (Eaton or the Company) is an intelligent power management company dedicated to improving the
quality of life and protecting the environment for people everywhere. We are guided by our commitment to do business right, to
operate sustainably and to help our customers manage power – today and well into the future. By capitalizing on the global
growth trends of electrification and digitalization, we're accelerating the planet's transition to renewable energy, helping to solve
the world's most urgent power management challenges, and doing what's best for our stakeholders and all of society.
Eaton’s businesses are well-positioned to take advantage of secular growth trends related to the energy transition from fossil
fuels to renewables. We are responding to these trends by innovating solutions that transform the electrical power value chain,
investing in electrical vehicle markets, increasing our focus on electrification, and employing digital technologies for power
management. The Company’s innovations are expected to enable the integration of renewables and sustainability solutions,
with new types of equipment, services, and software. These strategic focus areas are an important part of our response to
climate change.
Founded in 1911, 2023 marks Eaton's 100th anniversary of being listed on the New York Stock Exchange. We reported
revenues of $20.8 billion in 2022 and serve customers in more than 170 countries.
Eaton electronically files or furnishes reports pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934
(Exchange Act) to the United States Securities and Exchange Commission (SEC), including annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, and proxy and information statements, as well as any
amendments to those reports. As soon as reasonably practicable, these reports are available free of charge through the
Company's website at www.eaton.com. These filings are also accessible on the SEC's website at www.sec.gov.
Acquisitions and Divestitures of Businesses
Information regarding the Company's acquisitions and divestitures is presented in Note 2 of the Notes to the Consolidated
Financial Statements.
Business Segment Information
Information by business segment regarding principal products, principal markets, methods of distribution and net sales is
presented in Note 17 of the Notes to the Consolidated Financial Statements. Additional information regarding Eaton's segments
and business is presented below.
Electrical Americas and Electrical Global
Principal methods of competition in these segments are performance of products and systems, technology, customer service
and support, and price. Eaton has a strong competitive position in these segments and, with respect to many products, is
considered among the market leaders. In normal economic cycles, sales of these segments are historically lower in the first
quarter and higher in the third and fourth quarters of a year. In 2022, 24% of these segments' sales were made to seven large
customers of electrical products and electrical systems and services.
Aerospace
Principal methods of competition in this segment are total cost of ownership, product and system performance, quality,
design engineering capabilities, and timely delivery. Eaton has a strong competitive position in this segment and, with respect to
many products and platforms, is considered among the market leaders. In 2022, 22% of this segment's sales were made to three
large original equipment manufacturers of aircraft.
Vehicle
Principal methods of competition in this segment are product performance, technology, global service, and price. Eaton has
a strong competitive position in this segment and, with respect to many products, is considered among the market leaders. In
2022, 32% of this segment's sales were made to three large original equipment manufacturers of vehicles and related
components.
eMobility
Principal methods of competition in this segment are product performance, technology, global service, and price. Eaton has
a strong competitive position in this segment. In 2022, 26% of this segment's sales were made to six large original equipment
manufacturers of vehicles, construction equipment and related components.
2
Hydraulics
On August 2, 2021, Eaton completed the sale of the Hydraulics business to Danfoss A/S, a Danish industrial company. Prior
to the sale, the Hydraulics business was a reportable operating segment.
Information Concerning Eaton's Business in General
Raw Materials
Eaton's major requirements for raw materials include iron, steel, copper, nickel, aluminum, lead, silver, gold, titanium,
rubber, plastic, electronic components, chemicals, and fluids. Materials are purchased in various forms, such as coils, sheets,
strips, ingots, bars, extrusions, castings, forgings, stampings, powder metal, plastic resins, and pellets. Raw materials, as well as
parts and other components, are purchased from many suppliers. Under normal circumstances, the Company has no difficulty
obtaining its raw materials. However, as global economies recovered from the COVID-19 pandemic and reacted to Russia's
ongoing war in Ukraine, some of our businesses were impacted by inflation and supply chain constraints, including limited
availability of select materials and delivery delays. During this time, we worked closely with our suppliers to manage and
minimize the impact on our supply chain.
Patents and Trademarks
Eaton considers its intellectual property, including without limitation patents, trade names, domain names, trademarks,
confidential information, and trade secrets to be of significant value to its business as a whole. The Company's products may be
manufactured, marketed and sold using a portfolio of patents, trademarks, licenses, and other forms of intellectual property,
some of which expire in the future. Eaton develops and acquires new intellectual property on an ongoing basis and considers all
of its intellectual property to be valuable. Based on the broad scope of the Company's product lines, management believes that
the loss or expiration of any single intellectual property right would not have a material effect on Eaton's consolidated financial
statements or its business segments. The Company's policy is to file applications and obtain patents for the majority of its novel
and innovative new products including product modifications and improvements.
Environmental Contingencies
Our comprehensive sustainability strategy is driven by our mission to improve the quality of life and the environment. We
are committed to reducing our footprint, eliminating waste, and making the best use of natural resources. Operations of the
Company involve the use and disposal of certain substances regulated under environmental protection laws. Eaton continues to
modify processes on an ongoing, regular basis in order to reduce the impact on the environment, including the reduction or
elimination of certain chemicals used in, and wastes generated from, operations. Compliance with laws that have been enacted
or adopted regulating the discharge of materials into the environment, or otherwise relating to the protection of the
environment, are not expected to have a material adverse effect upon capital expenditures, including expenditures for
environmental control facilities, earnings or the competitive position of the Company. Compliance with future environmental
protection laws may require an increase in capital expenditures. Information regarding the Company's liabilities related to
environmental matters is presented in Note 10 of the Notes to the Consolidated Financial Statements.
Human Capital Management
Eaton has approximately 92,000 employees globally. The number of persons employed by our reportable segments and
corporate at December 31, 2022 are as follows:
(In thousands)
Electrical Americas
Electrical Global
Aerospace
Vehicle
eMobility
Corporate
Total number of persons employed
2022
30
26
13
12
2
9
92
3
Eaton uses and monitors a variety of metrics to ensure our objectives related to employee attraction, development, and
retention are met. Most notably, Eaton tracks the following:
Inclusion and Diversity
Eaton is committed to having a workforce that is diverse and inclusive at all levels, reflecting the diversity of our customers
and communities. Our success depends on our ability to attract and retain the best employees without regard to race, color,
social or economic status, religion, national origin, marital status, age, veteran status, sexual orientation, gender identity, or any
protected status. It is the policy of the Company to make all decisions regarding employment, including hiring, compensation,
training, promotions, transfers, or lay-offs, based on the principle of equal employment opportunity and without discrimination.
At December 31, 2022, Eaton’s distribution by gender, and United States distribution by minority status, is as follows:
Total
Global
Number
of women
(Global)
Percentage
of women
(Global)
11
25
618
8,202
4
5
140
1,998
83,079
29,276
91,924
31,419
36.4 %
20.0 %
22.7 %
24.4 %
35.2 %
34.2 %
Number of
minorities
(U.S. only)1
4
13
85
871
8,248
9,217
U.S. total
9
23
429
4,270
22,702
27,424
Percentage of
minorities
(U.S. only)1
44.4 %
56.5 %
19.8 %
20.4 %
36.3 %
33.6 %
Board of directors
Global leadership team
Executives
Managers
All other employees
All employees
1 Excluding Puerto Rico
At Eaton, one of our aspirational goals is to be a model of inclusion and diversity among our peers. Our plan to achieve this
goal encompasses a number of actions, including an examination into our programs, practices, processes, and policies to look
for opportunities to strengthen our support of underrepresented individuals, groups and businesses across our operations.
Compensation
A key component of Eaton’s attraction and retention strategy is competitive compensation. Eaton regularly benchmarks its
compensation practices with industry peers to maintain a top performing workforce. Eaton’s 2022 total employee costs was
$5.5 billion including salaries, wages, equity-based compensation, pension and other benefits. The total compensation of our
median employee on October 1, 2021, as reported in our 2022 Proxy Statement filed on March 18, 2022, and as calculated in
accordance with Item 402(u) of Regulation S-K, was $56,287.
Safety
Throughout our operations, our goal is to have no safety incidents and we continue to make progress towards that goal. For
example, in 2021 we reduced our Total Recordable Case Rate (TRCR) by 7% (0.39) and our Days Away Case Rate (DACR) by
12% (0.15) compared to 2020. Our TRCR of 0.39 approaches our long-term goal of 0.25, which we believe is a world-class
safety rate. Our 2022 TRCR will be provided in our annual Sustainability Report to be issued in 2023.
Achieving work-life balance
Achieving work-life balance is a common concern of today's employees. Flexible work solutions and inclusive programs
will help us remain competitive in attracting and retaining the best talent and make it possible for employees in varied situations
to be able to remain at Eaton. Flexible solutions include compressed work weeks, remote working, job sharing, part-time work,
flextime, and telework.
Engagement
Fully engaged employees are more productive, innovative, and satisfied in their work. Examples of how we engage our
employees include enterprise-wide town halls, hosting informal listening meetings and surveying groups of employees on
specific subjects. In addition, we have programs focused on career development of employees at all levels and we are
committed to a wide range of strategies designed to improve and sustain employee engagement over the long-term. Our most
recent engagement survey of all employees was completed in 2021 and showed a favorable response from 83 percent of
employees who completed it. This group reported that they were proud to work at Eaton, felt personal accomplishment from
their work, and would recommend Eaton as a place to work. In 2022, we performed a limited employee survey which generally
showed similar results as 2021. We plan to perform another survey of all employees in 2023.
4
Item 1A. Risk Factors.
Among the risks that could materially adversely affect Eaton's businesses, financial condition or results of operations are the
following:
Operational Risks
Impacts related to, and recovery from, the COVID-19 pandemic could have an adverse effect on our business and results of
operations.
The global outbreak of COVID-19 disrupted economic activity around the world. As a result, we and our employees,
suppliers, customers and others were, at times, restricted or prevented from conducting normal business activities, as a result of
shutdowns, travel restrictions and other actions that were requested or mandated by governmental authorities. These impacts
were partially mitigated for us, given that a substantial portion of our businesses and facilities were classified as essential in
jurisdictions in which facility closures were mandated, and most of these disruptions have subsided. None the less, we can give
no assurance that there will not be additional closures in the future or that our businesses and facilities will be classified as
essential in each of the jurisdictions in which we operate, should future outbreaks and/or additional strains of the virus impact
global economic activity. Further, the pandemic has, and could further disrupt our supply chain. The duration of and extent to
which the COVID-19 pandemic continues to impact our results of operations and financial condition will depend on future
developments that are highly uncertain and cannot be predicted. The impact of COVID-19 may also continue to exacerbate
other risks discussed in Item 1A of this Annual Report on Form 10-K, any of which could have a material effect on our results
of operations.
If Eaton is unable to protect its information technology infrastructure against service interruptions, data corruption, cyber-
based attacks or network security breaches, product or service offerings could be compromised or operations could be
disrupted or data confidentiality impaired.
Eaton relies on information technology networks and systems, including the Internet, to process, transmit and store
electronic information, and to manage or support a variety of business processes and activities, including procurement,
manufacturing, distribution, invoicing and collection. Additionally, many of our products and services include integrated
software and information technology that collects data or connects to external and internal systems. Because of this,
cybersecurity threats pose a material risk to our business operations.
Global cybersecurity threats range from widespread vulnerabilities, sophisticated and targeted measures known as advanced
persistent threats, or uncoordinated individual attempts to gain unauthorized access to IT/OT systems. These threats may be
directed at Eaton, its products, software embedded in Eaton’s products, or its third-party service providers. The risk is amplified
by the increasingly connected nature of our products and systems. These threats may originate from anywhere in the connected
world and take the form of phishing, malware, bots, or human-centric attacks. Eaton continually seeks to deploy comprehensive
measures to deter, prevent, detect, respond to and mitigate these threats.
As a result of our worldwide operations, we are subject to laws and regulations, including data protection/privacy and
cybersecurity laws and regulations, in many jurisdictions. In addition, we operate in an environment in which there are different
and potentially conflicting data privacy laws in effect in the various U.S. states and foreign jurisdictions in which we operate
and we must understand and comply with each law and standard in each of these jurisdictions while ensuring the data is secure.
For example, the Global Data Protection Regulation (GDPR) prefers that we manage personal data in the E.U. and may impose
fines of up to four percent of our global revenue in the event of certain violations.
Eaton’s customers, including Governmental Agencies, are increasingly requiring cybersecurity protections and mandating
cybersecurity standards which may result in additional operating or production costs. Our cybersecurity program aligns with
well-known industry-wide security control frameworks. Despite these efforts, cybersecurity incidents could potentially result in
the misappropriation, destruction, corruption or unavailability of critical data and confidential or proprietary information and
the disruption of business operations. The potential consequences of a material cybersecurity incident include theft of
intellectual property, disruption of operations, reputational damage, adverse health and safety consequences, the loss or misuse
of confidential information, product failure, as well as exposure to fines, legal claims or enforcement actions.
The effects of climate change, including weather disruptions and regulatory/market reactions, create uncertainties that
could negatively impact our business.
Global increases in greenhouse gas emissions are linked to climate change, and there is a growing consensus that dramatic
emissions reductions are needed to avoid severe climate impacts. Extreme weather events linked to climate change, including
hurricanes, flooding, wildfires, and high heat/water scarcity, create physical risks to Eaton’s operating locations and supply
chains. While Eaton is working to make its own operations carbon neutral by 2030, a global failure to achieve commitments
could cause increases in these extreme weather events, political instability, and workforce migration, ultimately increasing
Eaton’s cost of doing business.
5
Regulatory reactions to climate change may pose more stringent obligations on Eaton’s operations and change customer
demands. While Eaton is already gearing its portfolio towards products that will reduce carbon and combat climate change,
there is a risk that Eaton may not innovate quickly enough to meet changing regulatory or market demands. Increasing demands
for metals as the world electrifies may lead to scarcity and increased costs, as may uncertainty over carbon taxes and grid
stability during a renewables transition. Despite these uncertainties, we believe Eaton is well positioned to capitalize on secular
trends and market opportunities arising from these risks.
Eaton's operations depend on production facilities throughout the world, which subjects them to varying degrees of risk of
disrupted production.
Eaton manages businesses with manufacturing facilities worldwide. The Company's manufacturing facilities and operations
could be disrupted by a natural disaster, labor strike, war, political unrest, terrorist activity, economic upheaval, or public health
concerns such as the spread of COVID-19. Any such disruption could cause delays in shipments of products and the loss of
sales and customers, and insurance proceeds may not adequately compensate for losses.
Eaton uses a variety of raw materials, components and services in its businesses, and significant inflation could increase
operating costs that may not be fully recouped in product pricing.
Eaton's major requirements for raw materials are described above in Item 1 “Raw Materials”. Global shortages have
continued to affect the prices Eaton's businesses are charged for raw materials, particularly commodities. Further, Eaton has
been impacted by logistics and wage inflation. If this trend continues and we are unable to fully recoup these price increases in
product pricing, the competitive position of our products and services may be impacted, which could have a material adverse
impact on operating results.
Further, some of Eaton's suppliers of component parts have increased their prices in response to increased costs of raw
materials that they use to manufacture component parts. Should this trend continue or become more prevalent, the Company
may not be able to increase its prices commensurately with its increased costs, adversely affecting operating results.
Significant shortages of raw materials, energy, components, and/or labor, or similar challenges for our customers could
continue to adversely impact our results of operations.
Eaton has been impacted by supply chain disruptions. Further, labor shortages persist broadly in select markets. Some of our
suppliers have experienced the same conditions and in response, have continued to increase their prices in response to increases
in their costs of raw materials, energy and/or labor. While we strive to recoup these increased costs through our pricing, if we
are unable to do so without compromising the competitive position of our products and services, our results could continue to
be impacted by this trend. Further, should these trends continue or worsen, the impact could have a material adverse impact on
our operating results.
Industry and Market Risks
Volatility of end markets that Eaton serves.
Eaton's segment revenues, operating results, and profitability have varied in the past and may vary from quarter to quarter in
the future. Profitability can be negatively impacted by volatility in the end markets that Eaton serves. The Company has
undertaken measures to reduce the impact of this volatility through diversification of the markets it serves and expansion of the
geographic regions in which it operates. Future downturns in any of the markets could adversely affect revenues, operating
results, and profitability.
Eaton's operating results depend in part on continued successful research, development, and marketing of new and/or
improved products and services, and there can be no assurance that Eaton will continue to successfully introduce new
products and services or maintain its present market positions.
The success of new and improved products and services depends on their initial and continued acceptance by Eaton's
customers. The Company's businesses are affected, to varying degrees, by technological change and corresponding shifts in
customer demand, which could result in unpredictable product transitions or shortened life cycles. Eaton may experience
difficulties or delays in the research, development, production, or marketing of new products and services which may prevent
Eaton from recouping or realizing a return on the investments required to bring new products and services to market. The
Company's market positions may also be impacted by new entrants into Eaton's product or regional markets.
6
Legal and Regulatory Risks
Eaton's global operations subject it to economic risk as Eaton's results of operations may be adversely affected by changes
in government legislation, regulations and policies, or currency fluctuations.
Operating globally subjects Eaton to changes in government regulations and policies in a large number of jurisdictions
around the world, including those related to tariffs and trade barriers, investments, property ownership rights, taxation, data
privacy, and exchange controls. Changes in the relative values of currencies occur from time to time and could affect Eaton's
operating results. While the Company monitors exchange rate exposures and attempts to reduce these exposures through
hedging activities, these risks could adversely affect operating results.
Further, existing free trade laws and regulations provide certain beneficial duties and tariffs for qualifying imports and
exports, subject to compliance with applicable classification and other requirements. Changes in laws or policies governing the
terms of foreign trade, and in particular increased trade restrictions, tariffs or taxes on imports from countries where we
manufacture products, could have an impact on our business and financial results.
Eaton may be subject to risks relating to changes in its tax rates, changes in global tax laws and regulations, or exposure to
additional income tax liabilities.
Eaton is subject to income taxes in many jurisdictions around the world. Income tax liabilities are subject to the allocation of
income among various tax jurisdictions. The Company's effective tax rate could be affected materially by changes in the mix
among earnings in countries with differing statutory tax rates, changes in the valuation allowance of deferred tax assets, or
changes in tax legislation, regulations, and policies. The amount of income taxes paid is subject to ongoing audits by tax
authorities in the countries in which Eaton operates. If these audits result in assessments different from amounts reserved, future
financial results may include material unfavorable adjustments to the Company's tax liabilities.
Eaton may be unable to adequately protect its intellectual property rights, which could affect the Company's ability to
compete.
Protecting Eaton's intellectual property rights is critical to its ability to compete and succeed. The Company owns a large
number of patents and patent applications worldwide, as well as trademark and copyright registrations that are necessary, and
contribute significantly, to the preservation of Eaton's competitive position in various markets. Although management believes
that the loss or expiration of any single intellectual property right would not have a material effect on the results of operations
or financial position of Eaton or its business segments, there can be no assurance that any one, or more, of these patents and
other intellectual property will not be challenged, invalidated, or circumvented by third parties. Eaton enters into confidentiality
and invention assignment agreements with the Company's employees, and into non-disclosure agreements with suppliers and
appropriate customers, so as to limit access to and disclosure of proprietary information. These measures may not suffice to
deter misappropriation or independent third party development of similar technologies.
Eaton is subject to litigation and environmental regulations that could adversely impact Eaton's businesses.
At any given time, Eaton may be subject to litigation, the disposition of which may have a material adverse effect on the
Company's businesses, financial condition or results of operations. Information regarding current legal proceedings is presented
in Note 10 and Note 11 of the Notes to the Consolidated Financial Statements.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Eaton's principal executive offices are located at Eaton House, 30 Pembroke Road, Dublin 4, Ireland D04 Y0C2. The
Company maintains manufacturing facilities at approximately 216 locations in 36 countries. The Company is a lessee under a
number of operating leases for certain real properties and equipment, none of which is material to its operations. Management
believes that the existing manufacturing facilities are adequate for its operations and that the facilities are maintained in good
condition.
Item 3. Legal Proceedings.
Information regarding the Company's current legal proceedings is presented in Note 10 and Note 11 of the Notes to the
Consolidated Financial Statements.
Item 4. Mine Safety Disclosures.
Not applicable.
7
Item 4A. Information about our Executive Officers
A listing of executive officers, their ages, positions and offices held over the past five years, as of February 1, 2023, is as
follows:
Name
Craig Arnold
Age Position (Date elected to position)
62 Chairman of Eaton Corporation plc (June 1, 2016 - present)
Chief Executive Officer of Eaton Corporation (June 1, 2016 - present)
Director of Eaton Corporation plc (September 1, 2015 - present)
Thomas B. Okray
60 Executive Vice President and Chief Financial Officer of Eaton Corporation
(March 2021 - present)
Executive Vice President and Chief Financial Officer-Elect of Eaton Corporation
(January 2021 - March 2021)
Senior Vice President and Chief Financial Officer of W.W. Grainger, Inc.
(April 2018 - December 2020)
Executive Vice President and Chief Financial Officer of Advance Auto Parts, Inc.
(October 2016 - April 2018)
Heath B. Monesmith
52
President and Chief Operating Officer - Electrical Sector of Eaton Corporation
(July 5, 2022 - present)
President and Chief Operating Officer - Industrial Sector of Eaton Corporation
(July 1, 2019 - July 4, 2022)
Executive Vice President and General Counsel of Eaton Corporation
(March 1, 2017 - January 6, 2020)
Paulo Ruiz
48
President and Chief Operating Officer - Industrial Sector of Eaton Corporation
(July 5, 2022 - present)
President Energy Solutions and Services of Eaton Corporation
(August 2, 2021 - July 5, 2022)
Hydraulics Group President of Eaton Corporation
(April 1, 2019 - August 2, 2021)
Chief Executive Officer of Dresser-Rand, a Siemens Business
(October 9, 2017 - April 1, 2019)
Taras Szmagala
56 Executive Vice President, Chief Legal Officer of Eaton Corporation
(June 24, 2022 - present)
Senior Vice President, Public and Community Affairs and Corporate Communications
(March 20, 2017 - June 24, 2022)
Senior Vice President, Public and Community Affairs
(January 1, 2016 - March 19, 2017)
Ernest W. Marshall, Jr.
54 Executive Vice President and Chief Human Resources Officer of Eaton Corporation
(July 1, 2018 - present)
Vice President - Human Resources, Aviation Division of General Electric
(August 1, 2013 - June 30, 2018)
Daniel R. Hopgood
51
Senior Vice President and Controller of Eaton Corporation (April 1, 2021 - present)
Senior Vice President Global Financial Services and Systems of Eaton Corporation
(September 2017 - March 30, 2021)
Joao V. Faria
58
President - Vehicle Group of Eaton Corporation (May 1, 2017 - present)
8
Nandakumar Cheruvatath
61
President - Aerospace Group of Eaton Corporation (September 1, 2015 - present)
Brian S. Brickhouse
59
President - Americas Region, Electrical Sector of Eaton Corporation
(July 1, 2019 - present)
President - Electrical Systems and Services Group of Eaton Corporation
(July 1, 2018 - June 30, 2019)
President, Asia Pacific Region, Electrical (May 15, 2015 - June 30, 2018)
There are no family relationships among the officers listed, and there are no arrangements or understandings pursuant to
which any of them were elected as officers. All officers hold office for one year and until their successors are elected and
qualified, unless otherwise specified by the Board of Directors; provided, however, that any officer is subject to removal with or
without cause, at any time, by a vote of a majority of the Board of Directors.
Part II
Item 5. Market for the Registrant's Ordinary Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
The Company's ordinary shares are listed for trading on the New York Stock Exchange under the symbol ETN. At
December 31, 2022, there were 10,034 holders of record of the Company's ordinary shares. Additionally, 14,158 current and
former employees were shareholders through participation in the Eaton Savings Plan, the Eaton Personal Investment Plan, and
The Eaton Puerto Rico Retirement Savings Plan.
Information regarding equity-based compensation plans required by Regulation S-K Item 201(d) is provided in Item 12 of
this Form 10-K Report.
Irish Taxes Applicable to Dividends
Irish income tax may arise with respect to dividends paid on Eaton shares. Eaton may be required to deduct Irish dividend
withholding tax (“IDWT”, currently at a rate of 25%) from dividends paid to shareholders who are not tax residents of Ireland
even though they are not subject to this tax. To claim exemption from IDWT, shareholders can complete certain Irish dividend
withholding tax exemption forms or hold their shares in an account through the Depository Trust Company and have on file
with their broker or qualifying agent a valid U.S. address on the record date of the dividend.
Eaton shareholders who receive their dividends subject to Irish dividend withholding tax will generally have no further
liability for Irish income tax on the dividends unless they are otherwise subject to Irish income tax.
Issuer’s Purchases of Equity Securities
During the fourth quarter of 2022, there were no shares repurchased.
Item 6. [Reserved]
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Information required by this Item is presented in “Management's Discussion and Analysis of Financial Condition and
Results of Operations” of this Form 10-K.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Information regarding market risk is presented in “Market Risk Disclosure” of this Form 10-K.
Item 8. Financial Statements and Supplementary Data.
The reports of the independent registered public accounting firm, consolidated financial statements, and notes to
consolidated financial statements are presented in Item 15 of this Form 10-K.
9
Item 9. Change in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. 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, Eaton's management concluded that the Company's disclosure controls and
procedures were effective as of December 31, 2022.
Disclosure controls and procedures are designed to ensure that information required to be disclosed in Company 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 Company reports filed under the
Exchange Act is accumulated and communicated to management, including the Company's Principal Executive Officer and
Principal Financial Officer, to allow timely decisions regarding required disclosure.
Pursuant to Section 404 of the Sarbanes Oxley Act of 2002 and the rules and regulations adopted pursuant thereto, Eaton has
included a report of management's assessment of the effectiveness of internal control over financial reporting, which is included
in Item 15 of this Form 10-K.
“Report of Independent Registered Public Accounting Firm” relating to internal control over financial reporting as of
December 31, 2022 is included in Item 15 of this Form 10-K.
During the fourth quarter of 2022, 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.
Item 9B. Other Information.
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not Applicable.
10
Part III
Item 10. Directors, Executive Officers and Corporate Governance.
Information required with respect to the directors of the Company is set forth under the caption “Election of Directors” in
the Company's definitive Proxy Statement to be filed on or about March 17, 2023, and is incorporated by reference.
The Company has adopted a Code of Ethics, which applies to the directors, officers and employees worldwide. This
document is available on the Company's website at http://www.eaton.com.
There were no changes during the fourth quarter 2022 to the procedures by which security holders may recommend
nominees to the Company's Board of Directors.
Information related to the Audit Committee, and members of the Committee who are financial experts, is set forth under the
caption “Board Committees - Audit Committee” in the definitive Proxy Statement to be filed on or about March 17, 2023, and
is incorporated by reference.
Item 11. Executive Compensation.
Information required with respect to executive compensation is set forth under the caption “Compensation Discussion and
Analysis” in the Company's definitive Proxy Statement to be filed on or about March 17, 2023, and is incorporated by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Information required with respect to securities authorized for issuance under equity-based compensation plans is set forth
under the caption “Equity Compensation Plans” in the Company's definitive Proxy Statement to be filed on or about March 17,
2023, and is incorporated by reference.
Information required with respect to security ownership of certain beneficial owners, is set forth under the caption “Share
Ownership Tables” in the Company's definitive Proxy Statement to be filed on or about March 17, 2023, and is incorporated by
reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Information required with respect to certain relationships and related transactions, as well as director independence, is set
forth under the caption “Director Independence” in the Company's definitive Proxy Statement to be filed on or about March 17,
2023, and is incorporated by reference.
Item 14. Principal Accounting Fees and Services.
Information required with respect to principal accountant fees and services is set forth under the caption “Audit Committee
Report” in the Company's definitive Proxy Statement to be filed on or about March 17, 2023, and is incorporated by reference.
11
Part IV
Item 15. Exhibits, Financial Statement Schedules.
(a) (1) The reports of the independent registered public accounting firm, consolidated financial statements and notes to
consolidated financial statements are included in Item 8 above:
Reports of Ernst & Young LLP Independent Registered Public Accounting Firm (PCAOB ID: 42)
Consolidated Statements of Income - Years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Comprehensive Income - Years ended December 31, 2022, 2021 and 2020
Consolidated Balance Sheets - December 31, 2022 and 2021
Consolidated Statements of Cash Flows - Years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Shareholders' Equity - Years ended December 31, 2022, 2021 and 2020
Notes to Consolidated Financial Statements
(2) All other schedules for which provision is made in Regulation S-X of the SEC are not required under the related
instructions or are inapplicable and, therefore, have been omitted.
(b) Exhibits incorporated by reference to or filed in conjunction with this form 10-K are listed below.
