filings.toolsEaton (ETN) 10-K risk factor changes: FY2019 vs FY2018
The 2019-12-31 10-K against the 2018-12-31 one, compared heading by heading and sentence by sentence. One of these filings carries no fiscal year tag, so its year is the calendar year of the period end.
Item 1A12 rewritten0 added5 removed38 unchanged
All filing items1,188 rewritten664 added403 removed1,585 unchanged
Summary
counted, not written
- Item 1A headings could not be compared: only 0 carried over between the two years, which usually means one filing was read wrongly, so none is reported as new or removed.
- Sentence by sentence, 664 added, 403 removed, 1,188 rewritten and 1,585 unchanged across 18 items that differ.
- New this year: Item 4A. Information about our Executive Officers.
Sentences by item
23 items, with every count and a link to each item that changed
Underlined words on a shaded ground are new in FY2019; struck-through words were in FY2018. Sentences that are wholly new or wholly gone are labelled rather than marked.
Item 1A. Risk Factors.
12 rewritten, 0 added, 5 removed, 38 unchanged
Read the full itemFY2019 item · filed February 26, 2020FY2018 item · filed February 27, 2019
[removed: Volatility] [added: Volatility] of end markets that Eaton [removed: serves.][added: serves.]
[removed: Eaton's] [added: Eaton's] operating results depend in part on continued successful [removed: research, development,] [added: research, development,] and marketing of new and/or improved products and services, [removed: and there] [added: and there] can be no assurance that Eaton will continue to successfully [removed: introduce new] [added: introduce new] products and services or maintain its present market [removed: positions.][added: positions.]
[removed: Eaton's] [added: Eaton's] operations depend on production facilities throughout the world, which subjects them to varying degrees of [removed: risk of] [added: risk of] disrupted [removed: production.][added: production.]
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 [removed: concerns.][added: concerns such as the spread of COVID-19.]
[removed: If] [added: 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 [removed: lost.][added: lost.]
[removed: Further,] [added: Further*,*] Cyber-based risks could also include attacks targeting the security, integrity and/or reliability of the hardware, software and information installed, stored or transmitted in our products, including after the purchase of those products and when they are incorporated into third party products, facilities or infrastructure.
[removed: Eaton's] [added: Eaton's] global operations subject it to economic risk as [removed: Eaton's results] [added: Eaton's results] of operations may be adversely affected by changes in government [removed: legislation, regulations] [added: legislation, regulations] and policies and currency [removed: fluctuations.][added: fluctuations.]
[removed: Eaton] [added: Eaton] may be subject to risks relating to changes in its tax rates or exposure to additional income tax [removed: liabilities.][added: liabilities.]
[removed: Eaton] [added: Eaton] uses a variety of raw materials and components in its businesses, [removed: and significant] [added: and significant] shortages, price increases, or supplier insolvencies could [removed: increase operating] [added: increase operating] costs and adversely impact the competitive positions of [removed: Eaton's products.][added: Eaton's products.]
[removed: Eaton] [added: Eaton] may be unable to adequately protect its intellectual property [removed: rights, which] [added: rights, which] could affect the Company's ability to [removed: compete.][added: compete.]
[removed: Eaton] [added: Eaton] is subject to litigation and environmental regulations that [removed: could adversely] [added: could adversely] impact Eaton's [removed: businesses.][added: businesses.]
Information regarding current legal proceedings is presented in Note [removed: 9] [added: 8] and Note [removed: 10] [added: 9] of the Notes to the Consolidated Financial Statements.
Eaton's ability to attract, develop and retain executives and other qualified employees is crucial to the Company's results of operations and future growth.
Eaton depends on the continued services and performance of key executives, senior management, and skilled personnel, particularly professionals with experience in its industry and business.
Eaton cannot be certain that any of these individuals will continue his or her employment with the Company.
A lengthy period of time is required to hire and develop replacement personnel when skilled personnel depart.
An inability to hire, develop, and retain a sufficient number of qualified employees could materially hinder the business by, for example, delaying Eaton's ability to bring new products to market or impairing the success of the Company's operations.
Item 1. Business.
24 rewritten, 3 added, 0 removed, 32 unchanged
Read the full itemFY2019 item · filed February 26, 2020FY2018 item · filed February 27, 2019
Eaton Corporation plc (Eaton or the Company) is a power management company with [removed: 2018] [added: 2019] net sales of [removed: $21.6] [added: $21.4] billion.
[removed: The Company provides energy-efficient] [added: We provide sustainable] solutions that help [removed: its] [added: our] customers effectively manage electrical, hydraulic and mechanical power [added: –] more [removed: reliably, safely] [added: safely, more efficiently] and [removed: sustainably.][added: more reliably.]
Eaton has approximately [removed: 99,000] [added: 101,000] employees in [removed: 59] [added: 60] countries and sells products to customers in more than 175 countries.
[removed: Business] [added: Business] Segment [removed: Information][added: Information]
Information by business segment regarding principal products, principal markets, methods of distribution and net sales is presented in Note [removed: 16] [added: 15] of the Notes to the Consolidated Financial Statements.
[removed: Electrical] [added: *Electrical] Products and Electrical Systems and [removed: Services][added: Services*]
In [removed: 2018, 23%] [added: 2019, 24%] of these segments' sales were made to seven large distributors of electrical products and electrical systems and services.
[removed: Hydraulics][added: *Hydraulics*]
In [removed: 2018, 11%] [added: 2019, 13%] of this segment's sales were made to [removed: four] [added: five] large original equipment manufacturers or distributors of agricultural, construction, and industrial equipment and parts.
[removed: Aerospace][added: *Aerospace*]
In [removed: 2018,] [added: 2019,] 26% of this segment's sales were made to three large original equipment manufacturers of aircraft.
[removed: Vehicle][added: *Vehicle*]
In [removed: 2018,] [added: 2019,] 61% of this segment's sales were made to [removed: nine] [added: ten] large original equipment manufacturers of vehicles and related components.
[removed: eMobility][added: *eMobility*]
In [removed: 2018, 19%] [added: 2019, 23%] of this segment's sales were made to [removed: four] [added: five] large original equipment manufacturers of vehicles, construction equipment and related components.
[removed: Information] [added: Information] Concerning Eaton's Business in [removed: General][added: General]
[removed: Raw Materials][added: *Raw Materials*]
In [removed: 2018,] [added: 2019,] Eaton maintained appropriate levels of inventory to prevent shortages and did not experience any availability constraints.
