Amounts are in millions of dollars or shares unless indicated otherwise (per share data assume dilution).



COMPANY OVERVIEW
Eaton Corporation plc (Eaton or the Company) is a power management company with
2019 net sales of $21.4 billion. Eaton's mission is to improve the quality of
life and environment through the use of power management technologies and
services. We provide sustainable solutions that help our customers effectively
manage electrical, hydraulic, and mechanical power - more safely, more
efficiently and more reliably. Eaton has approximately 93,000 employees in 61
countries and sells products to customers in more than 175 countries.
Summary of Results of Operations
A summary of Eaton's Net sales, Net income attributable to Eaton ordinary
shareholders, and Net income per share attributable to Eaton ordinary
shareholders - diluted follows:
                                                      Three months ended            Six months ended
                                                           June 30                      June 30
                                                       2020           2019         2020          2019
Net sales                                        $    3,856         $ 5,533     $   8,645     $ 10,838
Net income attributable to Eaton ordinary
shareholders                                             51             636           489        1,158
Net income per share attributable to Eaton
ordinary shareholders - diluted                  $     0.13         $  1.50

$ 1.20 $ 2.73




Eaton has 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 $187 in the second quarter of 2020. These
restructuring activities are expected to incur additional expenses of $33 in the
second half of 2020, $55 in 2021, and $5 in 2022, primarily comprised of plant
closing costs, resulting in total estimated charges of $280 for the entire
program. The projected mature year savings from these restructuring actions are
expected to be $200 when fully implemented in 2023. Additional information
related to this restructuring is presented in Note 13.
During the first quarter of 2020, Eaton re-segmented certain reportable
operating segments due to a reorganization of the Company's businesses. The new
reportable segments are Electrical Americas and Electrical Global, which include
the legacy Electrical Products and Electrical Systems and Services segments.
Additionally, the Filtration and Golf Grip businesses previously included in the
Hydraulics segment, and the electrical aerospace connectors business previously
included in the Electrical Products segment, have been added to the Aerospace
reportable segment as part of the reorganization. The Company also changed how
it measures business segment performance in 2020 as it no longer allocates
acquisition and divestiture charges to its operating segments. Previously
reported financial information for these reportable segments has been updated
for 2019 in Note 14. The re-segmentation did not impact previously reported
consolidated results of operations.
On February 25, 2020, Eaton acquired Power Distribution, Inc. a leading supplier
of mission critical power distribution, static switching, and power monitoring
equipment and services for data centers and industrial and commercial customers.
The company is headquartered in Richmond, Virginia, and had 2019 sales of $125.
Power Distribution, Inc. is reported within the Electrical Americas business
segment.
On March 2, 2020, Eaton sold its Lighting business to Signify N.V. for a cash
purchase price of $1.4 billion. The Company recognized a pre-tax gain of $221.
The Lighting business, which had sales of $1.6 billion in 2019 as part of the
Electrical Americas business segment, serves customers in commercial,
industrial, residential and municipal markets.
On January 21, 2020, Eaton entered into an agreement to sell its Hydraulics
business to Danfoss A/S, a Danish industrial company, for $3.3 billion in cash.
Eaton's Hydraulics business is a global leader in hydraulics components,
systems, and services for industrial and mobile equipment. The business had
sales of $2.2 billion in 2019. The transaction is subject to customary closing
conditions and regulatory approvals and is expected to close by the end of the
first quarter of 2021.

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During the fourth quarter of 2019 and first quarter of 2020, the Company
determined the Lighting business and Hydraulics business, respectively, met the
criteria to be classified as held for sale. Therefore, assets and liabilities of
these businesses have been presented as held for sale in the Consolidated
Balance Sheets as of December 31, 2019 and June 30, 2020, respectively. Assets
and liabilities classified as held for sale are measured at the lower of
carrying value or fair value less costs to sell. There was no write-down as fair
values of both the Lighting business and Hydraulics business assets less their
costs to sell exceeded their respective carrying values. Depreciation and
amortization expense is not recorded for the period in which Other long-lived
assets are classified as held for sale.
COVID-19
The Company continues to be impacted by the COVID-19 pandemic in the second
quarter of 2020 seeing dramatic declines in several end markets. Organic sales
were down 22% for the second quarter primarily due to the impact from the
COVID-19 pandemic. The Company continues to monitor the pandemic's impact
throughout the world, including guidance from governmental authorities and world
health organizations. Our businesses are focused on cost control to offset the
volume declines. During the second quarter, the Company implemented the
following actions:
• Reduction of senior executive base salaries in the second quarter


