CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

6 Months Ended

Jun. 30, 2019

Condensed Consolidating Financial Information [Abstract]

CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

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

The guarantee of a Guarantor that is not a parent of the issuer will be automatically and unconditionally released and discharged in the event of any sale of the Guarantor or of all or substantially all of its assets, or in connection with the release or termination of the Guarantor as a guarantor under all other U.S. debt securities or U.S. syndicated credit facilities, subject to limitations set forth in the indenture. The guarantee of a Guarantor that is a direct or indirect parent of the issuer will only be automatically and unconditionally released and discharged in connection with the release or termination of such Guarantor as a guarantor under all other debt securities or syndicated credit facilities (in both cases, U.S. or otherwise), subject to limitations set forth in the indenture.

During 2019 and 2018, the Company undertook certain steps to restructure ownership of various subsidiaries. The transactions were entirely among wholly-owned subsidiaries under the common control of Eaton. These restructurings have been reflected as of the beginning of the earliest period presented below.




CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED JUNE 30, 2019
	Eaton Corporation plc			Eaton Corporation			Guarantors			Other subsidiaries			Consolidating adjustments			Total
Net sales	$	—		$	1,824		$	1,902		$	3,134		$	(1,327	)	$	5,533

Cost of products sold	—			1,421			1,377			2,230			(1,331		)	3,697
Selling and administrative expense	2			360			205			340			—			907
Research and development expense	—			35			37			79			—			151
Interest expense (income) - net	—			66			5			(7		)	(1		)	63
Other expense (income) - net	(1		)	6			(14		)	(14		)	—			(23		)
Equity in loss (earnings) of subsidiaries, net of tax	(647		)	(176		)	(731		)	(660		)	2,214			—
Intercompany expense (income) - net	10			38			426			(474		)	—			—
Income (loss) before income taxes	636			74			597			1,640			(2,209		)	738
Income tax expense (benefit)	—			6			(23		)	118			1			102
Net income (loss)	636			68			620			1,522			(2,210		)	636
Less net loss (income) for noncontrolling interests	—			—			—			—			—			—
Net income (loss) attributable to Eaton ordinary shareholders	$	636		$	68		$	620		$	1,522		$	(2,210	)	$	636

Other comprehensive income (loss)	$	(30	)	$	10		$	(19	)	$	2		$	7		$	(30	)
Total comprehensive income (loss) attributable to Eaton ordinary shareholders	$	606		$	78		$	601		$	1,524		$	(2,203	)	$	606




CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED JUNE 30, 2018
	Eaton Corporation plc			Eaton Corporation			Guarantors			Other subsidiaries			Consolidating adjustments			Total
Net sales	$	—		$	1,809		$	1,790		$	3,242		$	(1,354	)	$	5,487

Cost of products sold	—			1,427			1,289			2,312			(1,357		)	3,671
Selling and administrative expense	2			396			200			303			—			901
Research and development expense	—			37			35			73			—			145
Interest expense (income) - net	—			67			4			(6		)	3			68
Other expense (income) - net	(37		)	9			36			—			—			8
Equity in loss (earnings) of subsidiaries, net of tax	(587		)	(189		)	(899		)	(642		)	2,317			—
Intercompany expense (income) - net	12			24			557			(593		)	—			—
Income (loss) before income taxes	610			38			568			1,795			(2,317		)	694
Income tax expense (benefit)	—			(7		)	(14		)	104			—			83
Net income (loss)	610			45			582			1,691			(2,317		)	611
Less net loss (income) for noncontrolling interests	—			—			—			(1		)	—			(1		)
Net income (loss) attributable to Eaton ordinary shareholders	$	610		$	45		$	582		$	1,690		$	(2,317	)	$	610

Other comprehensive income (loss)	$	(624	)	$	(25	)	$	(584	)	$	(1,381	)	$	1,990		$	(624	)
Total comprehensive income (loss) attributable to Eaton ordinary shareholders	$	(14	)	$	20		$	(2	)	$	309		$	(327	)	$	(14	)




CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME FOR THE SIX MONTHS ENDED JUNE 30, 2019
	Eaton Corporation plc			Eaton Corporation			Guarantors			Other subsidiaries			Consolidating adjustments			Total
Net sales	$	—		$	3,582		$	3,722		$	6,172		$	(2,638	)	$	10,838

Cost of products sold	—			2,811			2,666			4,425			(2,632		)	7,270
Selling and administrative expense	6			721			410			687			—			1,824
Research and development expense	—			76			75			156			—			307
Interest expense (income) - net	—			135			9			(13		)	(2		)	129
Other expense (income) - net	(13		)	(2		)	(22		)	4			—			(33		)
Equity in loss (earnings) of subsidiaries, net of tax	(1,174		)	(482		)	(1,562		)	(1,395		)	4,613			—
Intercompany expense (income) - net	23			2			873			(898		)	—			—
Income (loss) before income taxes	1,158			321			1,273			3,206			(4,617		)	1,341
Income tax expense (benefit)	—			15			(35		)	204			(1		)	183
Net income (loss)	1,158			306			1,308			3,002			(4,616		)	1,158
Less net loss (income) for noncontrolling interests	—			—			—			—			—			—
Net income (loss) attributable to Eaton ordinary shareholders	$	1,158		$	306		$	1,308		$	3,002		$	(4,616	)	$	1,158

Other comprehensive income (loss)	$	37		$	4		$	53		$	93		$	(150	)	$	37
Total comprehensive income (loss) attributable to Eaton ordinary shareholders	$	1,195		$	310		$	1,361		$	3,095		$	(4,766	)	$	1,195




CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME FOR THE SIX MONTHS ENDED JUNE 30, 2018
	Eaton Corporation plc			Eaton Corporation			Guarantors			Other subsidiaries			Consolidating adjustments			Total
Net sales	$	—		$	3,498		$	3,490		$	6,433		$	(2,683	)	$	10,738

Cost of products sold	—			2,779			2,525			4,622			(2,682		)	7,244
Selling and administrative expense	5			737			378			670			—			1,790
Research and development expense	—			76			76			149			—			301
Interest expense (income) - net	—			135			8			(7		)	2			138
Other expense (income) - net	(19		)	14			27			(16		)	—			6
Equity in loss (earnings) of subsidiaries, net of tax	(1,101		)	(437		)	(1,696		)	(1,283		)	4,517			—
Intercompany expense (income) - net	17			2			1,044			(1,063		)	—			—
Income (loss) before income taxes	1,098			192			1,128			3,361			(4,520		)	1,259
Income tax expense (benefit)	—			(13		)	(28		)	203			(1		)	161
Net income (loss)	1,098			205			1,156			3,158			(4,519		)	1,098
Less net loss (income) for noncontrolling interests	—			—			—			—			—			—
Net income (loss) attributable to Eaton ordinary shareholders	$	1,098		$	205		$	1,156		$	3,158		$	(4,519	)	$	1,098

Other comprehensive income (loss)	$	(328	)	$	(15	)	$	(300	)	$	(772	)	$	1,087		$	(328	)
Total comprehensive income (loss) attributable to Eaton ordinary shareholders	$	770		$	190		$	856		$	2,386		$	(3,432	)	$	770

CONDENSED CONSOLIDATING BALANCE SHEETS JUNE 30, 2019

	Eaton Corporation plc		Eaton Corporation		Guarantors		Other subsidiaries		Consolidating adjustments			Total
Assets
Current assets
Cash	$	1	$	70	$	9	$	332	$	—		$	412
Short-term investments	—		100		—		285		—			385
Accounts receivable - net	—		608		1,170		2,166		—			3,944
Intercompany accounts receivable	2		739		2,102		2,416		(5,259		)	—
Inventory	—		537		854		1,544		(82		)	2,853
Prepaid expenses and other current assets	—		96		29		391		16			532
Total current assets	3		2,150		4,164		7,134		(5,325		)	8,126