[removed: Patents] [added: *Patents] and [removed: Trademarks][added: Trademarks*]
[removed: Order Backlog][added: *Order Backlog*]
Using this criterion, total backlog at December 31, [removed: 2018] [added: 2019] and [removed: 2017] [added: 2018] was approximately [removed: $5.3] [added: $5.4] billion and [removed: $4.8] [added: $5.3] billion, respectively.
[removed: Environmental Contingencies][added: *Environmental Contingencies*]
Eaton's estimated capital expenditures for environmental control facilities are not expected to be material for [removed: 2019] [added: 2020] and [removed: 2020.][added: 2021.]
Information regarding the Company's liabilities related to environmental matters is presented in Note [removed: 9] [added: 8] of the Notes to the Consolidated Financial Statements.
Eaton’s mission is to improve the quality of life and the environment through the use of power management technologies and services.
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.
Item 3. Legal Proceedings.
1 rewritten, 0 added, 0 removed, 0 unchanged
Read the full itemFY2019 item · filed February 26, 2020FY2018 item · filed February 27, 2019
Information regarding the Company's current legal proceedings is presented in Note [removed: 9] [added: 8] and Note [removed: 10] [added: 9] of the Notes to the Consolidated Financial Statements.
Cover and table of contents
54 rewritten, 18 added, 17 removed, 16 unchanged
Read the full itemFY2019 item · filed February 26, 2020FY2018 item · filed February 27, 2019
[removed: UNITED STATES][added: UNITED STATES]
[removed: SECURITIES] [added: SECURITIES] AND EXCHANGE [removed: COMMISSION][added: COMMISSION]
[removed: Washington,] [added: Washington,] D.C. [removed: 20549][added: 20549]
[removed: FORM 10-K][added: FORM 10-K]
[removed: Annual] [added: Annual] report pursuant to Section 13 or 15(d) of the Securities Exchange Act of [removed: 1934][added: 1934]
[removed: For] [added: For] the year [removed: ended December] [added: ended December] 31, [removed: 2018][added: 2019]
[removed: Commission] [added: Commission] file [removed: number 000-54863][added: number 000-54863]
| [removed: EATON] [added: EATON] CORPORATION [removed: plc] [added: plc] |
| Ireland | | [added: | | |] 98-1059235 |
| (State or other jurisdiction of incorporation or organization) | | [added: | | |] (IRS Employer Identification Number) |
| Eaton House, [added: |] 30 Pembroke Road, [added: |] Dublin 4, [added: |] Ireland | | D04 Y0C2 |
| (Address of principal executive offices) | | [added: | | |] (Zip [removed: code)] [added: Code)] |
| | | | [removed: +353 1637 2900] | | [removed: |] [added: +353] | | [added: 1637 2900] | | | | |
| | | [removed: |] (Registrant's telephone number, including area code) | | | | | | | | | |
| [removed: |] Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | | | | |
| Title of each class | | | [added: Trading Symbol] | | | | Name of each exchange on which registered | | | | | [removed: |]
| Ordinary [removed: Shares] [added: shares] ($0.01 par value) | | | [added: ETN] | | | | [removed: The] New York Stock Exchange | | | | | [removed: |]
Yes [removed: þ] [added: ☑] No [removed: o][added: ☐]
Yes [removed: o] [added: ☐] No [removed: þ][added: ☑]
Yes [removed: þ] [added: ☑] No [removed: o][added: ☐]
Indicate by check mark whether the registrant has submitted electronically [removed: and posted on its corporate Web site, if any,] every Interactive Data File required to be submitted [removed: and posted] 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 [removed: and post] such files).
Yes [removed: þ] [added: ☑] No [removed: o][added: ☐]
| Large accelerated filer [removed: þ] | [added: ☑] | [added: |] Accelerated filer [removed: o] | [added: ☐] | [added: |] Non-accelerated filer [removed: o] | [added: ☐ |]
| Smaller reporting company [removed: o] | [added: ☐] | [added: |] Emerging growth company [removed: o] | [added: ☐] | [removed: (Do not check if a smaller reporting company)] | [added: | |]
Yes [removed: o] [added: ☐] No [removed: þ][added: ☑]
The aggregate market value of Ordinary Shares held by non-affiliates of the registrant as of June 30, [removed: 2018] [added: 2019] was [removed: $32.4] [added: $35.0] billion.
As of January 31, [removed: 2019,] [added: 2020,] there were [removed: 423.6] [added: 413.4] million Ordinary Shares outstanding.
[removed: Documents] [added: Documents] Incorporated By [removed: Reference][added: Reference]
Portions of the Proxy Statement for the [removed: 2019] [added: 2020] annual shareholders meeting are incorporated by reference into Part III.