• 50% reduction in cash retainer for non-employee members of the Board of

Directors in the second quarter

• Implementation of unpaid leave programs

• Eliminated merit increases for all of 2020

• Reduction of discretionary expenses and implementation of travel and hiring

freezes

• Elimination of nonessential capital spending





We anticipate that several of our markets will take some time to recover, and so
we have decided to implement a multi-year restructuring program discussed in
Note 13 to deal with that weakness. The principal end markets affected are
commercial aerospace, oil and gas, NAFTA Class 8 trucks, and North
American/European light vehicles.
Eaton's products and support services are vital to hospitals, emergency
services, military sites, utilities, public works, transportation and shipping
providers. In addition, data centers, retail outlets, airports and governments,
as well as the networks that support schools and remote workers, rely on the
Company's products to serve their customers and communities. As a result, the
Company's businesses are deemed essential to continue operating by almost all
governments around the world, and all of the Company's plants are currently
operating.
The Company is doing the following to protect the safety and health of its
workforce, as well as support customer's needs during this pandemic:
Protect our employees
• Trained our sites around the world in cleaning and disinfecting protocols


• Enacted social distancing procedures, staggered shifts, implemented a

rotating office work schedule, and modified workspace and meeting space

layouts

• Requiring employees to stay at home if they are feeling ill, and encouraging

increased hand washing and hygiene practices across all sites

• Advised employees to take advantage of flexible work options

• Restricting visitors to all sites

• Consulting regularly with doctors and health care organizations

• Updating the Company's response plans as new information becomes available




In the event an employee suspects they have been exposed to COVID-19, or testing
confirms it, sites will implement a response plan that includes:
•Mandatory quarantines
• Communication with all who may have been exposed


• Disinfecting work stations and common areas

• Shutting down the facility if warranted

These actions are aligned with our preventive health protocols and those of governmental authorities and health organizations including the Centers for Disease Control (U.S.) and the World Health Organization.


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Support our customers
Eaton has activated its business continuity management plans across the
organization, which includes:
• Staying in close contact with our suppliers to manage the supply chain


• Equipping our service technicians with additional personal protective

equipment as needed

• Coordinating with local, state and national governments

• Following governmental and health authorities' guidelines





RESULTS OF OPERATIONS
Non-GAAP Financial Measures
The following discussion of Consolidated Financial Results includes certain
non-GAAP financial measures. These financial measures include adjusted earnings
and adjusted earnings per ordinary share, each of which differs from the most
directly comparable measure calculated in accordance with generally accepted
accounting principles (GAAP). A reconciliation of adjusted earnings and adjusted
earnings per ordinary share to the most directly comparable GAAP measure is
included in the table below, and excludes acquisition and divestiture expense
related primarily to the planned divestiture of the Hydraulics business, the
divestiture of the Lighting business, the acquisitions of Souriau-Sunbank and
Ulusoy Elektrik, and other charges to exit businesses, and restructuring program
expense discussed in Note 13. Management believes that these financial measures
are useful to investors because they exclude certain transactions, allowing
investors to more easily compare Eaton's financial performance period to period.
Management uses this information in monitoring and evaluating the on-going
performance of Eaton.
Acquisition and Divestiture Charges
Eaton incurs integration charges and transaction costs to acquired businesses,
and transaction costs and other charges to divest and exit businesses. Eaton
also recognizes gains and losses on the sale of businesses. A summary of these
Corporate items follows:
                                                     Three months ended          Six months ended
                                                          June 30                     June 30
                                                     2020           2019         2020         2019
Acquisition integration, divestiture charges and
transaction costs                                $     103       $     14     $    235      $    26
Gain on the sale of the Lighting business                -              -         (221 )          -
Total before income taxes                              103             14           14           26
Income tax expense (benefit)                           (23 )            -           75           (1 )
Total after income taxes                         $      80       $     14     $     89      $    25
Per ordinary share - diluted                     $    0.20       $   0.03     $   0.22      $  0.06


Acquisition integration, divestiture charges and transaction costs in 2020 are
primarily related to the planned divestiture of the Hydraulics business, the
divestiture of the Lighting business, the acquisitions of Souriau-Sunbank and
Ulusoy Elektrik, and other charges to exit businesses, and were included in Cost
of products sold, Selling and administrative expense, Research and development
expense, or Other expense (income) - net. Charges in 2019 related to the
divestiture of the Lighting business and the acquisition of Ulusoy Elektrik, and
were included in Selling and administrative expense. In Business Segment
Information in Note 14, these charges were included in Other expense - net.