Property, plant and equipment - net	—		851		670		1,989		—			3,510

Other noncurrent assets
Goodwill	—		1,330		6,705		5,428		—			13,463
Other intangible assets	—		124		2,980		1,662		—			4,766
Operating lease assets	—		148		59		212		—			419
Deferred income taxes	—		297		—		292		(286		)	303
Investment in subsidiaries	17,693		26,501		72,600		26,986		(143,780		)	—
Intercompany loans receivable	9		5,703		6,962		59,617		(72,291		)	—
Other assets	—		777		156		724		—			1,657
Total assets	$	17,705	$	37,881	$	94,296	$	104,044	$	(221,682	)	$	32,244

Liabilities and shareholders’ equity
Current liabilities
Short-term debt	$	—	$	—	$	—	$	2	$	—		$	2
Current portion of long-term debt	—		3		—		2		—			5
Accounts payable	—		484		472		1,312		—			2,268
Intercompany accounts payable	8		1,245		2,852		1,154		(5,259		)	—
Accrued compensation	—		76		45		236		—			357
Other current liabilities	1		539		265		1,014		(1		)	1,818
Total current liabilities	9		2,347		3,634		3,720		(5,260		)	4,450

Noncurrent liabilities
Long-term debt	—		5,886		2,187		6		—			8,079
Pension liabilities	—		379		128		759		—			1,266
Other postretirement benefits liabilities	—		167		83		74		—			324
Operating lease liabilities	—		108		45		158		—			311
Deferred income taxes	—		—		474		201		(286		)	389
Intercompany loans payable	1,390		5,347		64,429		1,125		(72,291		)	—
Other noncurrent liabilities	—		400		295		369		—			1,064
Total noncurrent liabilities	1,390		12,287		67,641		2,692		(72,577		)	11,433

Shareholders’ equity
Eaton shareholders' equity	16,306		23,247		23,021		97,577		(143,845		)	16,306
Noncontrolling interests	—		—		—		55		—			55
Total equity	16,306		23,247		23,021		97,632		(143,845		)	16,361
Total liabilities and equity	$	17,705	$	37,881	$	94,296	$	104,044	$	(221,682	)	$	32,244

CONDENSED CONSOLIDATING BALANCE SHEETS DECEMBER 31, 2018

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

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

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

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

Noncurrent liabilities
Long-term debt	—		5,814		945		7		2			6,768
Pension liabilities	—		383		130		791		—			1,304
Other postretirement benefits liabilities	—		166		83		72		—			321
Deferred income taxes	—		1		508		175		(335		)	349
Intercompany loans payable	1,816		5,182		66,507		1,399		(74,904		)	—
Other noncurrent liabilities	—		389		291		374		—			1,054
Total noncurrent liabilities	1,816		11,935		68,464		2,818		(75,237		)	9,796

Shareholders’ equity
Eaton shareholders' equity	16,107		23,057		21,927		94,401		(139,385		)	16,107
Noncontrolling interests	—		—		—		35		—			35
Total equity	16,107		23,057		21,927		94,436		(139,385		)	16,142
Total liabilities and equity	$	17,985	$	37,981	$	94,343	$	101,801	$	(221,018	)	$	31,092

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2019

	Eaton Corporation plc			Eaton Corporation			Guarantors			Other subsidiaries			Consolidating adjustments			Total
Net cash provided by (used in) operating activities	$	(49	)	$	685		$	366		$	429		$	—		$	1,431