| [removed: TABLE] [added: TABLE] OF [removed: CONTENTS] [added: CONTENTS] | | | |
[removed: | [Part I](#sDDF646DAF978563FA7F83529C6284724) | | | [2](#sDDF646DAF978563FA7F83529C6284724) |][added: Part I]
| [Item [removed: 1.](#sDC676547FBF95FF2B25B881DA8EF7143)] [added: 1.](#s2EE6874E578652AEBDC715DA28EB1A0D)] | [removed: [Business](#sDC676547FBF95FF2B25B881DA8EF7143)] [added: [Business](#s2EE6874E578652AEBDC715DA28EB1A0D)] | | [removed: [2](#sDC676547FBF95FF2B25B881DA8EF7143)] [added: [2](#s2EE6874E578652AEBDC715DA28EB1A0D)] |
| [Item [removed: 1A.](#s9816114309B3594DB38F50B832AC8146)] [added: 1A.](#s6DD13C876B81572A922705CBDBD9746B)] | [Risk [removed: Factors](#s9816114309B3594DB38F50B832AC8146)] [added: Factors](#s6DD13C876B81572A922705CBDBD9746B)] | | [removed: [3](#s9816114309B3594DB38F50B832AC8146)] [added: [3](#s6DD13C876B81572A922705CBDBD9746B)] |
| [Item [removed: 1B.](#sC27ABC0F5F595E73BBBA3F076AE4CA3E)] [added: 1B.](#sE25F44DDF22158F7801AEF281F651F71)] | [Unresolved Staff [removed: Comments](#sC27ABC0F5F595E73BBBA3F076AE4CA3E)] [added: Comments](#sE25F44DDF22158F7801AEF281F651F71)] | | [removed: [5](#sC27ABC0F5F595E73BBBA3F076AE4CA3E)] [added: [5](#sE25F44DDF22158F7801AEF281F651F71)] |
| [Item [removed: 2.](#s1CB9B8E62D025B44A99B439820DAFF1F)] [added: 2.](#sF7EDC85070B65F99AD29A88F9BA9BF14)] | [removed: [Properties](#s1CB9B8E62D025B44A99B439820DAFF1F)] [added: [Properties](#sF7EDC85070B65F99AD29A88F9BA9BF14)] | | [removed: [5](#s1CB9B8E62D025B44A99B439820DAFF1F)] [added: [5](#sF7EDC85070B65F99AD29A88F9BA9BF14)] |
| [Item [removed: 3.](#s53F5DBCAA18A5384BB3EEAEC4A2DF45A)] [added: 3.](#sE310B39D7CE4583887AE32C640836486)] | [Legal [removed: Proceedings](#s53F5DBCAA18A5384BB3EEAEC4A2DF45A)] [added: Proceedings](#sE310B39D7CE4583887AE32C640836486)] | | [removed: [5](#s53F5DBCAA18A5384BB3EEAEC4A2DF45A)] [added: [5](#sE310B39D7CE4583887AE32C640836486)] |
| [Item [removed: 4.](#s4905428E5D1457AAA90A7616C33CB7F7)] [added: 4.](#sBDAB938CCC1F52A59B6F128AF3CEAD9E)] | [Mine Safety [removed: Disclosures](#s4905428E5D1457AAA90A7616C33CB7F7)] [added: Disclosures](#sBDAB938CCC1F52A59B6F128AF3CEAD9E)] | | [removed: [5](#s4905428E5D1457AAA90A7616C33CB7F7)] [added: [5](#sBDAB938CCC1F52A59B6F128AF3CEAD9E)] |
| [Item [removed: 5.](#sA580E0AC92345C1FBDEDB6A4494FE17D)] [added: 5.](#s58C6CB94864D531794A163AF019FF520)] | [Market for the Registrant's Ordinary Equity, Related Stockholder Matters and Issuer Purchases of Equity [removed: Securities](#sA580E0AC92345C1FBDEDB6A4494FE17D)] [added: Securities](#s58C6CB94864D531794A163AF019FF520)] | | [removed: [5](#sA580E0AC92345C1FBDEDB6A4494FE17D)] [added: [7](#s58C6CB94864D531794A163AF019FF520)] |
| [Item [removed: 6.](#s1FE9CDEC7E5955688293181BC1A0BBCF)] [added: 6.](#s384B87529CF45146A3CF45397B08DA2C)] | [Selected Financial [removed: Data](#s1FE9CDEC7E5955688293181BC1A0BBCF)] [added: Data](#s384B87529CF45146A3CF45397B08DA2C)] | | [removed: [6](#s1FE9CDEC7E5955688293181BC1A0BBCF)] [added: [8](#s384B87529CF45146A3CF45397B08DA2C)] |
| [Item [removed: 7.](#s738213F7682B59A7BAAF83154EF1ED44)] [added: 7.](#sAADA6BB1B8EB5324BE2BA31F70607D9E)] | [Management's Discussion and Analysis of Financial Condition and Results of [removed: Operations](#s738213F7682B59A7BAAF83154EF1ED44)] [added: Operations](#sAADA6BB1B8EB5324BE2BA31F70607D9E)] | | [removed: [6](#s738213F7682B59A7BAAF83154EF1ED44)] [added: [8](#sAADA6BB1B8EB5324BE2BA31F70607D9E)] |
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| Securities registered pursuant to Section 12(g) of the Act: None | | | | | | | | | | | |
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| [Item 4A.](#s92910e27d6d44240a1a6d7f317bb1038) | [Information about our Executive Officers](#s92910e27d6d44240a1a6d7f317bb1038) | | [6](#s92910e27d6d44240a1a6d7f317bb1038) |
| [Part II](#sCE5A23E5311D5FB590E2DF88EB8B4FE1) | | | [7](#sCE5A23E5311D5FB590E2DF88EB8B4FE1) |
| [Part IV](#s142F7AEB244B5A6BA62777F5882EAB67) | | | [10](#s142F7AEB244B5A6BA62777F5882EAB67) |
| [SIGNATURES](#sEE2944BBBD9F53C0A7C910CD156E5743) | | | [15](#sEE2944BBBD9F53C0A7C910CD156E5743) |
10-K 1 etn12312018form10-k.htm 10-K
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
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| [Part II](#sAF306BC131665E55BC25C1ED13D50B1B) | | | [5](#sAF306BC131665E55BC25C1ED13D50B1B) |
| [Part IV](#sF5E14E67F9495FFF9F077340A285A89C) | | | [10](#sF5E14E67F9495FFF9F077340A285A89C) |
| [SIGNATURES](#s8575AD43291A5A21A3DCDC2416050497) | | | [15](#s8575AD43291A5A21A3DCDC2416050497) |
An excerpt. Shown here: 40 of 54 rewritten, all 18 added and all 17 removed. The counts are complete. For every sentence, read Cover and table of contents in the FY2019 filing and the FY2018 filing.
Item 2. Properties.
1 rewritten, 0 added, 0 removed, 3 unchanged
Read the full itemFY2019 item · filed February 26, 2020FY2018 item · filed February 27, 2019
The Company maintains manufacturing facilities at approximately 284 locations in [removed: 42] [added: 41] countries.
Item 4. Mine Safety Disclosures.