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Consolidated Financial Results


                                    Three months ended                           Six months ended
                                         June 30               Increase              June 30              Increase
                                     2020         2019        (decrease)        2020         2019        (decrease)
Net sales                        $   3,856      $ 5,533        (30 )%         $ 8,645     $ 10,838        (20 )%
Gross profit                           979        1,836        (47 )%           2,466        3,568        (31 )%
Percent of net sales                  25.4 %       33.2 %                        28.5 %       32.9 %
Income before income taxes              47          738        (94 )%             668        1,341        (50 )%
Net income                              54          636        (92 )%             492        1,158        (58 )%
Less net income for
noncontrolling interests                (3 )          -                            (3 )          -
Net income attributable to Eaton
ordinary shareholders                   51          636        (92 )%             489        1,158        (58 )%
Excluding acquisition and
divestiture charges, after-tax          80           14                            89           25
Excluding restructuring program
charges, after-tax                     148            -                           148            -
Adjusted earnings                $     279      $   650        (57 )%         $   726     $  1,183        (39 )%

Net income per share
attributable to Eaton ordinary
shareholders - diluted           $    0.13      $  1.50        (91 )%         $  1.20     $   2.73        (56 )%
Excluding per share impact of
acquisition and divestiture
charges, after-tax                    0.20         0.03                          0.22         0.06
Excluding per share impact of
restructuring program charges,
after-tax                             0.37            -                          0.37            -
Adjusted earnings per ordinary
share                            $    0.70      $  1.53        (54 )%         $  1.79     $   2.79        (36 )%


Net Sales
Net sales decreased 30% in the second quarter of 2020 compared to the second
quarter of 2019 due to a decrease of 22% in organic sales, a decrease of 8% from
divestitures of businesses, and a decrease of 2% from the impact of negative
currency translation, partially offset by an increase of 2% from acquisitions of
businesses. Net sales decreased 20% in the first six months of 2020 compared to
the first six months of 2019 due to a decrease of 15% in organic sales, a
decrease of 6% from divestitures of businesses, and a decrease of 1% from the
impact of negative currency translation, partially offset by an increase of 2%
from acquisitions of businesses. The decrease in organic sales in the second
quarter and first six months of 2020 was primarily due to the impact from the
COVID-19 pandemic, as well as lower sales volumes in all business segments.
Gross Profit
Gross profit margin decreased from 33.2% in the second quarter of 2019 to 25.4%
in the second quarter of 2020, and from 32.9% in first six months of 2019 to
28.5% in first six months of 2020. The decrease in gross profit margin in the
second quarter and first six months of 2020 was primarily due to lower sales
volumes from the impact of the COVID-19 pandemic.

