Eaton Reports All-Time Record Quarterly Results
Eaton Corporation plc (NYSE:ETN) reported a third quarter earnings per share (EPS) of $1.57, with an adjusted EPS record of $1.75, a 30% increase from the same quarter in 2020. Sales reached $4.9 billion, a 9% rise year-over-year, driven by organic growth and acquisitions. Segment margins hit 19.9%, a record high. Operating cash flow stood at $471 million, increasing to $750 million when excluding taxes from a divestiture. The company forecasts organic growth of 9-11% for the year, down from 11-13%, due to ongoing supply constraints.
- Adjusted EPS reached an all-time high of $1.75, up 30% from Q3 2020.
- Sales increased to $4.9 billion, a 9% growth compared to Q3 2020.
- Segment margins improved to 19.9%, surpassing previous records.
- Record backlog up more than 50% in Electrical segments.
- Operating cash flow of $750 million excluding divestiture taxes.
- Organic growth forecast lowered to 9-11% from previous 11-13% due to supply constraints.
- Operating margins in Electrical Americas segment decreased by 50 basis points.
-
Third Quarter Earnings Per Share of
$1.57
-
All-Time Record Quarterly Adjusted Earnings Per Share of
, Up$1.75 30% Over the Third Quarter of 2020
-
All-Time Record Segment Margins of
19.9% , 230 Basis Points Above the Third Quarter of 2020
Sales in the third quarter of 2021 were
Operating cash flow in the third quarter of 2021 was
For full year 2021, the company now expects organic growth of 9
Business Segment Results
Sales for the Electrical Americas segment were
While quarterly sales were constrained by supply availability, order activity remained robust with the twelve-month rolling average of orders in the third quarter up
Sales for the Electrical Global segment were
The twelve-month rolling average of orders in the third quarter was up
Aerospace segment sales were
The twelve-month rolling average of orders in the third quarter was up
The Vehicle segment posted sales of
eMobility segment sales were
Eaton’s mission is to improve the quality of life and the environment through the use of power management technologies and services. We provide sustainable solutions that help our customers effectively manage electrical, hydraulic, and mechanical power – more safely, more efficiently, and more reliably. Eaton’s 2020 revenues were
Notice of conference call: Eaton’s conference call to discuss its third quarter results is available to all interested parties as a live audio webcast today at
This news release contains forward-looking statements concerning fourth quarter 2021 adjusted earnings per share, expected costs and benefits associated with restructuring actions and full year 2021 organic sales. These statements should be used with caution and are subject to various risks and uncertainties, many of which are outside the company’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 globally and government actions related thereto; unanticipated changes in the markets for the company’s business segments; unanticipated downturns in business relationships with customers or their purchases from us; competitive pressures on sales and pricing; unanticipated changes in the cost of material 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; natural disasters; the performance of recent acquisitions; unanticipated difficulties completing or integrating acquisitions; new laws and governmental regulations; interest rate changes; changes in tax laws or tax regulations; stock market and currency fluctuations; and unanticipated deterioration of economic and financial conditions in
Financial Results
The company’s comparative financial results for the nine months ended
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CONSOLIDATED STATEMENTS OF INCOME |
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(In millions except for per share data) |
2021 |
|
2020 |
|
2021 |
|
2020 |
||||||||
Net sales |
$ |
4,923 |
|
|
$ |