0 rewritten, 0 added, 1 removed, 1 unchanged
Read the full itemFY2019 item · filed February 26, 2020FY2018 item · filed February 27, 2019
Part II
Item 4A. Information about our Executive Officers
0 rewritten, 90 added, 0 removed, 0 unchanged
New section this year
Read the full itemFY2019 item · filed February 26, 2020
A listing of executive officers, their ages, positions and offices held over the past five years, as of February 1, 2020, follows:
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| Name | | Age | | Position (Date elected to position) |
| Craig Arnold | | 59 | | 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) |
| | | | | President and Chief Operating Officer of Eaton Corporation |
| | | | | (September 1, 2015 - May 31, 2016) |
| | | | | Vice Chairman and Chief Operating Officer - Industrial Sector of Eaton Corporation |
| | | | | (February 1, 2009 - August 31, 2015) |
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| Richard H. Fearon | | 63 | | Director of Eaton Corporation plc (September 1, 2015 - present) |
| | | | | Vice Chairman and Chief Financial and Planning Officer of Eaton Corporation |
| | | | | (April 24, 2002 - present) |
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| Uday Yadav | | 56 | | President and Chief Operating Officer - Electrical Sector of Eaton Corporation |
| | | | | (July 1, 2019 - present) |
| | | | | Chief Operating Officer - Industrial Sector of Eaton Corporation |
| | | | | (September 1, 2015 - June 30, 2019) |
| | | | | President of Aerospace Group of Eaton Corporation |
| | | | | (August 1, 2012 - August 31, 2015) |
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| Heath B. Monesmith | | 49 | | President and Chief Operating Officer - Industrial Sector of Eaton Corporation |
| | | | | (July 1, 2019 - present) |
| | | | | Executive Vice President and General Counsel of Eaton Corporation |
| | | | | (March 1, 2017 - January 6, 2020) |
| | | | | Senior Vice President and Deputy General Counsel of Eaton Corporation |
| | | | | (May 15, 2015 - March 1, 2017) |
| | | | | Vice President and Chief Counsel - Litigation of Eaton Corporation |
| | | | | (November 30, 2012 - May 15, 2015) |
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| April Miller Boise | | 51 | | Executive Vice President, General Counsel and Secretary of Eaton Corporation |
| | | | | (January 6, 2020 - present) |
| | | | | Senior Vice President, Chief Legal Officer and Corporate Secretary of Meritor, Inc. |
An excerpt. Shown here: all 0 rewritten, 40 of 90 added and all 0 removed. The counts are complete. For every sentence, read Item 4A. Information about our Executive Officers in the FY2019 filing.
Item 5. Market for the Registrant's Ordinary Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
8 rewritten, 4 added, 7 removed, 8 unchanged
Read the full itemFY2019 item · filed February 26, 2020FY2018 item · filed February 27, 2019
At December 31, [removed: 2018,] [added: 2019,] there were [removed: 12,846] [added: 12,072] holders of record of the Company's ordinary shares.
Additionally, [removed: 18,972] [added: 17,699] current and former employees were shareholders through participation in the Eaton Savings Plan (ESP), [added: the] Eaton Personal Investment Plan (EPIP), and the Eaton Puerto Rico Retirement Savings Plan.
[removed: Irish] [added: *Irish] Taxes Applicable to [removed: Dividends][added: Dividends*]
[removed: However, in certain circumstances,] Eaton [removed: will] [added: may] be required to deduct Irish dividend withholding tax (“IDWT”, currently at [removed: the] [added: a] rate of [removed: 20%)] [added: 25%)] from dividends paid to [removed: its] shareholders who are not [removed: Irish residents.][added: tax residents of Ireland even though they are not be subject to this tax.]
To [removed: establish exempt status,] [added: claim exemption from IDWT,] shareholders [removed: who qualify] 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.
[removed: Issuer's] [added: Issuer's] Purchases of Equity [removed: Securities][added: Securities]
During the fourth quarter of [removed: 2018, 9.8] [added: 2019, 0.6] million ordinary shares were repurchased in the open market at a total cost of [removed: $700 million.][added: $51.]
A summary of the shares repurchased in the fourth quarter of [removed: 2018] [added: 2019] follows:
| October | | — | | | $ | — | | | — | | | $ | 3,753 | |
| November | | 545,499 | | | $ | 90.17 | | | 545,499 | | | $ | 3,704 | |
| December | | 19,838 | | | $ | 91.23 | | | 19,838 | | | $ | 3,702 | |
| Total | | 565,337 | | | $ | 90.21 | | | 565,337 | | | | | |
Generally, shareholders who are not tax residents of Ireland and otherwise have no connection with Ireland other than his or her shareholding in Eaton, will not be subject to Irish income tax.
In the majority of cases though, shareholders resident in the U.S. and certain other countries are exempt from IDWT.
Approximately 5.5 million of these shares were repurchased under the program approved by the Board on February 24, 2016.
| October | | 1,455,792 | | | $ | 71.11 | | | 1,455,792 | | | $ | 298 | |
| November | | 3,998,803 | | | $ | 73.81 | | | 3,998,803 | | | $ | 3 | |
| December | | 4,388,605 | | | $ | 68.68 | | | 46,891 | | | $ | — | |
| Total | | 9,843,200 | | | $ | 71.12 | | | 5,501,486 | | | | | |
Item 8. Financial Statements and Supplementary Data.
1 rewritten, 0 added, 0 removed, 1 unchanged
Read the full itemFY2019 item · filed February 26, 2020FY2018 item · filed February 27, 2019
Information regarding selected quarterly financial information for [removed: 2018] [added: 2019] and [removed: 2017] [added: 2018] is presented in “Quarterly Data” of this Form 10-K.
Item 9A. Controls and Procedures.
3 rewritten, 1 added, 0 removed, 5 unchanged
Read the full itemFY2019 item · filed February 26, 2020FY2018 item · filed February 27, 2019
Based on that evaluation, Eaton's management concluded that the Company's disclosure controls and procedures were effective as of December 31, [removed: 2018.][added: 2019.]
“Report of Independent Registered Public Accounting Firm” relating to internal control over financial reporting as of December 31, [removed: 2018] [added: 2019] is included in Item 15 of this Form 10-K.
During the fourth quarter of [removed: 2018,] [added: 2019,] there was no change in Eaton's internal control over financial reporting that materially affected, or is reasonably likely to materially affect, internal control over financial reporting.
Management is currently evaluating the impact of businesses acquired in 2019 on Eaton's internal control over financial reporting.
Item 9B. Other Information.
1 rewritten, 1 added, 6 removed, 0 unchanged
Read the full itemFY2019 item · filed February 26, 2020FY2018 item · filed February 27, 2019
[removed: Part III][added: Part III]
None.
Disclosure Pursuant to Section 13(r) of the Exchange Act
Set forth below is a description of all matters reported by us pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 and Section 13(r) of the Exchange Act.
Concurrently with the filing of this Annual Report, we are filing a notice pursuant to Section 13(r) of the Exchange Act that such matters have been disclosed in this Annual Report.
During the fourth quarter 2018, certain of our wholly-owned non-U.S. subsidiaries sold various products to customers in Iran.
We received total revenue of approximately 820,559 Euros and realized net profits of approximately 268,547 Euros from the sales (approximately $933,380 and $305,470 in whole U.S. dollars, respectively).
Eaton has determined not to take any future orders for sales to Iran.
Item 10. Directors, Executive Officers and Corporate Governance.