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Income Taxes
The effective income tax rate for the second quarter of 2020 was a tax benefit
of 15.1% compared to tax expense of 13.9% for the second quarter of 2019. The
credit effective tax rate in the second quarter of 2020 was primarily due to the
tax impact from the restructuring charges described in Note 13. The effective
income tax rate for the first six months of 2020 was expense of 26.4% compared
to expense of 13.7% for the first six months of 2019. The increase in the
effective tax rate in the first six months of 2020 was primarily due to the tax
impact on the gain from the sale of the Lighting business described in Note 2.
Net Income
Net income attributable to Eaton ordinary shareholders of $51 in the second
quarter of 2020 decreased 92% compared to Net income attributable to Eaton
ordinary shareholders of $636 in the second quarter of 2019. Net income
attributable to Eaton ordinary shareholders of $489 in the first six months of
2020 decreased 58% compared to Net income attributable to Eaton ordinary
shareholders of $1,158 in the first six months of 2019. Net income in the first
six months of 2020 included an after-tax gain of $91 on the sale of the Lighting
business discussed in Note 2. The decrease in the second quarter and first six
months of 2020 was primarily due lower sales volumes from the impact of the
COVID-19 pandemic.
Net income per ordinary share decreased to $0.13 in the second quarter of 2020
compared to $1.50 in the second quarter of 2019. Net income per ordinary share
decreased to $1.20 in the first six months of 2020 compared to $2.73 in the
first six months of 2019. Net income per ordinary share in the first six months
of 2020 included $0.22 from the sale of the Lighting business. The decrease in
Net income per ordinary share in the second quarter and first six months of 2020
was due to lower net income, partially offset by the impact of the Company's
share repurchases over the past year.
Adjusted Earnings
Adjusted earnings of $279 in the second quarter of 2020 decreased 57% compared
to Adjusted earnings of $650 in the second quarter of 2019. Adjusted earnings of
$726 in the first six months of 2020 decreased 39% compared to Adjusted earnings
of $1,183 in the first six months of 2019. The decrease in Adjusted earnings in
the second quarter and first six months of 2020 was primarily due to lower Net
income attributable to Eaton ordinary shareholders, adjusted for higher
restructuring program charges, and acquisition and divestiture charges.
Adjusted earnings per ordinary share decreased to $0.70 in the second quarter of
2020 compared to $1.53 in the second quarter of 2019. Adjusted earnings per
ordinary share decreased to $1.79 in the first six months of 2020 compared to
$2.79 in the first six months of 2019. The decrease in Adjusted earnings per
ordinary share in the second quarter and first six months of 2020 was due to
lower Adjusted earnings, adjusted for the impact of the Company's share
repurchases over the past year.

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Business Segment Results of Operations
The following is a discussion of Net sales, operating profit and operating
margin by business segment.
Electrical Americas
                                    Three months ended                           Six months ended
                                         June 30               Increase              June 30              Increase
                                     2020         2019        (decrease)         2020        2019        (decrease)
Net sales                        $   1,490      $ 2,085        (29 )%         $  3,278     $ 4,046        (19 )%

Operating profit                 $     308      $   404        (24 )%         $    616     $   738        (17 )%
Operating margin                      20.7 %       19.4 %                         18.8 %      18.2 %


Net sales decreased 29% in the second quarter of 2020 compared to the second
quarter of 2019 due to a decrease of 20% from the divestiture of the Lighting
business, a decrease of 9% in organic sales, and a decrease of 1% from the
impact of negative currency translation, partially offset by an increase of 1%
from the acquisitions of Innovative Switchgear Solutions, Inc. and Power
Distribution, Inc. Net sales decreased 19% in the first six months of 2020
compared to the first six months of 2019 due to a decrease of 14% from the
divestiture of the Lighting business, a decrease of 5% in organic sales, and a
decrease of 1% from the impact of negative currency translation, partially
offset by an increase of 1% from the acquisitions of ISG and Power Distribution,
Inc. The decrease in organic sales in the second quarter and first six months of
2020 was primarily driven by the impact of the COVID-19 pandemic.
The operating margin increased from 19.4% in the second quarter of 2019 to 20.7%
in the second quarter of 2020 and from 18.2% in the first six months of 2019 to
18.8% in the first six months of 2020. The increase in operating margin was
primarily due to the favorable impact from the divestiture of the Lighting
business and cost containment actions to counteract the impact of the COVID-19
pandemic, partially offset by lower sales volumes.
Electrical Global
                                    Three months ended                           Six months ended
                                         June 30               Increase              June 30
                                     2020         2019        (decrease)         2020        2019       Increase (decrease)
Net sales                        $   1,111      $ 1,324        (16 )%         $  2,255     $ 2,566              (12 )%

Operating profit                 $     178      $   233        (24 )%         $    344     $   423              (19 )%
Operating margin                      16.0 %       17.6 %                         15.3 %      16.5 %


Net sales decreased 16% in the second quarter of 2020 compared to the second
quarter of 2019 due to a decrease of 14% in organic sales and a decrease of 2%
from the impact of negative currency translation. Net sales decreased 12% in the
first six months of 2020 compared to the first six months of 2019 due to a
decrease of 11% in organic sales and a decrease of 2% from the impact of
negative currency translation, partially offset by an increase of 1% from the
acquisition of Ulusoy Elektrik. The decrease in organic sales in the second
quarter and first six months of 2020 was primarily driven by the impact of the
COVID-19 pandemic, with particular weakness in global oil and gas markets and
industrial applications.
The operating margin decreased from 17.6% in the second quarter of 2019 to 16.0%
in the second quarter of 2020 and from 16.5% in the first six months of 2019 to
15.3% in the first six months of 2020 primarily due to lower sales volumes,
partially offset by cost containment actions to mitigate the impact of the
COVID-19 pandemic.