4,526 |
|
|
$ |
14,830 |
|
|
$ |
13,171 |
|
|
|
|
|
|
|
|
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||||||||
Cost of products sold |
3,338 |
|
|
3,051 |
|
|
10,067 |
|
|
9,230 |
|
||||
Selling and administrative expense |
834 |
|
|
754 |
|
|
2,505 |
|
|
2,310 |
|
||||
Research and development expense |
152 |
|
|
132 |
|
|
454 |
|
|
411 |
|
||||
Interest expense - net |
37 |
|
|
41 |
|
|
112 |
|
|
113 |
|
||||
Gain on sale of businesses |
617 |
|
|
— |
|
|
617 |
|
|
221 |
|
||||
Other expense - net |
66 |
|
|
23 |
|
|
38 |
|
|
135 |
|
||||
Income before income taxes |
1,113 |
|
|
525 |
|
|
2,271 |
|
|
1,193 |
|
||||
Income tax expense |
483 |
|
|
78 |
|
|
676 |
|
|
254 |
|
||||
Net income |
630 |
|
|
447 |
|
|
1,595 |
|
|
939 |
|
||||
Less net income for noncontrolling interests |
(1 |
) |
|
(1 |
) |
|
(2 |
) |
|
(4 |
) |
||||
Net income attributable to Eaton ordinary shareholders |
$ |
629 |
|
|
$ |
446 |
|
|
$ |
1,593 |
|
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$ |
935 |
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Net income per share attributable to Eaton ordinary shareholders |
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Diluted |
$ |
1.57 |
|
|
$ |
1.11 |
|
|
$ |
3.97 |
|
|
$ |
2.31 |
|
Basic |
1.58 |
|
|
1.11 |
|
|
4.00 |
|
|
2.32 |
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Weighted-average number of ordinary shares outstanding |
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Diluted |
401.9 |
|
|
402.3 |
|
|
401.4 |
|
|
404.9 |
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Basic |
398.9 |
|
|
400.4 |
|
|
398.7 |
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|
403.3 |
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Cash dividends declared per ordinary share |
$ |
0.76 |
|
|
$ |
0.73 |
|
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$ |
2.28 |
|
|
$ |
2.19 |
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Reconciliation of net income attributable to Eaton ordinary shareholders to adjusted earnings |
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Net income attributable to Eaton ordinary shareholders |
$ |
629 |
|
|
$ |
446 |
|
|
$ |
1,593 |
|
|
$ |
935 |
|
Excluding acquisition and divestiture charges (income), after-tax |
(52 |
) |
|
21 |
|
|
57 |
|
|
110 |
|
||||
Excluding restructuring program charges, after-tax |
25 |
|
|
8 |
|
|
48 |
|
|
156 |
|
||||
Excluding intangible asset amortization expense, after-tax |
99 |
|
|
69 |
|
|
270 |
|
|
203 |
|
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Adjusted earnings |
$ |
701 |
|
|
$ |
544 |
|
|
$ |
1,968 |
|
|
$ |
1,404 |
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Net income per share attributable to Eaton ordinary shareholders - diluted |
$ |
1.57 |
|
|
$ |
1.11 |
|
|
$ |
3.97 |
|
|
$ |
2.31 |
|
Excluding per share impact of acquisition and divestiture charges (income), after-tax |
(0.13 |
) |
|
0.05 |
|
|
0.14 |
|
|
0.27 |
|
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Excluding per share impact of restructuring program charges, after-tax |
0.06 |
|
|
0.02 |
|
|
0.12 |
|
|
0.39 |
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Excluding per share impact of intangible asset amortization expense, after-tax |
0.25 |
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|
0.17 |
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|
0.68 |
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|
0.50 |
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Adjusted earnings per ordinary share |
$ |
1.75 |
|
|
$ |
1.35 |
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$ |
4.91 |
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$ |
3.47 |
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See accompanying notes. |
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BUSINESS SEGMENT INFORMATION |
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Three months ended