3 rewritten, 0 added, 67 removed, 2 unchanged
Read the full itemFY2019 item · filed February 26, 2020FY2018 item · filed February 27, 2019
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 [removed: 15, 2019,] [added: 13, 2020,] and is incorporated by reference.
There were no changes during the fourth quarter [removed: 2018] [added: 2019] 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 [removed: 15, 2019,] [added: 13, 2020,] and is incorporated by reference.
A listing of executive officers, their ages, positions and offices held over the past five years, as of February 15, 2019, follows:
| | | | | |
| --- | --- | --- | --- | --- |
| | | | | |
| Name | | Age | | Position (Date elected to position) |
| Craig Arnold | | 58 | | 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) |
| | | | | President and Chief Operating Officer of Eaton Corporation |
| | | | | (September 1, 2015 - May 31, 2016) |
| | | | | Vice Chairman and Chief Operating Officer - Industrial Sector of Eaton Corporation |
| | | | | (February 1, 2009 - August 31, 2015) |
| | | | | |
| | | | | |
| Richard H. Fearon | | 62 | | Director of Eaton Corporation plc (September 1, 2015 - present) |
| | | | | Vice Chairman and Chief Financial and Planning Officer of Eaton Corporation |
| | | | | (April 24, 2002 - present) |
| | | | | |
| | | | | |
| Uday Yadav | | 55 | | Chief Operating Officer - Industrial Sector of Eaton Corporation |
| | | | | (September 1, 2015 - present) |
| | | | | President of Aerospace Group of Eaton Corporation (August 1, 2012 - August 31, 2015) |
| | | | | |
| | | | | |
| Heath B. Monesmith | | 48 | | Executive Vice President and General Counsel of Eaton Corporation |
| | | | | (March 1, 2017 - present) |
| | | | | Senior Vice President and Deputy General Counsel of Eaton Corporation |
| | | | | (May 15, 2015 - March 1, 2017) |
| | | | | Vice President and Chief Counsel - Litigation of Eaton Corporation |
| | | | | (November 30, 2012 - May 15, 2015) |
| | | | | |
| | | | | |
| Thomas E. Moran | | 54 | | Senior Vice President and Secretary of Eaton Corporation plc (November 27, 2012 - present) |
| | | | | |
| | | | | |
| Ken D. Semelsberger | | 57 | | Senior Vice President and Controller of Eaton Corporation (November 1, 2013 - present) |
| | | | | Senior Vice President, Finance and Planning - Industrial Sector of Eaton Corporation |
| | | | | (February 1, 2009 - October 31, 2013) |
| | | | | |
| | | | | |
An excerpt. Shown here: all 3 rewritten, all 0 added and 40 of 67 removed. The counts are complete. For every sentence, read Item 10. Directors, Executive Officers and Corporate Governance. in the FY2019 filing and the FY2018 filing.
Item 11. Executive Compensation.
1 rewritten, 0 added, 0 removed, 0 unchanged
Read the full itemFY2019 item · filed February 26, 2020FY2018 item · filed February 27, 2019
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 [removed: 15, 2019,] [added: 13, 2020,] and is incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
2 rewritten, 0 added, 0 removed, 0 unchanged
Read the full itemFY2019 item · filed February 26, 2020FY2018 item · filed February 27, 2019
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 [removed: 15, 2019,] [added: 13, 2020,] 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 [removed: 15, 2019,] [added: 13, 2020,] and is incorporated by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
2 rewritten, 0 added, 0 removed, 0 unchanged
Read the full itemFY2019 item · filed February 26, 2020FY2018 item · filed February 27, 2019
Information required with respect to certain relationships and related transactions is set forth under the caption “Review of Related Person Transactions” in the Company's definitive Proxy Statement to be filed on or about March [removed: 15, 2019,] [added: 13, 2020,] and is incorporated by reference.
Information required with respect to director independence is set forth under the caption “Director Independence” in the Company's definitive Proxy Statement to be filed on or about March [removed: 15, 2019,] [added: 13, 2020,] and is incorporated by reference.
Item 14. Principal Accounting Fees and Services.
2 rewritten, 0 added, 0 removed, 0 unchanged
Read the full itemFY2019 item · filed February 26, 2020FY2018 item · filed February 27, 2019
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 [removed: 15, 2019,] [added: 13, 2020,] and is incorporated by reference.
[removed: Part IV][added: Part IV]
Item 15. Exhibits, Financial Statement Schedules.
20 rewritten, 7 added, 1 removed, 170 unchanged
Read the full itemFY2019 item · filed February 26, 2020FY2018 item · filed February 27, 2019
Consolidated Statements of Income - Years ended December 31, [removed: 2018, 2017] [added: 2019, 2018] and [removed: 2016][added: 2017]
Consolidated Statements of Comprehensive Income - Years ended December 31, [removed: 2018, 2017] [added: 2019, 2018] and [removed: 2016][added: 2017]
Consolidated Balance Sheets - December 31, [removed: 2018] [added: 2019] and [removed: 2017][added: 2018]
Consolidated Statements of Cash Flows - Years ended December 31, [removed: 2018, 2017] [added: 2019, 2018] and [removed: 2016][added: 2017]
Consolidated Statements of Shareholders' Equity - Years ended December 31, [removed: 2018, 2017] [added: 2019, 2018] and [removed: 2016][added: 2017]
| [removed: 4.1] [added: 4.2] | [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))](http://www.sec.gov/Archives/edgar/data/1551182/000119312512480576/d443829dex41.htm) | |
| [removed: 4.2] [added: 4.3] | [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)](http://www.sec.gov/Archives/edgar/data/31277/000119312513359886/d576218dex42.htm) | |
| [removed: 4.3] [added: 4.4] | [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)](http://www.sec.gov/Archives/edgar/data/31277/000119312513359886/d576218dex43.htm) | |
| [removed: 4.4] [added: 4.5] | [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)](http://www.sec.gov/Archives/edgar/data/1551182/000155118218000074/etn12312017ex44.htm) | |