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Hydraulics
                                    Three months ended                             Six months ended
                                          June 30               Increase               June 30
                                    2020           2019        (decrease)          2020         2019       Increase (decrease)
Net sales                        $    411       $    603        (32 )%         $     918      $ 1,208              (24 )%

Operating profit                 $     37       $     53        (30 )%         $      92      $   112              (18 )%
Operating margin                      9.0 %          8.8 %                          10.0 %        9.3 %


Net sales decreased 32% in the second quarter of 2020 compared to the second
quarter of 2019 due to a decrease of 30% in organic sales and a decrease of 2%
from the impact of negative currency translation. Net sales decreased 24% in the
first six months of 2020 compared to the first six months of 2019 due to a
decrease of 22% in organic sales and a decrease of 2% from the impact of
negative currency translation. The decrease in organic sales in the second
quarter and first six months of 2020 was primarily due to weakness at both OEMs
and distributors globally.
The operating margin increased from 8.8% in the second quarter of 2019 to 9.0%
in the second quarter of 2020 and from 9.3% in the first six months of 2019 to
10.0% in the first six months of 2020. The increase in operating margin was
primarily due to depreciation expense no longer being charged as a result of the
business being classified as held for sale as discussed in Note 2 and cost
containment actions to counteract the impact of the COVID-19 pandemic, partially
offset by lower sales volumes.
Aerospace
                                    Three months ended                            Six months ended
                                          June 30               Increase              June 30              Increase
                                    2020           2019        (decrease)         2020        2019        (decrease)
Net sales                        $    461       $    634        (27 )%         $  1,141     $ 1,238         (8 )%

Operating profit                 $     68       $    155        (56 )%         $    215     $   292        (26 )%
Operating margin                     14.8 %         24.4 %                         18.8 %      23.6 %


Net sales decreased 27% in the second quarter of 2020 compared to the second
quarter of 2019 due to a decrease of 35% in organic sales, partially offset by
an increase of 8% from the acquisition of Souriau-Sunbank Connection
Technologies (Souriau-Sunbank). Net sales decreased 8% in the first six months
of 2020 compared to the first six months of 2019 due to a decrease of 19% in
organic sales, partially offset by an increase of 11% from the acquisition of
Souriau-Sunbank. The decrease in organic sales in the second quarter and first
six months of 2020 was primarily due to the impact of the COVID-19 pandemic on
commercial aviation.
The operating margin decreased from 24.4% in the second quarter of 2019 to 14.8%
in second quarter of 2020 and from 23.6% in the first six months of 2019 to
18.8% in the first six months of 2020 primarily due to lower sales volumes and
the acquisition of Souriau-Sunbank.

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Vehicle
                                     Three months ended                            Six months ended
                                          June 30                Increase               June 30              Increase
                                     2020           2019        (decrease)         2020         2019        (decrease)
Net sales                        $    327        $    803         (59 )%        $    925      $ 1,613        (43 )%

Operating profit (loss)          $    (21 )      $    136        (115 )%        $     60      $   258        (77 )%
Operating margin                     (6.4 )%         16.9 %                          6.5 %       16.0 %