3 (i)
3 (ii)
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
Certificate of Incorporation - Incorporated by reference to the Form S-8 filed November 30, 2012
Amended and restated Memorandum and Articles of Incorporation - Incorporated by reference to the Form 8-
K Report filed on May 1, 2017
Description of Eaton Corporation plc’s Securities registered pursuant to Section 12 of the Securities Exchange
Act of 1934 (incorporated by reference to Exhibit 4.1 of the registrant's Form 10-K filed on February 26,
2020)
Indenture dated as of November 20, 2012, among Turlock Corporation, the guarantors named therein and The
Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 of Eaton
Corporation plc's Form 8-K Current Report filed on November 26, 2012 (Commission File No. 333-182303))
Supplemental Indenture No. 1, dated as of November 30, 2012, among Eaton Corporation, the guarantors
named therein and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference
to Exhibit 4.2 of the registrant's Form S-4 filed on September 6, 2013)
Supplemental Indenture No. 2, dated as of January 8, 2013, among Eaton Corporation, the guarantors named
therein and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to
Exhibit 4.3 of the registrant's Form S-4 filed on September 6, 2013)
Supplemental Indenture No. 3, dated as of December 20, 2013, among Eaton Corporation, the guarantors
named therein and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference
to Exhibit 4.4 of the registrant's Form 10-K filed on February 28, 2018)
Supplemental Indenture No. 4, dated as of December 20, 2017 and effective as of January 1, 2018, among
Eaton Corporation, the guarantors named therein and The Bank of New York Mellon Trust Company, N.A., as
trustee (incorporated by reference to Exhibit 4.5 of the registrant's Form 10-K filed on February 28, 2018)
Supplemental Indenture No. 5, dated as of February 16, 2018, among Eaton Corporation, the guarantors
named therein and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference
to Exhibit 4.6 of the registrant's Form 10-K filed on February 28, 2018)
Indenture dated as of August 23, 2022, among Eaton Corporation, the guarantors named therein and The Bank
of New York Mellon Trust Company, N.A., as Trustee
First Supplemental Indenture dated as of August 23, 2022, among Eaton Corporation, the guarantors named
therein and The Bank of New York Mellon Trust Company, N.A., as Trustee
Second Supplemental Indenture dated as of August 23, 2022, among Eaton Corporation, the guarantors named
therein and The Bank of New York Mellon Trust Company, N.A., as Trustee
Pursuant to Regulation S-K Item 601(b)(4), Eaton agrees to furnish to the SEC, upon request, a copy of the
instruments defining the rights of holders of its long-term debt other than those set forth in Exhibits (4.2 -
4.10) hereto
12
10
Material contracts
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
(k)
(l)
Senior Executive Incentive Compensation Plan (effective February 27, 2013) - Incorporated by
reference to the Form 10-K Report for the year ended December 31, 2012
Deferred Incentive Compensation Plan II - Incorporated by reference to the Form 10-K Report for
the year ended December 31, 2007
First Amendment to Deferred Incentive Compensation Plan II - Incorporated by reference to the
Form S-8 filed November 30, 2012
Excess Benefits Plan II (2008 restatement) - Incorporated by reference to the Form 10-K Report for
the year ended December 31, 2007
First Amendment to Excess Benefits Plan II (2008 restatement) - Incorporated by reference to the
Form 10-K Report for the year ended December 31, 2012
Incentive Compensation Deferral Plan II - Incorporated by reference to the Form 10-K Report for
the year ended December 31, 2007
First Amendment to Incentive Compensation Deferral Plan II - Incorporated by reference to the
Form S-8 filed November 30, 2012
Limited Eaton Service Supplemental Retirement Income Plan II - Incorporated by reference to the
Form 10-K Report for the year ended December 31, 2007
First Amendment to Limited Eaton Service Supplemental Retirement Income Plan II - Incorporated
by reference to the Form 10-K Report for the year ended December 31, 2012
Supplemental Benefits Plan II (2008 restatement) - Incorporated by reference to the Form 10-K
Report for the year ended December 31, 2007
First Amendment to Supplemental Benefits Plan II (2008 restatement) - Incorporated by reference
to the Form 10-K Report for the year ended December 31, 2012
Form of Restricted Share Unit Agreement - Incorporated by reference to the Form 10-K Report for
the year ended December 31, 2015
(m)
Form of Restricted Share Award Agreement - Incorporated by reference to the Form 10-K Report
for the year ended December 31, 2015
(n)
(o)
(p)
(q)
(r)
(s)
(t)
(u)
(v)
(w)
(x)
Form of Restricted Share Agreement (Non-Employee Directors) - Incorporated by reference to the
Form 8-K Report filed February 1, 2010
Form of Directors' Restricted Share Unit Agreement - Incorporated by reference to the Form 10-K
report for the year ended December 31, 2012
Form of Stock Option Agreement for Executives - Incorporated by reference to the Form 10-K
Report for the year ended December 31, 2015
Form of Stock Option Agreement for Non-Employee Directors (2008) - Incorporated by reference
to the Form 10-K Report for the year ended December 31, 2007
Amended and Restated 2002 Stock Plan - Incorporated by reference to the Form S-8 filed
November 30, 2012
Amended and Restated 2004 Stock Plan - Incorporated by reference to the Form S-8 filed
November 30, 2012
Amended and Restated 2008 Stock Plan - Incorporated by reference to the Form S-8 filed
November 30, 2012
Second Amended and Restated 2009 Stock Plan - Incorporated by reference to Form S-8 filed
November 30, 2012
Amended and Restated 2012 Stock Plan - Incorporated by reference to the Form S-8 filed
November 30, 2012
Amendment to Amended and Restated 2012 Stock Plan - Incorporated by reference to the Form
10-K Report for the year ended December 31, 2012
First Amendment to 2005 Non-Employee Director Fee Deferral Plan - Incorporated by reference to
the Form S-8 filed November 30, 2012
13
(y)
(z)
(aa)
(bb)
(cc)
(dd)
(ee)
(ff)
(gg)
(hh)
(ii)
(jj)
(kk)
(ll)
2013 Non-Employee Director Fee Deferral Plan - Incorporated by reference to the Form 10-K
Report for the year ended December 31, 2012
2015 Stock Plan - Incorporated by reference to the Form S-8 filed on October 30, 2015
Form of Change of Control Agreement entered into with officers of Eaton Corporation -
Incorporated by reference to the Form 8-K Report filed on December 17, 2015
Form of Indemnification Agreement entered into with directors - Incorporated by reference to the
Form 10-K Report for the year ended December 31, 2012
Form of Indemnification Agreement II entered into with directors - Incorporated by reference to the
Form 10-K Report for the year ended December 31, 2012
Amended and Restated Executive Strategic Incentive Plan (amended and restated February 27,
2013) - Incorporated by reference to the Form 10-K Report for the year ended December 31, 2012
Executive Strategic Incentive Plan II (effective January 1, 2001) - Incorporated by reference to the
Form 10-K Report for the year ended December 31, 2002
Amended and Restated Supplemental Executive Strategic Incentive Plan (amended and restated
February 27, 2013) - Incorporated by reference to the Form 10-K Report for the year ended
December 31, 2012
Deferred Incentive Compensation Plan (amended and restated effective November 1, 2007) -
Incorporated by reference to the Form 10-K Report for the year ended December 31, 2009
Excess Benefits Plan (amended and restated effective January 1, 1989) - Incorporated by reference
to the Form 10-K Report for the year ended December 31, 2002
Amendment to Excess Benefits Plan I - Incorporated by reference to the Form 10-K Report for the
year ended December 31, 2012
Supplemental Benefits Plan (amended and restated January 1, 1989) - Incorporated by reference to
the Form 10-K Report for the year ended December 31, 2002
Amendment to Supplemental Benefits Plan I - Incorporated by reference to the Form 10-K Report
for the year ended December 31, 2012
Eaton Corporation Board of Directors Policy on Incentive Compensation, Stock Options and Other
Equity Grants upon the Restatement of Financial Results - Incorporated by reference to the Form
10-K Report for the year ended December 31, 2015
(mm)
Amended and Restated Grantor Trust Agreement for Non-Employee Directors’ Deferred Fees
Plans - effective January 1, 2010 - Incorporated by reference to the Form 10-K Report for the year
ended December 31, 2010
(nn)
(oo)
(pp)
(qq)
(rr)
(ss)
(tt)
(uu)
Amended and Restated Grantor Trust Agreement for Employees’ Deferred Compensation Plans -
effective January 1, 2010 - Incorporated by reference to the Form 10-K Report for the year ended
December 31, 2010
Eaton Savings Plan 2016 Restatement - Incorporated by reference to the Form 10-K Report for the
year ended December 31, 2015
First Amendment to Eaton Savings Plan - Incorporated by reference to the Form 10-K Report for
the year ended December 31, 2016
Second Amendment to Eaton Savings Plan - Incorporated by reference to the Form 10-K Report
for the year ended December 31, 2016
Seventh Amendment to Eaton Savings Plan 2016 Restatement - Incorporated by reference to the
Form 10-K Report for the year ended December 31, 2020
Eaton Personal Investment Plan 2015 Restatement - Incorporated by reference to the Form 10-K
Report for the year ended December 31, 2015
First Amendment to Eaton Personal Investment Plan - Incorporated by reference to the Form 10-K
Report for the year ended December 31, 2016
Second Amendment to Eaton Personal Investment Plan - Incorporated by reference to the Form 10-
K Report for the year ended December 31, 2016
14
(vv)
(ww)
(xx)
(yy)
(zz)
(aaa)
(bbb)
(ccc)
(ddd)
(eee)
(fff)
(ggg)
(hhh)
(iii)
Performance Share Award Agreement - Incorporated by reference to the Form 10-K Report for the
year ended December 31, 2015
Form of Indemnification Agreement entered into with officers of Eaton Corporation - Incorporated
by reference to the Form 10-K Report for the year ended December 31, 2015
Amendment to Limited Eaton Service Supplemental Retirement Income Plan I- Incorporated by
reference to the Form 10-K Report for the year ended December 31, 2015
Amendment to Eaton Corporation Excess Benefits Plan - Incorporated by reference to the Form
10-K Report for the year ended December 31, 2016
Amendment to Eaton Corporation Supplemental Benefits Plan - Incorporated by reference to the
Form 10-K Report for the year ended December 31, 2016
Second Amendment to Eaton Corporation Excess Benefits Plan II - Incorporated by reference to
the Form 10-K Report for the year ended December 31, 2016
Second Amendment to Limited Eaton Service Supplemental Retirement Income Plan II -
Incorporated by reference to the Form 10-K Report for the year ended December 31, 2016
Second Amendment to Eaton Corporation Supplemental Benefits Plan II - Incorporated by
reference to the Form 10-K Report for the year ended December 31, 2016
2016 RSU Grant Agreement - Incorporated by reference to the Form 10-K Report for the year
ended December 31, 2016
2016 Performance Share Grant Agreement - Incorporated by reference to the Form 10-K Report for
the year ended December 31, 2016
Special 2016 Performance Share Grant Agreement - Incorporated by reference to the Form 10-K
Report for the year ended December 31, 2016
2020 Stock Plan - Incorporated by reference to the Form S-8 filed on November 3, 2020
5-Year Revolving Credit Agreement, dated as of October 3, 2022, among Eaton Corporation, the
guarantors from time to time party thereto, the several lenders from time to time parties thereto,
Citibank, N.A., as Administrative Agent, Citibank, N.A., JPMorgan Chase Bank, N.A. and BofA
Securities, Inc. as joint lead arrangers and joint bookrunners, JPMorgan Chase Bank, N.A., as
syndication agent and Bank of America, N.A. as documentation agent.
364-Day Revolving Credit Agreement, dated as of October 3, 2022, among Eaton Corporation, the
guarantors from time to time party thereto, the several lenders from time to time parties thereto,
Citibank, N.A., as Administrative Agent, Citibank, N.A., JPMorgan Chase Bank, N.A. and BofA
Securities, Inc., as joint lead arrangers and joint bookrunners, JPMorgan Chase Bank, N.A., as
syndication agent and Bank of America, N.A. as documentation agent.
Code of Ethics - Incorporated by reference to the definitive Proxy Statement filed on March 14,
2008
Subsidiaries of Eaton Corporation plc - Filed in conjunction with this Form 10-K Report *
Table of Senior Notes, Issuer and Guarantors - Filed in conjunction with this Form 10-K Report *
Consent of Independent Registered Public Accounting Firm - Filed in conjunction with this Form
10-K Report *
Power of Attorney - Filed in conjunction with this Form 10-K Report *
Certification of Principal Executive Officer (Pursuant to the Sarbanes-Oxley Act of 2002, Section
302) - Filed in conjunction with this Form 10-K Report *
Certification of Principal Financial Officer (Pursuant to the Sarbanes-Oxley Act of 2002, Section
302) - Filed in conjunction with this Form 10-K Report *
Certification of Principal Executive Officer (Pursuant to the Sarbanes-Oxley Act of 2002,
Section 906) - Filed in conjunction with this Form 10-K Report *
Certification of Principal Financial Officer (Pursuant to the Sarbanes-Oxley Act of 2002,
Section 906) - Filed in conjunction with this Form 10-K Report *
14
21
22
23
24
31.1
31.2
32.1
32.2
101.INS
XBRL Instance Document - the instance document does not appear in the Interactive Data File
because its XBRL tags are embedded within the Inline XBRL document. *
15
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
104
XBRL Taxonomy Extension Schema Document *
XBRL Taxonomy Extension Calculation Linkbase Document *
XBRL Taxonomy Extension Definition Linkbase Document *
XBRL Taxonomy Extension Label Linkbase Document *
XBRL Taxonomy Extension Presentation Linkbase Document *
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
*
Submitted electronically herewith.
Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language): (i)
Consolidated Statements of Income for the years ended December 31, 2022, 2021 and 2020, (ii) Consolidated Statements of
Comprehensive Income for the years ended December 31, 2022, 2021 and 2020 (iii) Consolidated Balance Sheets at
December 31, 2022 and 2021, (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and
2020, (v) Consolidated Statements of Shareholders' Equity for the years ended December 31, 2022, 2021 and 2020 and (vi)
Notes to Consolidated Financial Statements for the year ended December 31, 2022.
Item 16. Form 10-K Summary.
Not applicable.
16
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.
SIGNATURES
Date: February 23, 2023
EATON CORPORATION plc
Registrant
By:
/s/ Thomas B. Okray
Thomas B. Okray
(On behalf of the registrant and as Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the date indicated.
Date: February 23, 2023
Signature
Title
/s/ Craig Arnold
Craig Arnold
/s/ Daniel R. Hopgood
Daniel R. Hopgood
*
Chairman, Principal Executive
Officer; Director
/s/ Thomas B. Okray
Thomas B. Okray
Principal Financial Officer
Principal Accounting Officer
Olivier Leonetti
Director
*
*
Deborah L. McCoy
Director
Silvio Napoli
Director
*
*
Gregory R. Page
Director
Sandra Pianalto
Director
*
*
Robert V. Pragada
Director
Lori J. Ryerkerk
Director
*
*
Gerald B. Smith
Director
Dorothy C. Thompson
Director
*
Darryl L. Wilson
Director
*By
/s/ Thomas B. Okray
Thomas B. Okray, Attorney-in-Fact for the officers
and directors signing in the capacities indicated
17
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Eaton Corporation plc
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Eaton Corporation plc (“the Company”) as of December 31,
2022 and 2021, the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for
each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the
“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects,
the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting
principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework) and our report dated February 23, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial
statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or
disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective or
complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate
opinions on the critical audit matters or on the accounts or disclosures to which they relate.
18
Description of the Matter
How We Addressed the Matter in
Our Audit
Unrecognized Income Tax Benefits
As discussed in Note 11 to the consolidated financial statements, the Company had
gross unrecognized income tax benefits of $1,235 million related to its uncertain tax
positions at December 31, 2022. Unrecognized income tax benefits are recorded under
the two-step recognition and measurement principles when a tax position does not meet
the more likely than not standard, or if a tax position meets the more likely than not
standard, but the financial statement tax benefit is reduced as part of the measurement
step.
The balance of unrecognized income tax benefits is comprised of uncertain tax positions
which meet the more likely than not standard, but the financial statement tax benefit has
been reduced as part of measuring the tax position.
Auditing management’s analysis of its uncertain tax positions and resulting
unrecognized income tax benefits is complex as each tax position carries unique facts
and circumstances that must be evaluated and ultimate resolution is dependent on
uncontrollable factors such as the timing of finalizing resolutions of audit disputes
through reaching settlement agreements or concluding litigation, or changes in law, and
other factors.
We obtained an understanding, evaluated the design and tested the operating
effectiveness of management’s controls related to uncertain tax positions. For example,
we tested controls over management’s application of the two-step recognition and
measurement principles and management’s review of the inputs and resultant
calculations of unrecognized income tax benefits, as well as the identification of
uncertain tax positions.
We also evaluated the Company’s assessment of its uncertain tax positions. Our audit
procedures included, among others, evaluating management’s accounting policies and
documentation to assess the appropriateness and consistency of the methods and
assumptions used to develop its uncertain tax positions and related unrecognized income
tax benefit amounts by jurisdiction. We also tested the completeness and accuracy of the
underlying data used by the Company. For example, we compared the unrecognized
income tax benefits recorded with similar positions in prior periods and assessed
management’s consideration of current tax controversy and litigation, including current
year developments with respect to the Company's ongoing litigation and examinations
with respect to certain open tax years in the United States. We also assessed the
historical accuracy of management’s estimates of its unrecognized income tax benefits
with the resolution of those positions. In addition, we involved tax subject matter
professionals to evaluate the application of relevant tax laws, regulations, case law, and
Company-specific controversy developments in the Company’s recognition
determination. We have also evaluated the Company’s income tax disclosures in
relation to these matters.
19
Description of the Matter
How We Addressed the Matter in
Our Audit
Valuation of Customer Relationships and Technology Intangible Assets in the
Acquisition of Mission Systems
As discussed in Note 2 to the consolidated financial statements, during June 2021, the
Company completed the acquisition of Mission Systems for a total purchase price of
$2.8 billion, net of cash received. The acquisition was accounted for using the
acquisition method of accounting. The consideration paid in the acquisition must be
allocated to the acquired assets and liabilities assumed generally based on their fair
value with the excess of the purchase price over those fair values allocated to goodwill.
The preliminary estimates of the fair value of intangible assets made as of the
acquisition date were revised during the measurement period in 2022 as third-party
valuations were received and finalized resulting in the recognition of customer
relationships and technology intangible assets of $764 million and $612 million,
respectively.
Auditing the Company’s accounting for its acquisition of Mission Systems was complex
because the customer relationships and technology intangible assets recognized were
material to the consolidated financial statements and the estimates of fair value involved
subjectivity. The subjectivity was primarily due to the sensitivity of the respective fair
values to underlying assumptions about the future performance of the acquired business.
The Company used discounted cash flow models to measure the intangible assets. The
significant assumptions used to estimate the fair value of the intangible assets included
the discount rates and certain assumptions that form the basis of the forecasted results
(e.g., revenue growth rates and future EBITDA margins). These significant assumptions
are forward looking and could be affected by future economic and market conditions.
The fair value of technology intangible assets is also based on the selection of royalty
rates used in the valuation model.
We obtained an understanding, evaluated the design, and tested the operating
effectiveness of the Company’s controls over its accounting for the acquisition of
Mission Systems, including recognition and measurement of the intangible assets
acquired. For example, we tested controls over the recognition and measurement of
customer relationships and technology intangible assets, including management’s
review of the methods and significant assumptions used to develop the fair value
estimates.
To test the estimated fair values of the customer relationships and technology intangible
assets, we performed audit procedures that included, among others, evaluating the
Company's selection of the valuation methodology, evaluating the methods and
significant assumptions used by the Company's valuation specialist, and evaluating the
completeness and accuracy of the underlying data supporting the significant
assumptions and estimates. For example, when evaluating the assumptions related to the
revenue growth rates and future EBITDA margins, we compared the assumptions to the
past performance of Mission Systems and expected industry trends and considered
whether they were consistent with evidence obtained in other areas of the audit. We also
performed sensitivity analyses to evaluate the changes in the fair value of the customer
relationships and technology intangible assets that would result from changes in the
significant assumptions. We involved our EY valuation specialists to assist with our
evaluation of the methodology used by the Company and certain significant
assumptions included in the fair value estimates.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1923.
Cleveland, Ohio
February 23, 2023
20
MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS
We have prepared the accompanying consolidated financial statements and related information of Eaton Corporation plc
("Eaton") included herein for the three years ended December 31, 2022. The primary responsibility for the integrity of the
financial information included in this annual report rests with management. The financial information included in this annual
report has been prepared in accordance with accounting principles generally accepted in the United States based on our best
estimates and judgments and giving due consideration to materiality. The opinion of Ernst & Young LLP, Eaton's independent
registered public accounting firm, on those consolidated financial statements is included herein.
Eaton has high standards of ethical business practices supported by the Eaton Code of Ethics and corporate policies. Careful
attention is given to selecting, training and developing personnel, to ensure that management's objectives of establishing and
maintaining adequate internal controls and unbiased, uniform reporting standards are attained. Our policies and procedures
provide reasonable assurance that operations are conducted in conformity with applicable laws and with the Company's
commitment to a high standard of business conduct.
The Board of Directors pursues its responsibility for the quality of Eaton's financial reporting primarily through its Audit
Committee, which is composed of five independent directors. The Audit Committee meets regularly with management, the
internal auditors and the independent registered public accounting firm to ensure that they are meeting their responsibilities and
to discuss matters concerning accounting, internal control, audits and financial reporting. The internal auditors and independent
registered public accounting firm have full and free access to senior management and the Audit Committee.
/s/ Craig Arnold
Principal Executive Officer
/s/ Thomas B. Okray
Principal Financial Officer
/s/ Daniel R. Hopgood
Principal Accounting Officer
February 23, 2023
21
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Eaton Corporation plc
Opinion on Internal Control Over Financial Reporting
We have audited Eaton Corporation plc’s (“the Company”) internal control over financial reporting as of December 31, 2022,
based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related consolidated
statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period
ended December 31, 2022, and the related notes and our report dated February 23, 2023 expressed an unqualified opinion
thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report
on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control
over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Cleveland, Ohio
February 23, 2023
22
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Eaton Corporation plc ("Eaton") is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Exchange Act rules 13a-15(f)).
Under the supervision and with the participation of Eaton's management, including our principal executive officer and
principal financial officer, we conducted an evaluation of the effectiveness of the Company's internal control over financial
reporting as of December 31, 2022. In conducting this evaluation, we used the framework set forth by the Committee of
Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013 Framework). Based
on this evaluation under the framework referred to above, management concluded that the Company's internal control over
financial reporting was effective as of December 31, 2022.
The independent registered public accounting firm Ernst & Young LLP has issued an audit report on the effectiveness of the
Company's internal control over financial reporting as of December 31, 2022. This report is included herein.
/s/ Craig Arnold
Principal Executive Officer
/s/ Thomas B. Okray
Principal Financial Officer
/s/ Daniel R. Hopgood
Principal Accounting Officer
February 23, 2023
23
EATON CORPORATION plc
CONSOLIDATED STATEMENTS OF INCOME
(In millions except for per share data)
Net sales
Cost of products sold
Selling and administrative expense
Research and development expense
Interest expense - net
Gain on sale of businesses
Other expense (income) - net
Income before income taxes
Income tax expense
Net income
Year ended December 31
2022
2021
2020
$ 20,752 $ 19,628 $ 17,858
13,865
3,227
13,293
3,256
12,408
3,075
665
144
24
(36)
2,911
445
2,465
616
144
617
40
2,896
750
2,146
551
149
221
150
1,746
331
1,415
Less net income for noncontrolling interests
(4)
(2)
(5)
Net income attributable to Eaton ordinary shareholders
$
2,462 $
2,144 $
1,410
Net income per share attributable to Eaton ordinary shareholders
Diluted
Basic
Weighted-average number of ordinary shares outstanding
Diluted
Basic
$
6.14 $
5.34 $
6.17
5.38
3.49
3.51
400.8
398.7
401.6
398.7
404.0
402.2
Cash dividends declared per ordinary share
$
3.24 $
3.04 $
2.92
The accompanying notes are an integral part of the consolidated financial statements.
24
EATON CORPORATION plc
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
Net income
Less net income for noncontrolling interests
Net income attributable to Eaton ordinary shareholders
Other comprehensive income (loss), net of tax
Currency translation and related hedging instruments
Pensions and other postretirement benefits
Cash flow hedges
Other comprehensive income (loss) attributable to Eaton
ordinary shareholders
Year ended December 31
2022
2021
2020
$
2,465 $
2,146 $
1,415
(4)
(2)
2,462
2,144
(5)
1,410
(647)
175
159
(313)
30
495
37
562
201
(73)
(33)
95
Total comprehensive income attributable to Eaton ordinary shareholders
$
2,149 $
2,706 $
1,505
The accompanying notes are an integral part of the consolidated financial statements.
25
EATON CORPORATION plc
CONSOLIDATED BALANCE SHEETS
(In millions)
Assets
Current assets
Cash
Short-term investments
Accounts receivable - net
Inventory
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment
Land and buildings
Machinery and equipment
Gross property, plant and equipment
Accumulated depreciation
Net property, plant and equipment
Other noncurrent assets
Goodwill
Other intangible assets
Operating lease assets
Deferred income taxes
Other assets
Total assets
Liabilities and shareholders’ equity
Current liabilities
Short-term debt
Current portion of long-term debt
Accounts payable
Accrued compensation
Other current liabilities
Total current liabilities
Noncurrent liabilities
Long-term debt
Pension liabilities
Other postretirement benefits liabilities
Operating lease liabilities
Deferred income taxes
Other noncurrent liabilities
Total noncurrent liabilities
Shareholders’ equity
Ordinary shares (397.8 million outstanding in 2022 and 398.8 million in 2021)
Capital in excess of par value
Retained earnings
Accumulated other comprehensive loss
Shares held in trust
Total Eaton shareholders’ equity
Noncontrolling interests
Total equity
Total liabilities and equity
The accompanying notes are an integral part of the consolidated financial statements.
26
December 31
2022
2021
294 $
261
4,076
3,430
685
8,746
2,129
5,885
8,013
(4,867)
3,146
14,796
5,485
570
330
1,940
35,014 $
324 $
10
3,072
467
2,488
6,360
8,321
649
177
459
530
1,444
11,580
4
12,512
8,468
(3,946)
(1)
17,038
38
17,075
35,014 $
297
271
3,297
2,969
677
7,511
2,227
5,591
7,818
(4,754)
3,064
14,751
5,855
442
392
2,012
34,027
13
1,735
2,797
501
2,166
7,212
6,831
872
263
337
559
1,502
10,364
4
12,449
7,594
(3,633)
(1)
16,413
38
16,451
34,027
$
$
$
$
EATON CORPORATION plc
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
Operating activities
Net income
Adjustments to reconcile to net cash provided by operating activities
Depreciation and amortization
Deferred income taxes
Pension and other postretirement benefits expense
Contributions to pension plans
Contributions to other postretirement benefits plans
Gain on sale of businesses
Changes in working capital
Accounts receivable - net
Inventory
Accounts payable
Accrued compensation
Accrued income and other taxes
Other current assets
Other current liabilities
Other - net
Net cash provided by operating activities
Investing activities
Capital expenditures for property, plant and equipment
Cash paid for acquisitions of businesses, net of cash acquired
Proceeds from sales of businesses, net of cash sold
Proceeds from sales of property, plant and equipment
Investments in associate companies
Sales (purchases) of short-term investments - net
Proceeds from (payments for) settlement of currency exchange contracts not designated as
hedges - net
Other - net
Net cash provided by (used in) investing activities
Financing activities
Proceeds from borrowings
Payments on borrowings
Short-term debt, net
Cash dividends paid
Exercise of employee stock options
Repurchase of shares
Employee taxes paid from shares withheld
Other - net
Net cash used in financing activities
Effect of currency on cash
Total increase (decrease) in cash
Cash at the beginning of the period
Cash at the end of the period
The accompanying notes are an integral part of the consolidated financial statements.