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Nine months ended
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(In millions) |
2021 |
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2020 |
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2021 |
|
2020 |
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Net sales |
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Electrical |
$ |
1,854 |
|
|
$ |
1,699 |
|
|
$ |
5,325 |
|
|
$ |
4,977 |
|
Electrical Global |
1,421 |
|
|
1,196 |
|
|
4,092 |
|
|
3,451 |
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Hydraulics |
179 |
|
|
439 |
|
|
1,300 |
|
|
1,357 |
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Aerospace |
745 |
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|
540 |
|
|
1,889 |
|
|
1,681 |
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Vehicle |
640 |
|
|
573 |
|
|
1,969 |
|
|
1,498 |
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eMobility |
84 |
|
|
79 |
|
|
255 |
|
|
207 |
|
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Total net sales |
$ |
4,923 |
|
|
$ |
4,526 |
|
|
$ |
14,830 |
|
|
$ |
13,171 |
|
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Segment operating profit (loss) |
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Electrical |
$ |
402 |
|
|
$ |
377 |
|
|
$ |
1,127 |
|
|
$ |
993 |
|
Electrical Global |
285 |
|
|
198 |
|
|
757 |
|
|
542 |
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Hydraulics |
20 |
|
|
43 |
|
|
177 |
|
|
135 |
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||||
Aerospace |
164 |
|
|
100 |
|
|
391 |
|
|
315 |
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||||
Vehicle |
115 |
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|
80 |
|
|
349 |
|
|
140 |
|
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eMobility |
(8 |
) |
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(2 |
) |
|
(21 |
) |
|
(3 |
) |
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Total segment operating profit |
978 |
|
|
796 |
|
|
2,780 |
|
|
2,122 |
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Corporate |
|
|
|
|
|
|
|
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Intangible asset amortization expense |
(126 |
) |
|
(90 |
) |
|
(326 |
) |
|
(265 |
) |
||||
Interest expense - net |
(37 |
) |
|
(41 |
) |
|
(112 |
) |
|
(113 |
) |
||||
Pension and other postretirement benefits income (expense) |
14 |
|
|
(9 |
) |
|
44 |
|
|
(29 |
) |
||||
Restructuring program charges |
(34 |
) |
|
(10 |
) |
|
(63 |
) |
|
(197 |
) |
||||
Other income (expense) - net |
318 |
|
|
(121 |
) |
|
(52 |
) |
|
(325 |
) |
||||
Income before income taxes |
1,113 |
|
|
525 |
|
|
2,271 |
|
|
1,193 |
|
||||
Income tax expense |
483 |
|
|
78 |
|
|
676 |
|
|
254 |
|
||||
Net income |
630 |
|
|
447 |
|
|
1,595 |
|
|
939 |
|
||||
Less net income for noncontrolling interests |
(1 |
) |
|
(1 |
) |
|
(2 |
) |
|
(4 |
) |
||||
Net income attributable to Eaton ordinary shareholders |
$ |
629 |
|
|
$ |
446 |
|
|
$ |
1,593 |
|
|
$ |
935 |
|
See accompanying notes. |
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CONDENSED CONSOLIDATED BALANCE SHEETS |
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(In millions) |
|||||||
Assets |
|
|
|
||||
Current assets |
|
|
|
||||
Cash |
$ |
271 |
|
|
$ |
438 |
|
Short-term investments |
389 |
|
|
664 |
|
||
Accounts receivable - net |
3,393 |
|
|
2,904 |
|
||
Inventory |
2,802 |
|
|
2,109 |
|
||
Assets held for sale |
— |
|
|
2,487 |
|
||
Prepaid expenses and other current assets |
632 |
|
|
576 |
|
||
Total current assets |
7,487 |
|
|
9,178 |
|
||
|
|
|
|
||||
Property, plant and equipment - net |
3,025 |
|
|
2,964 |
|
||
|
|
|
|
||||
Other noncurrent assets |
|
|
|
||||
|
14,767 |
|
|
12,903 |
|
||
Other intangible assets |
6,041 |
|
|
4,175 |
|
||
Operating lease assets |
448 |
|
|
428 |
|
||
Deferred income taxes |
422 |
|
|
426 |
|
||
Other assets |
1,938 |
|
|
1,750 |
|
||
Total assets |
$ |
34,128 |
|
|
$ |
31,824 |
|
|
|
|