Net sales decreased 59% in the second quarter of 2020 compared to the second
quarter of 2019 due to a decrease of 52% in organic sales, a decrease of 4% from
the divestiture of our Automotive Fluid Conveyance business, and a decrease of
3% from the impact of negative currency translation. Net sales decreased 43% in
the first six months of 2020 compared to the first six months of 2019 due to a
decrease of 36% in organic sales, a decrease of 4% from the divestiture of our
Automotive Fluid Conveyance business, and a decrease of 3% from the impact of
negative currency translation. The decrease in organic sales in the second
quarter and first six months of 2020 was driven by plant shutdowns due to the
COVID-19 pandemic, lower Class 8 OEM production, and continued weakness in light
vehicle sales.
The operating margin decreased from 16.9% in the second quarter of 2019 to
negative 6.4% in the second quarter of 2020 and from 16.0% in the first six
months of 2019 to 6.5% in the first six months of 2020 primarily due to lower
sales volumes.
eMobility
                                     Three months ended                              Six months ended
                                           June 30                Increase                June 30               Increase
                                     2020            2019        (decrease)          2020          2019        (decrease)
Net sales                        $     56         $     84         (33 )%        $    128        $   167         (23 )%

Operating profit (loss) $ (2 ) $ 7 (129 )%

$     (1 )      $    12        (108 )%
Operating margin                     (3.6 )%           8.3 %                         (0.8 )%         7.2 %


Net sales decreased 33% in the second quarter of 2020 compared to the second
quarter of 2019 due to a decrease of 33% in organic sales. Net sales decreased
23% in the first six months of 2020 compared to the first six months of 2019 due
to a decrease of 22% in organic sales and a decrease of 1% from the impact of
negative currency translation. The decrease in organic sales in the second
quarter and first six months of 2020 was primarily due to the impact from the
COVID-19 pandemic, with particular weakness in legacy internal combustion engine
platforms.
The operating margin decreased from 8.3% in the second quarter of 2019 to
negative 3.6% in the second quarter of 2020 and from 7.2% in the first six
months of 2019 to negative 0.8% in the first six months of 2020 primarily due to
lower sales volumes.


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Corporate Expense
                                   Three months ended                           Six months ended
                                         June 30              Increase               June 30              Increase
                                    2020         2019        (decrease)         2020         2019        (decrease)
Amortization of intangible
assets                           $      88     $    94         (6 )%         $     175     $   187         (6 )%
Interest expense - net                  38          50        (24 )%                72         110        (35 )%
Pension and other postretirement
benefits expense                        12           2        500  %                20           2        900  %
Restructuring program charges          187           -         NM                  187           -         NM
Other expense - net                    196         104         88  %               204         195          5  %
Total corporate expense          $     521     $   250        108  %         $     658     $   494         33  %


Total corporate expense was $521 in the second quarter of 2020 compared to Total
corporate expense of $250 in the second quarter of 2019. Total corporate expense
was $658 in the first six months of 2020 compared to Total corporate expense of
$494 in the first six months of 2019. The increase in Total corporate expense
for the second quarter and first six months of 2020 was primarily due to the
multi-year restructuring program discussed in Note 13 and Other expense - net.
The increase in Other expense - net is primarily due to higher acquisition and
divestiture charges. The increase in the first six months is partially offset by
a gain on sale of a business discussed in Note 2.

LIQUIDITY, CAPITAL RESOURCES AND CHANGES IN FINANCIAL CONDITION
Financial Condition and Liquidity
Eaton's objective is to finance its business through operating cash flow and an
appropriate mix of equity and long-term and short-term debt. By diversifying its
debt maturity structure, Eaton reduces liquidity risk. The Company maintains
access to the commercial paper markets through a $2,000 commercial paper
program, which is supported by credit facilities in the aggregate principal
amount of $2,000. There were no borrowings outstanding under these revolving
credit facilities at June 30, 2020. Over the course of a year, cash, short-term
investments and short-term debt may fluctuate in order to manage global
liquidity. Eaton continues to be able to access commercial paper markets on the
same basis as in prior periods. Although the COVID-19 pandemic negatively
impacted second quarter results and we expect it may also have an unfavorable
impact on third quarter results, our businesses continue to generate substantial
cash. In addition, Eaton completed the $1.4 billion sale of our Lighting
Business on March 2, 2020 and expects to complete the sale of our Hydraulics
Business for $3.3 billion in cash by the end of the first quarter of 2021.
Accordingly, Eaton believes it has the operating flexibility, cash flow, cash
and short-term investment balances, and access to capital markets in excess of
the liquidity necessary to meet future operating needs of the business as well
as scheduled payments of long-term debt.
Eaton was in compliance with each of its debt covenants for all periods
presented.
Sources and Uses of Cash
Operating Cash Flow
Net cash provided by operating activities was $1,080 in the first six months of
2020, a decrease of $351 in the source of cash compared to $1,431 in the first
six months of 2019. The decrease in net cash provided by operating activities in
the first six months of 2020 was driven by lower net income, partially offset by
lower working capital balances compared to 2019.
Investing Cash Flow
Net cash provided by investing activities was $900 in the first six months of
2020, an increase of $1,610 in the source of cash compared to net cash used of
$710 in the first six months of 2019. The increase in the source of cash was
primarily driven by proceeds from the sale of the Lighting business discussed in
Note 2 and net sales of short-term investments of $4 in 2020 compared to to net
purchases of $221 in 2019.
Financing Cash Flow
Net cash used in financing activities was $2,034 in the first six months of
2020, an increase of $1,435 in the use of cash compared to $599 in the first six
months of 2019. The increase in the use of cash was primarily due to lower
proceeds from borrowings of $4 in 2020 compared to $1,232 in 2019 and higher
share repurchases of $1,300 in 2020 compared to $440 in 2019, partially offset
by lower payments on borrowings of $125 in 2020 compared to $757 in 2019.