Year ended December 31
2021
2020
2022
$
2,465 $
2,146 $
1,415
954
(128)
54
(116)
(24)
(24)
(743)
(490)
334
(16)
170
(179)
236
40
2,533
(598)
(610)
31
163
(42)
(19)
(47)
(79)
(1,200)
1,995
(2,012)
317
(1,299)
28
(286)
(60)
(23)
(1,340)
922
(111)
53
(343)
(20)
(197)
(271)
(629)
832
154
(317)
(116)
38
22
2,163
(575)
(4,500)
3,129
44
(124)
379
(27)
(90)
(1,764)
1,798
(1,013)
20
(1,219)
63
(122)
(47)
(15)
(535)
4
(3)
297
294 $
(5)
(141)
438
297 $
$
811
(86)
210
(122)
(23)
(91)
219
371
76
(65)
(95)
(67)
196
195
2,944
(389)
(200)
1,408
12
(19)
(441)
94
(68)
397
—
(249)
(254)
(1,175)
71
(1,608)
(37)
(6)
(3,258)
(15)
68
370
438
27
EATON CORPORATION plc
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In millions)
Shares Dollars
Ordinary shares
Capital
in excess
of par
value
Retained
earnings
Accumulated
other
comprehensive
loss
Shares
held in
trust
Total Eaton
shareholders'
equity
Noncontrolling
interests
Total
equity
Balance at January 1, 2020
413.3 $
4 $ 12,200 $ 8,170 $
(4,290) $
(2) $
16,082 $
Net income
—
—
—
1,410
—
—
1,410
51 $ 16,133
5
1,415
Cash dividends paid
—
—
—
(1,219)
—
—
1.6
—
120
(3)
1
118
—
118
Other comprehensive income, net of
tax
Cash dividends paid
—
—
—
(1,175)
Issuance of shares under equity-based
compensation plans
Changes in noncontrolling interest of
consolidated subsidiaries - net
Repurchase of shares
1.9
—
129
—
—
(17.1)
—
—
—
Balance at December 31, 2020
398.1
4
12,329
Net income
—
—
—
(3)
—
(1,608)
6,794
2,144
Other comprehensive income, net of
tax
Issuance of shares under equity-based
compensation plans
Changes in noncontrolling interest of
consolidated subsidiaries - net
Repurchase of shares
—
—
(0.9)
—
—
—
Balance at December 31, 2021
398.8
4
12,449
Net income
—
—
Other comprehensive loss, net of tax
Cash dividends paid
—
—
Issuance of shares under equity-based
compensation plans
Changes in noncontrolling interest of
consolidated subsidiaries - net
Repurchase of shares
1.1
—
—
—
(2.0)
—
—
—
65
(1)
—
—
(122)
7,594
2,462
95
—
95
95
—
(1,175)
(9)
(1,184)
—
—
—
—
—
—
(4,195)
(2)
—
—
562
—
—
—
—
—
(3,633)
(1)
—
—
(313)
126
—
(1,608)
14,930
2,144
562
(1,219)
—
(4)
—
43
126
(4)
(1,608)
14,973
2
2,146
562
(1)
(1,220)
—
(122)
16,413
2,462
(313)
(1,299)
63
(1)
(286)
(6)
—
38
(6)
(122)
16,451
4
2,465
(313)
(2)
(1,301)
—
(2)
—
63
(3)
(286)
(1,299)
—
—
(2)
—
(286)
—
—
—
—
—
—
Balance at December 31, 2022
397.8 $
4 $ 12,512 $ 8,468 $
(3,946) $
(1) $
17,038 $
38 $ 17,075
The accompanying notes are an integral part of the consolidated financial statements.
28
EATON CORPORATION plc
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts are in millions unless indicated otherwise (per share data assume dilution). Columns and rows may not add and the
sum of components may not equal total amounts reported due to rounding.
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General Information and Basis of Presentation
Eaton Corporation plc (Eaton or the Company) is an intelligent power management company dedicated to improving the
quality of life and protecting the environment for people everywhere. We are guided by our commitment to do business right, to
operate sustainably and to help our customers manage power – today and well into the future. By capitalizing on the global
growth trends of electrification and digitalization, we're accelerating the planet's transition to renewable energy, helping to solve
the world's most urgent power management challenges, and doing what's best for our stakeholders and all of society.
Founded in 1911, 2023 marks Eaton's 100th anniversary of being listed on the New York Stock Exchange. We reported
revenues of $20.8 billion in 2022 and serve customers in more than 170 countries.
The consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting
principles in the United States. Preparation of the consolidated financial statements requires management to make estimates and
assumptions that affect amounts reported in the consolidated financial statements and notes. Actual results could differ from
these estimates. Management has evaluated subsequent events through the date the consolidated financial statements were filed
with the Securities Exchange Commission.
The consolidated financial statements include the accounts of Eaton and all subsidiaries and other entities it controls.
Intercompany transactions and balances have been eliminated. The equity method of accounting is used for investments in
associate companies where the Company has significant influence and generally a 20% to 50% ownership interest. Equity
investments are evaluated for impairment whenever events or circumstances indicate the book value of the investment exceeds
fair value. An impairment would exist if there is an other-than-temporary decline in value. Investments in associate companies
included in Other assets were $788 million and $777 million as of December 31, 2022 and December 31, 2021, respectively,
and income from these investments is reported in Other expense (income) - net. Eaton does not have off-balance sheet
arrangements with unconsolidated entities.
Eaton's reporting currency is United States Dollars (USD). The functional currency for most subsidiaries is their local
currency. Financial statements for these subsidiaries are translated at exchange rates in effect at the balance sheet date as to
assets and liabilities and weighted-average exchange rates as to revenues and expenses. The resulting translation adjustments
are recognized in Accumulated other comprehensive loss. For subsidiaries operating in highly inflationary economies, non-
monetary assets and liabilities such as inventory and property, plant and equipment and their related expenses are remeasured at
historical exchange rates, while monetary assets and liabilities are remeasured at exchange rates in effect at the balance sheet
date. Remeasurement adjustments for these subsidiaries are recognized in income.
Certain prior year amounts have been reclassified to conform to the current year presentation.
LIBOR Transition
In July 2017, the United Kingdom’s Financial Conduct Authority, which regulates the London Interbank Offered Rate
(LIBOR), announced it intends to phase out LIBOR. The final publication of rates for certain USD LIBOR tenors is expected to
be on June 30, 2023. Various parties, including government agencies, are seeking to identify alternative rates to replace LIBOR.
The Company’s new revolving credit facilities discussed in Note 8 do not reference LIBOR and all interest rate swaps that
referenced LIBOR have been settled. Based on the Company's evaluation, the impacts of the transition from LIBOR to
alternative rates in its contracts will not have a material impact on the consolidated financial statements.
Goodwill and Indefinite Life Intangible Assets
Goodwill is evaluated annually for impairment as of July 1 using either a quantitative or qualitative analysis. Additionally,
goodwill is evaluated for impairment whenever an event occurs or circumstances change that would indicate that it is more
likely than not that the fair value of a reporting unit is less than its carrying amount. Goodwill is tested for impairment at the
reporting unit level, and is based on the net assets for each reporting unit, including goodwill and intangible assets. The
Company’s reporting units are equivalent to the reportable operating segments, except for the Aerospace segment which has
two reporting units. Goodwill is assigned to each reporting unit, as this represents the lowest level that constitutes a business
and is the level at which management regularly reviews the operating results. The Company performs a quantitative analysis
using a discounted cash flow model and other valuation techniques, but may elect to perform a qualitative analysis.
29
The annual goodwill impairment test was performed using a qualitative analysis in 2022 and 2021, except for the eMobility
reporting unit which used a quantitative analysis. A qualitative analysis is performed by assessing certain trends and factors,
including projected market outlook and growth rates, forecasted and actual sales and operating profit margins, discount rates,
industry data, and other relevant qualitative factors. These trends and factors are compared to, and based on, the assumptions
used in the most recent quantitative analysis performed for each reporting unit. The results of the qualitative analyses did not
indicate a need to perform quantitative analysis.
Quantitative analyses were performed by estimating the fair value of the reporting unit using 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 future cash flows were based on the Company's long-
term operating plan and a terminal value was used to estimate the reporting unit's cash flows beyond the period covered by the
operating plan. 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. Sensitivity analyses were
performed around certain of these assumptions in order to assess the reasonableness of the assumptions and the resulting
estimated fair values.
Based on these analyses performed in 2022 and 2021, the fair value of Eaton's reporting units continue to substantially
exceed their respective carrying amounts and thus, no impairment exists.
Indefinite life intangible assets consist of certain trademarks. They are evaluated annually for impairment as of July 1 using
either a quantitative or qualitative analysis to determine whether their fair values exceed their respective carrying amounts.
Indefinite life intangible asset impairment testing for 2022 and 2021 was performed using a quantitative analysis. The Company
determines the fair value of these assets using a royalty relief methodology similar to that employed when the associated assets
were acquired, but using updated estimates of future sales, cash flows, and profitability. Additionally, indefinite life intangible
assets are evaluated for impairment whenever an event occurs or circumstances change that would indicate that it is more likely
than not that the asset is impaired. For 2022 and 2021, the fair value of indefinite lived intangible assets exceeded the respective
carrying value.
For additional information about goodwill and other intangible assets, see Note 6.
Leases
The Company determines if an arrangement is a lease at inception. Operating lease assets and liabilities are recognized at the
commencement date of the lease based on the present value of lease payments over the lease term. Lease assets represent the
Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make
lease payments arising from the lease. As most leases do not provide an implicit interest rate, Eaton uses its incremental
borrowing rate based on the information available at the lease commencement date in determining the present value of lease
payments. The length of a lease term includes options to extend or terminate the lease when it is reasonably certain that the
Company will exercise those options. The Company made an accounting policy election to not recognize lease assets or
liabilities for leases with a term of 12 months or less. Additionally, when accounting for leases, the Company combines
payments for leased assets, related services and other components of a lease.
Other Long-Lived Assets
Depreciation and amortization for property, plant and equipment, and intangible assets subject to amortization, are generally
computed by the straight-line method and included in Cost of products sold, Selling and administrative expense, and Research
and development expense, as appropriate. The Company uses the following depreciation and amortization periods:
Category
Buildings
Machinery and equipment
Software
Estimated useful life or amortization period
Generally 40 years
3 - 10 years
5 - 15 years
Customer relationships, certain trademarks, and patents and technology
Weighted-average of 18 years
Other long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying
amount may not be recoverable. Upon indications of impairment, assets and liabilities are grouped at the lowest level for which
identifiable cash flows are largely independent of the cash flows of other assets and liabilities. The asset group would be
considered impaired when the estimated future net undiscounted cash flows generated by the asset group are less than its
carrying value. Determining asset groups and underlying cash flows requires the use of significant judgment.
30
Retirement Benefits Plans
For the principal pension plans in the United States, Canada, Puerto Rico, and the United Kingdom, the Company uses a
market-related value of plan assets to calculate the expected return on assets used to determine net periodic benefit costs. The
market-related value of plan assets is a calculated value that recognizes changes in the fair value of plan assets over a five year
period. All other plans use fair value of plan assets.
Net actuarial gains or losses are amortized to expense on a plan-by-plan basis when they exceed the accounting corridor.
The Company’s corridors are set at either 8% or 10%, depending on the plan, of the greater of the plan assets or benefit
obligations. Gains or losses outside of the corridor are subject to amortization over an average employee future service period
that differs by plan. If most or all of the plan’s participants are no longer actively accruing benefits, the average life expectancy
is used. The amortization periods on a weighted average basis for United States and Non-United States pension plans are
approximately 22 years and 10 years, respectively. The amortization period for other postretirement benefits plans is 8 years.
Asset Retirement Obligations
A conditional asset retirement obligation is recognized at fair value when incurred if the fair value of the liability can be
reasonably estimated. Uncertainty about the timing or method of settlement of a conditional asset retirement obligation would
be considered in the measurement of the liability when sufficient information exists. Eaton believes that for substantially all of
its asset retirement obligations, there is an indeterminate settlement date because the range of time over which the Company
may settle the obligation is unknown or cannot be estimated. A liability for these obligations will be recognized when sufficient
information is available to estimate fair value.
Income Taxes
Deferred income tax assets and liabilities are determined based on the difference between the financial statement and tax
basis of the respective assets and liabilities, using enacted tax rates in effect for the year when the differences are expected to
reverse. Deferred income tax assets are recognized for income tax loss carryforwards and income tax credit carryforwards.
Judgment is required in determining and evaluating income tax provisions and valuation allowances for deferred income tax
assets. Eaton recognizes an income tax benefit from an uncertain tax position only if it is more likely than not that the tax
position will be sustained on examination by taxing authorities, based on the technical merits of the position. Eaton evaluates
and adjusts these accruals based on changing facts and circumstances. Eaton recognizes interest and penalties related to
unrecognized income tax benefits in the provision for income tax expense. Eaton's policy is to recognize income tax effects
from accumulated other comprehensive income when individual units of account are sold, terminated, or extinguished. For
additional information about income taxes, see Note 11.
Derivative Financial Instruments and Hedging Activities
Eaton uses derivative financial instruments to manage the exposure to the volatility in raw material costs, currency, and
interest rates on certain debt. These instruments are marked to fair value in the accompanying Consolidated Balance Sheets.
Changes in the fair value of derivative assets or liabilities (i.e., gains or losses) are recognized depending upon the type of
hedging relationship and whether an instrument has been designated as a hedge. For those instruments that qualify for hedge
accounting, Eaton designates the hedging instrument, based upon the exposure being hedged, as a cash flow hedge, a fair value
hedge, or a hedge of a net investment in a foreign operation. Changes in fair value of these instruments that do not qualify for
hedge accounting are recognized immediately in net income. See Note 15 for additional information about hedges and
derivative financial instruments.
31
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 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 million 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.
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 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. During the measurement
period which ended in March 2022, opening balance sheet adjustments were made to finalize Eaton's fair value estimates based
on the final valuations received, which are summarized in the table below. The measurement period adjustments did not have a
material impact to the Consolidated Statements of Income.
$
(In millions)
Short-term investments
Accounts receivable
Inventory
Prepaid expenses and other current assets
Property, plant and equipment
Other intangible assets
Other assets
Accounts payable
Other current liabilities
Other noncurrent liabilities
Total identifiable net assets
Goodwill
Total consideration, net of cash received
$
Preliminary
Allocation
Measurement Period
Adjustments
Final
Allocation
5 $
94
184
6
6
630
—
(13)
(32)
(157)
723
928
1,651 $
— $
(1)
(5)
(1)
(5)
(26)
2
—
(2)
(10)
(48)
48
— $
5
93
179
5
1
604
2
(13)
(34)
(167)
675
976
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. The estimated fair values of the customer relationships, trademarks and technology intangible assets of $539 million,
$33 million, and $32 million, respectively, were determined using either the relief-from-royalty model or the multi-period
excess earnings model, which are discounted cash flow models that rely on the Company's estimates. These estimates require
judgment of future revenue growth rates, future margins, 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. The estimated useful lives for customer relationships, trademarks and
technology intangible assets were 20 years, 15 years, and 5 years, respectively. See Note 6 for additional information about
goodwill and other intangible assets.
Eaton's 2021 Consolidated Financial Statements include Tripp Lite’s results of operations, including segment operating
profit of $139 million on sales of $419 million, from the date of acquisition through December 31, 2021.
32
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 $106 million, including $49 million of
cash paid at closing and an initial estimate of $57 million for the fair value of contingent future consideration based on 2023
and 2024 revenue performance. The fair value of contingent consideration liabilities is estimated by discounting contingent
payments expected to be made, and may increase or decrease based on changes in revenue estimates and discount rates, with a
maximum possible undiscounted value of $111 million. As of December 31, 2022, the fair value of the contingent future
payments has been reduced to $44 million based primarily on anticipated reductions in projected 2023 revenue compared to the
initial estimates at closing. This reduction is presented in Other expense (income) - net on the Consolidated Statements of
Income.
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 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.
Acquisition of Mission Systems
On June 1, 2021, Eaton acquired Mission Systems for $2.8 billion, net of cash received. Mission Systems is a leading
manufacturer of air-to-air refueling systems, environmental systems, and actuation primarily for defense markets. Mission
Systems is reported within the Aerospace business segment.
The acquisition of Mission Systems 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. During the
measurement period which ended in June 2022, opening balance sheet adjustments were made to finalize Eaton's fair value
estimates based on the final valuations received, which are summarized in the table below. The measurement period
adjustments did not have a material impact to the Consolidated Statements of Income.
$
(In millions)
Accounts receivable
Inventory
Prepaid expenses and other current assets
Property, plant and equipment
Other intangible assets
Other assets
Accounts payable
Other current liabilities
Other noncurrent liabilities
Total identifiable net assets
Goodwill
Total consideration, net of cash received
$
Preliminary
Allocation
Measurement Period
Adjustments
Final
Allocation
84 $
179
45
86
1,575
19
(40)
(159)
(77)
1,712
1,088
2,800 $
— $
(1)
5
11
(113)
(4)
—
(43)
(31)
(176)
176
— $
84
178
50
97
1,462
15
(40)
(202)
(108)
1,536
1,264
2,800
Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the
anticipated synergies of acquiring Mission Systems. As a result of the acquisition, goodwill of $572 million recognized in the
United States is expected to be deductible for tax purposes. The estimated fair values of the customer relationships, technology,
and backlog intangible assets of $764 million, $612 million, and $86 million, respectively, were determined using either the
relief-from-royalty model or the multi-period excess earnings model, which are discounted cash flow models that rely on the
Company's estimates. These estimates require judgment of future revenue growth rates, future margins, and the applicable
weighted-average cost of capital used to discount those estimated cash flows. The estimated fair value of technology intangibles
is also based on the selection of royalty rates used in the valuation model. 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. The estimated useful
lives for customer relationships, technology, and backlog intangible assets were 22 years, 21 years, and 2 years, respectively.
See Note 6 for additional information about goodwill and other intangible assets.
Eaton's 2021 Consolidated Financial Statements include Mission Systems’ results of operations, including segment
operating profit of $128 million on sales of $450 million, from the date of acquisition through December 31, 2021.
33
Acquisition of a 50% stake in Jiangsu YiNeng Electric's busway business
On June 25, 2021, Eaton acquired a 50 percent stake in Jiangsu YiNeng Electric's busway business, which manufactures and
markets busway products in China. Eaton accounts for this investment on the equity method of accounting and is reported
within the Electrical Global business segment.
Sale of Hydraulics business
On August 2, 2021, Eaton completed the sale of the Hydraulics business to Danfoss A/S. As a result of the sale, the
Company received $3.1 billion, net of cash sold, and recognized a pre-tax gain of $617 million in 2021. According to the terms
of the sale agreement, the Company finalized negotiations of post-closing adjustments with Danfoss A/S during the first quarter
of 2022. As a result of these negotiations, the Company recognized an additional pre-tax gain of $24 million and received cash
of $22 million from Danfoss A/S to fully settle all post-closing adjustments. The business had sales of $1.3 billion in 2021
through the date of the sale.
Acquisition of Royal Power Solutions
On January 5, 2022, Eaton acquired Royal Power Solutions for $610 million, net of cash received. Royal Power Solutions is
a U.S. based manufacturer of high-precision electrical connectivity components used in electric vehicle, energy management,
industrial and mobility markets. Royal Power Solutions is reported within the eMobility business segment.
The acquisition of Royal Power Solutions 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. During the
measurement period which ended in December 2022, opening balance sheet adjustments were made to finalize Eaton's fair
value estimates based on the final valuations received, which are summarized in the table below. The measurement period
adjustments did not have a material impact to the Consolidated Statements of Income.
$
(In millions)
Accounts receivable
Inventory
Prepaid expenses and other current assets
Property, plant and equipment
Other intangible assets
Other assets
Accounts payable
Other current liabilities
Other noncurrent liabilities
Total identifiable net assets
Goodwill
Total consideration, net of cash received
$
Preliminary
Allocation
Measurement Period
Adjustments
Final
Allocation
36 $
43
1
25
306
21
(24)
(10)
(70)
328
284
612 $
(1) $
3
—
6
35
(13)
(1)
(4)
2
27
(29)
(2) $
35
46
1
31
341
8
(25)
(14)
(68)
355
255
610
Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the
anticipated synergies of acquiring Royal Power Solutions. Goodwill recognized as a result of the acquisition is not deductible
for tax purposes. The estimated fair values of the customer relationships, technology, trademarks, and other intangible assets of
$230 million, $90 million, $16 million, and $5 million, respectively, were determined using either the relief-from-royalty
model, the multi-period excess earnings model, or the lost income model, which are discounted cash flow models that rely on
the Company's estimates. These estimates require judgment of future revenue growth rates, future margins, and the applicable
weighted-average cost of capital used to discount those estimated cash flows. The estimated fair value of technology and
trademark intangibles are also based on the selection of royalty rates used in the valuation model. 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.
The estimated useful lives for customer relationships, technology, trademarks, and other intangible assets were 17 years, 16
years, 15 years, and 2 years, respectively. See Note 6 for additional information about goodwill and other intangible assets.
Eaton's 2022 Consolidated Financial Statements include Royal Power Solutions' results of operations, including segment
operating profit of $21 million on sales of $158 million, from the date of acquisition through December 31, 2022.
34
Russia
During the second quarter of 2022, in light of the ongoing war with Ukraine, the Company decided to exit its business
operations in Russia and recorded charges of $29 million presented in Other expense (income) - net on the Consolidated
Statements of Income. The charges consisted primarily of write-downs of accounts receivable, inventory and other assets, and
accruals for severance.
Acquisition of a 50% stake in Jiangsu Huineng Electric Co., Ltd’s circuit breaker business
On July 1, 2022, Eaton acquired a 50 percent stake in Jiangsu Huineng Electric Co., Ltd’s circuit breaker business, which
manufactures and markets low-voltage circuit breakers in China. Eaton accounts for this investment on the equity method of
accounting and is reported within the Electrical Global business segment.
35
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. Control is transferred when the customer has the ability to direct the use of and obtain
benefits from the goods or services. Sales are measured at the amount of consideration the Company expects to be paid in
exchange for these products or services.
The majority of the Company’s sales agreements contain performance obligations satisfied at a point in time when title and
risk and rewards of ownership have transferred to the customer. Sales recognized over time are less than 5% of Eaton’s
Consolidated Net Sales. Sales recognized over time are generally accounted for using an input measure to determine progress
completed at the end of the period. Sales for service contracts generally are recognized as the services are provided. For
agreements with multiple performance obligations, judgment is required to determine whether performance obligations
specified in these agreements are distinct and should be accounted for as separate revenue transactions for recognition purposes.
In these types of agreements, we generally allocate sales price to each distinct obligation based on the price of each item sold in
separate transactions.
Due to the nature of the work required to be performed for obligations recognized over time, Eaton estimates total costs by
contract. The estimate of total costs are subject to judgment. Estimated amounts are included in the recognized sales price to the
extent it is not probable that a significant reversal of cumulative sales will occur. Additionally, contracts can be modified to
account for changes in contract specifications, requirements or sale price. The effect of a contract modification on the sales
price or adjustments to the measure of completion under the input method are recognized as adjustments to revenue on a
cumulative catch-up basis.
Payment terms vary by the type and location of the customer and the products or services offered. Generally, the time
between when revenue is recognized and when payment is due is not significant. Eaton does not evaluate whether the selling
price includes a financing interest component for contracts that are less than a year. Sales, value added, and other taxes
collected concurrent with revenue are excluded from sales. Shipping and handling costs are treated as fulfillment costs and are
included in Cost of products sold.
Eaton records reductions to sales for returns, and customer and distributor incentives, primarily comprised of rebates, at the
time of the initial sale. Rebates are estimated based on sales terms, historical experience, trend analysis, and projected market
conditions in the various markets served. The rebate programs offered vary across businesses due to the numerous markets
Eaton serves, but the most common incentives relate to amounts paid or credited to customers for achieving defined volume
levels. Accrued rebates of $400 million and $327 million as of December 31, 2022 and 2021, respectively, are generally paid
annually and were included in Other current liabilities. Returns are estimated at the time of the sale primarily based on historical
experience and are recorded gross on the Consolidated Balance Sheet.
Sales commissions are expensed when the amortization period is less than a year and are generally not capitalized as they
are typically earned at the completion of the contract when the customer is invoiced or when the customer pays Eaton.
Sales of products and services varies by segment and are discussed in Note 17.
In the Electrical Americas segment, sales contracts are primarily for electrical components, industrial components, power
distribution and assemblies, residential products, single phase power quality and connectivity, three phase power quality, wiring
devices, circuit protection, utility power distribution, power reliability equipment, and services that are primarily produced and
sold in North and South America. The majority of the sales in this segment contain performance obligations satisfied at a point
in time either when we ship the product from our facility, or when it arrives at the customer’s facility. However, certain power
distribution and power quality services are recognized over time.
In the Electrical Global segment, sales contracts are primarily for electrical components, industrial components, power
distribution and assemblies, single phase and three phase power quality, and services that are primarily produced and sold
outside of North and South America, as well as hazardous duty electrical equipment, emergency lighting, fire detection,
intrinsically safe explosion-proof instrumentation, and structural support systems that are produced and sold globally. The
majority of the sales contracts in this segment contain performance obligations satisfied at a point in time either when we ship
the product from our facility, or when it arrives at the customer’s facility. However, certain power distribution and power
quality services are recognized over time.
In the Aerospace segment, sales contracts are primarily for aerospace fuel, hydraulics, and pneumatic systems for
commercial and military use, as well as filtration systems for industrial applications. These sales contracts are primarily based
on a customer’s purchase order, and frequently covered by terms and conditions included in a long-term agreement. In this
segment, performance obligations are generally satisfied at a point in time either when we ship the product from our facility, or
when it arrives at the customer’s facility. Our military contracts are primarily fixed-price contracts that are not subject to
performance-based payments or progress payments from the customer.
36
Many of the products and services in power distribution and power quality services in the Electrical Americas and Electrical
Global business segments and contracts to develop new products that are fully funded by customers in the Aerospace business
segment meet the definition of continuous transfer of control to customers and are recognized over time. These products are
engineered to a customer’s design specifications, have no alternative use to Eaton, and are controlled by the customer as
evidenced by the customer’s contractual ownership of the work in process or our right to payment for work performed to date
plus a reasonable margin. As control is transferring over time, sales are recognized based on the extent of progress towards
completion of the obligation. Eaton generally uses an input method to determine the progress completed and sales are recorded
proportionally as costs are incurred. Incurred costs represent work performed, which corresponds with, and thereby best depicts,
the transfer of control to the customer.
In the Hydraulics segment, sales contracts were primarily for hydraulic components and systems for industrial and mobile
equipment. These sales contracts were primarily based on a customer’s purchase order. In this segment, performance
obligations were generally satisfied at a point in time when we ship the product from our facility.
In the Vehicle segment, sales contracts are primarily for drivetrains, powertrain systems and critical components that reduce
emissions and improve fuel economy, stability, performance, and safety of cars, light trucks, and commercial vehicles. These
sales contracts are primarily based on a customer’s purchase order or a blanket purchase order subject to firm releases,
frequently covered by terms and conditions included in a master supply agreement. In this segment, performance obligations
are generally satisfied at a point in time either when we ship the product from our facility, or when it arrives at the customer’s
facility.
In the eMobility segment, sales contracts are primarily for mechanical, electrical, and electronic components and systems
that improve the power management and performance of both on-road and off-road vehicles. These sales contracts are primarily
based on a customer’s purchase order. In this segment, performance obligations are generally satisfied at a point in time either
when we ship the product from our facility, or when it arrives at the customer’s facility.
In limited circumstances, primarily in the Electrical and Vehicle segments, Eaton sells separately-priced warranties that
extend the warranty coverage beyond the standard coverage offered on specific products. Sales for these separately-priced
warranties are recorded based on their stand-alone selling price and are recognized as revenue over the length of the warranty
period.
37
The following table provides disaggregated sales by lines of businesses, geographic destination, market channel or end
market, as applicable, for the Company's operating segments:
(In millions)
Electrical Americas
Products
Systems
Total
Electrical Global
Products
Systems
Total
Hydraulics
United States
Rest of World
Total
Aerospace
Original Equipment Manufacturers
Aftermarket
Industrial and Other
Total
Vehicle
Commercial
Passenger and Light Duty
Total
eMobility
Total net sales
2022
2021
2020
$
2,732 $
2,255 $
2,255
5,765
4,987
4,425
$
8,497 $
7,242 $
6,680
$
3,424 $
3,283 $
2,608
2,424
2,233
2,095
$
5,848 $
5,516 $
4,703
$
$
— $
534 $
796
—
766
1,046
— $
1,300 $
1,842
$
1,209 $
1,018 $
977
854
823
807
986
685
552
$
3,039 $
2,648 $
2,223
$
1,736 $
1,438 $
1,060
1,094
1,141
1,058
$
2,830 $
2,579 $
2,118
$
538 $
343 $
292
$ 20,752 $ 19,628 $ 17,858
The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables
(revenue recognized exceeds amount billed to the customer), and deferred revenue (advance payments and billings in excess of
revenue recognized). Accounts receivables from customers were $3,581 million and $2,896 million at December 31, 2022 and
December 31, 2021, 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
$233 million and $187 million at December 31, 2022 and December 31, 2021, respectively, and are recorded in Prepaid
expenses and other current assets. The increase in unbilled receivables reflects higher revenue recognized from increased
business activity in 2022.