|
||||
Liabilities and shareholders’ equity |
|
|
|
||||
Current liabilities |
|
|
|
||||
Short-term debt |
$ |
428 |
|
|
$ |
1 |
|
Current portion of long-term debt |
116 |
|
|
1,047 |
|
||
Accounts payable |
2,591 |
|
|
1,987 |
|
||
Accrued compensation |
489 |
|
|
351 |
|
||
Liabilities held for sale |
— |
|
|
468 |
|
||
Other current liabilities |
2,290 |
|
|
2,027 |
|
||
Total current liabilities |
5,914 |
|
|
5,881 |
|
||
|
|
|
|
||||
Noncurrent liabilities |
|
|
|
||||
Long-term debt |
8,520 |
|
|
7,010 |
|
||
Pension liabilities |
1,029 |
|
|
1,588 |
|
||
Other postretirement benefits liabilities |
273 |
|
|
330 |
|
||
Operating lease liabilities |
343 |
|
|
326 |
|
||
Deferred income taxes |
494 |
|
|
277 |
|
||
Other noncurrent liabilities |
1,541 |
|
|
1,439 |
|
||
Total noncurrent liabilities |
12,200 |
|
|
10,970 |
|
||
|
|
|
|
||||
Shareholders’ equity |
|
|
|
||||
Eaton shareholders’ equity |
15,971 |
|
|
14,930 |
|
||
Noncontrolling interests |
43 |
|
|
43 |
|
||
Total equity |
16,014 |
|
|
14,973 |
|
||
Total liabilities and equity |
$ |
34,128 |
|
|
$ |
31,824 |
|
See accompanying notes. |
NOTES TO THE THIRD QUARTER 2021 EARNINGS RELEASE
Amounts are in millions of dollars unless indicated otherwise (per share data assume dilution).
Note 1. NON-GAAP FINANCIAL INFORMATION
This earnings release includes certain non-GAAP financial measures. These financial measures include adjusted earnings, adjusted earnings per ordinary share, adjusted operating cash flow, and adjusted free cash flow, each of which differs from the most directly comparable measure calculated in accordance with generally accepted accounting principles (GAAP). A reconciliation of each of these financial measures to the most directly comparable GAAP measure is included in this earnings release. During the first quarter of 2021, the Company revised its definition of adjusted earnings to exclude intangible asset amortization expense and prior periods have been retrospectively adjusted to apply this change. Management believes that these financial measures are useful to investors because they exclude certain transactions, allowing investors to more easily compare
The Company's fourth quarter adjusted earnings results for 2020 and guidance for 2021 follows:
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Three months ended
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2020 |
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2021 |
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Results |
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Guidance |
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Net income per share attributable to Eaton ordinary shareholders - diluted |
|
$ |
1.18 |
|
|
|
Excluding per share impact of acquisition and divestiture charges, after-tax |
|
0.06 |
|
|
0.10 |
|
Excluding per share impact of restructuring program charges, after-tax |
|
0.04 |
|
|
0.06 |
|
Excluding per share impact of intangible amortization expense, after-tax |
|
0.17 |
|
|
0.24 |
|
Adjusted earnings per ordinary share |
|
$ |
1.45 |
|
|
|
A reconciliation of operating cash flow to adjusted operating cash flow and adjusted free cash flow follows:
(In millions) |
Three months ended
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Operating cash flow |
$ |
471 |
|
|
Taxes paid on the Hydraulics sale |
279 |
|
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Adjusted operating cash flow |
750 |
|
||
Capital expenditures for property, plant and equipment |
(140 |
) |
||
Adjusted free cash flow |
$ |
610 |
|
Note 2. ACQUISITIONS AND DIVESTITURES OF BUSINESSES
Sale of Hydraulics business
On
Acquisition of a
On
Acquisition of
On
Acquisition of a
On
Acquisition of
On
Acquisition of Tripp Lite
On
Sale of Lighting business
On
Acquisition of
On
Note 3. ACQUISITION AND DIVESTITURE CHARGES AND INCOME