| [removed: 4.5] [added: 4.6] | [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)](http://www.sec.gov/Archives/edgar/data/1551182/000155118218000074/etn12312017ex45.htm) | |
| [removed: 4.6] [added: 4.7] | [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)](http://www.sec.gov/Archives/edgar/data/1551182/000155118218000074/etn12312017ex46.htm) | |
| [removed: 4.7] [added: 4.8] | 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 [removed: (4.1] [added: (4.2] - [removed: 4.6)] [added: 4.7)] hereto | |
| 21 | | [Subsidiaries of Eaton Corporation plc - Filed in conjunction with this Form 10-K Report [removed: *](https://www.sec.gov/Archives/edgar/data/1551182/000155118219000045/etn12312018ex21.htm)] [added: *](https://www.sec.gov/Archives/edgar/data/1551182/000155118220000050/etn12312019ex21.htm)] |
| 23 | | [Consent of Independent Registered Public Accounting Firm - Filed in conjunction with this Form 10-K Report [removed: *](https://www.sec.gov/Archives/edgar/data/1551182/000155118219000045/etn12312018ex23.htm)] [added: *](https://www.sec.gov/Archives/edgar/data/1551182/000155118220000050/etn12312019ex23.htm)] |
| 24 | | [Power of Attorney - Filed in conjunction with this Form 10-K Report [removed: *](https://www.sec.gov/Archives/edgar/data/1551182/000155118219000045/etn12312018ex24.htm)] [added: *](https://www.sec.gov/Archives/edgar/data/1551182/000155118220000050/etn12312019ex24.htm)] |
| 31.1 | | [Certification of Principal Executive Officer (Pursuant to the Sarbanes-Oxley Act of 2002, Section 302) - Filed in conjunction with this Form 10-K Report [removed: *](https://www.sec.gov/Archives/edgar/data/1551182/000155118219000045/etn12312018ex311.htm)] [added: *](https://www.sec.gov/Archives/edgar/data/1551182/000155118220000050/etn12312019ex311.htm)] |
| 31.2 | | [Certification of Principal Financial Officer (Pursuant to the Sarbanes-Oxley Act of 2002, Section 302) - Filed in conjunction with this Form 10-K Report [removed: *](https://www.sec.gov/Archives/edgar/data/1551182/000155118219000045/etn12312018ex312.htm)] [added: *](https://www.sec.gov/Archives/edgar/data/1551182/000155118220000050/etn12312019ex312.htm)] |
| 32.1 | | [Certification of Principal Executive Officer (Pursuant to the Sarbanes-Oxley Act of 2002, Section 906) - Filed in conjunction with this Form 10-K Report [removed: *](https://www.sec.gov/Archives/edgar/data/1551182/000155118219000045/etn12312018ex321.htm)] [added: *](https://www.sec.gov/Archives/edgar/data/1551182/000155118220000050/etn12312019ex321.htm)] |
| 32.2 | | [Certification of Principal Financial Officer (Pursuant to the Sarbanes-Oxley Act of 2002, Section 906) - Filed in conjunction with this Form 10-K Report [removed: *](https://www.sec.gov/Archives/edgar/data/1551182/000155118219000045/etn12312018ex322.htm)] [added: *](https://www.sec.gov/Archives/edgar/data/1551182/000155118220000050/etn12312019ex322.htm)] |
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, [removed: 2018, 2017] [added: 2019, 2018] and [removed: 2016,] [added: 2017,] (ii) Consolidated Statements of Comprehensive Income for the years ended December 31, [removed: 2018, 2017] [added: 2019, 2018] and [removed: 2016] [added: 2017] (iii) Consolidated Balance Sheets at December 31, [removed: 2018] [added: 2019] and [removed: 2017,] [added: 2018,] (iv) Consolidated Statements of Cash Flows for the years ended December 31, [removed: 2018, 2017] [added: 2019, 2018] and [removed: 2016,] [added: 2017,] (v) Consolidated Statements of Shareholders' Equity for the years ended December 31, [removed: 2018, 2017] [added: 2019, 2018] and [removed: 2016] [added: 2017] and (vi) Notes to Consolidated Financial Statements for the year ended December 31, [removed: 2018.][added: 2019.]
| 4.1 | [Description of Eaton Corporation plc’s Securities registered pursuant to Section 12 of the Securities Exchange Act of 1934 - Filed in conjunction with this Form 10-K Report *](https://www.sec.gov/Archives/edgar/data/1551182/000155118220000050/etn1231201941.htm) | |
| | (fff) | [Stock and Asset Purchase Agreement, dated January 21, 2020 - Incorporated by reference to the Form 8-K filed on January 27, 2020](http://www.sec.gov/Archives/edgar/data/1551182/000155118220000011/a101stockandassetpurch.htm) |
| 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. * |
| | | |
| | | |
| | | |
| 104 | | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
| 101.INS | | XBRL Instance Document * |
Item 16. Form 10-K Summary.
1,053 rewritten, 540 added, 299 removed, 1,304 unchanged
Read the full itemFY2019 item · filed February 26, 2020FY2018 item · filed February 27, 2019
[removed: SIGNATURES][added: SIGNATURES]
| Date: | February [removed: 27, 2019] [added: 26, 2020] | By: | /s/ Richard H. Fearon |
Date: February [removed: 27, 2019][added: 26, 2020]
| [removed: *] [added: /s/ Craig Arnold] | | | | /s/ Richard H. Fearon | | |
| [removed: Deborah L. McCoy] [added: Olivier Leonetti] | | Director | | [removed: Gregory R. Page] [added: Deborah L. McCoy] | | Director |
[removed: REPORT] [added: REPORT] OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING [removed: FIRM][added: FIRM]
[removed: Opinion] [added: Opinion] on the Financial [removed: Statements][added: Statements]
We have audited the accompanying consolidated balance sheets of Eaton Corporation plc (“the Company”) as of December 31, [removed: 2018 and 2017,] [added: 2019] and [added: 2018,] 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, [removed: 2018,] [added: 2019,] 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, [removed: 2018] [added: 2019] and [removed: 2017,] [added: 2018,] and the results of its operations and its cash flows for each of the three years in the period ended December 31, [removed: 2018,] [added: 2019,] 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, [removed: 2018,] [added: 2019,] 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 [removed: 27, 2019] [added: 26, 2020] expressed an unqualified opinion thereon.