38
Changes in the deferred revenue liabilities are as follows:
(In millions)
Balance at January 1, 2021
Customer deposits and billings
Revenue recognized in the period
Deferred revenue from business acquisitions
Translation and other
Balance at December 31, 2021
Customer deposits and billings
Revenue recognized in the period
Translation and other
Balance at December 31, 2022
Deferred
revenue
257
1,267
(1,192)
99
(9)
422
1,656
(1,541)
(29)
508
$
$
$
Deferred revenue liabilities of $489 million and $395 million as of December 31, 2022 and 2021, respectively, were
included in Other current liabilities with the remaining balance presented in Other noncurrent liabilities.
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 December 31, 2022 was approximately $11.4 billion. At December 31, 2022,
approximately 82% of this backlog is targeted for delivery to customers in the next twelve months and the rest thereafter.
Note 4. CREDIT LOSSES FOR RECEIVABLES
Receivables are exposed to credit risk based on the customers' ability to pay which is influenced by, among other factors,
their financial liquidity position. Eaton's receivables are generally short-term in nature with a majority outstanding less than 90
days.
Eaton performs ongoing credit evaluation of its customers and maintains sufficient allowances for potential credit losses.
The Company evaluates the collectability of its receivables based on the length of time the receivable is past due, and any
anticipated future write-off based on historic experience adjusted for market conditions. The Company's segments, supported by
our global credit department, perform the credit evaluation and monitoring process to estimate and manage credit risk. The
process includes an evaluation of credit losses for both the overall segment receivable and specific customer balances. The
process also includes review of customer financial information and credit ratings, approval and monitoring of customer credit
limits, and an assessment of market conditions. The Company may also require prepayment from customers to mitigate credit
risk. Receivable balances are written off against an allowance for credit losses after a final determination of collectability has
been made.
Accounts receivable are net of an allowance for credit losses of $31 million and $42 million at December 31, 2022 and
2021. 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 using the first-in, first-out (FIFO) method. Cost components
include raw materials, purchased components, direct labor, indirect labor, utilities, depreciation, inbound freight charges,
purchasing and receiving costs, inspection costs, warehousing costs, and costs of the distribution network.
The components of inventory are as follows:
(In millions)
Raw materials
Work-in-process
Finished goods
Total inventory
December 31
2022
2021
$
$
1,275 $
781
1,375
3,430 $
1,096
620
1,253
2,969
39
Note 6. GOODWILL AND OTHER INTANGIBLE ASSETS
Changes in the carrying amount of goodwill by segment are as follows:
(In millions)
Electrical Americas
Electrical Global
Aerospace
Vehicle
eMobility
Total
January 1,
2021
Additions Translation
December 31,
2021
December 31,
2022
$
6,456 $
4,295
1,777
293
82
971 $
85
1,091
—
—
$ 12,903 $ 2,147 $
(10) $
(197)
(87)
(3)
(2)
(299) $
Additions Translation
5 $
2
184
—
255
445 $
(19) $
(255)
(122)
(2)
(1)
(400) $
7,417 $
4,183
2,781
290
80
14,751 $
7,402
3,929
2,844
287
334
14,796
The 2022 additions to goodwill relate primarily to the anticipated synergies of acquiring Royal Power Solutions and Mission
Systems. The 2021 additions to goodwill relate to the anticipated synergies of acquiring Mission Systems, Tripp Lite, and
Green Motion SA.
A summary of other intangible assets is as follows:
(In millions)
Intangible assets not subject to amortization
Trademarks
Intangible assets subject to amortization
Customer relationships
Patents and technology
Trademarks
Other
$
$
December 31
2022
2021
Historical
cost
Accumulated
amortization
Historical
cost
Accumulated
amortization
1,201
$
1,374
4,677 $
2,156 $
4,752 $
1,974
1,987
1,113
175
830
570
111
1,879
951
165
712
518
62
Total intangible assets subject to amortization
$
7,952 $
3,667 $
7,747 $
3,266
Amortization expense related to intangible assets subject to amortization in 2022, and estimated amortization expense for
each of the next five years, is as follows:
(In millions)
2022
2023
2024
2025
2026
2027
$
483
430
403
398
382
373
40
Note 7. LEASES
Eaton leases certain manufacturing facilities, warehouses, distribution centers, office space, vehicles, and equipment. Most
real estate leases contain renewal options. The exercise of lease renewal options is at the Company's sole discretion. The
Company's lease agreements typically do not contain any significant guarantees of asset values at the end of a lease or
restrictive covenants. Payments within certain lease agreements are adjusted periodically for changes in an index or rate.
The components of lease expense are as follows:
(In millions)
Operating lease cost
Finance lease cost:
Amortization of lease assets
Interest on lease liabilities
Short-term lease cost
Variable lease cost
Sublease income
Total lease cost
2022
2021
2020
$
179 $
164 $
184
11
1
17
27
12
2
15
16
(1)
(2)
6
1
18
3
(2)
$
234 $
207 $
210
During 2022, Eaton entered into sale leaseback transactions primarily for certain office and distribution facilities and
recorded gains of $81 million in Other expense (income) - net. The terms of the new operating leases ranged from 15 to 20
years. There were no sale leaseback transactions for the year ended December 31, 2021 and gains recorded on sale leaseback
transactions were $9 million for the year ended December 31, 2020.
Supplemental cash flow information related to leases is as follows:
(In millions)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows - payments on operating leases
Operating cash outflows - interest payments on finance leases
Financing cash outflows - payments on finance lease obligations
Lease assets obtained in exchange for new lease obligations, including leases acquired:
Operating leases
Finance leases
2022
2021
2020
$ (159) $ (158) $ (144)
(2)
(2)
(11)
(11)
(1)
(8)
$ 245 $ 145 $ 144
10
14
16
41
Supplemental balance sheet information related to leases is as follows:
(In millions)
Operating Leases
Operating lease assets
Other current liabilities
Operating lease liabilities
Total operating lease liabilities
Finance Leases
Land and buildings
Machinery and equipment
Accumulated depreciation
Net property, plant and equipment
Current portion of long-term debt
Long-term debt
Total finance lease liabilities
Weighted-average remaining lease term
Operating leases
Finance leases
Weighted-average discount rate
Operating leases
Finance leases
Maturities of lease liabilities at December 31, 2022 are as follows:
(In millions)
2023
2024
2025
2026
2027
Thereafter
Total lease payments
Less imputed interest
$
$
$
$
$
$
December 31
2022
2021
570 $
127
459
586 $
6 $
40
(20)
26 $
10 $
18
28 $
442
120
337
457
6
47
(19)
34
15
23
38
December 31
2022
2021
7.6 years
4.9 years
5.4 years
5.3 years
3.3 %
3.0 %
2.6 %
3.3 %
Operating
Leases
Finance
Leases
$
145 $
10
118
86
69
54
209
681
95
7
4
3
2
4
30
2
28
Total present value of lease liabilities
$
586 $
42
Note 8. DEBT
A summary of long-term debt, including the current portion, is as follows:
(In millions)
8.10% debentures due 2022 ($100 converted to floating rate by interest rate swap)
2.75% senior notes due 2022 ($1,400 converted to floating rate by interest rate swap)
3.68% notes due 2023 ($200 converted to floating rate by interest rate swap)
0.75% Euro notes due 2024
6.50% debentures due 2025
0.70% Euro notes due 2025
0.128% Euro notes due 2026
3.10% senior notes due 2027
7.65% debentures due 2029 ($50 converted to floating rate by interest rate swap)
0.577% Euro notes due 2030
4.00% senior notes due 2032
4.15% sustainability-linked senior notes due 2033
5.45% debentures due 2034 ($25 converted to floating rate by interest rate swap)
5.80% notes due 2037
4.15% senior notes due 2042
3.92% senior notes due 2047
4.70% senior notes due 2052
5.25% to 7.875% notes (maturities ranging from 2024 to 2035, including $25 converted to
floating rate by interest rate swap)
Other
Total long-term debt
Less current portion of long-term debt
Long-term debt less current portion
December 31
2022
2021
— $
—
—
587
145
534
960
700
200
640
700
1,300
137
240
1,000
300
700
165
23
8,331
(10)
8,321 $
100
1,600
300
624
145
567
1,021
700
200
681
700
—
136
240
1,000
300
—
165
87
8,566
(1,735)
6,831
$
$
Substantially all these long-term debt instruments are fully and unconditionally guaranteed on an unsubordinated, unsecured
basis by Eaton and certain of its direct and indirect subsidiaries (the Senior Notes). Further, as of December 31, 2022, all of
these long-term debt instruments, except the 0.75% Euro notes due 2024, the 0.70% Euro notes due 2025, the 0.128% Euro
notes due 2026, and the 0.577% Euro notes due 2030, are registered by Eaton Corporation under the Securities Act of 1933, as
amended (the Registered Senior Notes).
On August 23, 2022, Eaton Corporation issued sustainability-linked senior notes (2022 Sustainability-Linked Notes) and
senior notes (2022 Senior Notes, and collectively referred to as the 2022 Notes). The 2022 Sustainability-Linked Notes have a
face amount of $1.3 billion, mature in 2033, and pay interest semi-annually at an initial interest rate of 4.15% per annum.
Beginning in September 2028, the interest rate payable on the 2022 Sustainability-Linked Notes will be increased by an
additional 25 basis points per annum if the Scope 1 and Scope 2 greenhouse gas emissions sustainability performance target is
not met. The 2022 Senior Notes have a face amount of $700 million, mature in 2052, and pay interest semi-annually at 4.70%
per annum. The issuer received proceeds totaling $1.98 billion from the issuance of the 2022 Notes, net of financing costs and
discounts. The 2022 Notes are fully and unconditionally guaranteed on an unsubordinated, unsecured basis by Eaton and certain
of its direct and indirect subsidiaries. The 2022 Notes contain customary optional redemption and par call provisions. They also
contain a change of control provision which requires the issuer to make an offer to purchase all or any part of the 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 2022 Notes. The 2022 Notes are subject to customary non-
financial covenants.
43
On October 3, 2022, the Company replaced its existing $2,000 million five-year revolving credit facility with a new
$2,500 million five-year revolving credit facility that will expire on October 1, 2027. On the same date, the Company replaced
its existing $500 million 364-day revolving credit facility with a new $500 million 364-day revolving credit facility that will
expire on October 2, 2023. The revolving credit facilities totaling $3,000 million are used to support commercial paper
borrowings and are fully and unconditionally guaranteed by Eaton and certain of its direct and indirect subsidiaries on an
unsubordinated, unsecured basis. In October 2022, the Company also upsized its commercial paper program to $3,000 million.
There were no borrowings outstanding under Eaton’s revolving credit facilities at December 31, 2022. The Company had
access to the commercial paper markets through its $3,000 million commercial paper program, of which $300 million was
outstanding on December 31, 2022.
In addition to the revolving credit facilities, the Company also had available lines of credit of $919 million from various
banks primarily for the issuance of letters of credit, of which there was $414 million outstanding at December 31, 2022.
Borrowings outside the United States are generally denominated in local currencies.
Short-term debt of $324 million at December 31, 2022 included $300 million of short-term commercial paper in the United
States, which had a weighted average interest rate of 4.67%, and $24 million of short-term debt outside the United States.
Eaton is in compliance with each of its debt covenants for all periods presented.
Maturities of long-term debt for each of the next five years are as follows:
(In millions)
2023
2024
2025
2026
2027
Interest paid on debt is as follows:
(In millions)
2022
2021
2020
$
$
10
659
682
1,035
702
250
207
216
44
Note 9. RETIREMENT BENEFITS PLANS
Eaton has defined benefits pension plans and other postretirement benefits plans.
Obligations and Funded Status
(In millions)
Funded status
Fair value of plan assets
Benefit obligations
Funded status
Amounts recognized in the Consolidated
Balance Sheets
Other assets
Other current liabilities
Pension liabilities and Other postretirement
benefits liabilities
Total
Amounts recognized in Accumulated other
comprehensive loss (pre-tax)
Net actuarial (gain) loss
Prior service cost (credit)
Total
Change in Benefit Obligations
(In millions)
Balance at January 1
Service cost
Interest cost
Actuarial (gain) loss
Gross benefits paid
Currency translation
Plan amendments
Acquisitions and divestitures
Other
Balance at December 31
United States
pension liabilities
Non-United States
pension liabilities
Other postretirement
liabilities
2022
2021
2022
2021
2022
2021
$ 2,635 $ 3,672 $ 1,486 $ 2,247 $
16 $
19
(2,807)
(3,760)
(1,813)
(2,837)
(209)
$
(172) $
(88) $
(327) $
(590) $
(194) $
$
— $
59 $
199 $
179 $
— $
(19)
(16)
(30)
(28)
(17)
(153)
(131)
(496)
(741)
(177)
$
(172) $
(88) $
(327) $
(590) $
(194) $
$
$
807 $
708 $
491 $
745 $
(119) $
5
5
14
18
(2)
811 $
713 $
505 $
763 $
(120) $
(304)
(285)
—
(22)
(263)
(285)
(55)
—
(55)
United States
pension liabilities
Non-United States
pension liabilities
Other postretirement
liabilities
2022
2021
2022
2021
2022
2021
$ 3,760 $ 4,121 $ 2,837 $ 3,036 $
304 $
375
27
117
(713)
(386)
—
1
—
—
37
70
(82)
(435)
—
1
48
—
59
47
(817)
(99)
(218)
1
—
3
72
40
(143)
(107)
(79)
—
14
4
1
7
(73)
(38)
(3)
(2)
—
13
1
6
(59)
(36)
—
—
2
15
$ 2,807 $ 3,760 $ 1,813 $ 2,837 $
209 $
304
Accumulated benefit obligation
$ 2,784 $ 3,707 $ 1,737 $ 2,709
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.
45
Actuarial gains related to changes in the United States and Non-United States benefit obligations in 2022 of $713 million
and $817 million, respectively, were primarily due to increases in the discount rates used to measure the obligations. Actuarial
gains related to changes in the United States and Non-United States benefit obligations in 2021 of $82 million and
$143 million, respectively, were primarily due to increases in the discount rates used to measure the obligations.
Change in Plan Assets
(In millions)
Balance at January 1
Actual return on plan assets
Employer contributions
Gross benefits paid
Currency translation
Acquisitions and divestitures
Other
Balance at December 31
United States
pension liabilities
Non-United States
pension liabilities
Other postretirement
liabilities
2022
2021
2022
2021
2022
2021
$ 3,672 $ 3,463 $ 2,247 $ 2,137 $
(682)
30
380
237
(554)
85
127
106
19 $
(2)
24
20
—
20
(386)
(435)
(99)
(107)
(38)
(36)
—
—
—
—
27
—
(197)
(23)
—
3
4
3
—
—
13
$ 2,635 $ 3,672 $ 1,486 $ 2,247 $
16 $
—
—
15
19
The components of pension plans with an accumulated benefit obligation in excess of plan assets at December 31 are as
follows:
(In millions)
Accumulated benefit obligation
Fair value of plan assets
United States
pension liabilities
Non-United States
pension liabilities
2022
2021
2022
2021
$
2,784 $
131 $
2,635
—
654 $
173
894
207
The components of pension plans with a projected benefit obligation in excess of plan assets at December 31 are as follows:
(In millions)
Projected benefit obligation
Fair value of plan assets
United States
pension liabilities
Non-United States
pension liabilities
2022
2021
2022
2021
$
2,807 $
147 $
2,635
—
722 $
195
1,290
521
Other postretirement benefit plans with accumulated postretirement benefit obligations in excess of plan assets have been
disclosed in the Obligations and Funded Status table.
46
Changes in pension and other postretirement benefit liabilities recognized in Accumulated other comprehensive loss are as
follows:
(In millions)
Balance at January 1
Prior service cost arising during the year
Net loss (gain) arising during the year
Currency translation
Other
Less amounts included in expense during the year
United States
pension liabilities
Non-United States
pension liabilities
Other postretirement
liabilities
2022
2021
2022
2021
2022
2021
$
713 $ 1,051 $
763 $ 1,026 $
(55) $
1
173
—
—
1
1
—
(238)
(149)
(151)
—
—
(64)
(24)
—
—
(47)
(88)
(2)
(69)
(1)
—
7
(259)
(263)
(65)
(76)
98
(101)
(338)
$
811 $
713 $
505 $
763 $
(120) $
(2)
—
(59)
—
—
6
(53)
(55)
Net change for the year
Balance at December 31
Benefits Expense
(In millions)
Service cost
Interest cost
Expected return on plan assets
Amortization
Settlements, curtailments and
special termination benefits
United States pension
benefit expense (income)
2020
2021
2022
Non-United States pension
benefit expense (income)
2020
2021
2022
Other postretirement
benefits expense (income)
2020
2021
2022
$
27 $
117
(204)
15
(46)
37 $
70
(223)
36
(80)
97 $
103
(231)
102
71
59 $
47
(115)
45
37
72 $
40
(120)
71
63
73 $
45
(109)
60
69
1 $
1 $
7
6
(1) —
(7)
(5)
2
2
9
—
(13)
(2)
—
61
65
62
2
17
10
—
(1) —
Total expense (income)
$
15 $
(15) $ 133 $
39 $
80 $
79 $ — $
1 $
(2)
Total retirement benefits expense for 2021 of $66 million included $13 million of settlement and curtailment expense related
to the sale of the Hydraulics business discussed in Note 2.
The components of retirement benefits expense (income) other than service costs are included in Other expense (income) -
net.
Retirement Benefits Plans Assumptions
In 2022, for purposes of determining liabilities related to the majority of its plans in the United States, the Company used the
Pri-2012 mortality tables as well as mortality tables that are based on the Company's own experience and generational
improvement scales that are based on MP-2021. In 2020 and 2021, the Company used mortality tables that are based on the
Company's own experience and generational improvement scales that are based on MP-2020 and MP-2021, respectively.
To estimate the service and interest cost components of net periodic benefit cost for the vast majority of its defined benefits
pension and other postretirement benefits plans, the Company used a spot rate approach by applying the specific spot rates
along the yield curve used to measure the benefit obligation at the beginning of the period to the relevant projected cash flows.
47
Pension Plans
United States
pension plans
2021
2022
2020
Non-United States
pension plans
2021
2020
2022
Assumptions used to determine benefit obligation at year-end
Discount rate
Rate of compensation increase
Interest rate used to credit cash balance plans
5.47 % 2.81 % 2.48 % 4.83 % 2.01 % 1.59 %
3.33 % 3.12 % 3.12 % 3.12 % 3.01 % 3.02 %
3.67 % 1.99 % 2.02 % 2.32 % 0.56 % 0.53 %
Assumptions used to determine expense
Discount rate used to determine benefit obligation
Discount rate used to determine service cost
Discount rate used to determine interest cost
Expected long-term return on plan assets
Rate of compensation increase
Interest rate used to credit cash balance plans
4.30 % 2.61 % 3.22 % 2.01 % 1.63 % 2.02 %
4.41 % 2.92 % 3.34 % 2.98 % 2.52 % 2.78 %
3.94 % 1.83 % 2.75 % 1.84 % 1.36 % 1.82 %
6.50 % 6.75 % 7.25 % 5.70 % 5.62 % 5.84 %
3.12 % 3.12 % 3.14 % 3.01 % 3.02 % 3.05 %
2.62 % 2.14 % 2.59 % 0.56 % 0.52 % 0.54 %
The expected long-term rate of return on pension assets was determined for each country and reflects long-term historical
data taking into account each plan's target asset allocation. The expected long-term rates of return on pension assets for United
States pension plans and Non-United States pension plans for 2023 are 6.50% and 6.32%, respectively. The discount rates were
determined using appropriate bond data for each country.
Other Postretirement Benefits Plans
Substantially all of the obligation for other postretirement benefits plans relates to United States plans. Assumptions used to
determine other postretirement benefits obligations and expense are as follows:
Other postretirement
benefits plans
2021
2020
2022
Assumptions used to determine benefit obligation at year-end
Discount rate
Health care cost trend rate assumed for next year
Ultimate health care cost trend rate
Year ultimate health care cost trend rate is achieved
Assumptions used to determine expense
Discount rate used to determine benefit obligation
Discount rate used to determine service cost
Discount rate used to determine interest cost
Initial health care cost trend rate
Ultimate health care cost trend rate
Year ultimate health care cost trend rate is achieved
5.46 % 2.79 % 2.37 %
7.10 % 7.45 % 7.05 %
4.75 % 4.75 % 4.75 %
2030
2031
2031
2.79 % 2.44 % 3.13 %
3.03 % 2.76 % 3.25 %
2.24 % 1.70 % 2.67 %
7.45 % 7.38 % 6.95 %
4.75 % 4.75 % 4.75 %
2029
2030
2031
48
Employer Contributions to Retirement Benefits Plans
Contributions to pension plans that Eaton expects to make in 2023, and made in 2022, 2021 and 2020, are as follows:
(In millions)
United States plans
Non-United States plans
Total contributions
Expected in 2023
2022
2021
2020
$
$
23 $
86
108 $
30 $
85
116 $
237 $
106
343 $
18
104
122
The following table provides the estimated pension and other postretirement benefit payments for each of the next five
years, and the five years thereafter in the aggregate. For other postretirement benefits liabilities, the expected subsidy receipts
related to the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 would reduce the gross payments
listed below.
Estimated other postretirement
benefit payments
Estimated
United States
pension payments
Estimated
non-United States
pension payments
Gross
Medicare
prescription
drug subsidy
$
281 $
101 $
20 $
267
261
253
242
1,100
101
101
107
110
595
18
17
16
19
84
—
—
—
—
—
(1)
(In millions)
2023
2024
2025
2026
2027
2028 - 2032
Pension Plan Assets
Investment policies and strategies are developed on a country and plan specific basis. The United States plan, representing
64% of worldwide pension assets, and the United Kingdom plans representing 25% of worldwide pension assets, are invested
primarily in debt securities largely for liability hedging, as the majority of the assets are in plans that are well-funded. In
general, the plans are primarily allocated to diversified high-quality publicly traded debt, primarily through separately managed
accounts and commingled funds in the form of common collective and other trusts. The United States plan's target allocation is
19% United States equities, 13% non-United States equities, 3% public real estate (primarily equity of real estate investment
trusts), 54% debt securities and 11% other, including private equity, private debt and cash equivalents. The United Kingdom
plans' target asset allocations are 32% equities and the remainder in debt securities, cash equivalents and real estate investments.
The equity risk for the plans is managed through broad diversification across industries, geographies, and levels of market
capitalization. The majority of debt allocations for these plans are longer duration government and corporate debt. The United
States, United Kingdom and Canada pension plans are authorized to use derivatives, including the use of futures, swaps and
options, to achieve more economically desired market exposures.
Fair Value Measurements
Financial instruments included in pension and other postretirement benefits plan assets are categorized into a fair value
hierarchy of three levels, based on the degree of subjectivity inherent in the valuation methodology are as follows:
Level 1 -
Quoted prices (unadjusted) for identical assets in active markets.
Level 2 -
Quoted prices for similar assets in active markets, and inputs that are observable for the asset, either
directly or indirectly, for substantially the full term of the financial instrument.
Level 3 -
Unobservable prices or inputs.
Certain investments that are measured at fair value using the net asset value per share practical expedient have not been
categorized in the fair value hierarchy and are being presented in the tables to permit a reconciliation to total plan assets.
49
Pension Plans
A summary of the fair value of pension plan assets at December 31, 2022 and 2021, is as follows:
(In millions)
2022
Common collective trusts
Quoted prices
in active
markets for
identical
assets
(Level 1)
Total
Other
observable
inputs
(Level 2)
Unobservable
inputs
(Level 3)1
Non-United States equity and global equities
$
173 $
— $
173 $
United States equity
Fixed income
Fixed income securities
United States treasuries
Real estate
Cash equivalents
Exchange traded funds
Other
Common collective and other trusts measured at net asset
value
Money market funds measured at net asset value
Pending purchases and sales of plan assets, and interest
receivable
—
—
—
660
76
21
77
—
54
620
744
—
20
56
—
27
54
620
744
660
295
77
77
387
1,100
3
(69)
—
—
—
—
—
199
—
—
360
Total pension plan assets
559
$
1 These pension plan assets include private equity, private credit and private real estate funds that generally have redemption notice periods of
six months or longer and are often not eligible for redemption until the underlying assets are liquidated or distributed. The Company has
unfunded commitments to these funds of approximately $180 million at December 31, 2022, which will be satisfied by a reallocation of
pension plan assets.
4,121 $
1,694 $
834 $
50
(In millions)
2021
Common collective trusts
Quoted prices
in active
markets for
identical
assets
(Level 1)
Total
Other
observable
inputs
(Level 2)
Unobservable
inputs
(Level 3)1
Non-United States equity and global equities
$
586 $
— $
586 $
United States equity
Fixed income
Fixed income securities
United States treasuries
Bank loans
Real estate
Equity securities
Cash equivalents
Exchange traded funds
Other
Common collective and other trusts measured at net asset
value
Money market funds measured at net asset value
Pending purchases and sales of plan assets, and interest
receivable
—
—
—
417
—
237
2
28
122
—
240
624
1,074
—
117
18
—
122
—
46
240
624
1,074
417
117
471
2
150
122
365
1,841
9
(99)
—
—
—
—
—
—
216
—
—
—
319
Total pension plan assets
535
$
1 These pension plan assets include private equity, private credit and private real estate funds that generally have redemption notice periods of
six months or longer, and are often not eligible for redemption until the underlying assets are liquidated or distributed. The Company has
unfunded commitments to these funds of approximately $192 million at December 31, 2021, which will be satisfied by a reallocation of
pension plan assets.
5,919 $
2,827 $
806 $
The fair value measurement of plan assets using significant unobservable inputs (Level 3) changed during 2021 and 2022
due to the following:
(In millions)
Balance at January 1, 2021
Actual return on plan assets:
Gains (losses) relating to assets still held at year-end
Purchases, sales, settlements - net
Transfers into or out of Level 3
Balance at December 31, 2021
Actual return on plan assets:
Gains (losses) relating to assets still held at year-end
Purchases, sales, settlements - net
Transfers into or out of Level 3
Balance at December 31, 2022
Real estate
Other
Total
$
184 $
174 $
28
4
—
216
1
(18)
—
61
79
5
319
(3)
44
—
$
199 $
360 $
358
89
83
5
535
(2)
26
—
559
51
Other Postretirement Benefits Plans
A summary of the fair value of other postretirement benefits plan assets at December 31, 2022 and 2021, is as follows:
(In millions)
2022
Cash equivalents
Common collective and other trusts measured at net asset
value
Total other postretirement benefits plan assets
(In millions)
2021
Cash equivalents
Common collective and other trusts measured at net asset
value
Total other postretirement benefits plan assets
Valuation Methodologies
Quoted prices
in active
markets for
identical
assets
(Level 1)
Total
Other
observable
inputs
(Level 2)
Unobservable
inputs
(Level 3)
3 $
3 $
— $
13
16 $
3 $
— $
—
—
Quoted prices
in active
markets for
identical
assets
(Level 1)
Total
Other
observable
inputs
(Level 2)
Unobservable
inputs
(Level 3)
3 $
3 $
— $
16
19 $
3 $
— $
—
—
$
$
$
$
Following is a description of the valuation methodologies used for pension and other postretirement benefits plan assets
measured at fair value. There have been no changes in the methodologies used at December 31, 2022 and 2021.
Common collective and other trusts - Valued at the net unit value of units held by the trust at year end. The unit value is
determined by the total value of fund assets divided by the total number of units of the fund owned. The equity investments
in collective trusts are predominantly in index funds for which the underlying securities are actively traded in public markets
based upon readily measurable prices. The investments in other trusts are predominantly in exchange traded funds for which
the underlying securities are actively traded in public markets based upon readily measurable prices. Common collective and
other trusts measured at fair value using the net asset value per share practical expedient have not been categorized in the
fair value hierarchy and are being presented in the tables above to permit a reconciliation of the fair value hierarchy to the
total plan assets.
Fixed income securities - These securities consist of publicly traded United States and non-United States fixed interest
obligations (principally corporate and government bonds and debentures). The fair value of corporate and government debt
securities is determined through third-party pricing models that consider various assumptions, including time value, yield
curves, credit ratings, and current market prices. The Company verifies the results of trustees or custodians and evaluates the
pricing classification of these securities by performing analyses using other third-party sources.
Equity securities - These securities consist of comingled funds and direct investments consisting of the stock of publicly
traded companies. Such investments are valued based on the closing price reported in an active market on which the
individual securities are traded.
United States treasuries - Valued at the closing price of each security.
Bank loans - These securities consist of senior secured term loans of publicly traded and privately held United States and
non-United States floating rate obligations (principally corporations of non-investment grade rating). The fair value is
determined through third-party pricing models that primarily utilize dealer quoted current market prices. The Company
verifies the results of trustees or custodians and evaluates the pricing classification of these securities by performing
analyses using other third-party sources.