Investing activities
Capital expenditures for property, plant and equipment	—			(50		)	(56		)	(192		)	—			(298		)
Cash paid for acquisition of a business, net of cash acquired	—			—			—			(243		)	—			(243		)
Sales (purchases) of short-term investments - net	—			(100		)	—			(121		)	—			(221		)
Loans to affiliates	—			(292		)	(280		)	(3,260		)	3,832			—
Repayments of loans from affiliates	—			556			—			1,982			(2,538		)	—
Proceeds (payments) for settlement of currency exchange contracts not designated as hedges - net	—			(1		)	—			51			—			50
Other - net	—			(15		)	26			(9		)	—			2
Net cash provided by (used in) investing activities	—			98			(310		)	(1,792		)	1,294			(710		)

Financing activities
Proceeds from borrowings	—			—			1,232			—			—			1,232
Payments on borrowings	—			(728		)	—			(29		)	—			(757		)
Proceeds from borrowings from affiliates	1,089			1,790			381			572			(3,832		)	—
Payments on borrowings from affiliates	(16		)	(1,607		)	(458		)	(457		)	2,538			—
Other intercompany financing activities	—			(154		)	(1,191		)	1,345			—			—
Cash dividends paid	(609		)	—			—			—			—			(609		)
Exercise of employee stock options	25			—			—			—			—			25
Repurchase of shares	(440		)	—			—			—			—			(440		)
Employee taxes paid from shares withheld	—			(35		)	(7		)	(2		)	—			(44		)
Other - net	—			—			(4		)	(2		)	—			(6		)
Net cash provided by (used in) financing activities	49			(734		)	(47		)	1,427			(1,294		)	(599		)

Effect of currency on cash	—			—			—			7			—			7
Total increase (decrease) in cash	—			49			9			71			—			129
Cash at the beginning of the period	1			21			—			261			—			283
Cash at the end of the period	$	1		$	70		$	9		$	332		$	—		$	412

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2018

	Eaton Corporation plc			Eaton Corporation			Guarantors			Other subsidiaries			Consolidating adjustments			Total
Net cash provided by (used in) operating activities	$	—		$	(109	)	$	103		$	928		$	(84	)	$	838

Investing activities
Capital expenditures for property, plant and equipment	—			(49		)	(50		)	(181		)	—			(280		)
Sales (purchases) of short-term investments - net	—			—			—			284			—			284
Investments in affiliates	—			(36		)	—			—			36			—
Loans to affiliates	—			(100		)	(84		)	(3,564		)	3,748			—
Repayments of loans from affiliates	—			507			886			3,110			(4,503		)	—
Other - net	—			(23		)	—			(18		)	—			(41		)
Net cash provided by (used in) investing activities	—			299			752			(369		)	(719		)	(37		)

Financing activities
Proceeds from borrowings	—			481			—			19			—			500
Payments on borrowings	—			(450		)	(36		)	—			—			(486		)
Proceeds from borrowings from affiliates	2,383			1,216			50			99			(3,748		)	—
Payments on borrowings from affiliates	(1,226		)	(1,993		)	(524		)	(760		)	4,503			—
Capital contributions from affiliates	—			—			—			36			(36		)	—
Other intercompany financing activities	—			395			(348		)	(47		)	—			—
Cash dividends paid	(578		)	—			—			—			—			(578		)
Cash dividends paid to affiliates	—			—			—			(84		)	84			—
Exercise of employee stock options	21			—			—			—			—			21
Repurchase of shares	(600		)	—			—			—			—			(600		)
Employee taxes paid from shares withheld	—			(16		)	(5		)	(2		)	—			(23		)
Other - net	—			(1		)	—			(1		)	—			(2		)
Net cash provided by (used in) financing activities	—			(368		)	(863		)	(740		)	803			(1,168		)

Effect of currency on cash	—			—			—			62			—			62
Total increase (decrease) in cash	—			(178		)	(8		)	(119		)	—			(305		)
Cash at the beginning of the period	—			183			18			360			—			561
Cash at the end of the period	$	—		$	5		$	10		$	241		$	—		$	256