[removed: Basis] [added: Basis] for [removed: Opinion][added: Opinion]
[removed: February 27,] [added: | |] 2019 [added: | | | | | | | | | | |]
[removed: MANAGEMENT'S] [added: MANAGEMENT'S] REPORT ON FINANCIAL [removed: STATEMENTS][added: 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, [removed: 2018.][added: 2019.]
| [removed: February 27, 2019] | [removed: |] [added: 2019] | | |
[removed: REPORT] [added: REPORT] OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING [removed: FIRM][added: FIRM]
[removed: Opinion] [added: Opinion] on Internal Control [removed: over] [added: Over] Financial [removed: Reporting][added: Reporting]
We have audited Eaton Corporation plc’s (“the Company”) internal control over financial reporting as of December 31, [removed: 2018,] [added: 2019,] 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, [removed: 2018,] [added: 2019,] 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, [removed: 2018 and 2017,] [added: 2019] and [added: 2018,] 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, [removed: 2018] [added: 2019,] and the related notes and our report dated February [removed: 27, 2019] [added: 26, 2020] expressed an unqualified opinion thereon.
[removed: Basis] [added: Basis] for [removed: Opinion][added: Opinion]
[removed: Definition] [added: Definition] and Limitations of Internal Control [removed: over] [added: Over] Financial [removed: Reporting][added: Reporting]
[removed: MANAGEMENT'S] [added: MANAGEMENT'S] REPORT ON INTERNAL CONTROL OVER FINANCIAL [removed: REPORTING][added: REPORTING]
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, [removed: 2018.][added: 2019.]
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, [removed: 2018.][added: 2019.]
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, [removed: 2018.][added: 2019.]
[removed: EATON] [added: EATON] CORPORATION [removed: plc][added: plc]
[removed: CONSOLIDATED] [added: CONSOLIDATED] STATEMENTS OF [removed: INCOME][added: INCOME]
| (In millions except for per share data) | [added: 2019 | | | |] 2018 | | | | 2017 | | | | 2016 | | | [added: | 2015 | | |]
| Net sales | $ | [added: 21,390 | | | $ |] 21,609 | | | $ | 20,404 | | | $ | 19,747 | | [added: | $ | 20,855 | |]
| Cost of products sold | [removed: 14,511] [added: 14,338] | | | | [removed: 13,756] [added: 14,511] | | | | [removed: 13,396] [added: 13,756] | | |
| Selling and administrative expense | [removed: 3,548] [added: 3,583] | | | | [removed: 3,526] [added: 3,548] | | | | [removed: 3,464] [added: 3,526] | | |
| Research and development expense | [removed: 584] [added: 606] | | | | 584 | | | | [removed: 587] [added: 584] | | |
| Interest expense - net | [removed: 271] [added: 236] | | | | [removed: 246] [added: 271] | | | | [removed: 233] [added: 246] | | |
| Gain on sale of business | — | | | | [removed: 1,077] [added: —] | | | | [removed: —] [added: 1,077] | | |
| Arbitration decision expense | [removed: 275] [added: —] | | | | [removed: —] [added: 275] | | | | — | | |
| Other [removed: (income)] expense [added: (income)] - net | [removed: (4] [added: 36] | | [removed: )] | | [removed: 1] [added: (4] | | [added: )] | | [removed: (51] [added: 1] | | [removed: )] |
| Income before income taxes | [added: 2,591 | | | |] 2,424 | | | | 3,368 | | | | 2,118 | | | [added: | 2,133 | | |]
| Income tax expense | [removed: 278] [added: 378] | | | | [removed: 382] [added: 278] | | | | [removed: 199] [added: 382] | | |
| Net income | [added: 2,213 | | | |] 2,146 | | | | 2,986 | | | | 1,919 | | | [added: | 1,974 | | |]
| Silvio Napoli | | Director | | Gregory R. Page | | Director |
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.
| *Description of the Matter* | As discussed in Note 9 to the consolidated financial statements, the Company had gross unrecognized income tax benefits of $1,001 million related to its uncertain tax positions at December 31, 2019. 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 prospect of retroactive regulations, new case law, the willingness of the income tax authority to settle the issue, including the timing thereof; and other factors. |
| *How We Addressed the Matter in Our Audit* | 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 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 and trends in similar positions challenged by tax authorities. 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 in the Company’s recognition determination. Further, we tested the Company’s release of previously recorded unrecognized income tax benefits, which along with the recording of additional unrecognized tax benefits, impacts the Company’s tax provision. We have also evaluated the Company’s income tax disclosures in relation to these matters. |
| | Reallocation of Goodwill related to the Divestiture of the Lighting Business |
| *Description of the Matter* | In October 2019, the Company announced the planned sale of its lighting, lighting controls and connected lighting solutions business (collectively referred to as “Lighting”) as discussed further in Notes 2 and 4 to the consolidated financial statements and classified Lighting as held for sale. In conjunction with the classification of Lighting as held for sale, management reassigned goodwill to the Lighting business and the impacted reporting unit using a relative fair value allocation. Goodwill of $470 million was allocated as part of classifying Lighting assets as held for sale in the fourth quarter. Auditing the Company's allocation of goodwill to the Lighting business was complex due to the significant estimation required to determine the fair value of Lighting and the impacted reporting unit. The fair value estimates were sensitive to significant assumptions such as the weighted average cost of capital, revenue growth rates, operating margins, and perpetual growth rates, which are affected by expectations about future market or economic conditions. |
| *How We Addressed the Matter in Our Audit* | We obtained an understanding, evaluated the design and tested the operating effectiveness of management’s controls over the goodwill allocation process. For example, we tested controls over management’s review of the significant assumptions described above along with the completeness and accuracy of the data used in the fair value estimates. To test the estimated fair value of Lighting and the Company’s impacted reporting unit, our audit procedures included, among others, evaluating the Company’s fair value methodology, testing the significant assumptions discussed above and testing the underlying data used by the Company in its analysis. For example, we compared the significant assumptions used by management to current industry and economic trends. We assessed the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of Lighting and the impacted reporting unit that would result from changes in assumptions. We also involved a valuation specialist to assist in our evaluation of the weighted average cost of capital. We tested the allocation of goodwill by recalculating the amounts based on the estimated fair value of Lighting and the impacted reporting unit. |
February 26, 2020
| February 26, 2020 | | | | |
As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of entities that were acquired during 2019 (as defined in Note 2 to the consolidated financial statements), which are included in the 2019 consolidated financial statements of the Company and constituted 5% of total assets (inclusive of acquired intangible assets) as of December 31, 2019 and less than 1% of net sales for the year then ended.
Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of entities that were acquired during 2019.