52
Real estate - Consists of direct investments in the stock of publicly traded companies and investments in pooled funds that
invest directly in real estate. The publicly traded companies are valued based on the closing price reported in an active
market on which the individual securities are traded and as such are classified as Level 1. The pooled funds rely on
appraisal-based valuations and as such are classified as Level 3.
Cash equivalents - Primarily certificates of deposit, commercial paper, and repurchase agreements.
Exchange traded funds - Valued at the closing price of the exchange traded fund's shares.
Money market funds - Money market funds measured at fair value using the net asset value per share practical expedient
have not been categorized in the fair value hierarchy and are being presented in the tables above to permit a reconciliation of
the fair value hierarchy to the total plan assets.
Other - These assets consist of private equity, private debt, insurance contracts primarily for international plans, futures
contracts, and over-the-counter options. Investments in private equity and private debt are valued at net asset value or
estimated fair value based on quarterly financial information received from the investment advisor, third party appraisal or
general partner. These estimates incorporate factors such as contributions and distributions, market transactions, market
comparables and performance multiples. Futures contracts and options are valued based on the closing prices of contracts or
indices as available using third-party sources.
For additional information regarding fair value measurements, see Note 14.
Defined Contribution Plans
The Company has various defined contribution benefit plans, primarily consisting of the plans in the United States. The total
contributions related to these plans are charged to expense and are as follows:
(In millions)
2022
2021
2020
$
182
171
111
53
Note 10. COMMITMENTS AND CONTINGENCIES
Legal Contingencies
Eaton is subject to a broad range of claims, administrative and legal proceedings such as lawsuits that relate to contractual
allegations and indemnity claims, tax audits, patent infringement, personal injuries, antitrust matters, and employment-related
matters. Eaton is also subject to legal 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.
Environmental Contingencies
Eaton has established policies to ensure that its operations are conducted in keeping with good corporate citizenship and
with a positive commitment to the protection of the natural and workplace environments. The Company requires that its
businesses be certified to ISO 14001, an international standard for environmental management systems. The Company routinely
reviews EHS performance at each of its manufacturing facilities and continuously strives to improve its environmental
footprint, including carbon, waste, water and related operational profiles consistent with our sustainability goals.
Eaton is involved in remedial response and voluntary environmental remediation at a number of sites, including certain of its
currently-owned or formerly-owned plants. The Company has also been named a potentially responsible party under the United
States federal Superfund law, or the state equivalents thereof, at a number of disposal sites. The Company became involved in
these sites as a result of government action or in connection with business acquisitions. At the end of 2022, the Company was
involved with a total of 111 sites worldwide, including the Superfund sites mentioned above, with none of these sites being
individually significant to the Company.
Remediation activities, generally involving soil and/or groundwater contamination, include pre-cleanup activities such as
fact finding and investigation, risk assessment, feasibility study, design and action planning, performance (where actions may
range from monitoring, to removal of contaminants, to installation of longer-term remediation systems), and operation and
maintenance of a remediation system. The extent of expected remediation activities and costs varies by site. A number of
factors affect the cost of environmental remediation, including the number of parties involved at a particular site, the
determination of the extent of contamination, the length of time the remediation may require, the complexity of environmental
regulations, and the continuing advancement of remediation technology. Taking these factors into account, Eaton has estimated
the costs of remediation, which will be paid over a period of years. The Company accrues an amount on an undiscounted basis,
consistent with the estimates of these costs, when it is probable that a liability has been incurred. Actual results may differ from
these estimates. At December 31, 2022 and 2021, the Company had an accrual totaling $73 million and $99 million,
respectively, for these costs.
Based upon Eaton's analysis and subject to the difficulty in estimating these future costs, the Company expects that any sum
it may be required to pay in connection with environmental matters is not reasonably possible to exceed the recorded liability
by an amount that would have a material effect on its financial position, results of operations or cash flows.
Warranty Accruals
Product warranty accruals are established at the time the related sale is recognized through a charge to Cost of products sold.
Warranty accrual estimates are based primarily on historical warranty claim experience and specific customer contracts.
Provisions for warranty accruals are comprised of basic warranties for products sold, as well as accruals for product recalls and
other events when they are known and estimable. A summary of the current and long-term warranty accruals is as follows:
(In millions)
Balance at January 1
Provision
Settled
Warranty accruals from business acquisitions and other
Warranty accruals reclassified to held for sale
2022
2021
2020
$
125 $
83
(81)
(2)
—
151 $
65
(112)
21
—
Balance at December 31
$
125 $
125 $
187
100
(130)
2
(8)
151
54
Note 11. INCOME TAXES
Eaton Corporation plc is domiciled in Ireland. Income (loss) before income taxes and income tax expense (benefit) are
summarized below based on the geographic location of the operation to which such earnings and income taxes are attributable.
(In millions)
Ireland
Foreign
Total income before income taxes
(In millions)
Current
Ireland
Foreign
Total current income tax expense
Deferred
Ireland
Foreign
Total deferred income tax expense (benefit)
Total income tax expense
Income (loss) before income taxes
2021
2020
2022
$
$
$
$
198 $
2,713
2,911 $
153 $
2,743
2,896 $
(132)
1,878
1,746
Income tax expense (benefit)
2022
2021
2020
3 $
570
573
13
(141)
(128)
445 $
50 $
730
780
(2)
(28)
(30)
750 $
15
441
456
—
(125)
(125)
331
Reconciliations of income taxes from the Ireland national statutory rate of 25% to the consolidated effective income tax rate
are as follows:
Income taxes at the applicable statutory rate
Ireland operations
Ireland tax on trading income
Nondeductible interest expense
Ireland Other - net
Foreign operations
Tax impact on sale of businesses
Earnings taxed at other than the applicable statutory tax rate
Other items
Worldwide operations
Adjustments to tax liabilities
Adjustments to valuation allowances
Effective income tax expense rate
2022
2021
2020
25.0 %
25.0 %
25.0 %
(1.3) %
1.0 %
(0.5) %
— %
(10.2) %
1.6 %
(0.4) %
0.1 %
15.3 %
(0.7) %
0.6 %
(0.2) %
9.1 %
(8.0) %
(0.1) %
0.2 %
— %
25.9 %
(0.2) %
2.7 %
0.4 %
3.9 %
(14.0) %
1.6 %
(0.6) %
0.2 %
19.0 %
During 2022, income tax expense of $445 million was recognized (an effective tax rate of 15.3%) compared to income tax
expense of $750 million in 2021 (an effective tax rate of 25.9%) and income tax expense of $331 million in 2020 (an effective
tax rate of 19.0%). The decrease in the effective tax rate from 25.9% in 2021 to 15.3% in 2022, and the increase in the effective
tax rate from 19.0% in 2020 to 25.9% in 2021, were primarily due to the one-time tax expense on the gain from the sale of the
Hydraulics business in 2021 discussed in Note 2.
55
No provision has been made for income taxes on undistributed earnings of foreign subsidiaries of approximately $31.6
billion at December 31, 2022, since it is the Company's intention to indefinitely reinvest undistributed earnings of its foreign
subsidiaries. The Company expects to deploy capital to those markets which offer particularly attractive growth opportunities.
The cash that is permanently reinvested is typically used to expand operations either organically or through acquisitions. It is
not practicable to estimate the additional income taxes and applicable withholding taxes that would be payable on the
remittance of such undistributed earnings.
Worldwide income tax payments, net of tax refunds, are as follows:
(In millions)
2022
2021
2020
Deferred Income Tax Assets and Liabilities
Components of noncurrent deferred income taxes are as follows:
(In millions)
Accruals and other adjustments
Employee benefits
Depreciation and amortization
Other accruals and adjustments
Ireland income tax loss carryforwards
Foreign income tax loss carryforwards
Foreign income tax credit carryforwards
Valuation allowance for income tax loss and income tax credit carryforwards
Other valuation allowances
Total deferred income taxes
$
393
753
391
December 31
2022
2021
Noncurrent
assets and
liabilities
Noncurrent
assets and
liabilities
$
266 $
(1,067)
397
1
4,151
280
(4,184)
(44)
(200) $
$
348
(1,087)
385
1
3,127
263
(3,139)
(65)
(167)
In 2022, the Company recorded an increase of $1.0 billion in its deferred tax assets for foreign income tax loss
carryforwards related to tax-deductible statutory adjustments in Luxembourg. The Company also recorded a corresponding
increase in its valuation allowance for income tax loss carryforwards, since it does not believe that it is more likely than not that
the net operating loss is realizable, resulting in no impact to the Consolidated Statements of Income.
56
At December 31, 2022, Eaton Corporation plc and its foreign subsidiaries had income tax loss carryforwards and income tax
credit carryforwards that are available to reduce future taxable income or tax liabilities. These carryforwards and their
respective expiration dates are summarized below:
(In millions)
Ireland income tax loss carryforwards
Ireland deferred income tax assets for income tax loss
carryforwards
Foreign income tax loss carryforwards
Foreign deferred income tax assets for income tax loss
carryforwards
Foreign deferred income tax assets for income tax loss
carryforwards after ASU 2013-11
Foreign income tax credit carryforwards
Foreign income tax credit carryforwards after ASU
2013-11
Recoverability of Deferred Income Tax Assets
2023
through
2027
2028
through
2032
2033
through
2037
2038
through
2047
Not
subject to
expiration
$ — $ — $ — $ — $
8 $
Valuation
allowance
—
—
79
20
11
190
159
—
—
7,277
11,478
661
2,867
658
67
38
2,867
52
49
—
170
49
49
3
3
1
2,372
(1)
—
568
(4,034)
566
31
31
(4,034)
(149)
(149)
Eaton is subject to the income tax laws in the jurisdictions in which it operates. In order to determine its income tax
provision for financial statement purposes, Eaton must make significant estimates and judgments about its business operations
in these jurisdictions. These estimates and judgments are also used in determining the deferred income tax assets and liabilities
that have been recognized for differences between the financial statement and income tax basis of assets and liabilities, and
income tax loss carryforwards and income tax credit carryforwards.
Management evaluates the realizability of deferred income tax assets for each of the jurisdictions in which it operates. If the
Company experiences cumulative pre-tax income in a particular jurisdiction in the three-year period including the current and
prior two years, management normally concludes that the deferred income tax assets will more likely than not be realizable and
no valuation allowance is recognized, unless known or planned operating developments, or changes in tax laws, would lead
management to conclude otherwise. However, if the Company experiences cumulative pre-tax losses in a particular jurisdiction
in the three-year period including the current and prior two years, management then considers a series of factors in the
determination of whether the deferred income tax assets can be realized. These factors include historical operating results,
known or planned operating developments, the period of time over which certain temporary differences will reverse,
consideration of the utilization of certain deferred income tax liabilities, carryback capability under the tax law in the particular
country, prudent and feasible tax planning strategies, changes in tax laws, and estimates of future earnings and taxable income
using the same assumptions as those used for the Company's goodwill and other impairment testing. After evaluation of these
factors, if the deferred income tax assets are expected to be realized within the tax carryforward period allowed for that specific
country, management would conclude that no valuation allowance would be required. To the extent that the deferred income tax
assets exceed the amount that is expected to be realized within the tax carryforward period for a particular jurisdiction,
management would establish a valuation allowance.
Applying the above methodology, valuation allowances have been established for certain deferred income tax assets to the
extent they are not expected to be realized within the particular tax carryforward period.
57
Unrecognized Income Tax Benefits
A summary of gross unrecognized income tax benefits is as follows:
(In millions)
Balance at January 1
2022
2021
2020
$
1,120 $
1,036 $
1,001
Increases and decreases as a result of positions taken during prior years
Transfers from valuation allowances
Other increases, including currency translation
Other decreases, including currency translation
Increases related to acquired businesses
Increases as a result of positions taken during the current year
Decreases relating to settlements with tax authorities
Decreases as a result of a lapse of the applicable statute of limitations
—
36
6
22
(16)
(10)
10
97
—
(12)
12
75
(11)
(10)
—
10
(10)
7
58
(26)
(4)
Balance at December 31
$
1,235 $
1,120 $
1,036
Eaton recognizes an income tax benefit from an uncertain tax position only if it is more likely than not that the benefit would
be sustained upon examination by taxing authorities, based on the technical merits of the position. The Company evaluates and
adjusts the amount of unrecognized income tax benefits based on changes in facts and circumstances. The Company does not
enter into any of the United States Internal Revenue Service (IRS) Listed Transactions as set forth in Treasury Regulation
1.6011-4.
If all unrecognized income tax benefits were recognized, the net impact on the provision for income tax expense would be
$833 million.
As of December 31, 2022 and 2021, Eaton had accrued approximately $137 million and $128 million, respectively, for the
payment of worldwide interest and penalties, which are not included in the table of unrecognized income tax benefits above.
Eaton recognizes interest and penalties related to unrecognized income tax benefits in the provision for income tax expense.
The resolution of the majority of Eaton's unrecognized income tax benefits is dependent upon uncontrollable factors such as
the timing of finalizing resolutions of audit disputes through reaching settlement agreements or concluding litigation, or
changes in law. Therefore, for the majority of Eaton’s unrecognized income tax benefits, it is not reasonably possible to
estimate the increase or decrease in the next 12 months. For each of the unrecognized income tax benefits where it is possible to
estimate the increase or decrease in the balance within the next 12 months, the Company does not anticipate any significant
change.
The Company believes that the final resolution of all the assessments discussed below will not have a material impact on its
consolidated financial statements. The ultimate outcome of these matters cannot be predicted with certainty given the complex
nature of tax controversies. Should the ultimate outcome of any one of these matters deviate from our reasonable expectations,
final resolution may have a material adverse impact on the Company’s consolidated financial statements. However, Eaton
believes that its interpretations of tax laws and application of tax laws to its facts are correct, and that its accrual of
unrecognized income tax benefits is appropriate with respect to these matters.
Eaton or its subsidiaries file income tax returns in Ireland and many countries around the world. With only a few exceptions,
Eaton and its subsidiaries are no longer subject to examinations for years before 2014.
58
Brazil Tax Years 2005-2012
The Company has two Brazilian tax cases primarily relating to the amortization of certain goodwill generated from the
acquisition of third-party businesses and corporate reorganizations. One case involves tax years 2005-2008 (Case 1), and the
other involves tax years 2009-2012 (Case 2). Case 2 is proceeding on a more accelerated timeline than Case 1. For Case 2, the
Company received a tax assessment in 2014 that included interest and penalties. In November 2019, the Company received an
unfavorable result at the final tax administrative appeals level, resulting in an alleged tax deficiency of $27 million plus
$102 million of interest and penalties (translated at the December 31, 2022 exchange rate). The Company is challenging this
assessment in the judicial system and, on April 18, 2022, received an unfavorable decision at the first judicial level. On April
27, 2022, the Company filed a motion for clarification relating to that decision. On May 20, 2022, the court largely upheld its
prior decision without further clarification. On June 9, 2022, the Company filed its notice of appeal to the second level court.
The Company intends to continue its challenge of this assessment in the judicial system.
As previously disclosed for Case 1, the Company received a separate tax assessment alleging a tax deficiency of $31 million
plus $110 million of interest and penalties (translated at the December 31, 2022 exchange rate), which the Company is
challenging in the judicial system. This case is still pending resolution at the first judicial level.
Both cases are expected to take several years to resolve through the Brazilian judicial system and require provision of
certain assets as security for the alleged deficiencies. As of December 31, 2022, the Company pledged Brazilian real estate
assets with net book value of $19 million and provided additional security in the form of bank secured bonds and insurance
bonds totaling $116 million and a cash deposit of $18 million (translated at the December 31, 2022 exchange rate).
United States Tax Disputes
The IRS typically audits large corporate taxpayers on a continuous basis, generally resulting in many open tax years if there
are disputed tax positions upon completion of the audits. The IRS has completed its examination of the consolidated income tax
returns of the Company’s United States subsidiaries (Eaton US) for 2005 through 2016 and the statuses of the various tax years
are discussed below. The IRS has challenged certain tax positions of Eaton US, and the Company is attempting to resolve those
issues in litigation and the IRS administrative process, as described in more detail below. The IRS is currently examining tax
years 2017 through 2019, and the statute of limitations for those years is open until December 31, 2024. Tax years 2020 and
later are subject to future examination by the IRS. Income tax returns of states and localities within the United States will be
reopened to the extent of United States federal income tax adjustments, if any, going back to 2005 when those audit years are
finalized. The Eaton US tax positions challenged by the IRS are items that recur beyond the tax years for which the IRS has
proposed adjustments. Eaton believes that its interpretations of tax laws and application of tax laws to its facts are correct.
However, if there is a final unfavorable resolution of any of the issues discussed below, it may have a material adverse impact
on the Company’s consolidated financial statements.
U.S. Tax Years 2005-2006
In 2011, the IRS issued a Statutory Notice of Deficiency for Eaton US for the 2005 and 2006 tax years (the 2005-06 Notice),
which Eaton US contested in United States Tax Court. The 2005-06 Notice proposed assessments of $75 million in additional
taxes plus $52 million in penalties related primarily to transfer pricing adjustments for products manufactured in the Company's
facilities in Puerto Rico and the Dominican Republic and sold to affiliated companies located in the United States. Eaton US
has set its transfer prices for products sold between these affiliates at the same prices that Eaton US sells such products to third
parties as required by two successive Advance Pricing Agreements (APAs) Eaton US entered into with the IRS that governed
the 2005-2010 tax years. Eaton US has continued to apply the APA pricing methodology for 2011 through the current reporting
period. Immediately prior to the 2005-06 Notice being issued, the IRS sent a letter stating that it was retrospectively canceling
the APAs. The case in Tax Court involved whether the IRS improperly cancelled the APAs. On July 26, 2017, the Tax Court
issued a ruling in which it agreed with Eaton US that the IRS must abide by the terms of the APAs for the tax years 2005-2006.
The Tax Court’s ruling on the APAs did not have a material impact on Eaton’s consolidated financial statements. On May 24,
2021, the IRS filed a notice to appeal the Tax Court’s ruling to the United States Sixth Circuit Court of Appeals. On August 25,
2022, the Sixth Circuit issued a ruling in favor of Eaton US, confirming that the IRS must abide by the terms of the APAs. The
Sixth Circuit’s ruling did not have a material impact on the Company’s consolidated financial statements and resolves U.S. tax
years 2005-2006.
59
U.S. Tax Years 2007-2010
In 2014, the IRS issued a Statutory Notice of Deficiency for Eaton US for the 2007 through 2010 tax years (the 2007-10
Notice), which Eaton US contested in Tax Court. The 2007-10 Notice proposed assessments of $190 million in additional taxes
plus $72 million in penalties, net of agreed credits and deductions. The proposed assessments pertain to: (i) the same transfer
pricing issues and APA for which the Tax Court and Sixth Circuit have issued favorable rulings to Eaton as noted above; and
(ii) the separate proposed assessment noted below. The Company believes that the Sixth Circuit Court of Appeals ruling
discussed above for tax years 2005-2006 should also resolve the APA cancellation issue for the 2007-2010 years. Eaton and the
IRS have recognized that the ruling on the enforceability of the APA did not address a secondary issue regarding the transfer
pricing for a certain royalty paid from 2006-2010. Eaton US reported a consistent royalty rate for 2006-2010. The IRS has
agreed to the royalty rate as reported by Eaton US in 2006. Although the IRS has not proposed an alternative rate, it has not
agreed to apply the same royalty rate in the 2007-2010 years.
The 2007-10 Notice also includes a separate proposed assessment involving the recognition of income for several of Eaton
US’s controlled foreign corporations. The Company believes that the proposed assessment is without merit and contested the
matter in Tax Court. In October 2017, Eaton and the IRS both moved for partial summary judgment on this issue. On February
25, 2019, the Tax Court granted the IRS’s motion for partial summary judgment and denied Eaton’s. The Company intends to
appeal the Tax Court’s partial summary judgment decision to the United States Sixth Circuit Court of Appeals. The total
potential impact of the Tax Court's partial summary judgment decision on the controlled foreign corporation income recognition
issue is not estimable until all matters in the open tax years have been resolved.
U.S. Tax Years 2011-2013
In 2018, the IRS completed its examination of Eaton US for tax years 2011 through 2013 and proposed adjustments. Those
adjustments were the subject of administrative appeals, which recently concluded without resolution. As a result, on December
21, 2022, the IRS issued Statutory Notices of Deficiency for Eaton US for these tax years (the 2011-2013 Notice) proposing
assessments of $749 million in additional taxes plus $110 million in penalties, net of agreed credits and deductions. The
proposed assessments pertain to: (i) transfer pricing adjustments similar to those proposed in the 2005-06 and 2007-10 Notices
for products manufactured in the Company’s facilities in Puerto Rico and the Dominican Republic and sold to affiliated
companies located in the U.S.; (ii) adjustments involving the recognition of income for several of Eaton US’s controlled foreign
corporations; (iii) transfer pricing adjustments for products manufactured in one of the Company’s facilities in Mexico and sold
to affiliated companies located in the U.S.; and (iv) adjustments challenging the appropriate interest rate on intercompany debt
and amount of intercompany fees charged for financial guarantees on external debt. The Company will file its petition to the
U.S. Tax Court on or before March 6, 2023, and will vigorously defend its positions through litigation, which will take several
years for final resolution.
U.S. Tax Years 2014-2016
In 2021, the IRS completed its examination of Eaton US for tax years 2014 through 2016 and has proposed adjustments,
including: (i) transfer pricing adjustments similar to those proposed in the 2005-06, 2007-10, and 2011-2013 Notices for
products manufactured in the Company’s facilities in Puerto Rico, and the Dominican Republic and sold to affiliated companies
located in the U.S.; (ii) transfer pricing adjustments similar to those proposed in the 2011-2013 Notice for products
manufactured in one of the Company’s facilities in Mexico and sold to affiliated companies located in the U.S.; and (iii)
adjustments similar to those proposed in the 2011-2013 Notice challenging the appropriate interest rate on intercompany debt
and amount of intercompany fees charged for financial guarantees on external debt. On November 29, 2021, the case was
formally assigned to administrative appeals, and the Company will attempt to resolve certain of the issues in this administrative
forum. However, if acceptable resolutions are not achieved, the Company will vigorously defend its positions through litigation,
which if undertaken will likely take several years for final resolution. The statute of limitations on these tax years currently
remains open until December 31, 2024.
60
Note 12. EATON SHAREHOLDERS' EQUITY
There are 750 million Eaton ordinary shares authorized ($0.01 par value per share), 397.8 million and 398.8 million of
which were issued and outstanding at December 31, 2022 and 2021, respectively. Eaton's Memorandum and Articles of
Association authorized 40 thousand deferred ordinary shares (€1.00 par value per share) and 10 thousand preferred A shares
($1.00 par value per share), all of which were issued and outstanding at December 31, 2022 and 2021, and 10 million serial
preferred shares ($0.01 par value per share), none of which is outstanding at December 31, 2022 and 2021. At December 31,
2022, there were 10,034 holders of record of Eaton ordinary shares. Additionally, 14,158 current and former employees were
shareholders through participation in the Eaton Savings Plan, the Eaton Personal Investment Plan, or The Eaton Puerto Rico
Retirement Savings Plan.
On February 27, 2019, the Board of Directors adopted a share repurchase program for share repurchases up to $5.0 billion of
ordinary shares (2019 Program). On February 23, 2022, the Board renewed the 2019 Program by providing authority for up to
$5.0 billion in repurchases to be made during the three-year period commencing on that date (2022 Program). Under the 2022
Program, the ordinary shares are expected to be repurchased over time, depending on market conditions, the market price of
ordinary shares, capital levels, and other considerations. During 2022, 2.0 million ordinary shares were repurchased under the
2022 Program in the open market at a total cost of $286 million. During 2021, 0.9 million ordinary shares were repurchased
under the 2019 Program in the open market at a total cost of $122 million.
Eaton has deferral plans that permit certain employees and directors to defer a portion of their compensation. A trust
contains $3 million and $4 million of ordinary shares and marketable securities at December 31, 2022 and 2021, respectively, to
fund a portion of these liabilities. The marketable securities were included in Other assets and the ordinary shares were included
in Shareholders' equity at historical cost.
On February 23, 2023, Eaton's Board of Directors declared a quarterly dividend of $0.86 per ordinary share, a 6% increase
over the dividend paid in the fourth quarter of 2022. The dividend is payable on March 24, 2023 to shareholders of record on
March 6, 2023.
Comprehensive Income (Loss)
Comprehensive income (loss) consists primarily of net income, currency translation and related hedging instruments,
changes in unrecognized costs of pension and other postretirement benefits, and changes in the effective portion of open
derivative contracts designated as cash flow hedges. The following table summarizes the pre-tax and after-tax amounts
recognized in Comprehensive income (loss):
(In millions)
Currency translation and related hedging instruments
Gain (loss) from currency translation and related hedging
instruments
Translation reclassified to earnings
2022
2021
2020
Pre-tax
After-tax
Pre-tax
After-tax
Pre-tax
After-tax
$ (632) $ (647) $ (335) $ (339) $ 154 $ 164
37
—
201
37
191
369
30
369
34
—
(647)
(632)
Pensions and other postretirement benefits
Prior service credit (cost) arising during the year
—
—
(1)
(1)
(1)
(1)
Net gain (loss) arising during the year
Currency translation
Other
Amortization of actuarial loss and prior service cost
reclassified to earnings
45
65
31
56
448
24
337
19
—
—
—
—
116
226
89
175
183
654
140
495
(48)
(2)
221
(93)
(263)
(203)
Cash flow hedges
Gain (loss) on derivatives designated as cash flow hedges
210
166
50
39
(60)
Changes in cash flow hedges reclassified to earnings
(9)
(7)
(3)
(2)
17
201
159
47
37
(43)
Other comprehensive income (loss) attributable to Eaton
ordinary shareholders
$ (205) $ (313) $ 735 $ 562 $
55 $
95
61
(37)
(1)
169
(73)
(47)
14
(33)
The changes in Accumulated other comprehensive loss are as follows:
(In millions)
Balance at January 1, 2022
Other comprehensive income (loss) before
reclassifications
Amounts reclassified from Accumulated other
comprehensive loss (income)
Net current-period Other comprehensive
income
Balance at December 31, 2022
Currency
translation and
related hedging
instruments
Pensions and
other
postretirement
benefits
Cash flow
hedges
Total
$
(2,617) $
(986) $
(30) $
(3,633)
(647)
—
86
89
(647)
(3,264) $
$
175
(810) $
166
(7)
159
129 $
(395)
82
(313)
(3,946)
The reclassifications out of Accumulated other comprehensive loss are as follows:
(In millions)
Amortization of defined benefits pensions and other
postretirement benefits items
Actuarial loss and prior service cost
Tax benefit
Total, net of tax
Gains and (losses) on cash flow hedges
Floating-to-fixed interest rate swaps
Currency exchange contracts
Commodity contracts
Tax expense
Total, net of tax
December 31, 2022
Consolidated Statements of
Income classification
$
(116) 1
27
(89)
Interest expense - net
4
9 Net sales and Cost of products sold
(4) Cost of products sold
(2)
7
Total reclassifications for the period
$
(82)
1 These components of Accumulated other comprehensive loss are included in the computation of net periodic benefit cost. See Note 9 for
additional information about defined benefits pension and other postretirement benefits items.
Net Income Per Share Attributable to Eaton Ordinary Shareholders
A summary of the calculation of net income per share attributable to Eaton ordinary shareholders is as follows:
(In millions except for per share data)
Net income attributable to Eaton ordinary shareholders
2022
2021
2020
$
2,462 $
2,144 $
1,410
Weighted-average number of ordinary shares outstanding - diluted
Less dilutive effect of equity-based compensation
Weighted-average number of ordinary shares outstanding - basic
400.8
2.1
398.7
401.6
2.9
398.7
404.0
1.8
402.2
Net income per share attributable to Eaton ordinary shareholders
Diluted
Basic
$
6.14 $
6.17
5.34 $
5.38
3.49
3.51
In 2022 and 2020, 0.1 million and 0.6 million of 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. In 2021, all
stock options were included in the calculation of diluted net income per share attributable to Eaton ordinary shareholders
because they were all dilutive.
62
Note 13. EQUITY-BASED COMPENSATION
Eaton recognizes equity-based compensation expense based on the grant date fair value of the award. Awards with service
conditions or both service and market conditions are expensed over the period during which an employee is required to provide
service in exchange for the award. Awards with both service and performance conditions are expensed over the period an
employee is required to provide service based on the number of units for which achievement of the performance objective is
probable. The Company estimates forfeitures as part of recording equity-based compensation expense.