Eaton incurs integration charges and transaction costs to acquire businesses, and transaction costs and other charges to divest and exit businesses. Eaton also recognizes gains and losses on the sale of businesses. A summary of these Corporate items follows:
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Three months ended
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Nine months ended
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(In millions except for per share data) |
2021 |
|
2020 |
|
2021 |
|
2020 |
|||||||||
Acquisition integration, divestiture charges and transaction costs |
$ |
179 |
|
|
$ |
28 |
|
|
$ |
312 |
|
|
$ |
263 |
|
|
Gain on sale of the Hydraulics and Lighting businesses |
(617 |
) |
|
— |
|
|
(617 |
) |
|
(221 |
) |
|||||
Total charges (income) before income taxes |
(438 |
) |
|
28 |
|
|
(305 |
) |
|
42 |
|
|||||
Income tax expense (benefit) |
386 |
|
|
(7 |
) |
|
362 |
|
|
68 |
|
|||||
Total charges (income) after income taxes |
$ |
(52 |
) |
|
$ |
21 |
|
|
$ |
57 |
|
|
$ |
110 |
|
|
Charges (income) per ordinary share - diluted |
$ |
(0.13 |
) |
|
$ |
0.05 |
|
|
$ |
0.14 |
|
|
$ |
0.27 |
|
Acquisition integration, divestiture charges and transaction costs in 2021 are primarily related to the divestiture of the Hydraulics business, the acquisitions of Tripp Lite,
Note 4. 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. Restructuring charges incurred under this program were
A summary of restructuring program charges follows:
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Three months ended
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Nine months ended
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(In millions except for per share data) |
2021 |
|
2020 |
|
2021 |
|
2020 |
|||||||||
Workforce reductions |
$ |
19 |
|
|
$ |
3 |
|
|
$ |
19 |
|
|
$ |
169 |
|
|
Plant closing and other |
15 |
|
|
7 |
|
|
44 |
|
|
28 |
|
|||||
Total before income taxes |
34 |
|
|
10 |
|
|
63 |
|
|
197 |
|
|||||
Income tax benefit |
9 |
|
|
2 |
|
|
15 |
|
|
41 |
|
|||||
Total after income taxes |
$ |
25 |
|
|
$ |
8 |
|
|
$ |
48 |
|
|
$ |
156 |
|
|
Per ordinary share - diluted |
$ |
0.06 |
|
|
$ |
0.02 |
|
|
$ |
0.12 |
|
|
$ |
0.39 |
|
Restructuring program charges related to the following segments:
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Three months ended
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Nine months ended
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(In millions) |
2021 |
|
2020 |
|
2021 |
|
2020 |
|||||||||
Electrical |
$ |
5 |
|
|
$ |
3 |
|
|
$ |
13 |
|
|
$ |
16 |
|
|
Electrical Global |
11 |
|
|
2 |
|
|
13 |
|
|
53 |
|
|||||
Aerospace |
1 |
|
|
2 |
|
|
4 |
|
|
32 |
|
|||||
Vehicle |
5 |
|
|
3 |
|
|
16 |
|
|
93 |
|
|||||
eMobility |
— |
|
|
— |
|
|
1 |
|
|
1 |
|
|||||
Corporate |
12 |
|
|
— |
|
|
16 |
|
|
2 |
|
|||||
Total |
$ |
34 |
|
|
$ |
10 |
|
|
$ |
63 |
|
|
$ |
197 |
|
These restructuring program charges were included in Cost of products sold, Selling and administrative expense, Research and development expense, or Other (income) expense - net, as appropriate. In Business Segment Information, these restructuring program charges are treated as Corporate items. The projected mature year savings from these restructuring actions are expected to be
Note 5. INTANGIBLE ASSET AMORTIZATION EXPENSE
Intangible asset amortization expense follows:
|
Three months ended
|
|
Nine months ended
|
|||||||||||||
(In millions except for per share data) |
2021 |
|
2020 |
|
2021 |
|
2020 |
|||||||||
Intangible asset amortization expense |
$ |
126 |
|
|
$ |
90 |
|
|
$ |
326 |
|
|
$ |
265 |
|
|
Income tax benefit |
27 |
|
|
21 |
|
|
56 |
|
|
62 |
|
|||||
Total after income taxes |
$ |
99 |
|
|
$ |
69 |
|
|
$ |
270 |
|
|
$ |
203 |
|
|
Per ordinary share - diluted |
$ |
0.25 |
|
|
$ |
0.17 |
|
|
$ |
0.68 |
|
|
$ |
0.50 |
|
View source version on businesswire.com: https://www.businesswire.com/news/home/20211102005665/en/
jennifertolhurst@eaton.com
or
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