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Guaranteed Debt
Issuers, Guarantors and Guarantor Structure
Eaton Corporation has issued senior notes pursuant to indentures dated April 1,
1994 (the 1994 Indenture), November 20, 2012 (the 2012 Indenture) and September
15, 2017 (the 2017 Indenture). Eaton Electric Holdings LLC, a subsidiary of
Eaton, has issued senior notes pursuant to an indenture dated December 7, 2010
(the 2010 Indenture). These senior notes of both Eaton Corporation and Eaton
Electrical Holdings LLC are registered under the Securities Act of 1933, as
amended (the Registered Senior Notes). Eaton Corporation is also the issuer of
two outstanding series of privately placed debt securities (the PPNs), and Eaton
Capital Unlimited Company, another subsidiary of Eaton, is the issuer of three
outstanding series of debt securities sold in offshore transactions under
Regulation S promulgated under the Securities Act (the Eurobonds). The PPNs, the
Eurobonds and the Registered Senior Notes (together, the Senior Notes) comprise
substantially all of Eaton's long-term indebtedness.
Substantially all of the Senior Notes, together with the credit facilities
described above under Financial Condition and Liquidity (the Credit Facilities),
are guaranteed by Eaton and 21 of its subsidiaries. Accordingly, they rank
equally with each other. However, because these obligations are not secured,
they would be effectively subordinated to any existing or future secured
indebtedness of Eaton and its subsidiaries. As of June 30, 2020, Eaton has no
material, long-term secured debt. The guaranteed Registered Senior Notes are
also structurally subordinated to the liabilities of Eaton's subsidiaries that
are not guarantors. Except as described below under Future Guarantors, Eaton is
not obligated to cause its subsidiaries to guarantee the Registered Senior
Notes.
The table set forth in Exhibit 22 filed with the Form 10-Q filed on April 30,
2020, details the primary obligors and guarantors with respect to the guaranteed
Registered Senior Notes.
Terms of Guarantees of Registered Securities
Payment of principal and interest on the Registered Senior Notes is guaranteed,
on an unsecured, unsubordinated basis by the subsidiaries of Eaton set forth in
the table referenced in Exhibit 22. Each guarantee is full and unconditional,
and joint and several. Each guarantor's guarantee is an unsecured obligation
that ranks equally with all its other unsecured and unsubordinated indebtedness.
The obligations of each guarantor under its guarantee of the Registered Senior
Notes is subject to a customary savings clause or similar provision designed to
prevent such guarantee from constituting a fraudulent conveyance or otherwise
legally impermissible or voidable obligation.

Generally, each guarantee of the Registered Senior Notes by a guarantor other
than Eaton provides that it will be automatically and unconditionally released
and discharged upon:

(a) the consummation of any transaction permitted under the applicable indenture

resulting in such guarantor ceasing to be a subsidiary, such as a sale to a

third party;

(b) such guarantee (so long as the guarantor is not obligated under any other

U.S. debt obligations), becoming prohibited by any applicable law, rule or

regulation or by any contractual obligation;

(c) such guarantee resulting in material adverse tax consequences to Eaton or any

of its subsidiaries (so long as the applicable guarantor is not obligated

under any other U.S. debt obligation); or

(d) such guarantor becoming a controlled foreign corporation within the meaning


    Section 957(a) of the Internal Revenue Code (a CFC), or an entity the
    material assets of which is limited to equity interests of a CFC.