Restricted Stock Units and Awards
Restricted stock units (RSUs) and restricted stock awards (RSAs) have been issued to certain employees and directors. The
fair value of RSUs and RSAs are determined based on the closing market price of the Company’s ordinary shares at the date of
grant. The RSUs entitle the holder to receive one ordinary share for each RSU upon vesting, generally over three years. RSAs
are issued and outstanding at the time of grant, but remain subject to forfeiture until vested, generally over ten years. A
summary of the RSU and RSA activity for 2022 is as follows:
(Restricted stock units and awards in millions)
Non-vested at January 1
Granted
Vested
Forfeited
Non-vested at December 31
Information related to RSUs and RSAs is as follows:
(In millions)
Pre-tax expense for RSUs and RSAs
After-tax expense for RSUs and RSAs
Fair value of vested RSUs and RSAs
Number of restricted
stock units and awards
Weighted-average fair
value per unit and award
1.3 $
0.5
(0.7)
(0.1)
1.0 $
104.86
150.28
104.35
121.36
127.33
2022
2021
2020
$
65 $
61 $
51
98
48
92
58
46
75
As of December 31, 2022, total compensation expense not yet recognized related to non-vested RSUs and RSAs was $78
million, and the weighted-average period in which the expense is expected to be recognized is 2.7 years. Excess tax benefit for
RSUs and RSAs totaled $5 million, $5 million and $2 million for 2022, 2021, and 2020, respectively.
63
Performance Share Units
Performance share units (PSUs) have been issued to certain employees that vest based on the satisfaction of a three-year
service period and total shareholder return relative to that of a group of peers. Awards earned at the end of the three-year
vesting period range from 0% to 200% of the targeted number of PSUs granted based on the ranking of total shareholder return
of the Company, assuming reinvestment of all dividends, relative to a defined peer group of companies. Equity-based
compensation expense for these PSUs is recognized over the period during which an employee is required to provide service in
exchange for the award. Upon vesting, dividends that have accumulated during the vesting period are paid on earned awards.
The Company uses a Monte Carlo simulation to estimate the fair value of PSUs with market conditions. The principal
assumptions utilized in valuing these PSUs include the expected stock price volatility (based on the most recent 3-year period
as of the grant date) and the risk-free interest rate (an estimate based on the yield of United States Treasury zero coupon bonds
with a three-year maturity as of the grant date). A summary of the assumptions used in determining fair value of these PSUs is
as follows:
Expected volatility
Risk-free interest rate
2022
2021
2020
35 %
1.71 %
35 %
0.20 %
21 %
1.16 %
Weighted-average fair value of PSUs granted
$
171.63
$
159.74
$
121.01
A summary of these PSUs that vested is as follows:
(Performance share units in millions)
Percent payout
Shares vested
A summary of the 2022 activity for these PSUs is as follows:
(Performance share units in millions)
Non-vested at January 1
Granted1
Adjusted for performance results achieved2
Vested
Forfeited
2022
2021
2020
178 %
0.4
189 %
0.5
178 %
0.4
Number of
performance
share units
Weighted-average fair
value per unit
0.4 $
0.2
0.2
(0.4)
(0.1)
139.00
171.63
121.01
121.01
130.75
Non-vested at December 31
1 Performance shares granted assuming the Company will perform at target relative to peers.
2 Adjustments for the number of shares vested under the 2020 awards at the end of the three-year performance period ended December 31,
2022, being higher than the target number of shares.
0.3 $
141.88
Information related to PSUs is as follows:
(In millions)
Pre-tax expense for PSUs
After-tax expense for PSUs
2022
2021
2020
$
21 $
17
26 $
21
25
20
As of December 31, 2022, total compensation expense not yet recognized related to non-vested PSUs was $26 million and
the weighted-average period in which the expense is to be recognized is 1.7 years. Excess tax benefit for PSUs totaled $10
million, $6 million and $3 million for 2022, 2021, and 2020, respectively.
64
Stock Options
Under various plans, stock options have been granted to certain employees and directors to purchase ordinary shares at
prices equal to fair market value on the date of grant. Substantially all of these options vest ratably during the three-year period
following the date of grant and expire 10 years from the date of grant. Compensation expense is recognized for stock options
based on the fair value of the options at the date of grant and amortized on a straight-line basis over the period the employee or
director is required to provide service.
The Company uses a Black-Scholes option pricing model to estimate the fair value of stock options. The principal
assumptions utilized in valuing stock options include the expected stock price volatility (based on the most recent historical
period equal to the expected life of the option); the expected option life (an estimate based on historical experience); the
expected dividend yield; and the risk-free interest rate (an estimate based on the yield of United States Treasury zero coupon
with a maturity equal to the expected life of the option). A summary of the assumptions used in determining the fair value of
stock options is as follows:
Expected volatility
Expected option life in years
Expected dividend yield
Risk-free interest rate
2022
2021
2020
27 %
6.6
2.0 %
28 %
6.5
3.0 %
24 %
6.6
3.2 %
0.3 to 3.0%
0.0 to 1.5%
0.5 to 1.5%
Weighted-average fair value of stock options granted
$
36.56
$
26.11
$
15.55
A summary of stock option activity is as follows:
(Options in millions)
Outstanding at January 1, 2022
Granted
Exercised
Forfeited and canceled
Outstanding at December 31, 2022
Exercisable at December 31, 2022
Reserved for future grants at December 31, 2022
Weighted-average
exercise price per
option
Options
Weighted-average
remaining
contractual life
in years
Aggregate
intrinsic
value
$
$
$
85.34
151.55
78.39
121.79
91.15
79.14
3.2
0.3
(0.4)
(0.1)
3.0
2.3
21.0
5.9 $
197.6
4.9 $
177.2
The aggregate intrinsic value in the table above represents the total excess of the $156.95 closing price of Eaton ordinary
shares on the last trading day of 2022 over the exercise price of the stock option, multiplied by the related number of options
outstanding and exercisable. The aggregate intrinsic value is not recognized for financial accounting purposes and the value
changes based on the daily changes in the fair market value of the Company's ordinary shares.
Information related to stock options is as follows:
(In millions)
Pre-tax expense for stock options
After-tax expense for stock options
Proceeds from stock options exercised
Income tax benefit related to stock options exercised
Tax benefit classified in operating activities in the Consolidated
Statements of Cash Flows
Intrinsic value of stock options exercised
Total fair value of stock options vested
2022
2021
2020
$
11 $
14 $
9
28
6
29
11
63
13
69
$
11 $
14 $
9
7
70
10
50
9
Stock options exercised
0.4
0.9
1.1
As of December 31, 2022, total compensation expense not yet recognized related to non-vested stock options was $9
million, and the weighted-average period in which the expense is expected to be recognized is 1.7 years.
65
Note 14. FAIR VALUE MEASUREMENTS
Fair value is measured based on an exit price, representing the amount that would be received to sell an asset or paid to
satisfy a liability in an orderly transaction between market participants. Fair value is a market-based measurement that should
be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for
considering such assumptions, a fair value hierarchy is established, which categorizes the inputs used in measuring fair value as
follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in
active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no
market data, which require the reporting entity to develop its own assumptions.
A summary of financial instruments and contingent consideration recognized at fair value, and the fair value measurements
used, is as follows:
(In millions)
December 31, 2022
Cash
Short-term investments
Net derivative contracts
Contingent future payments from acquisition of Green
Motion (Note 2)
December 31, 2021
Cash
Short-term investments
Net derivative contracts
Contingent future payments from acquisition of Green
Motion (Note 2)
$
$
Quoted prices
in active
markets for
identical
assets
(Level 1)
Total
Other
observable
inputs
(Level 2)
Unobservable
inputs
(Level 3)
294 $
261
29
294 $
261
—
(44)
—
297 $
271
41
297 $
271
—
(57)
—
— $
—
29
—
— $
—
41
—
—
—
—
(44)
—
—
—
(57)
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 $8,331 million and fair value of $7,625
million at December 31, 2022 compared to $8,566 million and $9,232 million, respectively, at December 31, 2021. The fair
value of Eaton's debt instruments was estimated using prevailing market interest rates on debt with similar creditworthiness,
terms and maturities and is considered a Level 2 fair value measurement.
Short-Term Investments
Eaton invests excess cash generated from operations in short-term marketable investments. Investments in marketable equity
securities are valued at the closing price of the shares. All other short-term investments are at carrying value, which
approximates the fair value due to the short-term maturities of these investments. A summary of short-term investments is as
follows:
(In millions)
Time deposits and certificates of deposit with banks
Money market investments
Investments in marketable equity securities
Total short-term investments
December 31
2022
2021
$
$
248 $
13
—
261 $
221
43
7
271
66
Note 15. 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 as part of a hedging relationship, is effective and 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 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 non-derivative net
investment hedging instruments had a carrying value on an after-tax basis of $2,711 million and $2,880 million at
December 31, 2022 and 2021, respectively. See Note 8 for additional information about debt.
Interest Rate Risk
Eaton enters into fixed-to-floating interest rate swaps to manage interest rate risk of certain long-term debt. These interest
rate swaps are accounted for as fair value hedges of certain long-term debt. The maturity of the swap corresponds with the
maturity of the debt instrument as noted in the table of long-term debt in Note 8. Eaton also enters into forward starting
floating-to-fixed interest rate swaps to manage interest rate risk on future anticipated debt issuances.
67
Derivative Financial Statement Impacts
The fair value of derivative financial instruments recognized in the Consolidated Balance Sheets is as follows:
(In millions)
December 31, 2022
Derivatives designated as hedges
Currency exchange contracts
Commodity contracts
Total
Notional
amount
Other
current
assets
Other
noncurrent
assets
Other
current
liabilities
Other
noncurrent
liabilities
Type of
hedge
Term
$ 1,240 $
64
$
35 $
4
39 $
2 $
—
2 $
17 $
2
19 $
9
—
9
Cash flow
Cash flow
1 to 36 months
1 to 12 months
Derivatives not designated as hedges
Currency exchange contracts
$ 4,683 $
30
$
14
1 to 12 months
December 31, 2021
Derivatives designated as hedges
Fixed-to-floating interest rate
swaps
Forward starting floating-to-fixed
interest rate swaps
Currency exchange contracts
Commodity contracts
Total
$ 1,800 $
22 $
29 $ — $
—
Fair value
8 months to
13 years
1,350
1,212
50
—
17
2
41 $
$
38
2
—
69 $
—
11
1
12 $
79
3
—
82
Cash flow
Cash flow
Cash flow
11 to 31 years
1 to 36 months
1 to 12 months
Derivatives not designated as hedges
Currency exchange contracts
Commodity contracts
Total
$ 5,285 $
62
$
34
1
35
$
$
9
1
10
1 to 12 months
1 month
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 Consolidated Statement of Cash Flows.
As of December 31, 2022, the volume of outstanding commodity contracts that were entered into to hedge forecasted
transactions:
Aluminum
Copper
Gold
Silver
Commodity
December 31, 2022
Term
4 Millions of pounds
1 to 12 months
10 Millions of pounds
1 to 12 months
1,604
Troy ounces
1 to 12 months
699,932
Troy ounces
1 to 12 months
68
The following amounts were recorded on the Consolidated Balance Sheets related to fixed-to-floating interest rate swaps:
(In millions)
Carrying amount of the hedged
assets (liabilities)
Cumulative amount of fair value
hedging adjustment included in the
carrying amount of the hedged
asset (liabilities) (a)
Location on Consolidated Balance Sheets
December 31,
2022
December 31,
2021
December 31,
2022
December 31,
2021
Long-term debt
(a) At December 31, 2022 and 2021, these amounts include the cumulative liability amount of fair value hedging adjustments remaining for
which the hedge accounting has been discontinued of $48 million and $33 million, respectively.
(2,413) $
(713) $
(48) $
$
(84)
The impact of hedging activities to the Consolidated Statements of Income is as follows:
(In millions)
2022
Cost of products
sold
Interest expense
- net
Net sales
Amounts from Consolidated Statements of Income
$
20,752 $
13,865 $
144
Gain (loss) on derivatives designated as cash flow hedges
Forward starting floating-to-fixed interest rate swaps
Hedged item
Derivative designated as hedging instrument
Currency exchange contracts
Hedged item
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
Derivative designated as hedging instrument
$
$
$
$
— $
—
17 $
(17)
— $
—
— $
—
(26) $
26
4 $
(4)
— $
—
— $
—
(4)
4
—
—
—
—
8
(8)
69
(In millions)
2021
Cost of products
sold
Interest expense
- net
Net sales
Amounts from Consolidated Statements of Income
$
19,628 $
13,293 $
144
Gain (loss) on derivatives designated as cash flow hedges
Currency exchange contracts
Hedged item
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
Derivative designated as hedging instrument
(In millions)
$
$
$
6 $
(6)
— $
—
— $
—
(9) $
9
—
—
—
—
— $
—
— $
—
51
(51)
2020
Cost of products
sold
Interest expense
- net
Net sales
Amounts from Consolidated Statements of Income
$
17,858 $
12,408 $
149
Gain (loss) on derivatives designated as cash flow hedges
Currency exchange contracts
Hedged item
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
Derivative designated as hedging instrument
$
$
$
13 $
(13)
— $
—
5 $
(5)
(1) $
1
—
—
—
—
— $
—
— $
—
(45)
45
70
The impact of derivatives not designated as hedges to the Consolidated Statements of Income is as follows:
Gain (loss) recognized in Consolidated Statements of
Income
Consolidated Statements of
Income classification
(In millions)
Gain (loss) on derivatives not
designated as hedges
Currency exchange contracts
$
Commodity contracts
2022
2021
2020
(56) $
(15)
— $
11
72
4
Interest expense - net
Other expense (income) - net
and Cost of products sold (a)
Total
(a) In 2022, Eaton changed the presentation of gains and losses associated with derivative contracts for commodities that are not designated as
hedges from Cost of product sold to Other expense (income) - net on the Consolidated Statements of Income. Prior period amounts have not
been reclassified as they are not material.
(71) $
11 $
76
$
The impact of derivative and non-derivative instruments designated as hedges to the Consolidated Statements of Income and
Comprehensive Income is as follows:
(In millions)
Derivatives designated as cash flow hedges
Forward starting floating-to-fixed interest rate swaps
Currency exchange contracts
Commodity contracts
Non-derivative designated as net
investment hedges
Foreign currency denominated debt
Total
(In millions)
Derivatives designated as cash flow hedges
Forward starting floating-to-fixed interest rate swaps
Currency exchange contracts
Commodity contracts
Non-derivative designated as net
investment hedges
Location of gain (loss)
reclassified from
Accumulated other
comprehensive loss
Interest expense - net
Net sales and Cost of
products sold
Cost of products sold
Gain (loss) recognized in
other comprehensive
(loss) income
2022
2021
2020
$
202 $
13
(5)
50 $
(6)
6
(52)
(13)
5
171
240
$
381 $
290 $
(173)
(233)
Gain (loss) reclassified
from Accumulated other
comprehensive loss
2022
2021
2020
$
4 $
— $
—
9
(4)
(6)
9
(18)
1
—
(17)
Foreign currency denominated debt
Interest expense - net
—
—
Total
$
9 $
3 $
At December 31, 2022, a gain of $19 million of estimated unrealized net gains or losses associated with our cash flow
hedges were expected to be reclassified to income from Accumulated other comprehensive loss within the next twelve months.
These reclassifications relate to our designated foreign currency and commodity hedges that will mature in the next 12 months.
71
Note 16. 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 brought on by the
COVID-19 pandemic. Since the inception of the program, the Company has incurred charges of $325 million. These
restructuring activities are expected to be completed in 2023 with total estimated charges of $350 million cumulatively for the
entire program. The remaining charges in 2023 are expected to relate primarily to plant closing and other costs.
A summary of restructuring program charges (income) is as follows:
(In millions except per share data)
Workforce reductions
Plant closing and other
Total before income taxes1
Income tax benefit
Total after income taxes
Per ordinary share - diluted
2022
2021
2020
(13) $
21 $
47
33
4
29 $
0.07 $
57
78
18
60 $
0.15 $
$
$
$
Restructuring program charges (income) related to the following segments:
(In millions)
Electrical Americas
Electrical Global
Aerospace
Vehicle
eMobility
Corporate
Total1
2022
2021
2020
$
17 $
14
8
(15)
1
8
14 $
18
8
21
1
16
$
33 $
78 $
A summary of liabilities related to workforce reductions, plant closing and other associated costs is as follows:
(In millions)
Balance at January 1, 2020
Liability recognized
Payments, utilization and translation
Balance at December 31, 2020
Liability recognized
Payments, utilization and translation
Balance at December 31, 2021
Liability recognized, net1
Payments, utilization and translation
Workforce
reductions
Plant closing
and other
Total
$
$
$
— $
172
(33)
139 $
21
(64)
96 $
(13)
(45)
— $
42
(39)
3 $
57
(52)
8 $
47
(51)
172
42
214
44
170
0.42
18
55
34
102
1
4
214
—
214
(72)
142
78
(116)
104
33
(96)
Balance at December 31, 2022
1The restructuring program liability was adjusted by $30 million in the fourth quarter of 2022 related to true-ups for completed workforce
reductions and the decision not to close a facility in the Vehicle segment that was previously included in the program.
38 $
4 $
$
41
These restructuring program charges (income) were included in Cost of products sold, Selling and administrative expense,
Research and development expense, or Other expense (income) - net, as appropriate. In Business Segment Information, these
restructuring program charges are treated as Corporate items. See Note 17 for additional information about business segments.
72
Note 17. BUSINESS SEGMENT AND GEOGRAPHIC REGION 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 segments are as follows:
Electrical Americas and Electrical Global
The Electrical Americas segment consists of electrical components, industrial components, power distribution and
assemblies, residential products, single phase power quality and connectivity, three phase power quality, wiring devices, circuit
protection, utility power distribution, power reliability equipment, and services that are primarily produced and sold in North
and South America. The Electrical Global segment consists of electrical components, industrial components, power distribution
and assemblies, single phase and three phase power quality, and services that are primarily produced and sold outside of North
and South America; as well as hazardous duty electrical equipment, emergency lighting, fire detection, intrinsically safe
explosion-proof instrumentation, and structural support systems that are produced and sold globally. The principal markets for
these segments are industrial, institutional, governmental, utility, commercial, residential and information technology. These
products are used wherever there is a demand for electrical power in commercial buildings, data centers, residences, apartment
and office buildings, hospitals, factories, utilities, and industrial and energy facilities. The segments share certain common
global customers, but a large number of customers are located regionally. Sales are made through distributors, resellers, and
manufacturers' representatives, as well as directly to original equipment manufacturers, utilities, and certain other end users.
Hydraulics
On August 2, 2021, Eaton completed the sale of the Hydraulics business to Danfoss A/S. The Hydraulics business sold
hydraulics components, systems and services for industrial and mobile equipment. The Hydraulics business offered a wide
range of power products including pumps, motors and hydraulic power units; a broad range of controls and sensing products
including valves, cylinders and electronic controls; a full range of fluid conveyance products including industrial and hydraulic
hose, fittings, and assemblies, thermoplastic hose and tubing, couplings, connectors, and assembly equipment; industrial drum
and disc brakes. Historically, the principal markets for the Hydraulics business included renewable energy, marine, agriculture,
oil and gas, construction, mining, forestry, utility, material handling, truck and bus, machine tools, molding, primary metals,
and power generation. Key manufacturing customers in these markets and other customers were located globally. Products were
sold and serviced through a variety of channels.
Aerospace
The Aerospace segment is a leading global supplier of aerospace fuel, hydraulics, and pneumatic systems for commercial
and military use, as well as filtration systems for industrial applications. Products include hydraulic power generation systems
for aerospace applications including pumps, motors, hydraulic power units, hose and fittings, electro-hydraulic pumps; controls
and sensing products including valves, cylinders, electronic controls, electromechanical actuators, sensors, aircraft flap and slat
systems and nose wheel steering systems; fluid conveyance products, including hose, thermoplastic tubing, fittings, adapters,
couplings, sealing and ducting; fuel systems including air-to-air refueling systems, fuel pumps, fuel inerting products, sensors,
valves, adapters and regulators; mission systems including oxygen generation system, payload carriages, and thermal
management products; high performance interconnect products including wiring connectors and cables. The Aerospace segment
also includes filtration systems including hydraulic filters, bag filters, strainers and cartridges; and golf grips. The principal
markets for the Aerospace segment are manufacturers of commercial and military aircraft and related after-market customers, as
well as industrial applications. These manufacturers and other customers operate globally. Products are sold and serviced
through a variety of channels.
Vehicle
The Vehicle segment is a leader in the design, manufacture, marketing, and supply of: drivetrain, powertrain systems and
critical components that reduce emissions and improve fuel economy, stability, performance, and safety of cars, light trucks,
and commercial vehicles. Products include transmissions and transmission components, clutches, hybrid power systems,
superchargers, engine valves and valve actuation systems, locking and limited slip differentials, transmission controls, and fuel
vapor components for the global vehicle industry. The principal markets for the Vehicle segment are original equipment
manufacturers and aftermarket customers of heavy-, medium-, and light-duty trucks, SUVs, CUVs, passenger cars and
agricultural equipment.
73
eMobility
The eMobility segment designs, manufactures, markets, and supplies mechanical, electrical, and electronic components and
systems that improve the power management and performance of both on-road and off-road vehicles. Products include high
voltage inverters, converters, fuses, onboard chargers, circuit protection units, vehicle controls, power distribution, fuel tank
isolation valves, and commercial vehicle hybrid systems. The principle markets for the eMobility segment are original
equipment manufacturers and aftermarket customers of passenger cars, commercial vehicles, and construction, agriculture, and
mining equipment.
Other Information
No single customer represented greater than 10% of net sales in 2022, 2021 or 2020, respectively.
The accounting policies of the business segments are generally the same as the policies described in Note 1, except that, as
described further in the following paragraph, certain items are not allocated to the businesses. Intersegment sales and transfers
are accounted for at the same prices as if the sales and transfers were made to third parties. These intersegment sales are
eliminated in consolidation. Operating profit includes the operating profit from intersegment sales.
Corporate includes all the Company's amortization of intangible assets, interest expense-net and restructuring program costs
(Note 16) and the non-service cost portion of pensions and other postretirement benefits expense. Other expense - net includes
all the Company's costs associated with acquisitions, divestitures, and gains and losses on the sale of certain businesses and
other items that are of a corporate or functional governance nature. For purposes of business segment performance
measurement, a portion of corporate costs, excluding amortization of intangibles assets, acquisition integration and divestiture
costs, and restructuring program charges, are allocated to the businesses. These allocations are periodically adjusted to pass on
year-over-year cost savings or increases to the businesses in a manner that is consistent with how the chief operating decision
maker assesses performance. Identifiable assets of the business segments exclude goodwill, other intangible assets, and general
corporate assets, which principally consist of certain cash, short-term investments, deferred income taxes, certain accounts
receivable, certain property, plant and equipment, and certain other assets.
74
Business Segment Information
(In millions)
Net sales
Electrical Americas
Electrical Global
Hydraulics
Aerospace
Vehicle
eMobility
Total net sales
Segment operating profit (loss)
Electrical Americas
Electrical Global
Hydraulics
Aerospace
Vehicle
eMobility
Total segment operating profit
Corporate
Intangible asset amortization expense
Interest expense - net
Pension and other postretirement benefits income (expense)
Restructuring program charges
Other expense - net
Income before income taxes
Income tax expense
Net income
2022
2021
2020
$
8,497 $
7,242 $
5,848
—
3,039
2,830
538
5,516
1,300
2,648
2,579
343
6,680
4,703
1,842
2,223
2,118
292
$
20,752 $
19,628 $
17,858
$
1,913 $
1,495 $
1,352
1,134
—
705
453
(9)
4,196
(499)
(144)
43
(33)
(653)
2,911
445
2,465
1,034
177
580
449
(29)
3,706
(444)
(144)
65
(78)
(209)
2,896
750
2,146
750
186
414
243
(8)
2,937
(354)
(149)
(40)
(214)
(434)
1,746
331
1,415
(5)
Less net income for noncontrolling interests
(4)
(2)
Net income attributable to Eaton ordinary shareholders
$
2,462 $
2,144 $
1,410
75
(In millions)
Identifiable assets
Electrical Americas
Electrical Global
Aerospace
Vehicle
eMobility
Total identifiable assets
Goodwill
Other intangible assets
Corporate
Assets held for sale
Total assets
2022
2021
2020
$
3,655 $
3,002 $
2,658
1,859
2,230
402
10,804
14,796
5,485
3,929
—
2,579
1,729
1,985
220
9,515
14,751
5,855
3,906
—
2,333
2,334
1,363
1,950
180
8,160
12,903
4,175
4,099
2,487
$
35,014 $
34,027 $
31,824
Capital expenditures for property, plant and equipment
Electrical Americas
Electrical Global
Hydraulics
Aerospace
Vehicle
eMobility
Total
Corporate
Total expenditures for property, plant and equipment
Depreciation of property, plant and equipment
Electrical Americas
Electrical Global
Aerospace
Vehicle
eMobility
Total
Corporate
$
$
$
181 $
151
—
92
95
52
571
28
180 $
120
34
78
112
27
551
24
598 $
575 $
101 $
105 $
94
64
89
16
364
44
97
69
95
8
374
52
Total depreciation of property, plant and equipment
$
408 $
426 $
95
71
41
59
77
24
367
22
389
101
94
53
98
6
352
56
408
76
Geographic Region Information
Net sales are measured based on the geographic destination of sales. Long-lived assets consist of property, plant and
equipment - net.
(In millions)
Net sales
United States
Canada
Latin America
Europe
Asia Pacific
Total
Long-lived assets
United States
Canada
Latin America
Europe
Asia Pacific
Total
2022
2021
2020
$
12,353 $
10,868 $
10,044
754
1,504
3,957
2,185
797
1,160
4,276
2,527
757
939
3,818
2,300
$
20,752 $
19,628 $
17,858
$
1,567 $
1,593 $
1,510
25
383
711
460
25
277
701
468
25
249
738
442
$
3,146 $
3,064 $
2,964
77
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
Amounts are in millions of dollars or shares unless indicated otherwise (per share data assume dilution). Columns and rows
may not add and the sum of components may not equal total amounts reported due to rounding.
COMPANY OVERVIEW
Eaton Corporation plc (Eaton or the Company) is an intelligent power management company dedicated to improving the
quality of life and protecting the environment for people everywhere. We are guided by our commitment to do business right, to
operate sustainably and to help our customers manage power – today and well into the future. By capitalizing on the global
growth trends of electrification and digitalization, we're accelerating the planet's transition to renewable energy, helping to solve
the world's most urgent power management challenges, and doing what's best for our stakeholders and all of society.
Eaton’s businesses are well-positioned to take advantage of secular growth trends related to the energy transition from fossil
fuels to renewables. We are responding to these trends by innovating solutions that transform the electrical power value chain,
investing in electrical vehicle markets, increasing our focus on electrification, and employing digital technologies for power
management. The Company’s innovations are expected to enable the integration of renewables and sustainability solutions,
with new types of equipment, services, and software. These strategic focus areas are an important part of our response to
climate change.
Founded in 1911, 2023 marks Eaton's 100th anniversary of being listed on the New York Stock Exchange. We reported
revenues of $20.8 billion in 2022 and serve customers in more than 170 countries.
78
Portfolio Changes
The Company continues to actively manage its portfolio of businesses to deliver on its strategic objectives. The Company is
focused on deploying its capital toward businesses that provide opportunities for above-market growth, strong returns, and align
with secular trends and its power management strategies. Over the last three years, Eaton has completed a number of
transactions to strengthen its portfolio.
Acquisitions of businesses and investments in associate companies
Date of acquisition
Business segment
Power Distribution, Inc.
February 25, 2020 Electrical Americas
A leading supplier of mission critical power distribution, static switching, and
power monitoring equipment and services for data centers and industrial and
commercial customers.
Tripp Lite
March 17, 2021
Electrical Americas
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.
Green Motion SA
March 22, 2021
Electrical Global
A leading designer and manufacturer of electric vehicle charging hardware and
related software.
HuanYu High Tech
March 29, 2021
Electrical Global
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.
Mission Systems
June 1, 2021
Aerospace
A leading manufacturer of air-to-air refueling systems, environmental systems,
and actuation primarily for defense markets.
Jiangsu YiNeng Electric's busway business
June 25, 2021
Electrical Global
A 50 percent stake in Jiangsu YiNeng Electric's busway business which
manufactures and markets busway products in China.
Royal Power Solutions
January 5, 2022
eMobility
A manufacturer of high-precision electrical connectivity components used in
electric vehicle, energy management, industrial and mobility markets.
Jiangsu Huineng Electric Co., Ltd’s circuit breaker business
July 1, 2022
Electrical Global
A 50 percent stake in Jiangsu Huineng Electric Co., Ltd's circuit breaker business
which manufactures and markets low-voltage circuit breakers in China.
Divestitures of businesses
Lighting business
Hydraulics business
Date of divestiture
March 2, 2020
Business segment
Electrical Americas
August 2, 2021
Hydraulics
Additional information related to acquisitions and divestitures of businesses is presented in Note 2.