February 26, 2020
Our evaluation of internal control over financial reporting did not include the internal controls of entities that were acquired during 2019 (as defined in Note 2), which are included in the 2019 consolidated financial statements and constituted approximately 5% of total assets (inclusive of acquired intangible assets) as of December 31, 2019 and less than 1% of net sales for the year then ended.
| February 26, 2020 | | | | |
| (In millions) | 2019 | | | | 2018 | | |
| Assets held for sale | 1,377 | | | | — | | |
| Operating lease assets | 436 | | | | — | | |
| Total assets | $ | 32,805 | | | $ | 31,092 | |
| Liabilities held for sale | 325 | | | | — | | |
| Operating lease liabilities | 331 | | | | — | | |
| Cash paid for acquisitions of businesses, net of cash acquired | (1,180 | | ) | | — | | | | — | | |
| Proceeds from (payments for) sales of businesses | (36 | | ) | | — | | | | 607 | | |
| Acquisitions of businesses | — | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 55 | | | | 55 | | |
| Acquisition of noncontrolling interest obtained through tender offer | — | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (33 | | ) | | (33 | | ) |
| Business divestiture | — | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (4 | | ) | | (4 | | ) |
| Balance at December 31, 2019 | 413.3 | | | $ | 4 | | | $ | 12,200 | | | $ | 8,170 | | | $ | (4,290 | ) | | $ | (2 | ) | | $ | 16,082 | | | $ | 51 | | | $ | 16,133 | |
Eaton’s mission is to improve the quality of life and the environment through the use of power management technologies and services.
Eaton adopted Accounting Standard Update 2017-12, Derivatives and Hedging (Topic 815) - Targeted Improvements to Accounting for Hedging Activities, in the first quarter 2019 using the modified retrospective approach for hedge instruments that existed at the date of adoption.
ASU 2017-12 is intended to better align the Company's risk management activities with financial reporting for hedging relationships.
The standard eliminates the requirement to separately measure and report hedge ineffectiveness, expands the ability to hedge specific risk components, and generally requires the change in value of the hedge instrument and hedged item to be presented in the same income statement line.
The new disclosure requirements were applied on a prospective basis and comparative information has not been restated.
Eaton adopted Accounting Standards Update 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, in the first quarter of 2020.
This standard introduces new guidance for accounting for credit losses on receivables.
The Company did not recognize a cumulative-effect adjustment to retained earnings as of January 1, 2020, as the adoption of this standard did not have a material impact on the consolidated financial statements.
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.
| Charles E. Golden | | Director | | Arthur E. Johnson | | Director |
February 27, 2019
| February 27, 2019 | | | | |
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| Proceeds from sale of business | — | | | | 607 | | | | — | | |
| Balance at January 1, 2016 | 458.8 | | | $ | 5 | | | $ | 11,701 | | | $ | 7,409 | | | $ | (3,863 | ) | | $ | (3 | ) | | $ | 15,249 | | | $ | 45 | | | $ | 15,294 | |
| Net income | — | | | — | | | | — | | | | 1,916 | | | | — | | | | — | | | | 1,916 | | | | 3 | | | | 1,919 | | |
In the ordinary course of business, the Company leases certain real properties and equipment, as described in Note 9.
During the first quarter of 2018, Eaton re-segmented certain reportable operating segments due to a reorganization of the Company's businesses.
The new reportable business segment is eMobility (which includes certain legacy Electrical Products and Vehicle product lines).
For reportable segments that were re-segmented, previously reported segment financial information has been updated for 2016 and 2017.
Eaton adopted Accounting Standard Update 2014-09, Revenue from Contracts with Customers, at the start of the first quarter of 2018 using the modified retrospective approach and recorded a cumulative effect adjustment to retained earnings based on the current terms and conditions for open contracts as of January 1, 2018.
The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.
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| Consolidated Balance Sheet | | Balance at December 31, 2017 | | | | Adjustments due to ASU 2014-09 | | | | Balance at January 1, 2018 | | |
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Eaton adopted Accounting Standards Update 2016-16, Intra-Entity Transfers of Assets Other Than Inventory (ASU 2016-16), at the start of the first quarter of 2018.
This accounting standard requires companies to recognize the income tax effects of intercompany sales and transfers of assets other than inventory in the period in which the transfer occurs.
The previous accounting standard required companies to defer the income tax effects of intercompany transfers of assets by recording a prepaid tax, until such assets were sold to an outside party or otherwise recognized.
ASU 2016-16 requires companies to write off any income tax amounts that had been deferred as prepaid taxes from past intercompany transactions, and record deferred tax balances for amounts that have not been recognized, through a cumulative-effect adjustment to retained earnings.
Eaton adopted Accounting Standards Update 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (ASU 2017-07), at the start of the first quarter of 2018.
The new standard requires companies to present service costs consistent with other employee compensation costs on the income statement and separate from all other elements of pension costs.
The retrospective adoption of this standard resulted in an increase in Selling and administrative expense with a corresponding increase in Other income - net of $6 for the year ended December 31, 2018, a reduction in Selling and administrative expense with a corresponding decrease in Other income - net of $39 for the year ended December 31, 2017, and a reduction in Cost of products sold, Selling and administrative expense, and Research and development expense with a corresponding decrease in Other income - net of $56 for the year ended December 31, 2016.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases (Topic 842), (ASU 2016-02).
This accounting standard requires that a lessee recognize a lease asset and a lease liability on its balance sheet for all leases, including operating leases.
ASU 2016-02 will require additional disclosures in the notes to the consolidated financial statements.
The Company is in the final stage of assessing the impact of adopting the standard.
The Company collected the lease data required by the new standard, and has identified and is implementing the appropriate changes to business processes and controls to support recognition and disclosure under the new standard.
In the first quarter of 2019, Eaton plans to conclude its testing of the new third-party lease accounting system.
The Company expects to record a cumulative-effect adjustment of less than $1 to retained earnings as of January 1, 2019.
Eaton incurs integration charges related to acquired businesses.
Business segment acquisition integration charges in 2016 related to the integration of Ephesus and Oxalis Group Ltd. (Oxalis), which was acquired in 2015.
The charges associated with Ephesus were included in Cost of products sold and Selling and administrative expense, while the charges associated with Oxalis were included in Cost of products sold.
Impact of new accounting standard
In accordance with the new revenue accounting requirements, the impact of the adoption on the financial statement line items within the accompanying consolidated financial statements was as follows:
| Consolidated Statements of Income | As Reported | | | | Adjustment | | | | Balances without Adoption of ASC 606 | | |
An excerpt. Shown here: 40 of 1,053 rewritten, 40 of 540 added and 40 of 299 removed. The counts are complete. For every sentence, read Item 16. Form 10-K Summary. in the FY2019 filing and the FY2018 filing.