Notwithstanding the foregoing, each guarantee by a direct or indirect parent of Eaton Corporation (other than Eaton) provides that it will be released only under the circumstances described in subparagraphs (b) and (c) above.

The guarantee of Eaton does not contain any release provisions.



Notwithstanding the provisions above, the 2010 Indenture provides that certain
legacy Cooper subsidiaries may only be released from the Senior Notes issued
under the 2010 Indenture upon ceasing to be a subsidiary of Eaton Electrical
Holdings LLC (other than by consolidation with, or merger into, Eaton Electric
Holdings LLC or another subsidiary thereof) or by conveying substantially all of
its properties and assets to a person other than Eaton Electric Holdings LLC or
another subsidiary thereof.


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Table of Contents



Future Guarantors
The 2012 and 2017 Indentures generally provide that, with certain limited
exceptions, any subsidiary of Eaton must become a guarantor if it becomes
obligated as borrower or guarantor under any series of debt securities or a
syndicated credit facility. Further, any entity that becomes a direct or
indirect parent entity of Eaton Corporation and holds any material assets, with
certain limited exceptions, or owes any material liabilities must become a
guarantor.

The 1994 Indenture and the 2010 Indenture do not contain provisions with respect
to future guarantors.
Summarized Financial Information of Guarantors and Issuers
                                                              June 30,          December 31,
                                                                2020                2019
Current assets                                           $         3,714      $         4,082
Noncurrent assets                                                 11,711               13,181
Current liabilities                                                3,017                2,703
Noncurrent liabilities                                             8,942               10,023
Amounts due to subsidiaries that are non-issuers and
non-guarantors - net                                              20,701               37,050

                                                          Six months ended       Year ended
                                                              June 30            December 31
                                                                2020                2019
Net sales                                                $         5,028      $        12,961
Sales to subsidiaries that are non-issuers and
non-guarantors                                                       400                1,161
Cost of products sold                                              4,296               10,524
Expense from subsidiaries that are non-issuers and
non-guarantors - net                                                 290                  734
Net loss                                                            (578 )                (90 )


The financial information presented is that of Eaton Corporation and the
Guarantors, which includes Eaton Corporation plc, on a combined basis and the
financial information of non-issuer and non-guarantor subsidiaries has been
excluded. Intercompany balances and transactions between Eaton Corporation and
Guarantors have been eliminated, and amounts due from, amounts due to, and
transactions with non-issuer and non-guarantor subsidiaries have been presented
separately.

FORWARD-LOOKING STATEMENTS
This Form 10-Q Report contains forward-looking statements concerning the
anticipated completion of the divestiture of our Hydraulics business,
anticipated additional charges and projected savings from restructuring actions,
the future impact of COVID-19, the performance of our end markets and legal
contingencies, among other matters. These statements may discuss goals,
intentions and expectations as to future trends, plans, events, results of
operations or financial condition, or state other information relating to Eaton,
based on current beliefs of management as well as assumptions made by, and
information currently available to, management. Forward-looking statements
generally will be accompanied by words such as "anticipate," "believe," "could,"
"estimate," "expect," "forecast," "guidance," "intend," "may," "possible,"
"potential," "predict," "project" or other similar words, phrases or
expressions. These statements should be used with caution and are subject to
various risks and uncertainties, many of which are outside Eaton's control. The
following factors could cause actual results to differ materially from those in
the forward-looking statements: unanticipated changes in the markets for the
Company's business segments; unanticipated downturns in business relationships
with customers or their purchases from us; the potential effects on our
businesses from natural disasters; the availability of credit to customers and
suppliers; 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; the impact of
acquisitions and divestitures; unanticipated difficulties integrating
acquisitions; new laws and governmental regulations; interest rate changes; tax
rate changes or exposure to additional income tax liability; stock market and
currency fluctuations; war, civil or political unrest or terrorism; the course
of the COVID-19 pandemic and government responses thereto, and unanticipated
deterioration of economic and financial conditions in the United States and
around the world. Eaton does not assume any obligation to update these
forward-looking statements.

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