79
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 is as follows:
(In millions except for per share data)
Net sales
2022
2021
2020
$
20,752 $
19,628 $
17,858
Net income attributable to Eaton ordinary shareholders
2,462
2,144
Net income per share attributable to Eaton ordinary shareholders - diluted
$
6.14 $
5.34 $
1,410
3.49
2020: Organic sales during 2020 were down 11% primarily due to the initial impact from the COVID-19 pandemic. In
addition, the divestitures of the Lighting and Automotive Fluid Conveyance businesses also reduced sales, but were partially
offset by growth from the acquisitions of Souriau-Sunbank Connection Technologies and Power Distribution, Inc.
2021: Organic sales increased 10% in 2021 as end-markets and regions served by our business segments experienced broad
recovery from the negative impact of the COVID-19 pandemic. Our Electrical Global, Vehicle and eMobility business
segments all realized organic growth greater than 10% during the year, despite supply chain constraints limiting the availability
of materials in select businesses, travel restrictions continuing to impact commercial aviation, and reduced production levels at
our customers leading to historic low vehicle inventory.
2022: Organic sales increased 13% in 2022 due to broad-based strength in end-markets and pricing actions in response to
inflationary pressures. Each of our business segments realized organic growth greater than 10% during the year, despite being
impacted by operating inefficiencies due to supply chain constraints or shortages, inflation, and selective labor shortages.
Additionally, over the past several years, Eaton has completed a number of transactions to add higher growth, better margin
businesses to its portfolio. These portfolio updates have the Company better aligned with secular growth trends and well
positioned for expected further growth. These changes to our portfolio of businesses along with double digit organic sales
growth and operational performance over the past two years have led to 76% growth in our net income per share since the
COVID-19 pandemic began in 2020.
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. Management believes that these financial measures are useful to investors because
they provide additional meaningful financial information that should be considered when assessing our business performance
and trends, and they allow investors to more easily compare Eaton’s financial performance period to period. Management uses
this information in monitoring and evaluating the on-going performance of Eaton.
Acquisition and Divestiture Charges
Eaton incurs integration charges and transaction costs to acquire and integrate businesses, and transaction, separation and
other costs to divest and exit businesses. Eaton also recognizes gains and losses on the sale of businesses. A summary of these
Corporate items is as follows:
(In millions except for per share data)
Acquisition integration, divestiture charges and transactions costs
Gain on the sale of the Hydraulics and Lighting businesses
Total charges (income) before income taxes
Income tax expense (benefit)
Total after income taxes
Per ordinary share - diluted
2022
2021
2020
$
$
$
194 $
(24)
170
(23)
147 $
0.37 $
349 $
(617)
(268)
362
94 $
0.23 $
288
(221)
67
66
133
0.33
80
Acquisition integration, divestiture charges and transaction costs in 2022 are primarily related to the acquisitions of Royal
Power Solutions, Souriau-Sunbank Connection Technologies, Green Motion, Tripp Lite, and Mission Systems, and other
charges to acquire and exit businesses including certain indemnity claims associated with the sale of 50% interest in the
commercial vehicle automated transmission business in 2017. These costs also included charges of $29 million presented in
Other expense (income) - net on the Consolidated Statements of Income related to the decision in the second quarter to exit the
Company's business operations in Russia. These charges consisted primarily of write-downs of accounts receivable, inventory
and other assets, and accruals for severance. Charges in 2021 are primarily related to the divestiture of the Hydraulics business,
the acquisitions of Tripp Lite, Mission Systems, Souriau-Sunbank Connection Technologies, and Ulusoy Elektrik Imalat
Taahhut ve Ticaret A.S., and other charges to acquire and exit businesses including certain indemnity claims associated with the
sale of 50% interest in the commercial vehicle automated transmission business in 2017. Charges in 2020 are primarily related
to the divestitures of the Hydraulics business and the Lighting business, the acquisitions of Souriau-Sunbank, Ulusoy Elektrik,
and Power Distribution, Inc., and other charges to exit businesses. These charges were included in Cost of products sold,
Selling and administrative expense, Research and development expense, or Other expense (income) - net. In Business Segment
Information in Note 17, the charges were included in Other expense - net.
Restructuring
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 brought on by the
COVID-19 pandemic. Since the inception of the program, the Company has incurred charges of $325 million. These
restructuring activities are expected to be completed in 2023 with total estimated charges of $350 million cumulatively for the
entire program and projected mature year savings of $250 million when fully implemented. The remaining charges in 2023 are
expected to relate primarily to plant closing and other costs. Additional information related to this restructuring is presented in
Note 16.
Intangible Asset Amortization Expense
Intangible asset amortization expense is as follows:
(In millions except for per share data)
Intangible asset amortization expense
Income tax benefit
Total after income taxes
Per ordinary share - diluted
2022
2021
2020
$
$
$
499 $
444 $
105
83
394 $
361 $
0.99 $
0.90 $
354
82
272
0.67
81
Consolidated Financial Results
(In millions except for per share data)
Net sales
Gross profit
Percent of net sales
Income before income taxes
Net income
Less net income for noncontrolling interests
Net income attributable to Eaton ordinary shareholders
Excluding acquisition and divestiture charges, after-tax
Excluding restructuring program charges, after-tax
Excluding intangible asset amortization expense, after-tax
2022
$ 20,752
6,887
33.2 %
2,911
2,465
(4)
2,462
147
29
394
Change
from 2021
2021
Change
from 2020
2020
6 % $ 19,628
9 %
6,335
10 % $ 17,858
16 %
5,450
32.3 %
30.5 %
1 %
2,896
15 %
2,146
66 %
1,746
52 %
1,415
15 %
(2)
2,144
94
60
361
52 %
(5)
1,410
133
170
272
Adjusted earnings
$ 3,032
14 % $ 2,659
34 % $ 1,985
Net income per share attributable to Eaton ordinary
shareholders - diluted
Excluding per share impact of acquisition and divestiture
charges, after-tax
Excluding per share impact of restructuring program
charges, after-tax
Excluding per share impact of intangible asset
amortization expense, after-tax
Adjusted earnings per ordinary share
$
Net Sales
Changes in Net sales are summarized as follows:
Organic growth
Acquisitions of businesses
Divestiture of business
Foreign currency
Total increase in Net sales
$
6.14
15 % $
5.34
53 % $
3.49
0.37
0.07
0.99
7.57
0.23
0.15
0.90
6.62
14 % $
0.33
0.42
0.67
4.91
35 % $
2022
2021
13 %
3 %
(7) %
(3) %
6 %
10 %
5 %
(6) %
1 %
10 %
2022: Organic sales increased 13% in 2022 due to broad-based strength in end-markets of the Electrical Americas and
Electrical Global business segments, strength in sales to commercial OEM and aftermarket in the Aerospace business segment,
and higher sales volumes including inflationary recovery in the Vehicle business segment. Despite strong growth, many of our
businesses were impacted by operating inefficiencies due to supply chain constraints or shortages, inflation, and selective labor
shortages.
The acquisitions of Tripp Lite, Mission Systems, and Royal Power Solutions increased sales in 2022, while the divestiture of
the Hydraulics business reduced sales.
2021: The increase in organic sales in 2021 was due to broad-based strength in end-markets and regions as our business
segments had largely recovered from the negative impact of the COVID-19 pandemic in 2020. This organic growth was
achieved despite the supply chain constraints experienced by the Electrical Americas business segment, and customers of the
Vehicle and eMobility business segments also experienced supply chain constraints leading to reduced production levels.
Additionally, organic sales in the Aerospace business segment continued to be impacted by travel restrictions from the
COVID-19 pandemic on commercial aviation.
82
Gross Profit
2022: Gross profit margin increased from 32.3% in 2021 to 33.2% in 2022 primarily due to higher organic sales, including
inflationary pricing recovery. Gross profit also improved due to the net impact of the acquisition of Royal Power Solutions and
the divestiture of the Hydraulics business. Conversely, commodity and logistics inflation and operating inefficiencies due to
supply chain constraints had an unfavorable impact on gross margin during 2022, despite offsetting pricing actions.
2021: Gross profit margin increased from 30.5% in 2020 to 32.3% in 2021 primarily due to higher sales volumes and
savings from restructuring actions. Organic sales volumes improved in the Electrical Americas, Electrical Global, and Vehicle
business segments, and declined in the Aerospace business segment. Gross profit also improved due to the net impact of the
acquisitions of Tripp Lite and Cobham Mission Systems and the divestiture of the Hydraulics business. Conversely, commodity
and logistics inflation had an unfavorable impact on gross margin during 2021.
Income Taxes
During 2022, income tax expense of $445 million was recognized (an effective tax rate of 15.3%) compared to income tax
expense of $750 million in 2021 (an effective tax rate of 25.9%) and income tax expense of $331 million in 2020 (an effective
tax rate of 19.0%). Excluding the one-time tax expense associated with the sale of the Hydraulics business in 2021 and the sale
of the Lighting business in 2020, both discussed in Note 2, the effective tax rate was between 15.0% and 17.0% for 2022, 2021,
and 2020.
Effective tax rate
Tax impact on sale of businesses
2022
2021
2020
15.3 %
— %
15.3 %
25.9 %
9.1 %
16.8 %
19.0 %
3.9 %
15.1 %
Additionally, see Note 11 for income tax rate reconciliations from Ireland's national statutory rate to the consolidated
effective rate.
Net Income
2022: Net income attributable to Eaton ordinary shareholders of $2,462 million in 2022 increased 15% compared to $2,144
million in 2021. Net income in 2021 included an after-tax gain of $197 million on the sale of the Hydraulics business.
Excluding this gain, the increase in 2022 net income was primarily due to higher gross profit, lower acquisition and divestiture
charges, and a net improvement in other income which included gains from the sale of certain office and distribution facilities,
partially offset by higher income tax expense and intangible asset amortization expense.
Net income per ordinary share increased to $6.14 in 2022 compared to $5.34 in 2021. Net income per ordinary share in 2021
included $0.49 from the sale of the Hydraulics business. Excluding this gain, the increase in Net income per ordinary share in
2022 was due to higher Net income attributable to Eaton ordinary shareholders and the impact of the Company's share
repurchases over the past two years.
2021: Net income attributable to Eaton ordinary shareholders of $2,144 million in 2021 increased 52% compared to $1,410
million in 2020. Net income in 2021 and 2020 included after-tax gains of $197 million on the sale of the Hydraulics business
and $91 million on the sale of the Lighting business, respectively. Excluding these gains, the increase in 2021 net income was
primarily due to higher gross profit and lower restructuring program charges, partially offset by higher income tax expense,
acquisition and divestiture charges, and intangible asset amortization expense.
Net income per ordinary share increased to $5.34 in 2021 compared to $3.49 in 2020. Net income per ordinary share in 2021
and 2020 included $0.49 and $0.22 from the sale of the Hydraulics and Lighting businesses, respectively. Excluding these
gains, the increase in Net income per ordinary share in 2021 was due to higher Net income attributable to Eaton ordinary
shareholders and the impact of the Company's share repurchases over the past two years.
83
Business Segment Results of Operations
The following is a discussion of Net sales, operating profit and operating profit margin by business segment.
Electrical Americas
(In millions)
Net sales
Operating profit
Operating margin
2022
$ 8,497
Change
from 2021
2021
Change
from 2020
2020
17 % $ 7,242
8 % $ 6,680
$ 1,913
28 % $ 1,495
11 % $ 1,352
22.5 %
20.6 %
20.2 %
Changes in Net sales are summarized as follows:
Organic growth
Acquisition of Tripp Lite
Divestiture of the Lighting business
Total increase in Net sales
2022
2021
16 %
1 %
— %
17 %
5 %
7 %
(4) %
8 %
The increase in organic sales in 2022 reflects broad-based strength in end-markets, with particular strength in residential,
industrial, and data center end-markets. The increase in organic sales in 2021 was primarily due to broad-based recovery in end-
markets as they had largely recovered from the initial COVID-19 pandemic impact with particular strength in residential and
data centers, partially offset by weakness in sales to utilities.
The operating margin increased from 20.6% in 2021 to 22.5% in 2022 primarily due to higher sales volumes including
inflationary pricing recovery, while headwinds from commodity and logistics inflation and operating inefficiencies due to
supply chain constraints were offset by gains from the sale of certain office and distribution facilities. The operating margin
increased from 20.2% in 2020 to 20.6% in 2021 primarily due to higher organic sales volumes, the favorable net impact of an
acquisition and a divestiture, and savings from restructuring actions. Conversely, commodity and logistics inflation had an
unfavorable impact on the operating margin.
Electrical Global
(In millions)
Net sales
Operating profit
Operating margin
2022
$ 5,848
Change
from 2021
2021
Change
from 2020
2020
6 % $ 5,516
17 % $ 4,703
$ 1,134
10 % $ 1,034
38 % $
750
19.4 %
18.7 %
15.9 %
Changes in Net sales are summarized as follows:
Organic growth
Foreign currency
Total increase in Net sales
2022
13 %
(7) %
6 %
2021
15 %
2 %
17 %
The increase in organic sales in 2022 was primarily due to broad-based strength in end-markets, with particular strength in
commercial & institutional and industrial end-markets. The increase in organic sales in 2021 was primarily due to broad-based
strength in end-markets as they had largely recovered from the COVID-19 pandemic.
The operating margin increased from 18.7% in 2021 to 19.4% in 2022 primarily due to higher sales volumes including
inflationary pricing recovery, partially offset by commodity and logistics inflation and operating inefficiencies due to supply
chain constraints. The operating margin increased from 15.9% in 2020 to 18.7% in 2021 primarily due to higher sales volumes
and savings from restructuring actions, partially offset by commodity and logistics inflation.
84
Hydraulics
On August 2, 2021, Eaton completed the sale of the Hydraulics business segment. For 2021 and 2020, the Hydraulics
segment generated net sales of $1,300 million and $1,842 million, respectively, and operating profit of $177 million and $186
million, respectively.
Aerospace
(In millions)
Net sales
Operating profit
Operating margin
2022
$ 3,039
Change
from 2021
2021
Change
from 2020
2020
15 % $ 2,648
19 % $ 2,223
$
705
22 % $
580
40 % $
414
23.2 %
21.9 %
18.6 %
Changes in Net sales are summarized as follows:
Organic growth
Acquisition of Mission Systems
Foreign currency
Total increase in Net sales
2022
2021
11 %
8 %
(4) %
15 %
(2) %
20 %
1 %
19 %
The increase in organic sales in 2022 was primarily due to strength in sales to commercial OEM and aftermarket. The
decrease in organic sales in 2021 was primarily due to the impact of continued travel restrictions from the COVID-19 pandemic
on commercial aviation and weakness in military aftermarket.
The operating margin increased from 21.9% in 2021 to 23.2% in 2022 primarily due to higher organic sales volumes. The
operating margin increased from 18.6% in 2020 to 21.9% in 2021 primarily due to the acquisition of Mission Systems and
savings from restructuring actions, partially offset by lower organic sales volumes.
Vehicle
(In millions)
Net sales
Operating profit
Operating margin
2022
$ 2,830
Change
from 2021
2021
Change
from 2020
2020
10 % $ 2,579
22 % $ 2,118
$
453
1 % $
449
85 % $
243
16.0 %
17.4 %
11.5 %
Changes in Net sales are summarized as follows:
Organic growth
Foreign currency
Total increase in Net sales
2022
12 %
(2) %
10 %
2021
21 %
1 %
22 %
The increase in organic sales in 2022 was primarily due to strength in the North American truck and light vehicle markets,
and South American truck, bus and agriculture markets. The increase in organic sales in 2021 was primarily due to strength in
all regions compared to 2020 which was significantly impacted by plant shutdowns due to the COVID-19 pandemic. This
organic growth was achieved despite the Vehicle business segment's organic sales being negatively impacted in 2021 as a result
of its customers experiencing supply chain constraints leading to reduced production levels and historic low vehicle inventory.
The operating margin decreased from 17.4% in 2021 to 16.0% in 2022 primarily due to commodity and logistics inflation
and operating inefficiencies due to supply chain constraints, partially offset by higher sales volumes including inflationary
recovery. The operating margin increased from 11.5% in 2020 to 17.4% in 2021 primarily due to higher sales volumes and
savings from restructuring actions, partially offset by commodity and logistics inflation.
85
eMobility
(In millions)
Net sales
2022
$
538
Change
from 2021
2021
Change
from 2020
2020
57 % $
343
17 % $
292
Operating profit (loss)
Operating margin
$
(9)
69 % $
(29)
(263) % $
(8)
(1.6) %
(8.5) %
(2.7) %
Changes in Net sales are summarized as follows:
Organic growth
Acquisition of Royal Power Solutions
Foreign currency
Total increase in Net sales
2022
2021
13 %
46 %
(2) %
57 %
16 %
— %
1 %
17 %
The increase in organic sales in 2022 was due to strength in all regions primarily due to robust demand for electric vehicles.
The increase in organic sales in 2021 was primarily due to strength in North American and Asia Pacific regions compared to
2020 which was significantly impacted by plant shutdowns due to the COVID-19 pandemic.
The operating margin increased from negative 8.5% in 2021 to negative 1.6% in 2022 primarily due to higher organic sales
volumes and the acquisition of Royal Power Solutions. The operating margin decreased from negative 2.7% in 2020 to negative
8.5% in 2021 primarily due to increased research and development costs and manufacturing start-up costs associated with new
electric vehicle programs, and commodity and logistics inflation, partially offset by higher sales volumes.
Corporate Expense
(In millions)
Intangible asset amortization expense
$
Interest expense - net
Pension and other postretirement benefits (income) expense
Restructuring program charges
Other expense - net
Total corporate expense
2022
Change
from 2021
2021
Change
from 2020
2020
499
144
(43)
33
653
12 % $
— %
34 %
(58) %
212 %
$
1,286
59 % $
444
144
(65)
78
209
810
25 % $
(3) %
(263) %
(64) %
(52) %
354
149
40
214
434
(32) % $
1,191
Total corporate expense was $1,286 million in 2022 compared to $810 million in 2021. The increase in Total corporate
expense was primarily due to higher Other expense - net and Intangible asset amortization expense, partially offset by lower
Restructuring program charges. The increase in Other expense - net is primarily due to the 2021 gain on sale of the Hydraulics
business discussed in Note 2, partially offset by lower acquisition and divestiture charges. Total corporate expense was $810
million in 2021 compared to $1,191 million in 2020. The decrease in Total corporate expense was primarily due to lower Other
expense - net, lower Restructuring program charges, and the favorable impact of the freeze on the Company's United States
pension plans, partially offset by higher Intangible asset amortization expense due to acquisitions of businesses. The decrease in
Other expense - net is primarily due to the 2021 gain on sale of the Hydraulics business exceeding the 2020 gain on the sale of
the Lighting business by $396 million. This decrease was partially offset by higher acquisition and divestiture charges and
higher other corporate expenses due to the removal of the temporary cost containment actions taken during 2020 to mitigate the
impact of the COVID-19 pandemic.
86
LIQUIDITY, CAPITAL RESOURCES, AND FINANCIAL CONDITION
Liquidity and Financial Condition
Eaton’s objective is to finance its business through operating cash flow and an appropriate mix of equity and long-term and
short-term debt. By diversifying its debt maturity structure, Eaton reduces liquidity risk.
On August 23, 2022, Eaton Corporation issued sustainability-linked senior notes (2022 Sustainability-Linked Notes) and
senior notes (2022 Senior Notes, and collectively referred to as the 2022 Notes). The 2022 Sustainability-Linked Notes have a
face amount of $1.3 billion, mature in 2033, and pay interest semi-annually at an initial interest rate of 4.15% per annum.
Beginning in September 2028, the interest rate payable on the 2022 Sustainability-Linked Notes will be increased by an
additional 25 basis points per annum if the Scope 1 and Scope 2 greenhouse gas emissions sustainability performance target is
not met. The 2022 Senior Notes have a face amount of $700 million, mature in 2052, and pay interest semi-annually at 4.70%
per annum. The issuer received proceeds totaling $1.98 billion from the issuance of the 2022 Notes, net of financing costs and
discounts.
On October 3, 2022, the Company replaced its existing $2,000 million five-year revolving credit facility with a new
$2,500 million five-year revolving credit facility that will expire on October 1, 2027. On the same date, the Company replaced
its existing $500 million 364-day revolving credit facility with a new $500 million 364-day revolving credit facility that will
expire on October 2, 2023. The revolving credit facilities totaling $3,000 million are used to support commercial paper
borrowings and are fully and unconditionally guaranteed by Eaton and certain of its direct and indirect subsidiaries on an
unsubordinated, unsecured basis. In October 2022, the Company also upsized its commercial paper program to $3,000 million.
There were no borrowings outstanding under Eaton’s revolving credit facilities at December 31, 2022. The Company had
access to the commercial paper markets through its $3,000 million commercial paper program, of which $300 million was
outstanding on December 31, 2022, used primarily to manage fluctuations in working capital. In addition to the revolving credit
facilities, the Company also had available lines of credit of $919 million from various banks primarily for the issuance of letters
of credit, of which there was $414 million outstanding at December 31, 2022.
In 2021, Eaton received proceeds of $3.1 billion from the sale of its Hydraulics business and paid $4.45 billion to acquire
Tripp Lite and Mission Systems. In 2022, the Company paid $610 million to acquire Royal Power Solutions and received cash
of $22 million from Danfoss A/S to fully settle all post-closing adjustments from the sale of the Hydraulics business.
Over the course of a year, cash, short-term investments, and short-term debt may fluctuate in order to manage global
liquidity. As of December 31, 2022 and 2021, Eaton had cash of $294 million and $297 million, short-term investments of $261
million and $271 million, and short-term debt of $324 million and $13 million, respectively. Eaton has investment grade credit
ratings from the two major rating agencies as reflected in the following ratings assigned to its debt:
Credit Rating Agency (long- /short-term rating)
Standard & Poor's
Moody's
Rating
A-/A-2
Baa1/P-2
Outlook
Stable outlook
Stable outlook
Eaton believes it has the operating flexibility, cash flow, cash and short-term investment balances, availability under
existing revolving credit facilities, and access to capital markets in excess of the liquidity necessary to meet future operating
needs of the business, fund capital expenditures and acquisitions of businesses, as well as scheduled payments of long-term
debt.
For additional information on financing transactions and debt, see Note 8.
Eaton’s credit facilities and indentures governing certain long-term debt contain various covenants, the violation of which
would limit or preclude the use of the credit facilities for future borrowings, or might accelerate the maturity of the related
outstanding borrowings covered by the indentures. At Eaton’s present credit rating level, the most restrictive financial covenant
provides that the ratio of secured debt (or lease payments due under a sale and leaseback transaction) to adjusted consolidated
net worth (or consolidated net tangible assets, in each case as defined in the relevant credit agreement or indenture) may not
exceed 10%. Eaton's actual ratios are substantially below the required threshold. In addition, Eaton is in compliance with each
of its debt covenants for all periods presented.
87
Cash Flows
A summary of cash flows is as follows:
(In millions)
2022
Change
from 2021
2021
Change
from 2020
2020
Net cash provided by operating activities
$
2,533 $
370 $
2,163 $
(781) $
2,944
Net cash provided by (used in) investing activities
Net cash used in financing activities
Effect of currency on cash
Total increase (decrease) in cash
Operating Cash Flow
(1,200)
(1,340)
4
(3)
$
564
(1,764)
(2,161)
397
(805)
(535)
2,723
(3,258)
9
(5)
10
$
(141)
$
(15)
68
Net cash provided by operating activities increased by $370 million in 2022 compared to 2021. The increase in net cash
provided by operating activities in 2022 was primarily due to taxes paid on the sale of the Hydraulics business in 2021, cash
received from the termination of interest rate swaps in 2022, lower pension contributions in 2022 due to a $200 million
contribution to Eaton's U.S. qualified pension plan in 2021, and higher net income in 2022, partially offset by higher working
capital balances to support the Company’s organic growth.
Net cash provided by operating activities decreased by $781 million in 2021 compared to 2020. The decrease in net cash
provided by operating activities in 2021 was primarily due to higher working capital balances to support the Company’s organic
growth as our business segments had largely recovered from the negative impact of the COVID-19 pandemic, taxes paid on the
sale of the Hydraulics business, and a $200 million pension contribution to Eaton's U.S. qualified pension plan in 2021.
Investing Cash Flow
Net cash used in investing activities decreased by $564 million in 2022 compared to 2021. The decrease in the use of cash
was primarily driven by the decrease in cash paid in 2022 for business acquisitions to $610 million in 2022 compared to $4,500
million in 2021, proceeds from the sale of certain office and distribution facilities in 2022, and the decrease in cash paid for
investments in associate companies to $42 million in 2022 from $124 million in 2021, partially offset by proceeds received in
2021 from the sale of Hydraulics business of $3,129 million and net purchases of short-term investments of $19 million in 2022
compared to net sales of $379 million in 2021. Capital expenditures were $598 million in 2022 compared to $575 million in
2021.
Net cash used in investing activities increased by $2,161 million in 2021 compared to 2020. The increase in the use of cash
was primarily driven by cash paid in 2021 for business acquisitions of $4,500 million compared to cash paid in 2020 for
business acquisitions of $200 million, partially offset by proceeds received in 2021 from the sale of Hydraulics business of
$3,129 million compared to proceeds received in 2020 from the sale of the Lighting business of $1,408 million, and net sales of
short-term investments of $379 million in 2021 compared to net purchases of $441 million in 2020. Capital expenditures were
$575 million in 2021 compared to $389 million in 2020.
Financing Cash Flow
Net cash used in financing activities increased by $805 million in 2022 compared to 2021. The increase in the use of cash
was primarily due to higher payments on borrowings of $2,012 million in 2022 compared to $1,013 million in 2021, higher
share repurchases of $286 million in 2022 compared to $122 million in 2021, and higher dividends paid of $1,299 million in
2022 compared to $1,219 million in 2021, partially offset by an increase in net proceeds of short-term debt $317 million in
2022 from $20 million in 2021 and higher proceeds from borrowings of $1,995 million in 2022 compared to $1,798 million in
2021.
Net cash used in financing activities decreased by $2,723 million in 2021 compared to 2020. The decrease in the use of cash
was primarily due to higher proceeds from borrowings of $1,798 million in 2021 compared to no proceeds from borrowings in
2020, lower share repurchases of $122 million in 2021 compared to $1,608 million in 2020, and net proceeds of short-term debt
of $20 million in 2021 compared to net payments of $254 million in 2020, partially offset by higher payments on borrowings of
$1,013 million in 2021 compared to $249 million in 2020.
88
Uses of Cash
Purchases of Goods and Services
The Company purchases goods and services in the normal course of business based on expected usage. For certain
purchases, the Company enters into purchase obligations with various vendors, which include short-term and long-term
commitments for purchases of raw materials, outstanding non-cancelable purchase orders, releases under blanket purchase
orders, and commitments under ongoing service arrangements. As of December 31, 2022, the Company has purchase
obligations to support the operation of its business similar to those included in historical cash flow trends.
Capital Expenditures
Capital expenditures were $598 million, $575 million, and $389 million in 2022, 2021 and 2020, respectively. Eaton expects
approximately $630 million in capital expenditures in 2023.
Dividends
Cash dividend payments were $1,299 million, $1,219 million, and $1,175 million for 2022, 2021 and 2020, respectively. On
February 23, 2023, Eaton's Board of Directors declared a quarterly dividend of $0.86 per ordinary share, a 6% increase over the
dividend paid in the fourth quarter of 2022. The dividend is payable on March 24, 2023 to shareholders of record on March 6,
2023. Payment of quarterly dividends in the future depends upon the Company’s ability to generate net income and operating
cash flows, among other factors, and is subject to declaration by the Eaton Board of Directors. The Company intends to
continue to pay quarterly dividends in 2023.
Share Repurchases
On February 27, 2019, the Board of Directors adopted a share repurchase program for share repurchases up to $5.0 billion of
ordinary shares (2019 Program). On February 23, 2022, the Board renewed the 2019 Program by providing authority for up to
$5.0 billion in repurchases to be made during the three-year period commencing on that date (2022 Program). Under the 2022
Program, the ordinary shares are expected to be repurchased over time, depending on market conditions, the market price of
ordinary shares, capital levels, and other considerations. During 2022, 2.0 million ordinary shares were repurchased under the
2022 Program in the open market as a total cost of $286 million. During 2021, 0.9 million ordinary shares were repurchased
under the 2019 Program in the open market at a total cost of $122 million. At December 31, 2022, there is $4,714 million still
available for share repurchases under the 2022 Program. The Company will continue to pursue share repurchases in 2023
depending on market conditions and capital levels.
Acquisition of Businesses
The Company paid cash of $610 million, $4,500 million, and $200 million to acquire businesses in 2022, 2021 and 2020,
respectively. The Company will continue to focus on deploying its capital toward businesses that provide opportunities for
higher growth and strong returns, and align with secular trends and its power management strategies.
Debt
The Company manages a number of short-term and long-term debt instruments, including commercial paper. For additional
information on financing transactions and debt, see Note 8.
Leases
See Note 7 for maturities of lease liabilities.
Unrecognized Income Tax Benefits
At December 31, 2022, the gross unrecognized income tax benefits totaled $1,235 million and interest and penalties were
$137 million. Eaton cannot predict with reasonable certainty the timing of cash settlements with the respective taxing
authorities. For additional information about income taxes see Note 11.
89
Defined Benefits Plans
Pension Plans
During 2022, the fair value of plan assets in the Company’s employee pension plans decreased $1,798 million to $4,121
million at December 31, 2022. The decrease in plan assets was primarily due to lower than expected return on plan assets and
the impact of negative currency translation. At December 31, 2022, the net unfunded position of $499 million in pension
liabilities consisted of $573 million in plans that have no funding requirements and $125 million in plans that require funding,
offset by $199 million in plans that are overfunded.
Funding requirements are a major consideration in making contributions to Eaton’s pension plans. With respect to the
Company’s pension plans worldwide, the Company intends to contribute annually not less than the minimum required by
applicable law and regulations. In 2022, $116 million was contributed to the pension plans. The Company anticipates making
$108 million of contributions to certain pension plans during 2023. The funded status of the Company’s pension plans at the
end of 2023, and future contributions, will depend primarily on the actual return on assets during the year and the discount rate
used to calculate certain benefits at the end of the year. For additional information about pension plans see Note 9.
Supply Chain Finance Program
The Company negotiates payment terms directly with its suppliers for the purchase of goods and services. In addition, a
third-party financial institution offers a voluntary supply chain finance (SCF) program that enables certain of the Company’s
suppliers, at the supplier’s sole discretion, to sell receivables due from the Company to the financial institution on terms directly
negotiated with the financial institution. If a supplier elects to participate in the SCF program, the supplier decides which
invoices are sold to the financial institution and the Company has no economic interest in a supplier’s decision to sell an
invoice. The SCF program does not have a significant impact on the Company’s liquidity as payments by the Company to
participating suppliers are paid to the financial institution on the invoice due date, regardless of whether an individual invoice is
sold by the supplier to the financial institution. The amounts due to the financial institution for suppliers that participate in the
SCF program are included in Accounts payable on the Company’s Consolidated Balance Sheets, and the associated payments
are included in operating activities on the Consolidated Statements of Cash Flows. At December 31, 2022 and 2021, Accounts
payable included $208 million and $151 million, respectively, payable to suppliers that have elected to participate in the SCF
program.
Guaranteed Debt
Issuers, Guarantors and Guarantor Structure
Eaton Corporation has issued senior notes pursuant to indentures dated April 1, 1994 (the 1994 Indenture), November 20,
2012 (the 2012 Indenture), September 15, 2017 (the 2017 Indenture) and August 23, 2022 (as supplemented by the First and
Second Supplemental Indentures of the same date, the 2022 Indenture). The senior notes of Eaton Corporation are registered
under the Securities Act of 1933, as amended (the Registered Senior Notes). Eaton Capital Unlimited Company, a subsidiary of
Eaton, is the issuer of four outstanding series of debt securities sold in offshore transactions under Regulation S promulgated
under the Securities Act (the Eurobonds). The Eurobonds and the Registered Senior Notes (together, the Senior Notes)
comprise substantially all of Eaton’s long-term indebtedness.
Substantially all of the Senior Notes, together with the credit facilities described above under Liquidity and Financial
Condition (the Credit Facilities), are guaranteed by Eaton and 17 of its subsidiaries. Accordingly, they rank equally with each
other. However, because these obligations are not secured, they would be effectively subordinated to any existing or future
secured indebtedness of Eaton and its subsidiaries. As of December 31, 2022, Eaton has no material, long-term secured debt.
The guaranteed Registered Senior Notes are also structurally subordinated to the liabilities of Eaton's subsidiaries that are not
guarantors. Except as described below under Future Guarantors, Eaton is not obligated to cause its subsidiaries to guarantee the
Registered Senior Notes.
The table set forth in Exhibit 22 filed with this Form 10-K details the primary obligors and guarantors with respect to the
guaranteed Registered Senior Notes.
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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.
Though the terms of the indentures vary slightly, generally, each guarantee of the Registered Senior Notes by a guarantor
that is a subsidiary of Eaton Corporation provides that it will be automatically and unconditionally released and discharged
under certain circumstances, including, but not limited to:
(a)
the consummation of certain types of transactions permitted under the applicable indenture, including one that results in
such guarantor ceasing to be a subsidiary; and
(b) for Registered Senior Notes issued under the 2022 Indenture, when such guarantor is a guarantor or issuer of indebtedness
in an aggregate outstanding principal amount of less than 25% of our total outstanding indebtedness.
Further, each guarantee by a direct or indirect parent of Eaton Corporation (other than Eaton) provides that it will also be
released if:
(c) such guarantee (so long as the guarantor is not obligated under any other U.S. debt obligations), becomes prohibited by any
applicable law, rule or regulation or by any contractual obligation; or
(d) such guarantee results in material adverse tax consequences to Eaton or any of its subsidiaries (so long as the applicable
guarantor is not obligated under any other U.S. debt obligation).
The guarantee of Eaton does not contain any release provisions.
Future Guarantors
The 2012 and 2017 Indentures generally provide that, with certain limited exceptions, any subsidiary of Eaton must become
a guarantor if it becomes obligated as borrower or guarantor under any series of debt securities or a syndicated credit facility.
Further, the 2012 and 2017 Indentures provide that any entity that becomes a direct or indirect parent entity of Eaton
Corporation and holds any material assets, with certain limited exceptions, or owes any material liabilities must become a
guarantor. The 2022 Indenture provides only that, with certain limited exceptions, any subsidiary of Eaton must become a
guarantor if it becomes obligated as borrower or guarantor under indebtedness with an aggregate outstanding principal amount
in excess of 25% of the Parent and its Subsidiaries' then-outstanding indebtedness.
The 1994 Indenture does not contain provisions with respect to future guarantors.
Summarized Financial Information of Guarantors and Issuers
(In millions)
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Amounts due to subsidiaries that are non-issuers and non-guarantors - net
(In millions)
Net sales
Sales to subsidiaries that are non-issuers and non-guarantors
Cost of products sold
Expense from subsidiaries that are non-issuers and non-guarantors - net
Net loss
December 31,
2022
$
$
3,363
12,938
2,948
10,047
16,285
2022
11,433
911
9,277
747
(26)
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.
91
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally accepted accounting principles (GAAP) in the United
States requires management to make certain estimates and assumptions that may involve the exercise of significant judgment.
For any estimate or assumption used, there may be other reasonable estimates or assumptions that could have been used.
However, based on facts and circumstances inherent in developing estimates and assumptions, management believes it is
unlikely that applying other such estimates and assumptions would have caused materially different amounts to have been
reported. Actual results may differ from these estimates.
Revenue Recognition
Sales are recognized when control of promised goods or services are transferred to customers in an amount that reflects the
consideration the Company expects to be entitled to in exchange for those goods or services. Control is transferred when the
customer has the ability to direct the use of and obtain benefits from the goods or services. The majority of the Company’s sales
agreements contain performance obligations satisfied at a point in time when control is transferred to the customer. Sales
recognized over time are generally accounted for using an input measure to determine progress completed at the end of the
period. Sales for service contracts generally are recognized as the services are provided. For agreements with multiple
performance obligations, judgment is required to determine whether performance obligations specified in these agreements are
distinct and should be accounted for as separate revenue transactions for recognition purposes. In these types of agreements, we
generally allocate sales price to each distinct obligation based on the price of each item sold in separate transactions.
Due to the nature of the work required to be performed for obligations recognized over time, Eaton estimates total costs by
contract. The estimate of total costs are subject to judgment. Estimated amounts are included in the recognized sales price to the
extent it is not probable that a significant reversal of cumulative sales will occur. Additionally, contracts can be modified to
account for changes in contract specifications, requirements or sale price. The effect of a contract modification on the sales
price or adjustments to the measure of completion under the input method are recognized as adjustments to revenue on a
cumulative catch-up basis.
Eaton records reductions to sales for returns, and customer and distributor incentives, primarily comprised of rebates, at the
time of the initial sale. Rebates are estimated based on sales terms, historical experience, trend analysis, and projected market
conditions in the various markets served. The rebate programs offered vary across businesses due to the numerous markets
Eaton serves, but the most common incentives relate to amounts paid or credited to customers for achieving defined volume
levels. Returns are estimated at the time of the sale primarily based on historical experience and recorded gross on the
Consolidated Balance Sheet. See Note 3 for additional information.
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Impairment of Goodwill and Other Long-Lived Assets
Goodwill
Goodwill is evaluated annually for impairment as of July 1 using either a quantitative or qualitative analysis. Goodwill is
tested for impairment at the reporting unit level, and is based on the net assets for each reporting unit, including goodwill and
intangible assets. The Company’s reporting units are equivalent to the reportable operating segments, except for the Aerospace
segment which has two reporting units. Goodwill is assigned to each reporting unit, as this represents the lowest level that
constitutes a business and is the level at which management regularly reviews the operating results. The Company performs a
quantitative analysis using a discounted cash flow model and other valuation techniques, but may elect to perform a qualitative
analysis.
Additionally, goodwill is evaluated for impairment whenever an event occurs or circumstances change that would indicate
that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Events or circumstances that
may result in an impairment review include changes in macroeconomic conditions, industry and market considerations, cost
factors, overall financial performance, other relevant entity-specific events, specific events affecting the reporting unit or
sustained decrease in share price.
The annual goodwill impairment test was performed using a qualitative analysis in 2022 and 2021, except for the eMobility
reporting unit which used a quantitative analysis. A qualitative analysis is performed by assessing certain trends and factors,
including projected market outlook and growth rates, forecasted and actual sales and operating profit margins, discount rates,
industry data, and other relevant qualitative factors. These trends and factors are compared to, and based on, the assumptions
used in the most recent quantitative analysis performed for each reporting unit. The results of the qualitative analyses did not
indicate a need to perform quantitative analysis.
Quantitative analyses were performed by estimating the fair value of the reporting unit using 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 future cash flows were based on the Company's long-
term operating plan and a terminal value was used to estimate the reporting unit's cash flows beyond the period covered by the
operating plan. 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. Sensitivity analyses were
performed around certain of these assumptions in order to assess the reasonableness of the assumptions and the resulting
estimated fair values.
Based on these analyses performed in 2022 and 2021, the fair value of Eaton's reporting units continue to substantially
exceed their respective carrying amounts and thus, no impairment exists.
Indefinite Life Intangible Assets
Indefinite life intangible assets consist of certain trademarks. They are evaluated annually for impairment as of July 1 using
either a quantitative or qualitative analysis to determine whether their fair values exceed their respective carrying amounts.
Indefinite life intangible asset impairment testing for 2022 and 2021 was performed using a quantitative analysis. Determining
the fair value of these assets requires significant judgment and the Company uses a royalty relief methodology similar to that
employed when the associated assets were acquired, but using updated estimates of future sales, cash flows and profitability.
Sensitivity analyses were performed around certain of these assumptions in order to assess the reasonableness of the
assumptions and the resulting estimated fair values.
Additionally, indefinite life intangible assets are evaluated for impairment whenever an event occurs or circumstances
change that would indicate that it is more likely than not that the asset is impaired. Events or circumstances that may result in an
impairment review include changes in industry and market considerations, cost factors, financial performance, and other
relevant entity-specific events that could affect inputs used to determine the respective fair values of the indefinite-lived
intangible assets.
For 2022 and 2021, the fair value of indefinite lived intangible assets exceeded the respective carrying value.
For additional information about goodwill and other intangible assets see Note 6.
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Acquisitions of Businesses
The acquisition of a business is accounted for using the acquisition method of accounting which requires assets and
liabilities to be recognized at their fair values on the acquisition date. The initial fair value of assets acquired and liabilities
assumed may be revised based on the final determination of fair value during the measurement period of up to 12 months from
the acquisition date. The Company generally determines the fair value of intangible assets acquired using third-party valuations
that are prepared using discounted cash flow models that rely on the Company's estimates. These estimates require judgement
of future revenue growth rates, future margins, and the applicable weighted-average cost of capital used to discount those
estimated cash flows. Sensitivity analyses were performed around certain of these assumptions in order to assess the
reasonableness of the assumptions and the resulting estimated fair values. For additional information about the acquisitions of
businesses see Note 2.
Recoverability of Deferred Income Tax Assets
Eaton is subject to the income tax laws in the jurisdictions in which it operates. In order to determine the income tax
provision for financial statement purposes, Eaton must make significant estimates and judgments about its business operations
in these jurisdictions. These estimates and judgments are also used in determining the deferred income tax assets and liabilities
that have been recognized for differences between the financial statement and income tax basis of assets and liabilities, and
income tax loss carryforwards and income tax credit carryforwards.
Management evaluates the realizability of deferred income tax assets for each jurisdiction in which it operates. If the
Company experiences cumulative pre-tax income in a particular jurisdiction in a three-year period including the current and
prior two years, management normally concludes that the deferred income tax assets will more likely than not be realizable and
no valuation allowance is recognized, unless known or planned operating developments, or changes in tax laws, would lead
management to conclude otherwise. However, if the Company experiences cumulative pre-tax losses in a particular jurisdiction
in a three-year period including the current and prior two years, management then considers a series of factors in the
determination of whether the deferred income tax assets can be realized. These factors include historical operating results,
known or planned operating developments, the period of time over which certain temporary differences will reverse,
consideration of the utilization of certain deferred income tax liabilities, carryback capability under the tax law in a particular
country, prudent and feasible tax planning strategies, changes in tax laws, and estimates of future earnings and taxable income
using the same assumptions as those used for the Company’s goodwill and other impairment testing. After evaluation of these
factors, if the deferred income tax assets are expected to be realized within the tax carryforward period allowed for that specific
country, management would conclude that no valuation allowance would be required. To the extent that the deferred income tax
assets exceed the amount that is expected to be realized within the tax carryforward period for a particular jurisdiction,
management would establish a valuation allowance. For additional information about income taxes see Note 11.
Unrecognized Income Tax Benefits
Eaton recognizes an income tax benefit from an uncertain tax position only if it is more likely than not that the benefit would
be sustained upon examination by taxing authorities, based on the technical merits of the position. The Company evaluates and
adjusts the amount of unrecognized income tax benefits based on changes in law, facts and circumstances. Eaton also estimates,
where reasonably possible, the increase or decrease in the amount of unrecognized income tax benefits in the next 12 months.
The evaluation and determination of the amount of unrecognized income tax benefits related to uncertain tax positions is
complex and involves both the exercise of judgement and the utilization of certain estimates and assumptions. Each tax position
carries unique facts and circumstances that must be evaluated in light of current tax laws, regulations, and judicial decisions.
Additionally, the ultimate resolution of the majority of Eaton’s unrecognized income tax benefits is dependent upon
uncontrollable factors such as the timing of finalizing resolutions of audit disputes through reaching settlement agreements or
concluding litigation, or changes in law.
Pension and Other Postretirement Benefits Plans
The measurement of liabilities related to pension plans and other postretirement benefits plans is based on assumptions
related to future events including interest rates, return on plan assets, rate of compensation increases, and health care cost trend
rates. Actual plan asset performance will either reduce or increase losses included in accumulated other comprehensive loss,
which ultimately affects net income.
The discount rate for United States plans was determined by discounting the expected future benefit payments using a
theoretical zero-coupon spot yield curve derived from a universe of high-quality bonds as of the measurement date and solving
for the single rate that would generate the same benefit obligation. Only corporate bonds with a rating of Aa, determined by
averaging the ratings by Moody’s, Standard & Poor's, and Fitch, were included. Callable bonds that are not make-whole bonds
and certain other non-comparable bonds were eliminated. Finally, a subset of bonds was selected by grouping the universe of
bonds by duration and retaining 50% of the bonds that had the highest yields.
94
The discount rates for non-United States plans were determined by region and are based on high quality long-term corporate
and government bonds. Consideration has been given to the duration of the liabilities in each plan when selecting the bonds to
be used in determining the discount rate.
To estimate the service and interest cost components of net periodic benefit cost for the vast majority of its defined benefits
pension and other postretirement benefits plans, the Company used a spot rate approach by applying the specific spot rates
along the yield curve used to measure the benefit obligation at the beginning of the period to the relevant projected cash flows.
Key assumptions used to calculate pension and other postretirement benefits expense are adjusted at each year-end. A 1-
percentage point change in the assumed rate of return on pension plan assets is estimated to have approximately a $52 million
effect on pension expense. Likewise, a 1-percentage point change in the discount rate is estimated to have approximately a $40
million effect on pension expense. A 1-percentage point change in the assumed rate of return on other postretirement benefits
assets is estimated to have less than $1 million effect on other postretirement benefits expense. A 1-percentage point change in
the discount rate is estimated to have a $3 million effect on expense for other postretirement benefits plans.
Additional information related to changes in key assumptions used to recognize expense for other postretirement benefits
plans is found in Note 9.
MARKET RISK DISCLOSURE
On a regular basis, Eaton monitors third-party depository institutions that hold its cash and short-term investments, primarily
for safety of principal and secondarily for maximizing yield on those funds. The Company diversifies its cash and short-term
investments among counterparties to minimize exposure to any one of these entities. Eaton also monitors the creditworthiness
of its customers and suppliers to mitigate any adverse impact.
Eaton uses derivative instruments to manage exposure to volatility in raw material costs, currency, and interest rates on
certain debt instruments. Derivative financial instruments used by the Company are straightforward and non-leveraged. 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. See Note 15 for
additional information about hedges and derivative financial instruments.
Eaton’s ability to access the commercial paper market, and the related cost of these borrowings, is based on the strength of
its credit rating and overall market conditions. During 2022, the Company has not experienced any material limitations in its
ability to access these sources of liquidity. At December 31, 2022, Eaton had $3,000 million of long-term revolving credit
facilities with banks in support of its commercial paper program. It has no borrowings outstanding under these revolving credit
facilities.
Interest rate risk can be measured by calculating the short-term earnings impact that would result from adverse changes in
interest rates. This exposure results from short-term debt, which includes commercial paper at a floating interest rate, long-term
debt that has been swapped to floating rates, and money market investments that have not been swapped to fixed rates. Based
upon the balances of investments and floating rate debt at year end 2022, a 100 basis point increase in short-term interest rates
would have increased the Company’s net, pre-tax interest expense by $2.6 million.
Eaton also measures interest rate risk by estimating the net amount by which the fair value of the Company’s financial
liabilities would change as a result of movements in interest rates. Based on Eaton’s best estimate for a hypothetical, 100 basis
point increase in interest rates at December 31, 2022, the market value of the Company’s debt, in aggregate, would decrease by
$600 million.
In July 2017, the United Kingdom’s Financial Conduct Authority, which regulates the London Interbank Offered Rate
(LIBOR), announced it intends to phase out LIBOR. The final publication of rates for certain USD LIBOR tenors is expected to
be on June 30, 2023. Various parties, including government agencies, are seeking to identify alternative rates to replace LIBOR.
The Company’s new revolving credit facilities discussed in Note 8 do not reference LIBOR and all interest rate swaps that
referenced LIBOR have been settled. Based on the Company's evaluation, the impacts of the transition from LIBOR to
alternative rates in its contracts will not have a material impact on the consolidated financial statements.
95
The Company is exposed to fluctuations in commodity prices due to volatility in raw material costs and contractual
agreements with suppliers. To partially mitigate this exposure, Eaton enters into commodity contracts for certain raw material
purchases with the objective of minimizing changes in inventory cost due to market price fluctuations. These commodity
contracts are designated for hedge accounting and are generally less than one year in duration. Based on Eaton’s best estimate
for a hypothetical 10% fluctuation in commodity prices the gain or loss would be $5 million. The sensitivity analysis of the
effects of changes in commodity prices assumes the notional value to remain constant for the next 12 months. Any change in
the value of the contracts would be offset by an inverse change in the value of the underlying hedged transactions.
The Company is exposed to currency risk associated with translating its functional currency financial statements into its
reporting currency, which is the U.S. dollar. As a result, the Company is exposed to movements in the exchange rates of various
currencies against the U.S. dollar. Eaton also monitors exposure to transactions denominated in currencies other than the
functional currency of each country in which the Company operates, and regularly enters into forward contracts to mitigate that
exposure. In the aggregate, Eaton’s portfolio of forward contracts related to such transactions was not material to its
Consolidated Financial Statements.
FORWARD-LOOKING STATEMENTS
This Annual Report to Shareholders contains forward-looking statements concerning litigation, expected capital
expenditures, future pension contributions, future dividend payments, anticipated share repurchases, and expected restructuring
program charges and benefits, among others. 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: the
course of the COVID-19 pandemic, including government responses thereto and the rate of global economic recovery
therefrom; unanticipated changes in the markets for the Company’s business segments; unanticipated downturns in business
relationships with customers or their purchases from us; the availability of credit to customers and suppliers; supply chain
disruptions, competitive pressures on sales and pricing; unanticipated changes in the cost of material, labor and other
production costs, or unexpected costs that cannot be recouped in product pricing; the introduction of competing technologies;
unexpected technical or marketing difficulties; unexpected claims, charges, litigation or dispute resolutions; strikes or other
labor unrest; the impact of acquisitions and divestitures; unanticipated difficulties integrating acquisitions; new laws and
governmental regulations; interest rate changes; tax rate changes or exposure to additional income tax liability; stock market
and currency fluctuations; war, natural disasters, civil or political unrest or terrorism; and unanticipated deterioration of
economic and financial conditions in the United States and around the world. Eaton does not assume any obligation to update
these forward-looking statements.
96
Eaton Corporation plc
2022 Annual Report on Form 10-K
Exhibit 31.1
Certification
I, Craig Arnold, certify that:
1.
I have reviewed this annual report on Form 10-K of Eaton Corporation plc;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: February 23, 2023
/s/ Craig Arnold
Craig Arnold
Principal Executive Officer
Eaton Corporation plc
2022 Annual Report on Form 10-K
Exhibit 31.2
Certification
I, Thomas B. Okray, certify that:
1.
I have reviewed this annual report on Form 10-K of Eaton Corporation plc;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: February 23, 2023
/s/ Thomas B. Okray
Thomas B. Okray
Principal Financial Officer
Eaton Corporation plc
2022 Annual Report on Form 10-K
Exhibit 32.1
Certification
This written statement is submitted in accordance with Section 906 of the Sarbanes-Oxley Act of 2002. It accompanies
Eaton Corporation plc’s Annual Report on Form 10-K for the year ended December 31, 2022 (“10-K Report”).
I hereby certify that, based on my knowledge, the Report on Form 10-K fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C 78m), and information contained in the 10-K Report fairly
presents, in all material respects, the financial condition and results of operations of Eaton Corporation plc and its consolidated
subsidiaries.
Date: February 23, 2023
/s/ Craig Arnold
Craig Arnold
Principal Executive Officer
Eaton Corporation plc
2022 Annual Report on Form 10-K
Exhibit 32.2
Certification
This written statement is submitted in accordance with Section 906 of the Sarbanes-Oxley Act of 2002. It accompanies
Eaton Corporation plc’s Annual Report on Form 10-K for the year ended December 31, 2022 (“10-K Report”).
I hereby certify that, based on my knowledge, the Report on Form 10-K fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C 78m), and information contained in the 10-K Report fairly
presents, in all material respects, the financial condition and results of operations of Eaton Corporation plc and its consolidated
subsidiaries.
Date: February 23, 2023
/s/ Thomas B. Okray
Thomas B. Okray
Principal Financial Officer
Eaton directors As of March 1, 2023
Craig Arnold 6*
Chairman
and Chief Executive Officer
Deborah L. McCoy 2, 4
Independent Consultant
Former Senior Vice President,
Flight Operations, Continental
Airlines Inc., Houston, Texas,
a commercial airline
Gregory R. Page 2, 4, 6
Lead Independent Director
Retired Chairman and Chief Executive
Officer, Cargill Incorporated,
Minneapolis, Minnesota, an
international marketer, processor
and distributor of agricultural, food,
financial and industrial products
and services
Robert Pragada 2, 3, 5
President and Chief Executive Officer,
Jacobs Engineering Group, Inc.,
Dallas, Texas, a professional and
technical solutions company that
provides consulting, technical,
scientific and project delivery services
for the government and private sector
Gerald B. Smith 1*, 4, 6
Chairman and Chief Executive Officer,
Smith, Graham & Company,
Houston, Texas,
an investment advisory firm
Olivier Leonetti 1, 3, 5
Executive Vice President and
Chief Financial Officer, Johnson
Controls International plc, Cork,
Ireland, a global leader in building
technology and connected
solutions for fire, HVAC and
security equipment for buildings
Silvio Napoli 2, 3, 5*, 6
Chairman and Chief Executive Officer,
Schindler Holding Ltd., Hergiswil,
Switzerland, a global provider
of elevators, escalators and
related services
Sandra Pianalto 1, 3*, 5, 6
Retired President and
Chief Executive Officer,
Federal Reserve Bank of
Cleveland, Cleveland, Ohio
Lori J. Ryerkerk 2*, 3, 5, 6
Chairman, Chief Executive
Officer and President,
Celanese Corporation, Irving,
Texas, a global chemical and
specialty materials company
Dorothy C. Thompson 1, 4*, 6
Retired Chief Executive,
Drax Group plc, London, England,
an international electricity and
energy company
Darryl Wilson 1, 4
Founder, Chairman and President,
The Wilson Collective, Houston,
Texas, a business advisory and
investment firm with clients
in the power generation,
industrial, material supply and
consumer segments
1 Audit Committee
2 Compensation and Organization Committee
3 Finance Committee
4 Governance Committee
5 Innovation & Technology Committee
6 Executive Committee
* Denotes Committee Chair
EATON 2022 Annual Report Eaton global leadership team As of March 1, 2023
Craig Arnold
Chairman
and Chief Executive Officer
Tom Okray
Executive Vice President
and Chief Financial Officer
João V. Faria
President, Vehicle Group
Matt Hockman
President, Global Energy
Infrastructure Solutions,
Electrical Sector
Heath B. Monesmith
President and Chief Operating
Officer, Electrical Sector
Howard Liu
President, Asia-Pacific Region,
Electrical Sector
Paulo Ruiz
President and Chief Operating
Officer, Industrial Sector
Christina Bosserd
Senior Vice President,
Internal Audit
Brian S. Brickhouse
President, Americas Region,
Electrical Sector
Rogerio Branco
Executive Vice President
and Chief Supply Chain Officer
Nanda Kumar
President, Aerospace Group
Mary Kim Elkins
Senior Vice President,
Taxes and Finance Technology
Timothy N. Darkes
President, Europe, Middle East
and Africa Region, Corporate
and Electrical Sector
Daniel Hopgood
Senior Vice President
and Controller
EATON 2022 Annual Report Eaton global leadership team As of March 1, 2023
Harold V. Jones
Chief Sustainability Officer
and Executive Vice President,
Eaton Business System
Joe Rodgers
Senior Vice President,
Ethics and Compliance
Yan Jin
Senior Vice President,
Investor Relations and
Finance Transformation
Raja Ramana Macha
Executive Vice President and
Chief Technology Officer
Ernest W. Marshall Jr.
Executive Vice President and
Chief Human Resources Officer
Kirsten M. Park
Senior Vice President, Treasury
Harpreet Saluja
Senior Vice President, Corporate
Development and Planning
Taras G. Szmagala Jr.
Executive Vice President
and Chief Legal Officer
Armando Tellez
Vice President, Total Quality
and Continuous Improvement
Katrina R. Redmond
Executive Vice President and
Chief Information Officer
Aravind Yarlagadda
Executive Vice President
and Chief Digital Officer
EATON 2022 Annual Report Powering
what matters
2022 recognitions
100 Best Corporate Citizens
3BL Media
America’s Most Loved Workplaces
Newsweek
Best Place to Work for Disability Inclusion
Disability:IN
Best for Vets
Military Times
Best of the Best Employer for Veterans
U.S. Veterans Magazine
Canada’s Best Employers
Forbes
FT Diversity Leader
Financial Times
Best Place to Work for LGBTQ+ Equality
in Mexico
Human Rights Campaign
100% Score, Corporate Equality
Index in the U.S.
Human Rights Campaign
Most Honored Company
Institutional Investor Magazine
Top Sustainability Initiative
Digital Engineering Awards
Great Place to Work India
Great Place to Work Institute
World’s Most Admired Companies
Fortune
World’s Most Ethical Companies
Ethisphere Magazine
Top Work Places in Northeast Ohio
Cleveland.com
Eaton Corporation plc
Eaton House
30 Pembroke Road
Dublin 4, Ireland
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